Property litigation weekly update - 24 September 2020
In this week's round up we consider rights of first refusal being overlooked in the leasehold reforms, the FCA test case on Business Interruption Insurance and a stark reminder of why undertakings to the Court are not to be given lightly. The positive news and insight from around the firm also follows.
Rights of first refusal, no reform?
Since publication in the summer of the Law Commission's proposals for leasehold reform, residential landlords and leaseholders are likely to be more aware now then ever before of their rights and options when it comes to residential leasehold ownership. The proposals include far reaching changes to rights of enfranchisement, lease extensions, right to manage and commonhold.
What is missing however, is any proposed change to the ill drafted and cumbersome tenant's right of first refusal. This right, found in the Landlord and Tenant Act 1987, obliges residential landlords when disposing of their interest, to offer it first to their tenants as a right of pre-emption. Where qualifying, tenants can take up offers of sale or leases that their landlord is intending to make. The statutory process is restrictive, vague and carries criminal sanctions if not followed.
Some are seeing an increase in the sale of freeholds, ground rents and headleases, due to the potential for a change in the value of these assets as a result of the reforms. These sales and disposals are usually caught by the rights of first refusal, although there are exemptions that can be taken advantage of under the legislation.
With the prospect of expanded leasehold ownership rights, the rights of first refusal process could be done away with, but that appears far from a consideration at the moment. With the right remaining in place, leaseholders and residential landlords alike should remain aware and informed of the requirements of the legislation.
If you would like further information or advice about rights of first refusal or the reforms in general please contact enfranchisement specialist, William Bethune.
Case law update: Hussain v (1) Vaswani (2) Vaswani and (3) Vaswani  EWCA Civ 1216
Mr Hussain was the tenant of an apartment in London and had stopped paying the rent of £1,950 per week. Possession proceedings were brought and the County court made an order requiring Mr Hussain to give up possession of the apartment and pay circa £61,000 for rent arrears and occupation until he vacated.
Further applications were made in relation to the proceedings and Mr Hussain informed the judge he was able and willing to pay the rent arrears (which, at that stage, were in the region of £92,000) in three working days of receipt of account details for making payment. He also agreed to pay the occupation rent. He was warned as to the consequences of perjury if he did not satisfy the undertakings he was giving. In reliance on the undertakings, the judge granted a stay of the possession order and suspended the warrant. However, Mr Hussain did not make payment.
The landlords applied to commit Mr Hussain to prison. The judge held that Mr Hussain had no intention of honouring the undertakings and sentenced him to 12 months imprisonment. He concluded that 18 months was an appropriate starting point but there were mitigating factors in this case including Covid.
In his appeal to the Court of Appeal Mr Hussain alleged (amongst other points) that the court had no power to impose a sanction of imprisonment for contempt of court consisting of a breach of an undertaking to pay a sum of money by virtue of section 4 of the Debtors Act 1869 and that the term of 12 months was manifestly excessive.
The court held that section 4 did not prevent him being imprisoned for his contempt because Section 4 prevents imprisonment for non-payment of ordinary debts but it does not apply to orders or undertakings requiring provision of security. The undertakings were given in order for Mr Hussain to obtain court orders in his favour, adverse to the landlords. The court held in such circumstances it is vital the court should properly be able to enforce undertakings given to it and the court did have the power to impose a sentence of imprisonment.
In deciding whether the sentence was excessive, the court held that breach of a court order is always serious, because it undermines the administration of justice and in this case there were a number of aggravating circumstances. The sentence was not unreasonable and the appeal was dismissed. The order was upheld committing Mr Hussain to prison for twelve months for two counts of contempt of court for breaching undertakings to the court to pay money.
Business Interruption Insurance and Covid-19
The High Court has handed down its judgment in a test case on whether a sample of insurance policies provided business interruption cover in the context of Covid-19.
The case was brought by the Financial Conduct Authority (FCA) with a view to gaining clarity for the greatest number of parties as possible on whether claims may be successful.
Business interruption policies usually provide cover to a business in the event of loss of revenue or profit experienced following damage to property (typically following a storm or fire). Businesses can take out extensions to include cover for other situations such as the closure of a premises or cover which specifically relates to infectious or contagious diseases.
Here, the High Court was asked to consider 21 sample wordings from policies issued by eight different insurers which the FCA anticipates could affect around 370,000 policyholders. Policy provisions relating to 'disease' and 'denial of access' were reviewed.
The High Court found in favour of the arguments advanced for policyholders by the FCA on the majority of the key issues arising out of the wording considered. In reaching its judgment, the court examined the detailed policy wording and held that whether the relevant business was forced by the Government to close partly or completely would be relevant. Each case will therefore turn on its facts and the explicit wording in the policy but the decision provides guidance as to how policy wording should be interpreted and claims handled.
It is anticipated that aspects of the ruling may be appealed and, in the interests of time, the FCA has indicated that any appeal could be made directly to the Supreme Court. Should you have any queries or require any further information, please contact a member of the team.
Insights from around the firm
- VAT treatment of cladding works
- Trowers talks podcast: the provision of care infrastructure in the UK
- Judicial review
- The Emmys went ahead virtually this week, with Jimmy Kimmel doing a great job of hosting the awards ceremony and actress Zendaya making history by becoming the youngest woman to win best actress in a drama series, at the age of 24.
- National treasure Captain Sir Tom Moore, who rose to fame during lockdown by raising £39 million for the NHS, is set to have a movie made about his life.
- The shortlist for this year's Booker Prize is the most diverse it has ever been including 4 women and 4 writers of colour.
- At the age of 89, billionaire Chuck Feely, has achieved his goal of giving away his entire fortune. His foundation, called The Atlantic Philanthropies, have donated $3.7 billion to higher education institutions, $870 million to various human rights groups and $1.9 billion to fund various projects in Ireland. The foundation has now run out of money.