Property litigation weekly update - 29 April 2021

This week's update covers recent case law concerning the modification of restrictive covenants, valuation on enfranchisement, the restoration of tenant companies and an update on the Fire Safety Bill. All this and more with Insight from our colleagues around the firm and positive news.

Nathwani & Anor v Kivlehan & Anors [2021] UKUT 84(LC)

A recent decision of the Upper Tribunal (Lands Chamber) has considered an application to modify a covenant restricting building to a single storey dwelling house.

The applicants had demolished the existing bungalow on their land and obtained planning permission build a new house with a monopitch roof. The design for the new house would be single storey at one end but rising to three stories at the other end. The planning permission was then varied to allow for a second storey at the lower end. However, the applicants were prevented from building either of the houses by the existence of restrictive covenants which limited development to a single private dwelling house of one storey only.

Following unsuccessful negotiations with their neighbours the applicants applied to the Tribunal for modification of the restrictions. The application was opposed by four beneficiaries of the covenants.

The legal position - in summary, there are several potential grounds for modification or discharge of restrictive covenants under Section 84(1) of the Law of Property Act 1925. Ground (1)(aa) provides that the Tribunal may discharge or modify any such restrictions if their continued existence would impede some reasonable user of the land and the proposed discharge will not injure the persons entitled to the benefit of the restriction. In exercising its powers the Tribunal must be satisfied that the restriction does not secure any practical benefits of substantial value or advantage to the beneficiary.

The decision - in the application it was not disputed that the proposed use was reasonable, therefore the focus was on whether impeding the proposed development secured practical benefit to the objectors. An inspection of the property determined that only the third objector fell into this category. Valuation evidence was provided, but whilst the Tribunal considered this a useful guide and the evidence was that there would be a diminution is value, the site visit was instrumental in the Tribunal coming to the conclusion that the proposed design would be overbearing from the third objectors' point of view and restrictions did therefore secure a practical benefit. As such, the application was refused.

The decision reinforces the position that in such applications the measure of whether a practical benefit is substantial is not simply a matter of arithmetic based on valuation evidence and will depend also on the amenity impact, informed by expert evidence and the Tribunal's impression formed from their site visit (which is an area of litigation risk at the hearing).

Mistral Asset Finance Limited v The Registrar of Companies and HM Attorney General [2020] EWHC 3027 (Ch) – re-vesting of leasehold property following disclaimer

In this case the High Court has clarified that Crown disclaimer of land deemed bona vacantia is not a disposition that survives restoration of a dissolved company, meaning the property automatically re-vests in the company if it is restored to the register of companies.

The Companies Act 2006 provides that upon dissolution of a company any remaining company property is deemed bona vacantia and vests in the Crown (section 1012). The Crown can then disclaim the property by executing notice of disclaimer operating to 'terminate, as from the date of the disclaimer, the rights, interests and liabilities of the company in respect of the property disclaimed'. It does not however affect the rights or liabilities of third parties. Where a company is restored to the register, it is 'deemed to have continued in existence as if it has not been dissolved or struck off the register'. However it has long been unclear whether leasehold property re-vests in a company upon restoration following disclaimer.

Buzzlines Coaches Limited (the Company) had granted Mistral a legal charge over leasehold property before being struck off the register and subsequently dissolved. Mistral sought a declaration that it remained entitled to the legal mortgage of the leasehold property. Mistral also sought an order restoring the Company to the Register or alternatively a vesting order. The Company was restored to the Register, but not before the Treasury Solicitor had disclaimed the lease. The question for the court was therefore whether Mistral remained entitled to the legal mortgage now that the Company had been restored.

HHJ Halliwell found for Mistral and held that its mortgage remained vested in it following the dissolution and restoration of the Company for the following reasons:

Firstly, the Crown's disclaimer did not take effect because Mistral had issued proceedings within 14 days of notice of disclaimer being served.

Secondly, even if the disclaimer had taken effect, upon restoration the Company was deemed to have continued in existence and so its property could no longer be deemed bona vacantia. The Crown's disclaimer did not take effect as a 'disposition', as a result the disclaimer did not survive the Company's restoration to the register and the property automatically re-vested in the Company upon restoration.

This is an important decision because it means, upon restoration to the register, a company regains any freehold or leasehold property which has vested in the Crown bona vacantia; even if such property has been disclaimed. For landlords this means carefully considering effects in the case of a tenant being struck off but later restored. Depending on the circumstances, forfeiture may be preferable to disclaimer of leasehold interests to provide greater certainty that they have been determined.

Enfranchisement valuation – tenant's improvements are key

Alberti v Cadogan Holdings Ltd [2021] UKUT 85 (LC) (09 April 2021)
Alberti concerned a dispute in the Upper Tribunal over the premium payable in an enfranchisement claim for the freehold of a house under the Leasehold Reform Act 1967. In such claims, the valuation method requires tenant's improvements to be disregarded as to their affect on the value of the property. In this case, the property had previously been five flats and had been converted to a single house in the 1970s by the original tenant. A conversion of this nature would not now be permitted under planning law and policy, although it was permissible at the time of the works.

The tenant argued those improvements to create a house should be disregarded and further that due to it now being unlawful to do those works, the assessment should be as five flats with no redevelopment potential, resulting in a value of £2.6m. The landlord argued for the value as a house, being £11m.

The Tribunal agreed with the tenant's argument, the planning status should follow the disregarded tenants improvements, the consequence being that five flats would not be capable of being developed into a house on the valuation date – being the date of the tenants notice of claim for the freehold.

If you would like further information or advice on enfranchisement please contact enfranchisement specialist, William Bethune.

Fire Safety Bill

On 27 April 2021, MPs voted against an amendment to the Fire Safety Bill which would have prohibited building owners from passing on remediation costs to leaseholders. The bill has now been passed without the amendment and will receive Royal assent.

Once the bill is enacted it will amend the Regulatory Reform (Fire Safety) Order 2005 to clarify that building owners are responsible for the structure and external walls of the building as well as the entrance doors to individual flats that open into communal areas for the purposes of multi-occupied residential buildings.

The government's wider package of reforms to implement the Hackitt Review on building safety will be contained in the separate Building Safety Bill, for which a draft bill was published last year and the bill before Parliament is awaited.

Positive news

  •  Pictures of NHS heroes are set to be the frontline of the Royal Society of Portrait Painters annual exhibition.
  • A student from the University of St Andrews has become the youngest every winner of Mastermind at the age of 24.
  • UK book sales surged by 7% in 2020 as lockdown allowed people to rediscover their love of reading.

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Residential care home use enabled by modification of a restrictive covenant by the Upper Tribunal (Lands Chamber)