LEGAL: common sense prevails in lease dispute

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Lease disputes are time consuming, costly and most can be avoided when leases are well drafted in the first place. This article addresses a case where the landlord failed to ensure that the lease was properly drafted.

The lease gives a tenant the right to use the property for its approved business or commercial use for a period of time, in exchange for money paid to the landlord.

The contractual nature of leases in England and Wales means that the exact wording of the lease is crucial, that’s because the courts will interpret this wording at face value, binding the parties to its exact terms.

But what if the wording of the lease does not make business sense? Can this term be varied, can a term be implied into the lease at the discretion of the courts?

This was the question which arose in the case of Rail for London v The Mayor and Burgesses of the London Borough of Hackney. The UK High Court had to consider what happens when the express terms of a lease do not make sense in the wider business context.

Was rent still payable when the underlease was surrendered?

In this case the rent payable under the lease was defined by reference to sums payable under a sub-lease. On the face of it, this meant that if the sublease was surrendered, no rent was payable.

The Court decided that this did not make commercial sense in the context of the wider transaction between the parties. But could a term be implied into the lease that rent remained payable?

The facts of the case

Hackney had granted a 99 year lease of the railway arches to London Underground, who then sublet for the same term, minus one day. The rent under London Underground’s lease was defined as percentage of the commercial rental income from the sub-tenant in the arches.

However, in 2003, the sublease was surrendered for a premium of £7 million and London Underground continued to pay the rent in line with the provisions of the now non-existent sublease until 2019.

When Rail for London – London Underground’s successor – became responsible, it challenged the obligation to pay rent, arguing that with no sublease, no rent was payable under its own lease.

Rail for London asserted that as a result of the surrender, no basic rent had been due after the surrender took place, and sought repayment of around £6m paid during the intervening period to Hackney. Hackney disagreed. Ultimately, Rail for London issued proceedings on 9 March 2021 seeking various declarations, including that basic rent was not payable under its lease.

In its Defence, Hackney argued that (1) on the true construction of Rail for London’s lease, the basic rent continued to be payable after the surrender, (2) that further or alternatively a term should be implied to this effect or that Rail for London was “estopped” by convention from asserting that basic rent is not payable under its lease as a result of the Surrender.

Hackney argued that the commercial purpose of the principal agreement was so that Hackney would obtain by the mechanism of a long lease-back in the form of a lease to Rail for London, the net rental income from the arches for a 99 year term. Rail for London argued that this was not part of the commercial purpose.

Hackney’s counterclaim said that Rail For London had breached its obligations under its lease by failing to pay rent since September 2019, and sought declarations (1) in the alternative that (a) its interpretation of the lease with Rail for London was the correct one, (b) that a term was to be implied into this lease to that effect, and (c) that Rail for London was “estopped” by convention from asserting that the basic rent was not payable as a result of the surrender, and (2) that Rail for London should provide Hackney with the information necessary to calculate the unpaid basic rent.

In its reply to Hackney’s defence and counterclaim, Rail for London argued that with regard to estoppel, by convention that Hackney disclosed no reasonable grounds for defending the claim because it was seeking to use estoppel by convention as a sword, not as a shield.

The upshot was, Rail for London was seeking a declaration from the Court that no rent was payable under its lease and Hackney was arguing that rent continued to be payable, even after the sublease was surrendered, and that therefore it was entitled to the back-rent payable after Rail for London stopped paying.

Hackney’s case was that either the express wording of the lease meant that rent was still payable or, failing that, that a term to that effect should be implied.

The court’s interpretation

The Court considered the wording of all the relevant clauses in the lease and concluded that, on the express wording alone, at face value, no rent would be payable under the lease after the surrender of the sublease.

However, the court then considered whether a term could be implied into the lease. This would be to the effect that, even after the sublease was surrendered, rent would continue to be payable.

Looking into the background, the court decided that original purpose of the commercial agreement was to enable London Underground to extend the East London Line.

The sale and lease-back arrangement gave London Underground control and use of the property to enable it to extend the line without the need for a capital payment to Hackney. In exchange, Hackney would receive a percentage of the commercial rental income from the property which was to be paid by the underlease to Hackney.

Taking the whole arrangement in context, the Court concluded that it made no commercial sense for Rail for London to stop paying rent under its own lease when the sublease came to an end. It was therefore reasonable and equitable to imply a term into the lease requiring it to continue to pay rent.

Lessons to be learned

Hackney was fortunate in this case that the court took to view that terms which did not make commercial sense could be varied or implied, rather than taking them at face value.

It would have saved a lot or argument, time and expense had the leases been drafted differently in the first place. When the parties negotiate the terms of leases, especially those involving complications with head and sub-leases, drafting solicitors need to be mindful of the possible scenarios that could ensue.

View Full Article: LEGAL: common sense prevails in lease dispute

Braverman under pressure to reverse ‘outrageous’ HMO rules for asylum seekers

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Scores of housing groups and legal centres have called for ministers to abandon plans to remove licensing requirements for HMOs used as asylum accommodation.

In an open letter to the Home Secretary Suella Braverman and Housing Secretary Michael Gove, 137 organisations including Crisis, Shelter, the Refugee Council and Amnesty International urge them to rethink proposals that they say would leave asylum seekers housed in unsafe accommodation with inadequate protections against fire and overcrowding.

The changes outlined in the proposed Houses in Multiple Occupation (Asylum-Seeker Accommodation) Regulations would exempt landlords in England and Wales offering asylum accommodation from regulations governing everything from electrical safety to minimum room sizes.

They would no longer have to register with local authorities and could house asylum seekers for two years without getting an HMO licence.

The groups believe existing landlords and temporary accommodation providers will be incentivised to switch their properties to asylum accommodation, which may be more profitable. This could include properties which might not have met HMO standards.

As well as leading to an increase in substandard properties, it could exacerbate local housing and homelessness pressures, with the potential for people seeking sanctuary to be blamed for causing them.

Enforcement

They add that councils would no longer receive HMO licensing fees from properties used for asylum accommodation, drastically reducing the funds available for enforcement work.

Mary Atkinson, at the Joint Council for the Welfare of Immigrants, says the government is essentially proposing a two-tier system of housing, with fundamental human rights for people born here but not for those who come here seeking safety.

“This is outrageous. Everyone deserves a home that is decent and safe – by stripping away these protections for people seeking sanctuary, this government is putting people’s lives at risk,” she adds.

Read more: Essential guide to HMOs.

View Full Article: Braverman under pressure to reverse ‘outrageous’ HMO rules for asylum seekers

‘SURGE’: Co-living to soon hit 27,000 beds in UK, says Savills

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The UK’s co-living sector has trebled since 2019 as the formerly London-centric concept catches on around the country.

Popular with recent graduates and young professionals, co-living – which technically is often classsed as HMO – is a form of purpose-built rental housing generally comprising studio bedroom units and large amounts of high-quality communal space such as gyms, co-working areas, resident lounges and cinemas.

The number of co-living beds completed and opened to residents more than doubled last year, with 2,000 new beds in operation, bringing the total number to 3,422 and a further 21,599 in the pipeline, reports Savills.

Surge

“There has been a significant surge in co-living pipeline activity since the onset of the Covid-19 pandemic in early 2020, with residents drawn to this type of tenure due to its emphasis on community and resident interaction at a time when we weren’t able to venture far from our homes”, says Paul Wellman, associate director of research.

“In the five years to March 2020, applications were submitted nationally for 10,950 co-living beds. Yet in the three years since then, plans for a further 12,150 beds have been submitted, demonstrating the appetite from developers, investors and lenders for the sector.”

Catching up

London accounts for 82% of the total UK market, however regional cities are starting to catch up and are expected to be the main driver of growth in the short-to-medium term.

James Hanmer, head of UK PBSA investment & co-living, says Manchester, Sheffield, Glasgow, Birmingham, Bristol and Leeds are proving popular cities for the concept.

“These are markets that have already seen high levels of investment into built to rent and are home to large numbers of young professionals looking for both amenities and community,” he adds.

“However, we are also seeing schemes come forward in smaller markets such as Reading, Brighton, Guildford and Kingston, highlighting that co-living isn’t solely the preserve of major cities.”

If you want to see what an upmarket co-living space looks like then The Sessile (see main pic) in Tottenham Hale in North London by developer Way of Life, which operates seven such buildings across the capital. Its latest offers properties starting at £1,995 for a studio.

View Full Article: ‘SURGE’: Co-living to soon hit 27,000 beds in UK, says Savills

Is it better to sell property fast or sit and wait?

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Should landlords hold onto their properties for as long as possible following the BOE’s announcement that inflation fell to 8.7% in April?

Despite the fall in inflation, The Guardian is reporting the financial markets are betting on an interest rate rises to 4.75% in June and 5.4% by the end of the year

View Full Article: Is it better to sell property fast or sit and wait?

EXCLUSIVE: Right to Rent legal challenge ‘still to come’ says campaigning group

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A legal charity still hopes to challenge the government over its Right to Rent policy despite failing to convince European judges that it increases racial discrimination in the rental market.

Under the scheme, landlords have to check the immigration status of prospective tenants or face a fine of up to £3,000 or criminal sentence.

The Joint Council for the Welfare of Immigrants (JCWI) says this makes it harder for people of colour, and people with foreign-sounding accents or names, to rent property as landlords – scared of making a mistake – opt for white people, British people, and those with passports.

Battle

After taking its battle through to the High Court, judges at the European Court of Human Rights (main picture) deemed it ‘inadmissible’ and dismissed the application last May. However, the charity is urging anyone affected by the policy to get in touch as it hopes to bring a new appeal to the European Court.

Mary Atkinson (pictured), campaigns and networks manager at the JCWI, tells LandlordZONE: “We’re working with our lawyers to find people who have been affected by this, perhaps people of colour or migrants who have legal status. Once we can demonstrate this, we hope to continue pursuing it through the courts.”

Leigh Day solicitor John Crowley adds: “Unfortunately, our client was refused permission to appeal to the European Court of Human Rights on the right to rent issue. This was disappointing as the matter is still an area of great concern.”

View Full Article: EXCLUSIVE: Right to Rent legal challenge ‘still to come’ says campaigning group

Boost rented home supply by scrapping mortgage tax relief – call

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As the UK grapples with a housing crisis, new research indicates that abolishing a tax increase on rented housing could help alleviate the situation.

Capital Economics has conducted an analysis for the National Residential Landlords Association (NRLA) which suggests that reinstating mortgage interest relief (MIR) in full for the private rented sector could ease the supply crisis.

View Full Article: Boost rented home supply by scrapping mortgage tax relief – call

Tenants reluctant to access new Renters’ Reform Bill rights

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The tightening supply of homes to rent and affordability issues mean many renters will be reluctant to access their new rights under the Renters’ Reform Bill, research suggests.

The findings from TDS Charitable Foundation highlight that nearly a third of tenants are finding it difficult to meet their rent payments –

View Full Article: Tenants reluctant to access new Renters’ Reform Bill rights