Spring '19 England & Wales

Spring 2019 ISSUE

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FIRST COMMENT IN THIS ISSUE: • (NOT) READY, WILLING AND ABLE TO COMPLETE? • WHAT’S IMPORTANT? PROPERTY RIGHTS OR PUBLIC INTEREST? • PRODUCT FOCUS - MINES & MINERALS EXCEPTIONS

Leading Title Insurance

Welcome to the Spring edition of our newsletter for 2019.

In this issue, we open with a discussion around all parties in a property transaction being fully prepared and ready to complete.

Additionally, one of our London-based commercial underwriters, Roshni Popat, has written a piece on the implications around breaching covenants.

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FIRST COMMENT

(Not) ready, willing and able to complete?

The sale and purchase of land and property in England and Wales must comply with the prescribed legal formalities - otherwise, it may be unenforceable in law. A recent ruling following a commercial dispute concerning a completion notice - and whether the seller was ‘ready, willing and able’ to complete the transaction - is important reading for those in the legal and construction industries and the commercial property sector.

Readers will know that an agreement for the sale of land and property is not legally binding unless it is set out in writing, signed by all parties and incorporates the terms expressly agreed between them (section 2 of the Law of Property (Miscellaneous Provisions) Act 1989).

As the transaction progresses, the purchaser’s legal advisors will undertake full commercial due diligence. This includes a thorough investigation of title to the land and property, including checks to see what, if any, restrictive covenants affect the land as well as ensuring that all rights of way, services etc are or will be in place. Where there are title defects, such as an absence of a legal easement or missing title document, title indemnity insurance can cover the risk to enable completion to take place promptly.

Preparations for completion can then be made.

However, what if completion is delayed and a Notice to Complete needs to be served? What are the legal implications when the land is not

vacant where a Notice has been served? In the case of Cantt Pak Ltd v Pak Southern China Property Investment Ltd [2018] EWHC 2564, the High Court had to consider an issue which is critical in every land sale and purchase, that is, when the seller of land is ‘ready, willing and able’ to complete.

Notice to Complete Once contracts are exchanged, the parties are bound to complete the purchase on the contractual completion date. If completion does not take place, the party not in breach can serve Notice to Complete on the defaulting party which makes time of the essence.

Crucially, the party giving Notice must itself be ‘ready, able and willing’ to complete under the contract of the Standard Commercial Property Conditions (2nd Edition) (‘SCPC’ 8.81), i.e. that it could be ready, able and willing to complete were it not for the default of the other party.

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What happened in this case?

A property developer and investment company (the claimant in the case) agreed to sell land to an investment company. The sale contract incorporated the SCPC subject to certain exceptions. Under the contract, the claimant was to provide vacant possession on completion. The land itself was occupied by a number of licensees carrying on various activities on site, though their licences could be terminated at short notice.

‘If completion does not take place, the party not in breach can serve Notice.’

Problems arose, and the seller served a Notice to Complete requiring the purchaser to complete within ten days, but completion still did not take place.

Therefore, the seller sought to rescind the sale contract and retain the £120,000 deposit.

It was the seller’s case that all the occupants were licensees with informal licences terminable at very short notice, and its agreement with them that each had agreed to vacate promptly (within a couple of days or so - if asked to do so) meant the seller was ready, willing and able to complete.

However, the purchaser argued that the seller had accepted that vacant possession required clearance of both people and chattels from the site. Those

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chattels included large industrial boilers and large industrial shipping containers, and other large items of equipment on the site, yet the seller had made no effort to begin clearing the site during the ten working days after the Notice to Complete was given. So, it argued, the seller was not in a position to give vacant possession by the time of the deadline for completion fixed by the Notice.

It also argued that it would have taken the seller longer to clear the site of occupants and chattels than the ten working days allowed by the Notice. On that basis, the seller was not ‘ready, willing and able’ to complete at the time it was given - so the Notice was invalid under SCPC 8.8.1. And even if it was valid, said the purchaser, vacant possession had not been effected so the seller was in repudiatory breach of the sale contract.

But it was not quite as clear cut as the purchaser attempted to make out. The purchaser was well aware, for instance, that the seller preferred a staged departure if possible, and that the seller had raised the question of whether vacant possession would be insisted on by the purchaser. Furthermore, the seller had been encouraged to believe that existing occupancies may well be able to continue for a period after completion.

Moreover, the purchaser did not have sufficient funds to complete - their solicitors were not put in funds to complete at any point. The seller had requested confirmation from the purchaser that funds were in place before it took any steps to secure vacant possession – but it did not do so.

What did the Court decide?

The High Court found that the purchaser had not, on the evidence, been clear or consistent as to whether or not it required vacant possession – the evidence showed that it was ambivalent about the need for and desirability of vacant possession.

It also found the fact that the licensees could vacate the site within two to five days demonstrated, on balance, that the seller was ready, willing and able to give vacant possession, at the time Notice was served, if required to by the seller.

FIRST COMMENT The Court recognised that the purchaser appeared to be deploying delaying tactics as it had been having trouble securing sufficient funding. It came to the “firm conclusion that, for whatever reason, the defendant had not managed to arrange the necessary funding … was not then able to complete, and was anxious to delay completion. Raising the question of vacant possession might have seemed a convenient reason for doing so”.

The seller succeeded in its claim. The contract was rescinded, the buyer lost its deposit – and the seller was free to sell the land to another buyer.

What does this mean?

This ruling is important for all parties in a number of respects. Sellers must be able to show they are ready, willing and able to complete by the relevant date – at the point of serving a Notice to Complete. It may not actually require giving vacant possession in practice, depending on the particular circumstances.

If the property is subject to licenses or tenancies, the seller will be understandably reluctant to take steps to achieve vacant possession on the completion date if the buyer has failed to produce evidence of having the funds to complete. This ruling gives a degree of reassurance, but in practical terms, the seller must be sure there will be sufficient time before completion to clear the land of any people and chattels. Otherwise they risk not being ‘ready, willing and able’ at the point they give Notice to Complete.

Buyers must be clear about their requirements for vacant possession; otherwise they may not be able to insist on it upon completion. The ruling is also a clear warning to purchasers tempted to use a Notice to Complete as a delaying tactic where, for instance, they are still trying to secure sufficient funds to enable them to complete. Otherwise, they risk losing both the land and property – and their contractual deposit.

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FIRST COMMENT

What’s important?

Property rights or public interest?

by Roshni Popat Commercial Underwriter

Developers who are looking to build on land burdened by restrictive covenants should consider their options before commencing any works; whether it be by obtaining indemnity insurance, reaching an agreement with the beneficiaries or making an application to modify the covenants.

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The Upper Tribunal (Lands Chamber) (‘the Tribunal’) has the power derived from section 84(1) of the Law of Property Act 1925 to modify or discharge covenants subject to one of the following grounds being satisfied:

(aa) That the existence of the covenant would impede a reasonable use where it confers no practical benefit of substantial value or is contrary to public interest and can be compensated; or

(a) “By reason of the changes in the character of the property or the neighbourhood or other circumstances of the case, the restriction ought to be deemed obsolete; or

(b) The parties have either expressly or by implication agreed to the covenant being discharged or modified; or (c) The discharge will not injure the persons entitled to the benefit of the restriction.”

In a recent case of The Alexander Devine Children’s Cancer Trust (“the Trust”) v Millgate Developments Ltd & Ors (“Millgate”) 2018 the Tribunal held that the need of housing outweighed the benefiting landowner’s property right.

However, the Court of Appeal thought otherwise and has supported the enforcement of contractual and property rights. This case has sent a strong message to developers who wilfully breach restrictive covenants.

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FIRST COMMENT

Case facts

Outcome

Millgate purchased land in Maidenhead for the development of 75 housing units. As part of the planning obligations, Millgate also had to provide social housing.

The Tribunal was of the opinion that, as planning permission had been granted, public interest had been taken into consideration.

Millgate started development work with full knowledge that the title was subject to covenants whereby the land was only to be used as parking; therefore, Millgate’s plans were in breach of the covenants.

The erection of the social housing was close to the boundary of the adjoining land that benefited from the covenants.

The adjoining land was owned by the Trust and used as a hospice, and the included land was intended to be used as a private outdoor area for the hospice patients.

During development, the Trust objected to the works as the upper part of the buildings would impede the enjoyment of the private gardens; however, Millgate continued to proceed to completion.

Upon completion of the development works, Millgate applied to the Tribunal to modify the restrictive covenants on the grounds of the development being in the public interest (section 84(1)(aa) Law of Property Act 1925) after being in breach of the restrictive covenants.

When considering whether a restrictive covenant ought to be discharged, the Tribunal must consider the development plan, any refusals for planning permission and any other material considerations.

The Tribunal held that there was a material need for social housing and, therefore, public interest prevailed over the beneficiary’s right to privacy; however, this was overturned by the Court of Appeal.

The Court of Appeal held that the Tribunal attributed ‘improper weight’ when reviewing the public’s interest, and rather than focusing on the grant of planning permission it should have looked at whether it was in the public interest to enforce property rights, and should have questioned whether Millgate made use of the opportunities available to them before committing the breach.

Millgate circumvented the procedures for testing rights of enforcement under the covenants and it was held that Millgate acted in an ‘unlawful and precipitated manner’. The Tribunal should not have been satisfied that public interest was maintained.

The case illustrates it is essential for developers to understand the implications of developing on land subject to restrictive covenants and deliberately breaching these.

Developers who wilfully breach covenants will struggle to have covenants modified under S84 of the Law of Property Act 1925.

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Ironing out the creases from property transactions for 35 years

Call: +44(0)207 160 8100 Email: info@firsttitle.co.uk Visit: www.firsttitle.co.uk First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU.

Leading Title Insurance

FIRST COMMENT

Product Focus:

Mines & Minerals exceptions

Background The insured purchased a former dairy site and proposed to develop the land as student accommodation. Planning permission had been granted, however, concern had arisen because the title to the land was all subject to generic mines and minerals exceptions. This posed a risk and the insured approached First Title for a solution.

Challenge Where the entry on the title is generic, the risk is that a mineral owner may come forward during and / or after the development phase seeking to enforce their rights, and / or alleging trespass if the foundations of the new buildings interfere with the minerals strata beneath the land.

• an injunction being granted that prevents trespass into the mineral strata; • substantial damages being paid where trespass has occurred; • the owner of the mineral title not being able to exercise the rights and seeking significant compensation.

Solution Following full consideration of the risk, First Title was able to offer a bespoke policy to the insured, ensuring they would be indemnified in the event of a claim.

This would be of particular concern for the developers, as well as plot purchasers, as the following issues might arise, which could blight the land:

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To find out more about our products and services email info@firsttitle.co.uk or call +44 (0)207 160 8100

www.firsttitle.co.uk

First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: First Title Insurance plc, ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU.