Autumn '16 England & Wales

AUTUMN 2016 ISSUE

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FIRST COMMENT IN THIS ISSUE: • CO-OWNERSHIP • RIGHTS OF LIGHT; INJUNCTIONS AND CONDUCT OF THE PARTIES • ASSETS OF COMMUNITY VALUE – LOCAL COMMUNITIES TAKE BACK CONTROL • CLAIMS STUDY – EASEMENT: RIGHT TO PARK

Leading Title Insurance

Welcome to the autumn edition of our newsletter, we trust that you have had an enjoyable summer.

In this issue, we have submissions from Paul Butt – who discusses the tribulations of co-ownership, Kevin Lee who looks at a recent rights of lights case in which the court of appeal upheld an injunction against a property developer and finally from one of our senior underwriters Martin Wilks who considers the potential impact for property developers as a result of the Localism Act. We have had feedback from some users who are finding it difficult to download the newsletters in .pdf format. If you are having trouble, please follow the instructions below.

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FIRST COMMENT

Co-ownership

By Paul Butt

Consultant Solicitor, Rowlinsons Solicitors

Conveyancers often seem to be looked down upon by those practising in other aspects of the law – it is so very easy and far less important than their particular specialism! And then, of course, we have people banging on about the de-skilling of conveyancing and that this and the growth of volume conveyancers is the cause of all the ills in the modern world.

However, the real position with conveyancing is that the skills and knowledge necessary to conduct a conveyancing transaction have actually increased greatly over the last 20 years or so - as indeed have clients’ expectations! Just think for a moment about the wide range of diverse matters that a conveyancer needs to be able to advise upon in today’s market place. We need to consider, to name but a few: • various aspects of tax law – CGT; SDLT; sometimes inheritance tax;

• the byzantine bureaucracy of Help to Buy;

• the details of planning law and building regulations;

• the intricacies of unmarried (and indeed married) couples buying property in their joint names;

• the criminal law involving money laundering; • the prevention of online fraud and mortgage fraud; • contract law;

• the added problems where some loving relative provides part of the purchase price; • and, oh yes, all the myriad aspects of property law!

• the complications of shared ownership properties;

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Co-ownership Problems The recent case of Turner v Bromets Jackson Heath LLP [2016] EW Misc B15 (CC). reminds us of the problems we are faced with every day in advising on co-ownership. Virtually every purchase we are asked to deal with these days seems to be a purchase in joint names. And in such a purchase we are under a duty to advise on the ownership arrangements between the two (or more) purchasers.

This is a particular problem, of course, when the purchasers are not married or in a civil partnership.

If the buyers are married etc, then, should the marriage break down, the court has wide powers to adjust the parties’ property rights in order to give a fair division. So, looked at very simplistically, it does not matter so much who actually owns what, the court has wide powers to make property adjustment orders transferring the house from one party to the other if need be.

However, if the parties are not married then what happens to the property on a breakdown of the relationship depends almost entirely upon what was agreed at the time of purchase – which is where the conveyancers come in. The court does not have the same powers as where the parties are married etc. Some clients still do not realise this.

So obviously we have to advise the buyers as to the differences between a joint tenancy and a tenancy in common – the existence of the right of survivorship when they are joint tenants so one person’s share in the house cannot be left by will and cannot pass under the intestacy rules. And then we have the problems that can be caused in a tenancy in common where the share will pass by will or intestacy. And the particular issues where there is an intestacy or a will and the deceased’s share passes to someone other than the surviving owner. Of course, we must

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emphasise the need for a will in tenancy in common cases, but also consider the practical implications for all concerned if the share of the house is left to someone other than the surviving owner. Will the house have to be sold, and if so where will the survivor live? The survivor could end up losing their partner and their home.

And don’t forget to advise that if the buyers start off as joint tenants that this can later be unilaterally changed to a tenancy in common by severance – a simple written notice is sufficient to do this, remember. And also remember the cricketer Geoff Boycott’s negligence action against his solicitors a few years ago claiming that he was not advised about this and so expected that on the death of his co-purchaser he would inherit the whole property (see Boycott v Perrins Guy Williams [2011] EWHC 2969 (Ch).

Also, we need to advise that if there is a severance of a joint tenancy, then this will result in the two buyers owning half each – irrespective of the size of the financial contributions made by each of them. This again is something that is not always appreciated by clients and is particularly important where one co-owner is contributing considerable more of the purchase price than the other.

However, the problems really present themselves when the clients, having had all this advice, want to be tenants in common – how do you advise as to what those shares should be – and indeed how far can you advise at all when there will almost certainly be problems of a conflict of interest? You cannot say to one party ‘Well, you are paying the mortgage, you ought to have a bigger share’ and then to the other ‘You cannot work because of looking after the children, it is unfair if you have a smaller share because of this’.

FIRST COMMENT

How do we advise?

Many conveyancers adopt the approach that they will give clients an information sheet containing all the factors the buyers need to take into account in reaching an agreement as to shares – how much cash each is putting in, who will pay the mortgage instalments, who pays for the other outgoings, how is the impact of child care to be taken into account etc, – and then ask them to let the conveyancers know what has been agreed between them. However, do be careful in drafting this information sheet. Can we please have it in plain modern English? No references to ‘severance’, joint ‘tenants’ etc, – why not just say joint ownership and refer to ‘converting’ it to ownership in common?

Obviously, having received this information sheet, if they then cannot agree then it would be necessary to insist on them each obtaining independent advice so that an agreement can be reached at arm’s length.

But by not actually advising on the terms of the agreement the problems of conflict may be avoided as well as all the practical difficulties of actually giving that advice.

Those who adopt this approach will have welcomed the recently reported decision of H.H. Judge Behrens in Leeds County Court in the Turner v Bromets Jackson Heath case. This involved events dating back to 2005. It involved a Mr. Millington and a Ms. Turner who had lived together for some years in a house solely in Mr. Millington’s name. There was an existing mortgage in favour of Halifax. Ms. Turner did not contribute to the mortgage payments. The couple had decided that the house would be remortgaged for a lesser sum than the Halifax mortgage, Ms. Turner contributing the £20,000 shortfall, and the house should then be put into joint names. The couple had agreed that on a future sale, after paying

off the mortgage, Mr. Millington would receive £160,000 (the then current value of his equity), Ms. Turner would receive £20,000 and that they should share equally any further equity in the property. The solicitors drafted a Declaration of Trust embodying these terms.

Unfortunately, the relationship subsequently broke down. Ms. Turner negotiated a settlement with Mr. Millington but contended that she would have achieved a better settlement if she had not executed the Declaration of Trust.

Ms. Turner ultimately brought proceedings claiming that the solicitors had been negligent. She claimed that they had not explained the terms of the Declaration of Trust to her before she signed it and she would not have signed it if she had understood them. Secondly, she contended that they should have appreciated that there was a significant risk of a conflict of interest between herself and Mr. Millington and should have advised her to seek separate advice.

If that had happened, she would have sought such advice and again not have signed the Declaration of Trust.

The Judge rejected both of these contentions, finding that the terms of the agreement had been properly explained. With regard to the conflict point, the judge relied heavily on the recent Court of Appeal decision in Minkin v Landsberg [2015] EWCA Civ 1152 involving claims of conflict when drafting an agreement to reflect the terms of a divorce settlement reached by the parties themselves. Jackson LJ set out in that case the scope of a solicitor’s retainer as follows: “ i) A solicitor’s contractual duty is to carry out the tasks which the client has instructed and the solicitor has agreed to undertake.

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ii) It is implicit in the solicitor’s retainer that he/she will proffer advice which is reasonably incidental to the work that he/she is carrying out. iii) In determining what advice is reasonably incidental, it is necessary to have regard to all the circumstances of the case, including the character and experience of the client. iv) In relation to (iii), it is not possible to give definitive guidance, but one can give fairly bland illustrations. An experienced businessman will not wish to pay for being told that which he/she already knows. An impoverished client will not wish to pay for advice which he/she cannot afford. An inexperienced client will expect to be warned of risks which are (or should be) apparent to the solicitor but not to the client. v) The solicitor and client may, by agreement, limit the duties which would otherwise form part of the solicitor’s retainer. As a matter of good practice, the solicitor should confirm such agreement in writing.”

It was, said Judge Behrens, not possible to give definitive guidance as to whether advising the clients on the merits of an agreement reached by clients relating to the beneficial ownership of a home occupied by cohabiting couples was implicit in the retainer. All will depend on the facts of the individual case. In this case, the Judge held that the terms of the agreement were in any event fair to Ms. Turner and that there was no conflict. There was thus no duty on Bromets to advise Ms. Turner to seek separate advice or to advise her not to enter the agreement.

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Conclusion Presumably, had the terms of the agreement reached between the parties not been fair, then a different conclusion would have been reached – advising on the agreement had not been expressly excluded by the retainer in this particular case. The Law Society’s Conveyancing Handbook certainly seems to take the view that such advice is implicit in the retainer when acting on a purchase by co-owners- see in general Section A9 and in particular A9.1 – the solicitor ‘should advise as to the most suitable type of co-ownership to suit the particular situation.’

However, giving such advice can be expressly excluded from the retainer and this must be a sensible thing for conveyancers to do on a regular basis. This details of the retainer and what is and is not included in it should be expressly included in the engagement letter (or client care letter, if you prefer) so the clients know where they stand right at the start of the transaction.

Of course, the case itself is only a County Court decision and as such has no precedent value, but it is based on sound principles - the Court of Appeal decision in Minkin v Landsberg [2015] EWCA Civ 1152 and that does have precedent value.

It is refreshing to see a negligence case that gives good news to conveyancers.

FIRST COMMENT

Rights of light; injunctions and conduct of the parties

By Kevin Lee Hill Dickinson LLP

In Coventry v Lawrence (2014) the Supreme Court emphasised, with rights of light cases in mind, that instead of a presumption of an injunction, there should be a very broad discretion to grant damages in lieu of an injunction. In relation to this discretion: a) Judges need to be far more flexible; b) the legal burden of proof is still on the defendant to show why an injunction should not be granted; c) this does not mean however that there is a presumption either in favour of, or against, an injunction. Lord Neuberger said: “when a judge is called on to decide whether to award damages in lieu of an injunction, I do not think that there should be any inclination either way (subject to the legal burden discussed above): the outcome should depend on all the evidence and arguments” …..“The decision whether to award damages instead of an injunction can be dependent on a number of issues, including the behaviour and attitude of the parties.” d) in the case of impact to residential properties, however, the balance is still very much in favour of the grant of an injunction; as Lord Mance said “the right to enjoy one’s home without disturbance is one which I would believe that many, indeed most, people value for reasons largely if not entirely independent of money”.

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Coventry v Lawrence was delivered of course in the shadow of HKRUK v. Heaney, arguably the low point from a developer perspective, where a mandatory injunction to demolish was awarded post completion of the offending building. However, after Coventry v Lawrence there was a view that rights of light claimants would find it harder to obtain an injunction than previously. Indeed, the decision was perceived to be a developer-friendly decision that went some way to tip the scales back to a more equal footing and put correct the imbalance in Heaney.

Since Coventry v Lawrence, we have seen two County Court decisions in rights of lights cases. Ottercroft Ltd v Scandia Care Ltd (26 January 2015 (CC (Oxford)) and Scott v Aimiuwu (18 February 2015 (CC (Central London)).

In Ottercroft, the defendants had given undertakings not to develop their property so as to cause interference with the neighbouring claimant’s rights to light. In breach of these undertakings, the defendants built a metal staircase which caused a relatively minor loss of light (valued at less than £900) to the claimant’s restaurant. The Court held that the staircase interfered with the claimant’s rights to light. He ordered a mandatory injunction to remove or replace the staircase so that it no longer infringed the claimant’s rights. This was even though the infringement was minor. His reasons for awarding an injunction rather than damages included: a) T he defendants acted in a high-handed and unneighbourly manner. They deliberately misled the claimant in respect of their plans for development.

He also found the second defendant (the director of the company causing the infringement) not to be a truthful witness b) The defendants gave undertakings not to interfere with the claimant’s rights to light, which discouraged the claimant from seeking interim relief from the Court. c) Despite being fully aware that their actions would affect the claimant’s rights, the defendants proceeded to build the staircase in deliberate breach of their undertakings.

In Scott v Aimiuwu the buildings were residential.

The interference in light, while actionable, was only to secondary accommodation i.e. a garage / workshop and utility room and bathroom.

The court found that the Aimiuwus had misguidingly thought they were entitled to proceed as they had planning permission and expert advice that the interference was not material.

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However, the loss value (the “Book value”) was substantially higher than in Otterscroft. The book value of the loss was about £12,000 calculated in the conventional manner. However, in this case, the court decided that it could be adequately compensated by an award of damages. The Court applied a 2.5 multiplier so as to award £30,000. It also said that matters would be different if interference were to a living room and bedroom.

So we had two different decisions on remedy. One, an injunction for a small injury and one damages for a larger injury. So, was one wrong?

On 6 July 2016, the Court of Appeal heard an appeal in Otterscroft v Scandia. The thrust of the appeal from the transgressor, Scandia, was that the judge had been wrong to grant a mandatory injunction rather than award damages. However, the appeal judges did not even call upon the respondent to address the court – never a good sign for the appellant. They found unanimously that the judge had conducted a balancing exercise to determine whether to grant an injunction. He had correctly noted that an injunction should not be granted if damages were an adequate remedy. However, although the infringement was minor, the undertakings not to contract any buildings that would cause an infringement had been as binding. He had been entitled to consider the defendants’ conduct in the round and the judge’s reasoning had not been shown to be wrong.

An expert report indicated that it was feasible to alter the staircase to overcome the light issue at the cost of around £6,000. The injunction was therefore not oppressive to the defendants. Injunctions were necessary where a defendant had acted in a high-handed manner or was attempting to evade the court’s jurisdiction. It was also necessary in order to do justice to the claimant and to serve as a warning to others.

Is the Otterscroft decision odd? Not really. Behaviour and conduct will be a relevant factor. I would repeat the words of Lord Neuberger in C v L: “The decision whether to award damages instead of an injunction can be dependent on a number of issues, including the behaviour and attitude of the parties”.

If you decide to plough on regardless and mislead your neighbours, do not expect the court to come to your aid.

FIRST COMMENT

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Assets of Community Value – Local Communities Take Back Control

By Martin Wilks Senior Underwriter First Title Insurance

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Synopsis

Background

Purchasing a portfolio of pubs, the village hall or a local shop for development may offer significant rewards and a high yield, but local communities are starting to take back control. Martin Wilks examines the powers granted to local communities pursuant to the Localism Act to protect assets by designating them as Assets of Community Value and the impact this may have on a developer.

Developers looking to redevelop new sites in the community should be aware of powers for communities to protect local amenities and buildings of importance to them, for example, the village shop, sports ground, village hall, the local park, swimming pool or pub. Once designated as an Asset of Community Value there are additional hurdles that a developer will need to consider.

FIRST COMMENT

What is an Asset of Community Value?

The power to designate community assets with this special status is found in the Localism Act 2011 (and Regulations). Pursuant to this legislation, community assets can be nominated by parish councils or by organisations or groups with a connection to the community.

Individuals, however, are not given the power to nominate community assets to the register.

If the nomination is accepted, the asset is included on the local authority’s register of Assets of Community Value.

Of comfort to a developer is that not all land can be designated with this special status. The asset must be one where its actual current use furthers the social wellbeing or social interests (i.e. cultural, recreational and sporting interests) of the local community or where in the recent past it had such a use or it is realistic to think that in the next five years there will be community use which furthers social well-being and interests.

In addition, certain types of asset most notably residential property, are exempt from being placed on the register. It is also possible for owners of property placed on the register to appeal against a listing. Further, if it can be demonstrated that the value of the asset has been reduced compensation can be claimed. Also, certain types of transfer, for example, transfers pursuant to insolvency proceedings or a disposal in relation to a legally enforceable right of pre-emption, do not count as disposals for the purposes of the legislation.

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What is the impact for a Developer?

There are four key areas that a developer should think about when dealing with such an asset: • The owner must let the local authority know that they intend to sell the asset or grant a lease of more than 25 years.

The owner must wait six weeks to allow a local community group to come forward to request to be a potential bidder. If there is a request to bid for the asset, the community group must be given a period of 6 months to bid for the asset. This may cause concern for a developer, but this right to bid only applies when the owner decides to dispose of the asset and not before. In addition, this is a bid which means that the community group does not have a right to buy the asset and in England, there is no right of first refusal in favour of the community group. This means that the community bid may not be successful.

• The legislation removes permitted development rights for demolition and change of use of public houses. If the public house is designated as an asset of community value, then the developer must allow the users in the community to comment on the application.

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• If the asset is an Asset of Community Value this will be a material consideration at planning and, as a result, a planning application for development or change of use may be refused by the planning department.

• More concerning for a developer, is that an Asset of Community Value can be compulsorily purchased by the local authority or council where the asset is under threat of long-term loss to the community.

Conclusion The power places an administrative burden on local authorities which are required to maintain a list of Assets of Community Value. It also requires developers to have a greater awareness of the status of the asset in the community and to follow additional procedures when dealing with it. On the positive side, it empowers the local community to protect community assets and to work in partnership with developers to achieve the best possible outcome for the community.

FIRST COMMENT

Claims Case Study:

Easement: Right to park Becky Morgan Claims Team Manager First Title Insurance

What was the background to the claim?

The Insured party had purchased a residential flat with which she had been allocated a car parking space - although details of the actual space had not been included on the Land Certificate. Once the Insured had moved in and started to utilise the parking space, she received a letter from the original developers of the property asking her to remove her car from the parking space and stating that no such space was allocated to her flat.

The development had been acquired from a mortgagee-in-possession, however the mortgagee had neglected to re-possess the parking space, which remained vested in the name of the original developer. The previous owners of the flat had used the parking space for two and a half years without any objection.

The space was not registered to a third party and there were no alternative spaces available from the new developer.

The challenge Aside from the obvious restriction in use, the owner of the flat was also faced with a diminution in value of her property.

The solution Having purchased a known risk policy, the insured subsequently raised a claim. Initially, First Title assisted the insured in corresponding with the developer to determine whether any alternative parking spaces were available. They responded indicating that a space could be purchased. First Title arranged for a surveyor to establish diminution in value to the flat without the benefit of a car parking space. The surveyors report indicated that the diminution in value would be £10,000.

The Insured’s lawyer advised that the Insured had located a suitable alternative parking space at a cost of £12,000. First Title agreed to meet this cost, as well as paying the Insured’s legal costs.

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