Property UPDATE

Issue No.2 June 2005

Welcome to the second CVS Property Department newsletter!

Items in this newsletter will be of interest both to commercial and residential property owners and tenants.

Installation of Mezzanine Floors – do you or your tenants need planning permission?

Unless there is a specific contrary planning permission, at present no planning consent is needed to install internal floors (of whatever size) in a building. However, the Government is concerned about the recent rush to install mezzanine floors in out of town retail units and the consequent adverse effect on traffic flow, its town centre policies and smaller retail units.

It is therefore proposing to introduce secondary legislation to require planning permission for the installation of internal floors (commonly known as mezzanines) in excess of 2,015 square feet (200 square metres) where the use is essentially retail. In their present form the proposals will not prevent owners or tenants installing separate mezzanine floors that meet this criteria as long as each is distinct from any previously installed.

The period for consultation has now closed. It is likely to be at least 6 to 12 months before any legislation comes into force and further changes may be introduced. However any planning restrictions on the construction of mezzanine floors are likely to lower property asset values. In addition if planning permission is required for mezzanine floors then on rent review they are likely no longer to be considered tenant’s improvements and thus landlords may be able to rentalise any additional mezzanine floors installed.

If planning consent is needed Local Authorities are likely to look closely at the effect on surrounding areas and any potential adverse impact on town centres and small retailers.

In view of the proposed changes there is likely to be a headlong rush by owners and tenants to install mezzanine floors in advance of the introduction of any new legislation.

Leases – Consent for Alterations – When can consent be withheld?

Two recent cases give landlords guidance on how to deal with requests from tenants for permission to carry out structural alterations. They also help tenants assess whether a landlord who is refusing consent is acting unreasonably so as to justify a tenant seeking a declaration to that effect in court.

In the first of the cases (Iqbal v Thraker) the Court of Appeal decided the landlord was entitled to consider that there might be structural problems as a result of the alterations, in particular in relation to the load-bearing parts of the property. The tenant should include in its plans enough detail for the landlord to be able to make an informed and reasoned decision on whether to give consent.

The case set out eight principles that should be taken in account when considering whether a landlord is acting unreasonably in refusing consent to proposed structural alterations. These are:

1. The purpose of the covenant is to protect the landlord from the tenant carrying out alterations and additions that could damage the landlord’s property interests.
2. A landlord cannot refuse consent on grounds that are unrelated to property interests.
3. It is for the tenant to show that the landlord has unreasonably withheld consent. The tenant has to make sufficiently clear what its proposals are in order to let the landlord make an informed decision.
4. It is not necessary for the landlord to prove that the conclusions that led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable landlord in the particular circumstances.
5. The reasonableness of the landlord’s refusal will depend on all the particular circumstances. The court gave an example that it might be unreasonable to refuse consent if the proposed use was a permitted use and the intention of the tenant in acquiring the premises to use them for that purpose was known to the freeholder when the freeholder acquired the freehold.
6. There might be cases where it would be disproportionate for a landlord to refuse consent, having regard to the effects upon it and the tenant.
7. Consent cannot be refused on the basis of pecuniary loss alone. The proper course of this situation is for the landlord to ask for a compensatory payment.
8. In each case it will be a question of fact, dependent on the particular circumstances of the case.

The seventh principle was considered in more detail in another case (Sargeant -v- Macepark (Whittlebury) Ltd).

The tenant applied for consent to construct an extension to its hotel. The landlord owned an adjoining golf course, club house, bars and restaurant. The landlord would give consent but only on conditions that the tenant considered unreasonable namely that the use of the public rooms in the extension be restricted to “functions and activities which are directly related or connected to management training conferences held at the premises”. Behind this was the landlord’s fear that the tenant might use the extended hotel for functions such as lunches, dinners, weddings and other receptions which would be in direct competition to the landlord’s premises.

The Court noted that a refusal of consent based on fear of competition had been upheld previously as reasonable in relation to consents against alteration and change of use. There was no rule of law that precluded a landlord from relying on perceived damage to his trading interests in adjoining or neighbouring property as a ground for refusing consent for alterations. However, that was as good as it got for the landlord as the Court went on to decide that the condition that the landlord sought to propose was too restrictive and therefore unreasonable. It would prevent the tenant holding product launches, exhibitions and award ceremonies. If it had been limited to “management training and conference use” that would have been reasonable. The court also held that the landlord’s fear of competition would not have justified an outright refusal of consent.

Practice Points

• It is certainly arguable that trading interests can be a good reason for refusing consent to carry out alterations and additions.
• In reality, trading interests and property interests become somewhat merged and the courts tend to look at all the circumstances in order to determine whether a refusal is reasonable or not.
• These cases highlight the need for a tenant to be clear about its plans and to provide those plans in detail to the landlord. In both of the above cases there was an underlying tension between the landlord and the tenant and the refusal of permission was just one aspect of those disputes.
• A landlord or tenant should clearly bear in mind the above checklist (as refined in Sargeant) when considering the prospects of successfully obtaining consent and on what particular grounds the landlord can legitimately refuse such consent.

Residential Landlords and Tenants – make sure your rent demands are in order!

Under new laws a residential tenant is not now obliged to pay rent unless a proper rent demand is served. This must be in the prescribed form setting out: -

• The name and address of the Leaseholder
• The address of the premises to which the demand relates
• The amount to be paid
• The date on which it must be paid (not less than 30 nor longer than 60 days after the date of the demand) or the date for payment in the Lease
• The name and address of the person to whom payment should be made i.e. the Landlord or Managing Agent
• Advice to the Leaseholder
• Remember also to include an address for service of notices on the Landlord in England and Wales

For a template of the prescribed form of rent demand see contact details below.

New Minimum Thresholds for Forfeiture for Non Payment of Rent/Service Charges

A long residential lease can now only be forfeited for non payment of rent/service charge if the unpaid sum exceeds (currently) £350 or has been unpaid for longer than (currently) 3 years.

Complex rules apply concerning non payment of service charges. Please contact us if you would like further advice about this.

Note:

Please note that this newsletter is not intended to be a comprehensive statement of the law and should be used for guidance purposes only. If you require specific legal advice please contact Juliet Ryder, Alastair McClean, Michael O’Shea or Sharon Rutter or by telephone 020 7493 2903.