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Tuesday, 18 November 2014

Nuisance Tenants - When is a Landlord Liable?

A recently reported case from the Supreme Court* has given further guidance on when a landlord can be held liable for nuisance caused by its tenant.

An earlier decision by the Supreme Court in the same case concerned a couple who had bought a house near a speedway and motocross stadium and track, and whether the suitable remedy was an injunction or damages.

As the Court had held that the tenants operating the track were liable in nuisance, the question following on from that was whether the Judge at first instance was right in holding that their landlord was nonetheless not liable.

The general principle established at law is that in order to be liable for a nuisance caused by its tenant, a landlord must either:

·         be taken to have authorised it by letting the property in circumstances where nuisance was inevitable; or

·         participate directly in the commission of the nuisance.

The Court dismissed any argument that the landlord had authorised the nuisance because it was an inevitable consequence of letting the stadium.

Even though the intended use of the stadium was known to the landlord at the time of the letting and nuisance did in fact result from the letting, this was not in itself sufficient to make the landlord liable in nuisance.

The use could be, and could have been, carried on without causing a nuisance.

Nor did the Court consider, on the evidence, that the landlord had participated in the nuisance, although on this the Lords only agreed on a 3:2 majority, with Lord Neuberger delivering the main judgment for the majority.

What degree of participation is required for a landlord to be held liable?

Accepting rent and refraining from taking any proceedings against the tenant, once it knew the tenant was creating a nuisance, isn't sufficient.

If a claim in nuisance against a landlord is to succeed, there must be actual "active" or "direct" participation in the nuisance by the landlord.

Even if a landlord has the power to prevent the nuisance, inaction or failure to act cannot, on its own, amount to authorising the nuisance.

Other than in very unusual circumstances, attempts by a landlord to mitigate a nuisance shouldn't imply that the landlord has authorised the nuisance.

Inevitably, this means each case will turn on its facts as to what amounts to "active" or "direct" participation.

It was the differing interpretations of the facts that split the Lords in this case.

What about those standard tenant covenants against causing nuisance that are usually found in commercial leases?

Lord Neuberger distilled the interpretation of those covenants into the following logic.

·         A landlord does not become liable for its tenant's nuisance simply by failing to enforce a covenant which would put an end to the nuisance.

·         If a landlord would otherwise be liable for its tenant's nuisance, it should not escape liability simply by including such a covenant in the lease.

·         Conversely, in a case like this one where the proposed uses would not necessarily result in nuisance, the landlord's position would not have been weaker if the lease had contained no covenant against nuisance.

It therefore seems that the primary relevance of nuisance covenants in leases is to record the contractual position between the landlord and the tenant, rather than to influence the outcome of any third party claim.

This case makes it clear that nuisance cases will turn on their facts.

A nuisance covenant should nevertheless always be included in leases.

Where a tenant is carrying on a use which may result in a nuisance claim, landlords need to tread carefully, and may need to take steps to enforce a nuisance covenant against their tenant before a third party action arises.

Wednesday, 5 November 2014

Game Over - Supreme Court Rejects Appeal

The Supreme Court has refused Game's application to appeal against the Court of Appeal's ruling earlier this year that it had to pay rent due after it had filed for administration.

Game went into administration on 26 March 2012, one day after the company's quarterly rent payments were due, which meant that as the law then stood the administrators didn't have to pay that quarter's rent despite continuing to trade from its many stores.

The law was overturned by the Court of Appeal's decision in February 2014 so that rent can now be charged on a "pay-as-you-go basis", putting an end to "tactical" administrations which enabled retailers to operate for free for one quarter if they filed for administration just after quarter day.

Tenants must make payments at the rate of the rent for the duration of any period during which they retain possession for the benefit of the winding up or administration.

Such payments are payable as expenses of the winding up or administration.

The Supreme Court refused permission for Game to appeal because "the application does not raise an arguable point of law of general public importance which ought to be considered by the Supreme Court at this time bearing in mind that the case has already been the subject of judicial decision and reviewed on appeal.”

The decision has been welcomed by landlords, particularly as the threatened appeal had left the law in a state of limbo.

Thursday, 16 October 2014

Closing the Gate on Neighbour Disputes

A recent decision in the High Court* has ruled it's possible to acquire a prescriptive easement to hang a gate over a driveway by occupying the airspace.

The case is arguably more interesting however for the comments made by Mr Justice Norris on neighbours who choose to settle their disputes through litigation.

It concerned a shared driveway used by two neighbouring homeowners - one owned the drive (I'll call them A), the other (I'll call them B) had a right of way over it, and about 35 years ago a previous owner of B's house had erected gates over the driveway.

In the time honoured fashion of neighbour disputes, the case concerned what at first may seem a relatively trivial matter of one of the neighbours, B, preferring the gates to be closed to a greater extent than A did.

Arguments were made on the one side about security and on the other about difficulties in opening and closing the gates, especially from the road when returning home.

This could probably been resolved practically, as Mr Justice Norris indicates, by building electric gates at a cost of about £5,000 rather than pursuing the matter through the courts at considerably greater expense for all concerned.

But when neighbours fall out, reason seems to go the same way.

As far as the law is concerned - the court held that it's possible to acquire a prescriptive easement to hang a gate over a driveway by occupying the airspace, but on the facts B had failed to show a continuous 20 year period of use of the appropriate quality.

Intermittent use could suffice, but even so B's use was not of the character, degree and frequency required to indicate the assertion of a continuous right.

Nevertheless, B had a right to open and close the gates for all purposes connected with the reasonable enjoyment of B's home provided it didn't substantially interfere with the reasonable enjoyment by A of its home.

In the court's view it would not amount to substantial interference for the gates to be closed daily from 11 pm to 7:30 am, on days when A was absent from home and on additional days when there was a greater likelihood of intrusion from revellers.

Anyone reading the transcript of the judgement is left in no doubt however about what Mr Justice Norris thinks of cases like this ending up in the High Court.

He begins his judgement:

"Rather to my surprise I find myself trying a case about a pair of gates in Formby: surprise on at least two counts. First, that anyone should pursue a neighbour dispute to trial, where even the victor is not a winner (given the blight which a contested case casts over the future of neighbourly relations and upon the price achievable in any future sale of the property). Second, that the case should have been pursued in the High Court over 3 days. It is not that such cases are somehow beneath the consideration of the Court. They often raise points of novelty and difficulty and are undoubtedly important to the parties and ultimately legal rights (if insisted upon) must be determined. But at what financial and community cost?"

Instead, parties should first be encouraged to use the more obvious forms of ADR - negotiation and expert determination.

If that fails, then the parties should be directed to engage in mediation.

"I think it is no longer enough to leave the parties the opportunity to mediate and to warn of costs consequences if the opportunity is not taken. In boundary and neighbour disputes the opportunities are not being taken and the warnings are not being heeded, and those embroiled in them need saving from themselves. The Court cannot oblige truly unwilling parties to submit their disputes to mediation: but I do not see why, in the notorious case of boundary and neighbour disputes, directing the parties to take (over a short defined period) all reasonable steps to resolve the dispute by mediation before preparing for a trial should be regarded as an unacceptable obstruction on the right of access to justice."

Saving people from themselves - often the best thing a lawyer can do.

Wednesday, 8 October 2014

In Place of Strife - New Protocols to End Property Disputes

A new protocol has been launched for dealing with tenant applications to assign or sublet leasehold interests in commercial property.

Its authors - Guy Fetherstonhaugh QC and Jonathan Karas QC of Falcon Chambers, and Nicholas Cheffings and Mathew Ditchburn of Hogan Lovells - have published the protocol on a new dedicated website and hope it will be the first in a series of similar "best practice" documents designed to smooth landlord and tenant relations.

The protocol been endorsed by the British Property Federation.

Despite the passing of the Landlord and Tenant Act 1988, and the numerous cases since illustrating how the law should be applied in practice, a great deal of time and money is still wasted in failing to deal properly with applications to assign or sublet.

The protocol aims to achieve improved communication, dispute avoidance and an early resolution of disputes.

The protocol sets out a clear checklist of steps to be taken and what to include with the application, and suggests a timetable for dealing with applications.

The aim is for a tenant to provide enough information in its application to allow the landlord to decide whether it's prepared to grant consent and whether it would be unreasonable to withhold consent - the law says the burden of proof rests with the landlord.

The protocol says a landlord should acknowledge receipt of an application within 5 working days, informing the tenant if it requires more information or more time to consider.

It suggests the ultimate aim should be for the landlord to communicate its decision within 21 days of receiving the application, although what constitutes a reasonable time in every case is a question of fact having regard to the circumstances.

If there's a dispute, the protocol says the parties should consider whether some form of ADR, such as arbitration, expert determination or mediation, would be more suitable than litigation.

The protocol is a best practice guide; it doesn't supplant the law, but ideally it should be incorporated in new leases as a code which the parties agree to follow and that can be taken into account when assessing whether they have complied with their contractual and statutory obligations.

Writing in the Law Society Gazette, Nicholas Cheffings says other protocols are being considered.

One area that springs to mind that might benefit from a protocol is the vexed issue of tenant break clauses.

The jurisdiction of the courts can't be sidestepped in interpreting existing clauses, but a new protocol might be helpful in taking further the suggestions for drafting those clauses espoused in the Code for Leasing Business Premises.

The battle then is getting people to adhere to a protocol.