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Wednesday, 2 December 2015

Supreme Court Rules on M&S Break Clause

The Supreme Court has today issued an important judgment* and rejected an appeal by Marks & Spencer, who was seeking to recover from its former landlord rent relating to the period between the break date in its lease and the end of the rental quarter within which it fell.

The break date was 24 January 2012 and the right to terminate the lease could be exercised by M&S giving 6 months’ prior written notice.

The break clause had required M&S to pay a full quarter’s rent in advance (and a further fixed sum) for it to be validly exercised. 

M&S duly paid the full quarter’s rent and the fixed sum, and the lease terminated on 24 January 2012.

M&S subsequently brought a claim for the return of the apportioned rent for the period from 25 January to 24 March 2012, contending that there should be implied into the Lease a term that it should be entitled to a refund from the landlord of the proportion of the rent paid in respect of the period from the date of termination up to and including 24 March 2012.

Similar claims were made by M&S in respect of the car park licence fee, the insurance rent and the service charge.

There was no express clause in the lease entitling M&S to a reimbursement of the amount paid in respect of the period beginning on the break date and ending at the end of the quarter.

The Supreme Court unanimously dismissed M&S’ appeal.

Here’s a summary of the reasons:

The judicial approach to the implication of contractual terms represents a clear, consistent and principled approach. A term will only be implied if it satisfies the test of business necessity or it is so obvious that it goes without saying; it will be a rare case where only one of those two requirements are met.

The implication of a term is not critically dependent on proof of the actual intention of the parties.

If one approaches the question by reference to what the parties would have agreed, one is concerned with the hypothetical answer of notional reasonable people in the position of the parties at the time they were contracting.

It is a necessary but not sufficient condition for implying a term that it appears fair or that one considers that the parties would have agreed it if it had been suggested to them.

Applying that reasoning to the facts, the Court said it was well-established that rent payable in advance is not apportionable in time in common law or by statute.

The Court reasoned:

Given the clear, general understanding that neither the common law nor statute apportion rent payable in advance on a time basis, it would be wrong, save in a very clear case, to attribute to a landlord and a tenant, particularly where they have entered into a full and professionally drafted lease, an intention that the tenant should receive back an apportioned part of rent payable and paid in advance.

The same conclusion applied to the car park licence fee and the insurance rent, but not to the service charge, in respect of which there is a specific provision which contemplates repayment.

The best advice remains that where a break date falls in the middle of a quarter and the lease does not provide for part payment, pay the full quarter's rent as there's no common law right to apportion it.

Sacrificing the balance of the quarter's rent, in most cases, will be a price worth paying for effectively bringing the lease to an end.

Tenants negotiating a break date in a new lease should ensure, where the break date has to be inside a quarter, that there’s specific obligation on the landlord in the lease to reimburse the balance of the rent if the break right is exercised.

Wednesday, 14 October 2015

Permitted Development of Office to Residential to be Made Permanent

The government issued a press release yesterday announcing it intends to make permanent the permitted development rights (PDR) enabling conversion of offices to homes without the need for planning permission.

The PDR were introduced in May 2013 to allow a change of use from office to residential without the need for planning permission, provided external alterations are not required.

Only buildings actually used as offices have the benefit of the PDR.

Development under the PDR is not permitted if the building was not used for offices immediately before 30 May 2013 or, if the building was not in use immediately before that date, when it was last in use.

There are other exclusions from the PDR, including listed buildings and buildings in some exempt areas.

The government says the PDR have meant that between April 2014 and June this year, almost 4,000 conversions were given the go-ahead.

The PDR were set to expire on 30 May 2016, but now they will be permanent.

Those schemes that are already underway will have 3 years in which to complete the change of use – ending potential uncertainty for developers.

The government announcement says the new PDR will also allow the demolition of office buildings and new building for residential use subject to prior approval by the local authority – details to be issued at a later date.

The new PDR will also enable the change of use of light industrial buildings and launderettes into new homes, subject to prior approval by the local authority – details to be issued at a later date.

Under the current PDR, developers must submit prior notification to the local authority before taking advantage of the PDR.

The authority then has eight weeks to consider the impact of the development, but only in relation to the specific issues of contamination, flooding, transport and highways.

It remains to be seen whether other criteria are introduced into the prior approval process – such as the loss of the most strategically important office accommodation, which was suggested in the consultation held last year.

There are currently areas in 17 local authorities in England consisting of individual buildings, roads or zones that are exempt from the rights, including large areas of London.

These exemptions will remain in place until May 2019, providing time for local authorities to consider making an Article 4 direction to remove the PDR and require a planning application for any proposed change of use.

Those who already have prior approval or who secure permission will have 3 years in which to complete the change of use.

For a more detailed look at PDR I would recommend the excellent Martin Goodall’s Planning Law Blog.

Monday, 28 September 2015

Street Art – Who Owns It?

As someone who’s spent quite a lot of time over the last few years looking at and photographing street art around London, I was particularly interested in reports of a recent High Court decision on who owns that street art – sufficiently so as to be roused from my recent blogging slumber.

Although the subject matter of this case is art, it’s really an examination of landlord and tenant law – specifically, if a tenant removes something from a building, who owns the thing that’s been removed?

The short answer is it depends what the lease says (as you’d expect) and how much the thing’s worth (which might come as more of a surprise, turning as it does on value rather than purely principle).

The now famous, albeit pseudonymous, Banksy had drawn a mural on a tenant’s wall in Folkestone – the piece is known as “Art Buff” and depicts a woman wearing headphones staring at an empty plinth – without either the landlord’s or the tenant’s  prior knowledge or consent, during a public art festival.

It was painted over – “buffing out” – an earlier piece of graffiti (the judgement uses the no doubt correct singular term “graffito”, but I can’t help thinking that just looks pedantic).

Not surprisingly it attracted a great deal of press attention and the Council, seemingly without any authority to do so, protected it with a sheet of Perspex.

The tenant removed the mural (and the wall itself) and shipped it off to New York in order to offer it for sale on the lucrative Big Apple art market.

The question before the court was who owned the wall (and mural), the landlord or the tenant?

In other words, who was entitled to a spectacular windfall of around £470,000 (if estimates are to be believed) from an art deal?

Incidentally, the motives of the tenant appear to have been benevolent as in evidence they said that they’d intended to donate the net proceeds of sale to a trust established by their late founder for the care of terminally ill patients – an important observation as some reports I’ve read of this case might leave the impression the tenant was acting out of pure greed.

The 20 year lease expires in 2022. The tenant, Dreamland, operates an amusement arcade from the building.

The lease demises the structure and exterior of the property, with standard obligations to keep it in good and substantial repair and condition and to yield it up in such repair at the end of the term; as well as to restore and make good any external rendering and not to maim or injure any of the building’s walls or make any alterations without the landlord’s consent.

The tenant tried to argue it was obliged to remove the mural as part of its repairing obligations and that, once removed, it became a chattel and its own property in accordance with an implied lease term.

The High Court disagreed and suggested that removing the wall rather than simply painting over it was not a reasonable way of complying with the repairing covenant.

The Court ruled that the term to be implied in the lease is that the chattel becomes the property of the landlord, for the following reasons:

·         Every part of the property belongs to the landlord. The tenant only has a tenancy for a period of time, so it’s for the tenant to show that it’s proper to imply into the lease a term which leads to a different result.

·         The mere fact that the tenant is discharging its repairing obligation doesn’t lead to the implication it acquires ownership of a chattel.

·         Even if you could imply a term of ownership of waste or chattels with scrap value, it doesn’t follow one should be implied for ownership of a chattel with substantial value.

·         It doesn’t make any difference that the value is attributable to the spontaneous actions of a third party. Someone gets a windfall, and the landlord has the better right to it than the tenant.

So if the thing removed is scrap, it probably belongs to the tenant. But if it’s of high value, it is the landlord’s.

This decision doesn’t help in knowing where you draw the line between what’s scrap and what’s valuable.

It arguably places tenants in a difficult position.

A lot of street art – or graffiti, depending on your point of view – may well be of no value, or rubbish if you want to put it that way.

But equally a lot of street art has great credibility in the art world and prints and reproductions of it sell for significant amounts.

How is a tenant who has little knowledge or interest in such things to know the difference?

If the tenant ignores it and does nothing, the landlord would be able to argue it’s in breach of its repairing covenant.

On the other hand, how pleased would the landlord really have been in this instance if the tenant had simply painted over the Banksy mural (which the Council had anyway protected with Perspex)?

Simple and practical rules may be desirable, but are difficult to formulate when considering repairing obligations.

As the judge points out, even the most conventional and common repairing covenant can give rise to “nice questions of judgment” in particular factual circumstances.

The Council's decision to cover the mural in Perspex is interesting too. They seem to have treated the wall as part of the public realm rather than as private property - presumably because a famous artist-in-disguise chose to draw on it.Graffiti by the less renowned is more usually treated as criminal damage.

And what about the rights of the artist to the intellectual property in the art?

That wasn’t considered in this case, save for a comment at the beginning of the judgement that the copyright in the artistic work “prima facie belongs to Banksy”.

In the past Bansky has condemned the removal and private sale of his artworks as disgusting.

The Landlord had assigned its title to the artwork (and the cause of action in this case) to the Foundation, which now intends to put the mural on display in Folkestone.

The photo used to illustrate this post isn’t connected with this case. It’s a Banksy drawing on Rivington Street, Shoreditch.