Monday, 21 May 2018

GDPR - A Message to Subscribers

As most of you will be aware, the new GDPR (General Data Protection Regulations) take effect on 25 May 2018.

This post is to remind everyone receiving email updates from me that if you no longer wish to receive these updates, please unsubscribe using the link at the foot of this message (when you get the email, not on this blog).

I don't write this blog for commercial gain and I don't personally use any data collected for any purpose other than purely out of interest to see who's subscribing. I don't pass on this data to anyone else, although I can't of course vouch for Google, who administer the "Blogger" hosted blogs and feeburner (who manage the subscription feeds), and who have so far given no help or guidance whatsoever to bloggers using their service as to how they can ensure they are GDPR compliant.

Thank you for continuing to read and support this blog. These days I post more regularly on Twitter than I do here, so do follow me on Twitter if you find my updates useful. If you're concerned about your data, you may even prefer to do that instead of continuing to be on my blog subscription list as I always tweet a link to any new blogpost, so you won't miss anything!

Thank you.


Tuesday, 15 May 2018

Property Fraud – Dreamvar Appeal

The Court of Appeal has handed down its eagerly awaited judgment in Dreamvar v Mischon de Reya and, in the same appeal, P&P Property Limited v Owen White & Carlin LLP.

The headline is that solicitors representing fraudulent property sellers should share responsibility for any resulting losses along with solicitors acting for the duped buyers.

I mentioned the High Court Dreamvar judgment in a blogpost last year, so I won’t go over the facts of the case again.  The facts of P&P are summarised in the judgment.

Last year's ruling caused much concern as the High Court found the buyer’s solicitors, MdR, liable for the loss suffered by their client on grounds of breach of trust. MMS, acting for the seller, were not held liable notwithstanding inadequate client identity checks. This was on the basis that MdR’s insurers were best able to bear the loss.

On appeal, MdR did not contest the breach of trust finding, although sought relief under Section 61 of the Trustee Act 1925.

The Court of Appeal ruling means that if sellers’ solicitors fail to carry out sufficient checks on their clients, they must share in the responsibility for the loss – it cannot fall solely on the buyer’s solicitors.

This seems fair, as the solicitor acting for the seller is after all in the best position to carry out these checks.

There will be some however who argue the liability should fall entirely on the seller’s solicitors, rather than be shared between those acting for the seller and those acting for the buyer, and the dissenting judgment of Lady Justice Gloster in the Court of Appeal is interesting in supporting this view.

Lady Justice Gloster considered that the Court should grant relief to MdR under Section 61 of the Trustee Act 1925 because MdR did not act dishonestly; had acted reasonably; and “on the facts, primary responsibility for checking the true identity of the fraudster lay with the latter’s solicitors, namely MMS”.

Lady Gloster further comments:

“I do not consider that the fact that MdR is insured should in the circumstances of this case lead to the conclusion that MdR should bear financial responsibility for Dreamvar's loss. Dreamvar was entering into what was for it a relatively substantial property development as a business transaction. I do not consider that the Court's sympathy should be with one commercial party (in reality with its loan creditors, given its insolvency) rather than another, simply because one, and not the other, has insurance. It is irrelevant, in my view, that Dreamvar was a newly formed company or that its beneficial owner was a young man… There was no suggestion that MMS' insurance would not be adequate to cover the loss”.

This was not however the majority view of the Court of Appeal (2-1).

The fact that solicitors acting for both sides in a transaction could be held liable in the case of fraud could have significant impact on the cost of indemnity insurance for those firms carrying out conveyancing.

Simply following established “Know Your Client” and money laundering procedures won’t be enough to escape liability if the fraudsters succeed.

It remains unclear as to what firms should do to avoid this risk.

As far as the detailed issues under consideration in Dreamvar, they can be briefly summarised as follows:

·       Failure to Warn – at first instance it was held there was no duty to warn a client of the potential risk of identity fraud, and this was not discussed further on appeal. Firms will nevertheless want to develop a risk assessment framework in the light of the latest judgment (eg if the property is vacant with no mortgage and the transaction must be done double quick, alarm bells should start ringing).

·       Identity Undertaking – there is no such undertaking under the Code for Completion by Post (the Code) or the Conveyancing Protocol.

·       Breach of Trust by Buyer’s solicitors (MdR) – this was conceded on appeal based on MdR’s release of the purchase monies to MMS. The Court of Appeal would not grant relief under Section 61 of the Trustee Act 1925.

·       Negligent client verification by seller’s solicitors – this was admitted at first instance but did not affect where the Court found the liability should fall.

·       Breach of Trust by Seller’s solicitors (MMS) – the High Court rejected this allegation, but this was overturned on appeal, with the Court of Appeal ruling there had been breach of trust by MMS.

·       Breach of undertaking by Seller’s Solicitors (MMS) – the Court of Appeal ruled there had been a breach of the undertaking by MMS (under paragraph 7 of the Code) that it had the seller’s authority to receive the purchase money on completion. This overturned the High Court’s decision. In the circumstances, Dreamvar’s alternative argument that MdR were negligent by failing to obtain such an undertaking from MMS was dismissed.

·       Warranty of Authority – this was held at first instance as being limited to having the authority of the client – ie the fraudster – rather than the authority of the true registered proprietor. The claim for breach of warranty of authority in P&P failed on appeal due to lack of reliance being found to have been placed on the warranty.

It will be interesting to read the many commentaries that will emerge on this case over the coming days once the terms of the judgment have been digested.

I’ll continue to tweet links to any that catch my eye– do follow me on twitter if you don’t already.

UPDATE 16 May 2018

The more I think about it the more I am persuaded by and agree with the argument of Lady Justice Gloster in her dissenting judgment - basically that the seller's solicitors (or in practice their insurers) should bear financial responsibility for the buyer's loss in cases such as this as they are the ones who have primary responsibility for verifying the identity of the purported seller. I wonder, in view of her concise and well-argued dissenting judgment, whether the Court of Appeal's ruling will be appealed to the Supreme Court?

In the meantime, it would be prudent when acting for a buyer to ask for a specific signed statement or warranty from the seller's solicitors that they have carried out all appropriate identification and verification of their client, and to confirm that the buyers are relying on that statement or warranty.

Thursday, 10 May 2018

Heaven and Hell – Airspace and Subsoil in Leases

How can you determine whether a lease of a building includes the airspace above it or the subsoil below?

Two recent cases provide an opportunity to revisit this question.

First let’s return to some Latin I quoted in a blog post way back in 2011 (Latin being the lingua franca of legal blogging in those far off days):

Cuius est solum eius est usque ad coelum et ad inferos.

“A colourful phrase often upon the lips of lawyers since it was first coined by Accursius in Bologna in the 13th century”, according to Justice Griffiths, in Baron Bernstein of Leigh v Skyviews and General Ltd [1978] QB 479, in an all too rare example of judicial humour, in land law at any rate.

This is the legal presumption that normally applies if you own the freehold and means the owner of the land owns everything up to the sky and down to the centre of the earth, or more poetically, “for whoever owns the soil, it is theirs up to heaven and down to hell.”

It’s not quite as simple as that, as the rights of an owner in the airspace above his land are limited to such height as is necessary for the ordinary use and enjoyment of the land and the structures upon it; above that height the landowner has no greater rights in the air space than any other member of the public.

And rights underground may be limited for example by third party ownership of mines and minerals.

When it comes to leases however, it’s not so straightforward.

The legal presumptions apply more readily to freehold than to leasehold, and first you must start with what the lease says is included in the demise and take into account the nature of the premises.


If the lease is of the whole building, the general rule is that the demise includes the airspace above it, unless the lease expressly excludes it.

That’s also normally the case if the lease is of the upper portion of the whole building including the roof (again unless the lease expressly excludes the airspace).

However, there are no clear presumptions relating to divisions of individual parts of a building, and if a building is divided up vertically, for example in a mansion block where the roof is over several flats next to each other and is not demised to one tenant, the individual demises are unlikely to be deemed to include the airspace in the absence of any express wording.

So, there’s a distinction between a top floor flat where the demise includes the whole of the roof against a demise that includes only part of the roof where its use could have an impact on other tenants in the building.

In practice, leases in buildings such as mansion blocks are likely to be internal only demises, excluding the structure, but there can be exceptions.

Why does this matter?

Airspace is valuable.

As a landlord, you might want to build into it (by adding, say, another floor to the building), or to let part of it out to telecoms companies for phone masts, or use it for siting solar panels, to give a few examples. You can’t do this during the term of the lease if the airspace has been demised to the tenant, unless the lease contains express reservations to do so.

As a tenant, you too might want to take advantage of being able to extend upwards (if the lease and planning permission otherwise allow it), and you need the roof and airspace to be included in your demise to be able to do this.

Therefore, it’s important to make sure that airspace is dealt with expressly in the lease.

In the recent case of Ralph Kline Limited v Metropolitan and County Holdings Limited [2018] EWCH 64 (Ch) the High Court held that on a proper construction of a lease of a whole building, the demised premises included airspace to the extent that is required for the ordinary use and enjoyment of the premises. The facts are too complex to recite here, but the case report provides a useful analysis of the case law to date.


If the lease is of the whole building, the general rule is that the demise includes the subsoil beneath the building, unless the lease expressly excludes it.

However, the High Court, in Gorst v. Knight [2018] EWHC 613 (Ch), has recently taken a rather different approach when determining whether a lease of part of a building includes the subsoil than might be expected when looking at the airspace cases for analogy.

Given the proliferation of basement conversions in urban areas, this case will be important for developers to consider.

The case concerned a ground floor and basement maisonette. The Court held that the long lease did not demise the subsoil and so the tenant had no right to excavate the basement area to create additional living space.

The lease defined the premises as:

"maisonette shown edged red on the plan annexed hereto and known as Flat 1… being on the ground floor of the building edged blue on the plan (the Building)… and generally including all parts of the building… in the case of a lower maisonette below the line dividing equally the joists between the ground and first floors…".

The lease also contained an interpretation provision stating that "maisonette" included “reference to the foundations and the void or cellar below the ground floor”.

There appears to have been a single model form of lease used for both the upper and lower maisonettes in the building, which meant that the lease contained some provisions which were meant to relate to the upper flat only, and some only to the lower flat. This was not fundamental to the interpretation of the lease, but it’s a sloppy form of drafting that’s best avoided.

The cellar was only five feet high. The tenant applied for and obtained planning permission to dig into the subsoil to increase the depth by another four feet to create a useable living space.

The question for the Court was who had the right to the subsoil, as this was crucial in determining whether the landlord was obliged to act reasonably in deciding whether to give consent to the alterations (if the work was held to be within the demise), or whether digging down would amount to a trespass which the landlord could prevent (if the work was held to be outside the demise).

In making its decision the Court considered prior cases on both airspace and subsoil. It confirmed the presumptions and rules that I have outlined above, and set out the different considerations that apply between airspace and subsoil.

It’s worth repeating the observations made by the Court.

·       The Court confirmed the legal presumption that the owner of land owns not only the surface of the land but also the airspace above and the subsoil below it.  Applying that presumption, the Court held that in this case the landlord's freehold interest included the subsoil, so the landlord had the ability to demise the subsoil to the tenant if it so wanted.

·       When considering leasehold interests, it’s helpful to consider whether the drafting refers to horizontal or vertical divisions of the land. Where a property is demised vertically (say a garage or a terraced house) it’s more likely that the demise will be seen to be vertical and include the airspace and subsoil, although not with vertically divided top floor flats.

·       Where the drafting refers to horizontal splits (for example, that the demise comprises the first and second floors of a building) case law indicates that where the demise includes the roof, it’s also likely to include the airspace above, but this may not be the case where there are multiple leases split vertically along the roof.

·       There are differences between subsoil cases and airspace cases:

o   Subsoil is key to the stability of the whole building. If the foundations become unstable the whole building is threatened. Not so of the roof.

o   Access to the subsoil is more difficult and will generally involve going through the lowest demise in the building (although not invariably so).

o   Subsoil isn’t visible and open to the elements as the roof is, so a problem won’t be easily noticed at an early stage.

Therefore, the Court was reluctant to apply the authorities (the case law) concerning the roof to the subsoil without further consideration.

The Court’s decision was based on its interpretation of the lease, rather than applying any legal presumptions, and the Court found that on its true construction the lease did not demise the subsoil to the tenant.

·       The definition of the premises referred to the Building, which was the physical structure on the site and did not include the subsoil.

·       Although there was an interpretation provision adding the cellar to the demise, that was not sufficient to include the adjacent subsoil.

·       The rights granted to the tenant in the lease included rights of services through neighbouring or adjoining landlord's property, which the Court said would include the subsoil if it were not included in the demise. “Whatever the limit is, whatever is under it is self-evidently not demised”.

·       The fact that there was a landlord’s reservation of a right to pass services under the demise suggested that there must be a lower limit to the demise, and so it could not include the subsoil.

·       The foundations had been demised to the tenant and there was a tenant’s covenant to keep them in repair. However, the landlord had a right of entry to carry out the repairs if the tenant defaulted and so the Court considered this meant that the landlord had retained control of the foundations (I think this is a moot point).

The key point in all of this is that when granting, or accepting, new leases of ground floors and basements you need to take care to state expressly what is included in the demise.

That also applies equally to leases of the upper parts and airspace.

Provided the drafting is clear, there will be no need to risk relying on past case law and whatever presumptions may, or may not, apply.

If you are considering developing existing leasehold property, either as a landlord or as a tenant, the wording of the lease will be paramount.

The closing words of HHJ Paul Matthews’ High Court judgment provide a useful warning for developers:

“Overall, on the construction of the lease, in the context of this transaction, and taking account of the ability of the freeholder in 1992 to grant a lease of the subsoil, in my judgment this lease does not include the subsoil beneath the Building. I quite accept that, in an urban context, where living space is at a premium, it may well be a reasonable use of natural resources to seek to create extra living space by digging down only a few feet, so improving the accommodation which already exists.

But this can only take place within the context of the legal rights which have been deliberately created by the parties or their predecessors in title. The mission – or a part of the mission – of property law is the allocation and management of resources, which requires (amongst other things) stability. Hence what governs is not what is reasonable in the circumstances. Instead, it is (within public policy limits) what is stipulated. The economics, however reasonable, do not control the law.

Thus, at the end of the day, in my judgment it is up to the freeholder whether this project can go ahead. If the freeholder asks too much by way of compensation, it will not. That would perhaps be a pity. But, under our property law, it is up to her. In the meantime, I conclude that Master Price reached the right conclusion, even if he expressed his reasons slightly differently. The appeal is accordingly dismissed.