Real Estate Update - May 2011

Service Charge Recovery – Repair v Improvement

The recently reported case of Craighead v Homes for Islington Ltd & Anor [2010] is a useful reminder to Landlords to check the cost of works is recoverable through the service charge.

This case involved an estate comprising three blocks of flats let on long leases, in three different forms. One form of lease allowed the recovery of service charge expenses incurred in the 'repair, maintenance and renewal' of the premises. The other two forms of leases went further – also including 'improvements'.

The flats were originally built with single glazed windows. The landlord replaced the windows with modern double glazing and sought to recover the expenses from all tenants. The tenants with the form of lease not including recovery for 'improvements' sought direction from the Leasehold Valuation Tribunal (LVT) as to whether the works amounted to an 'improvement' and were therefore irrecoverable.

The LVT (and later the Lands Chamber of the Upper Tribunal (LCUT) on appeal) held that circumstances can exist, as in the present case, where works can be both repairs and an improvement.

When deciding whether works constitute a 'repair', the overall effect of the works on the building are considered. Thought is also given to the comparative cost of alternative works, compliance with law, current building practice, the nature and value of the building and whether the works create a 'new thing' rather than a mere replacement. The Leases required the Landlord to repair the windows where necessary. The works could only legally be done by way of double glazing, which did not significantly alter the premises even though it was more expensive. As a result, the works were both repairs and an improvement and the costs were fully recoverable.

Reviewing Rent – can late be too late?

When to review?

Most commercial leases require the tenant to pay a market rent for the property. There will generally be an upwards only rent review on a given date. Time is not usually of the essence on a rent review. This means that unless there is a fixed deadline, or the wording of the lease implies a deadline, it is likely the landlord will still be able to review the rent if the date is missed.

The case of Idealview Ltd v Bello [2009] EWHC 2808 (QB) allowed a rent review to go ahead 13 years late. Mr Bello purchased a 50 year lease in 2005. The review due in the middle of the lease, in 1994, had not been carried out. Idealview bought the freehold in 2006 and started the rent review process, referring it to arbitration. The arbitrator determined the rent. Mr Bello refused to pay the increased rent. He said the landlord was too late to trigger the rent review and was too late to require the top up rent to be paid.

Was the Landlord too late?

The Court found that in the absence of a specific time limit, a delay on its own cannot stop a landlord from implementing a rent review. However if a landlord's actions show that it does not intend to carry out the review and the tenant relies on this, the landlord may be prevented from carrying out the review late.

How to proceed?

This case gives comfort to a landlord that misses a rent review date where no deadline is imposed. However in order to avoid receiving a large bill for back rent following a delayed review, tenants may want to check the lease to see if it allows them to instigate the review themselves. If the lease doesn't, they may be able to serve notice on the landlord imposing a deadline for review and making time of the essence.

Localism Bill – Impact on the planning system

Significant changes are being promoted at almost every level of our planning system. The main aim is to reduce "top down" targets and controls and advance a locally-driven system, which is set to gain clear benefits from development.

At the top, a National Planning Policy Framework is proposed, replacing all current policy statements and guidance with a single, concise and less bureaucratic document. The presumption in favour of sustainable development runs throughout and all local plans would have to conform. The Coalition Government hopes to advance it quickly, with the final Framework...