Real Estate Legal Update : UK Real Estate Lawyer & Attorney : Reed Smith Law Firm : Corporate Property, Planning Law

The case in question was Somerfield Stores Limited v Spring (Sutton Coldfield) Limited. Somerfield as tenant had applied for a new lease under the 1954 Act and the landlord had objected on the grounds that it was intending to redevelop the property. The tenant made its Court application and then the landlord was put into administration.

As is usual the administration meant that ongoing court proceedings could not be progressed without the consent of the administrators or the leave of the court and this was the application for leave to continue the lease renewal application.

The only creditor likely to receive any money out of the administration was the bank as secured creditor. The preferential creditors and unsecured creditors were unlikely to be paid anything out of the administration whether or not the landlord company redeveloped the property.

There was no prospect of the landlord company being rescued as a going concern.

The administrators could not prove sufficient intention to redevelop at the time of this hearing and were likely to be unable to prove that even after a delay of six or even 12 months. It is common for landlords to use the period of time between serving the 1954 Act notice (objecting to a new lease and specifying an intention to redevelop) and the court hearing date getting evidence of their intention to redevelop and the courts have always required a clear and settled intention to redevelop to be proved. The tenant however wanted a new lease and had its own refurbishment plans it was keen to implement.

The High Court allowed the lease renewal application to progress. They said that the rights of third parties (in this case the tenant) should not be prejudiced by the administration. For the administrators to succeed the administrators would have to have shown that the prejudice to the tenant’s rights was truly necessary to achieve the administration objective and in this case it wasn’t. The tenant had a legitimate interest in having the court application heard and the court balanced that against the right of the administrators to conduct an orderly administration, the objective of the administration.

Tenants caught by their landlords insolvency may take comfort from this judgment which shows that the landlord’s administration need not necessarily frustrate their business plans.

Administrators of companies with investment properties cannot assume that the moratorium on court proceedings will give them the ability to defer any lease renewal cases indefinitely. In the absence of ‘fire sales’, we may start to see more situations where administrators and banks are holding properties and are prepared to invest in their redevelopment. If so, administrators may want to think about more imaginative solutions than simply pursuing the strategy of the landlord company, such as short term leases to existing occupiers whilst the redevelopment market picks up.

As ever the solution to each problem will depend on the detailed facts but administrators cannot have it all their own way.

It is quite usual for tenants who are taking on big commitments in terms of fitting out costs and lease rents and term, to require a covenant from their landlord not to let to a competitor. With the existence of the Land Agreements Exclusion and Revocation Order 2004 it has been assumed that such provisions are exempted by competition rules. What the supermarkets’ investigation showed was that these types of provision could be anti-competitive, depending on the relevant market. If the exemption is formally removed, land agreements will have to be assessed to ensure compliance with the Competition Act 1998. Consequently parties to quite usual pre-let agreements would have to assess whether or not their agreement was going to restrict competition, check their market share and know whether their market is affected by similar agreements.

The Government’s preferred option is to repeal the exemption and expose land agreements to the full effect of competition law. While many pre-let agreements would not have a significant impact on competition, in some markets they could have anti-competitive effects. If the exemption is removed, potential anti competitive effects will need to be taken into account when drafting such agreements. Similarly if the exemption goes, existing agreements will become vulnerable to challenge if they contain anti-competitive provisions that could have an effect in their particular markets. Some clients might want to review any vulnerable agreements now to try to maximise the chances of re-negotiating agreements before the law changes.

If the exemption is repealed the Office of Fair Trade will be required to produce guidance on how land agreements should be assessed under competition law. This Guidance would aim to help businesses assess whether or not their agreements were anti-competitive.

The consultation deadline is 4 November and it remains to be seen whether there is support for the Government’s preferred option. However given that it comes on the back of the CC’s in-depth investigation of the supermarkets and the planning process, it seems likely that the proposal will go ahead.

Anyone wanting to read the consultation in full can link to it here and anyone wanting to reply to the consultation should note that the deadline is 4 November 2009.
 

• A group of individuals can apply to register any land as a town or a village green where that land has been lawfully used for sports or pastimes for at least 20 years by a significant number of people in the locality of that land.
• The group does not need to have had permission to use the land for their use to be lawful.
• Even if the group has been stopped from using the land in the past two years, they may still have the right to register the green. There are some very complex transitional provisions giving a longer period to people who had their recreational use stopped before 6 April 2007.

We have seen a reported case on the subject Lewis, R v Redcar and Cleveland Borough Council involving a proposed development by housebuilder Persimmon on a former Council golf course that was also used by locals for dog walking, and whose children played there—although they deferred to the golfers golfing. Although the developer won in this case and the land was not registered as a green (because the locals’ rights as a result of deferring to the golfers was limited or qualified), it took many years of litigating the old and new law to get to that conclusion; and during that time, the market for housing development has changed radically!

We have been involved in acquisitions of development land that have been held up by unanswered questions over informal use of the land, and whether it is at risk of being registered as a ‘green’.

Can developers do anything to avoid the uncertainty? It is not easy to avoid the uncertainty of knowing whether a group of local people will apply to register a green on land that a developer wants to build on, but:

• When buying development land, carry out full investigations as to land use
• Consider whether any title insurance policies could help back off some of the risk if land has habitually or sporadically been used for sports or pastimes
• If the use of the land for sports or pastimes is recent, it may be wise to fence the land off to prevent the use long before the sale, although this may not be a guarantee that the land will not be registered as a green. However, users of the land have two years to register a green (unless use ceased before 6 April 2007, when they have five years).

As ever, the facts of any specific case will determine the best course of action, but this is a problem that cannot be ignored.