Residential Management Disputes. Natasha Rees, Emma Gosling, Yvonne Hills and Sarah Heatley 25 February 2016

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1 Residential Management Disputes Natasha Rees, Emma Gosling, Yvonne Hills and Sarah Heatley 25 February 2016

2 Case Study

3 The first scenario water ingress

4 The problem You get a call on a Friday evening from the tenant of Flat 1 on the Ground Floor, to say that there is a leak in her ceiling which appears to be emanating from Flat 3 on the First Floor.

5 What steps do you need to take as a matter of urgency? Inspect Flat 1 and contact the tenant of Flat 3 to see if they will allow access to establish the source of the leak.

6 What steps do you need to take as a matter of urgency? The tenant of Flat 3 does not cooperate - check the lease provisions regarding access and repair to see who would have responsibility for any repairs, and whether any notice has to be given.

7 The Lease provisions Access At all reasonable times and upon written notice having been provided (except in case of emergency) to permit the Lessors and/or their Surveyors and (as respects work in connection with any other parts of the Building) their lessees with workmen and others to enter into and upon the Demised Premises or any part thereof for the purpose of inspecting repairing or altering any part of the Building or other structures or other conveniences belonging to or serving or used for the Building or any parts thereof making good all damage occasioned thereby to the Demised Premises

8 The Lease provisions The tenant is responsible for keeping the Demised Premises in good and substantial repair, and the landlord for the Building. The Demised Premises includes: all conduits (save those belonging to any supply authorities) which are situate in any part of the Building and serve exclusively the Demised Premises but excludes: any Services in the Building which do not serve exclusively the Demised Premises

9 Steps required when a tenant refuses to provide access in accordance with the lease Protection from Eviction Act Issue an injunction for access to be provided as a matter of urgency, both to identify the source of the problem and to carry out any necessary repairs. Consider whether to do with or without notice, and whether to go for an interim or final injunction.

10 An injunction has been obtained and the source of the leak is found, who is responsible for the remedial works? Review the repair covenants and definition of demised premises. The service in question is a riser which serves the whole building and clearly falls within the landlord s repairing obligations. Your order allows for access for carrying out the repairs and you instruct your preferred contractor.

11 Having obtained a quote for the works it is clear that the costs will exceed the 250 threshold for a Section 20 consultation, what are your options? Consult with the tenants and seek to recover the costs via the service charge. NB. Phillips & Goddard v Francis [2014] EWCA Civ Seek dispensation on the grounds that the works are urgently required- Daejan Investments Ltd v Benson [2013] 1 W.L.R Consider making a claim via your insurers for the cost of the works. Damages sustained as a result of the delay in providing access may be claimed from the tenant of Flat 3.

12 The second scenario unauthorised alterations and unauthorised sub-letting

13 The first problem On undertaking your inspection of flat 3, you identify that alterations have been carried out without landlord s consent. A structural wall has been removed and the layout of the flat has been changed to create an additional bedroom

14 Is the tenant in breach of the lease? Check the alterations provisions in the lease are structural or non-structural alterations permitted? is landlord s consent required not to be unreasonably withheld? Check the demise are the alterations extending beyond the tenant s demise Is there a forfeiture clause?

15 The Lease provisions The Lessee covenants with the Lessor Not at any time during the Term to make any alterations to the Flat without the consent in writing of the Lessor first obtained such consent not to be unreasonably withheld Not to make alterations to the plan elevation or external appearance or to any of the party walls or the principal or load bearing walls floors or timbers of the flat and will not do anything which would adversely affect the support repair or enjoyment of the building.

16 The tenant is in breach what should you do? Immediately put the rent account on stop Send a formal letter before action Consider if you have waived the right to forfeit Serve a Section 146 Notice Make an application for a determination of the breach

17 You have waived the right to forfeit are there other remedies available? Seek an injunction requiring the tenant to remove the unauthorised alterations and restore the property to its former condition Issue a claim for damages to recover any losses that the landlord has suffered Grant a retrospective licence for alterations.

18 The second problem You discover that the tenant has carried out the alterations to create an extra bedroom which he is now letting out on Airbnb.

19

20 Is the tenant in breach? Again, check the lease: Check the alienation provisions are there restrictions on subletting or sharing of part? Is landlord s consent required? Check the user clause Is there a forfeiture clause?

21 The Lease provisions Alienation: The Lessee will not: Assign transfer, sublet or part with possession of part only of the Flat (as distinct from the whole) in any way whatsoever Sublet the Flat as a whole without the consent in writing of the Lessor first obtained such consent not to be unreasonably withheld [and then only subject to the following conditions].

22 The Lease provisions User: Not to use the flat for any purpose whatsoever other than as a private dwelling house in the occupation of one family only.

23 The tenant is in breach what should you do? Immediately put the rent account on stop Send a letter before action Apply for a determination of the breach as a first step towards forfeiture Alternatively issue an injunction requiring the tenant to stop the subletting in breach.

24 The third scenario extending a flat beyond its demise

25 The problem Following a routine inspection of the building you discover that the owner of the top floor flats has knocked flats 19 and 20 together without seeking consent and has incorporated the corridor which previously separated the flats. The corridor was not demised to the lessee and is therefore a common part.

26 What does the landlord want to do about this land grab? Option 1 - Proceedings: take action against lessee forcing him to reinstate the two flats in addition to the remedies already discussed if there is trespass, as is likely here, the Landlord could issue an injunction ordering reinstatement. injunction is an equitable remedy so the Court can grant damages in lieu. the measure of damages can be used to decide the premium if the landlord is willing to negotiate. for trespass claims the most common measure of damages is release fee damages also known as Wrotham Park Damages a share in the uplift of the value of the flats. issue proceedings for an injunction/damages and legal costs.

27 What does the landlord want to do about this land grab? Option 2 - Negotiate: without prejudice negotiations against backdrop of the threat of or injunction proceedings will focus the lessee s mind as premium negotiations continue. consider whether matter is caught by Landlord and Tenant Act 1987 Right of First Refusal.

28 Landlord and Tenant Act 1987 If a landlord is considering the disposal of a building containing flats, or any part of that building it is important to check if it is caught by the 1987 Act. If so, he must first comply with the requirements under the Act.

29 Is disposal caught by the Act? Does the 1987 Act apply to the premises? they consist of the whole or part of a building; and they contain two or more flats held by qualifying tenants; and the number of flats in the premises held by qualifying tenants exceeds 50% of the total number of flats.

30 Qualifying tenants? Every tenant will be a qualifying tenant except the following: a tenant under: a protected shorthold tenancy a business tenancy to which Part II of the 1954 Act applies a tenancy terminable on ending of that tenant s employment an assured tenancy (including an AST) or assured agricultural occupancy someone who owns or is tenant of 3+ flats in the building a tenant whose landlord is also a qualifying tenant of that flat (sublet).

31 Is proposed transaction a relevant disposal? Any disposal affecting premises to which 1987 Act applies will be caught, including entering into a contract to transfer interest in land (i.e. a deed of variation of the lease, as here). Certain disposals are exempt: grant of a tenancy of single flat creation of mortgage disposal by way of collective enfranchisement disposal under terms of will are some of the most commonly encountered but always check.

32 The corridor disposal is caught by the 1987 Act. What next? Landlord must serve a notice (a Section 5 Notice ) on the qualifying tenants offering to dispose of the relevant premises to them. if 10+ qualifying tenants notice must be served on not less than 90% of them. if fewer than 10 the notice must be served on at least all but one. At least two months acceptance period must be given.

33 No response to Section 5 Notice After the acceptance period has passed the Landlord may proceed with the disposal. Premium decided following valuation and measure of damages can be used to help decide. Any ongoing injunction proceedings can be settled by way of a Tomlin Order that provides for grant of the retrospective licence for alterations/deed of variation upon payment of the premium and legal costs.

34 Costs recovery

35 Scenario one You have incurred costs in obtaining an injunction in the County Court, and the costs of seeking dispensation from the First-Tier Tribunal. The Civil Procedure Rules will apply to recovery of your County Court costs, where usually the losing party will bear the winning sides costs although 100% recovery is unusual. The Tribunal may have decided to grant dispensation on terms, if so one of those terms could be that the landlord has to bear tenants costs in resisting any such application - Daejan Investments Ltd v Benson [2013] 1 W.L.R. 854.

36 Scenario two Breaches of the tenancy, costs were incurred in making an application to the FTT for a determination and service of a Section 146 Notice. FTT now has wider powers to award costs where the tenant s behaviour has been unreasonable - Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules What may be considered to be unreasonable is currently the subject of a number of appeals to the Upper Tribunal. In the absence of a costs order from the FTT, consider demanding an administration charge. The lease must contain a provision stating whether the landlord can recover professional and/or legal costs before he can do so. If a demand is made, it must be accompanied by the appropriate summary of rights and obligations - The Administration Charges (Summary of Rights and Obligations) (England) Regulations 2007.

37 The Lease provisions Costs recovery Pay to the Lessors on demand all costs charges and expenses (including legal costs and surveyors fees) which may be incurred by the Lessors under or in contemplation of any proceedings in respect of the demised premises under Sections 146 or 147 of the Law of Property Act 1925 whether by the Lessors or Superior Lessor or in the preparation or service of any notice thereunder respectively and arising out of any default on the part of the Lessee notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court

38 Scenario three You have agreed to grant a deed of variation for consideration, following compliance with Section 5 procedure. The deed can include provision for costs recovery, but you would also seek an undertaking for your fees from the tenant s solicitor prior to preparation of the necessary documents.

39 Points to take away 1) Always check the lease provisions. 2) Wide range of remedies but your actions early on may have an impact. 3) Maximise your costs recovery at the outset.

40 Contact Natasha Rees Partner, Forsters LLP T: M: E: Emma Gosling Solicitor, Forsters LLP T: E: Yvonne Hills Solicitor, Forsters LLP T: E: Sarah Heatley Solicitor, Forsters LLP T: E:

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