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Top 3 Cases - February 2022

In this series of articles, Stephanie and Fern aim to highlight 3 of the most interesting cases in our field decided in the past month. This month: valuation assumptions on business lease renewal, the Access to Neighbouring Land Act 1992, and guidance on the use of draft judgments during the embargo.

HPUT Trustee No 1 Limited & HPUT Trustee No 2 Limited v Boots UK Limited (Central London County Court, 24 May 2021)

Summary

HHJ Dight CBE determined the terms of a new lease and the rent payable on an unopposed renewal of a business lease under the Landlord and Tenant Act 1954.

The lease in question, which related to retail premises in Bridlington, was one of a number of batch claims between the same claimant landlord and defendant tenant.

The judge determined:

1. The lease would be for 5 years, as sought by the tenant, not 10 years as sought by the landlord. The evidence showed that 10 years was not the market norm, and in the current uncertain market, the tenant needed to remain ‘nimble’.
2. There would be a tenant’s break at year 3, as sought by the tenant (the landlord having opposed the inclusion of any break clause). Again having regard to the uncertain nature of the current market, the tenant ought to be afforded the protection of flexibility. If the landlord were correct in its optimism about the post-pandemic revival of the high street, then there would be no prejudice to it if the tenant did in due course exercise the break.
3. Inclusion of a fixed percentage annual rental increase was permitted under s.34(1), as part of the rent, but not under s.34(3), which gives the Court power to insert a variable rent review clause. However, such a term would not be included in this case.
4. The rent was determined according to a conventional zoning analysis.

Of significance is that the judge determined that the rent would be set without making an adjustment for an assumed fitting-out period. This is a question upon which conflicting decisions have been given in the past. HHJ Dight gave a number of reasons for that decision:

1. S.34 determined the rent payable from day 1 of the new lease.
2. The draftsman could have made express provision for a rent-free period, but had not done so.
3. The presumption of reality should be followed unless it conflicted with the required hypothesis; in this case, there was no such conflict.
4. The word ‘reasonably’ in s.34 reinforced the importance of reality – and in reality, the tenant would not carry out any fitting-out works.
5. The disregard in s.34(1)(a) was targeted at sitting tenant overbid, rather than at fitting-out works.
6. In the market, the need for an inducement such as a rent-free fitting-out period depends on the circumstances; there was no need for such an inducement in the circumstances of this letting.
7. Earlier County Court decisions to the contrary were not binding.

Why it’s important

Although this judgment was given in May 2021, the transcript – keenly awaited by many practitioners – has only just become available, so we felt it appropriate to include in this month’s selection.

While this case is a further useful example of the court’s approach to valuation in the context of the covid-19 pandemic, it is of most note for HHJ Dight’s decision not to assume a rent-free fitting-out period. There is no binding authority on this point; while there are conflicting decisions at County Court level, the recent trend (as demonstrated in the authorities to which HHJ Dight was referred) has been in favour of such an assumption. Following this decision, it may be that parties in other cases are more inclined to view the point as ripe for argument.

More generally, the narrow confines of the hypothetical transaction could well have wider import: if it is not necessary to look at the identity of the hypothetical bidder in order to establish whether they would require to fit out, and would, in the market, bargain for a rent-free to reflect that, the hypothetical transaction appears much less significant than might otherwise have been thought.  

The judgment is available here. 

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Prime London Holdings 11 Ltd Thurloe Lodge Ltd [2022] EWHC 303 (Ch)

Summary

The High Court made an access order on an application under s.1 Access to Neighbouring Land Act 1992. This is the first time ANLA 1992 has been considered by the High Court.

The parties both owned adjacent luxury properties in Kensington, both of which were subject to extensive development works. The claimant wished to carry out works to a wall on the boundary which was accessible only via a narrow passage on the defendant’s property. The defendant resisted the making of an access order.

Nicholas Thompsell, sitting as a Deputy Judge of the High Court, gave detailed guidance on the way in which the Act is to be approached. Having determined that an access order ought to be made, he also determined the terms of the order and what compensation would be payable. As – notwithstanding the development works and that no one was presently residing at the property – the claimant’s land was residential land, no consideration was payable, but the court nevertheless gave guidance as to how calculating such consideration should be approached.

Why it’s important

Given the Court time and costs involved in the case, and in the hope that it is another 30 years before the ANLA is again considered by the High Court, the Court took the opportunity of giving extensive guidance; this judgment will therefore be required reading for anyone considering making an application. He set 5 questions to be asked:

1. Are the works reasonably necessary for the preservation of the whole or any part of the claimant’s land?
2. Would it be impossible, or substantially more difficult, to carry out the works without entry to the other land?

 

These are threshold questions. If the answer to both is yes, then:

 

3. If the order is granted, would the respondent or any other person suffer interference with, or disturbance of, his use or enjoyment of the servient land?
4. If the order is granted, would the respondent or any other person occupying the land suffer hardship?
5. If yes to either of the preceding questions: would the interference, disturbance or hardship occur to such a degree that it would be unreasonable to make the order?

Key points covered in the judgment include:

1. While both the application and the basic preservation works must be ‘reasonably necessary’, the words ‘maintenance’, ‘repair’ and ‘renewal’ are broad characterisations of the sorts of works which may fall within the concept of ‘basic preservation works’. Nonetheless, pure development works, e.g. to construct a new wall, are unlikely to fall within the concept.
2. Works are not necessarily prevented from being ‘reasonably necessary’ because they are primarily for aesthetic purposes, or because they do not need to be done immediately.
3. The ‘use or enjoyment’ of land should be broadly construed, for the purpose of deciding whether the works would interfere with the respondent’s use or enjoyment of its land; in this case, the respondent’s land could be used or enjoyed notwithstanding that it was presently being redeveloped.
4. When considering ‘hardship’, the court is looking for more than mere inconvenience; whether hardship would be suffered must be tested by reference to the order (i.e. taking into account any financial and other terms), and not simply by reference to the works.
5. There is no general test of reasonableness under the Act; the Court must consider reasonableness when answering the first and fifth questions. The fifth question involves balancing the impact on the respondent if the order is made and the detriment to the applicant if it is not.
6. The terms that the court may order are not limited to the terms proposed by the claimant. Parties should work together to seek a solution which will work mitigate the detriment to the respondent of an order being granted, if the threshold conditions are met. A respondent who does not do so risks being penalised in costs.
7. The court’s power to award compensation is a flexible one. The court may order sums up front, or order that compensation should be payable in the future once the losses have in fact been incurred and can be quantified, or both. Security for future sums will generally be appropriate. A respondent should be fully compensated for any losses which cannot be avoided.
8. Compensation should reflect both the effect of the access and the effect of the works once finished (albeit that in the present case, there would be no negative impact once the works were complete).
9. Where there is a choice of method for the works, the starting point is that the method which causes least inconvenience to the defendant should be chosen.

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The Counsel General for Wales, R (On the Application Of) v The Secretary of State for Business, Energy and Industrial Strategy [2022] EWCA Civ 181

Summary

The Court of Appeal gave guidance on the importance of the embargo on dissemination of draft judgments and what use may appropriately be made of a draft judgment during the embargo period.

A press release, stating the result of a case but not including the judgment text itself, was published on a chambers website a day before the judgment was to be handed down. The error was due to a marketing assistant having been under a misapprehension about the date of hand-down, which was not noticed by the barristers involved. Sir Geoffrey Vos MR (with whom Davies and Dingemans LJJ agreed), having asked the parties involved to provide a full explanation of how the matter had come to pass, provided guidance for parties in future cases.

Why it’s important

Sir Geoffrey Vos’s judgment stresses the importance of the embargo and explains its purpose. Draft judgments are provided for limited purposes such as preparing submissions on consequential orders and correcting errors. While it may be appropriate for a corporate party to prepare a press release during the embargo period, so as to be able to explain a judgment to the public as soon as it is handed down, the same is not true of publicity for chambers (and by the same logic, solicitors’ firms). A summary of the judgment should not be provided to other persons (such as marketing staff), and in general the number of people having access to a draft judgment should be kept to a minimum, such as by providing it to one named clerk.

The court expressed the view that despite the overwhelming importance of the embargo, breaches are becoming more common, and stressed that future breaches may lead to contempt proceedings. Parties and practitioners should therefore take careful note of the Court’s guidance so as to ensure they only carry out permissible activities during the embargo period.

 

STEPHANIE TOZER Q.C.

FERN SCHOFIELD 

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