In November Lord Justice Coulson and Lady Justice Rose gave judgment in the development dispute case of Farrar and another v Rylatt and others [2019] EWCA Civ 1864.

The appellants had been disappointed by a decision in the High Court that oral discussions between the appellants and respondents did not amount to either an oral profit share agreement, or an oral express trust; and that (concerning a different agreement) heads of terms marked “Subject to Contract” did not morph into a binding agreement. The Court of Appeal agreed that the appellants should remain disappointed.

The alleged profit share agreement, whether or not it included a trust, was a complicated arrangement, which both courts doubted could have been agreed by these parties orally, and at such a high level. Further, the appellant had not been able to identify and plead clearly enough when, and where the oral agreement was reached, or what was said.

The use of the label “Subject to Contract” to avoid a binding agreement, was given a high degree of respect at the outset, with the Court then considering carefully at each stage, since the heads of terms, whether the parties had started to perform an agreement, or otherwise by conduct agreed to be bound by it, reaching the decision that they had not.

The Farrar v Rylatt case

This is a decision which bears all of the hallmarks of a development dispute; there is usually a profit to be split, or a loss to be apportioned, a number of incomplete documents, some alleged oral agreements, a number of parties, including limited companies, which are often wholly owned by their principles, and people building stuff.

In this instance the claimants, and then appellants were Neil Farrar (referred to in the judgment as Neil) and his company Farrer Construction Limited (Farrer). The defendants and later respondents were James and Kevin Rylatt (referred to in the judgment as James and Kevin), and their limited company, JKR Property Developments Limited (JKR).

The dispute concerned two development projects, in each instance the defendants had purchased the land, and the claimant was the builder developing it.

Hazel Grove development

The first project, where the arguments were for an oral profit share or trust of land, involved a development site purchased by James and Kevin, referred to as Hazel Grove, for £50,000. James and Kevin agreed to pay either Neil or Farrer £97,000 to build a house at Hazel Grove. It appears not to have been resolved who was supposed to be paid, or in fact who was paid, but agreed that someone was paid.

The development was purchased in the end for £190,000, meaning that (in broad terms) a profit of £40,000 was up for grabs.

Oral agreement

Neil and Farrer sought to argue that there had been an agreement that there had been an oral agreement that the proceeds of the sale of Hazel Grove would be held on trust for Neil, and James and Kevin, at 50% each side, or that there was an oral agreement that the proceeds of sale would be split in that way.

The Judge at first instance, and then Lord Justice Coulson giving the leading Judgment were unimpressed with the oral evidence, and noted that there was little documentary evidence in support of the claim. There was also universal judicial agreement that the idea of parties reaching agreement orally on a complex declaration of trust was unlikely, given that they were probably good builders, but unlikely to fully understand the application of trust law in those circumstances.

The Barns development

The other property, known as the Barns, was owned by Neil. The parties appear to have agreed in principle to develop the property together, pursuant to heads of terms, drawn up by a chartered surveyor, bearing the heading “subject to contract and without prejudice”.

The heads of terms included that James and Kevin would purchase the site, Farrar would build out the project under a JCT contract for a fixed sum of £300,000, which would be paid by James and Kevin, in return for which the net profit of the development would be split, 50% to Neil, and 25% each to Kevin and James.

The heads of terms were not signed, but were a common document between all of the parties.

Farrar commenced work on the barns, then the site was conveyed to JKR (not James and Kevin personally), and a JCT Contract between Farrar and JKR (again not James and Kevin personally) was entered into, with the heads of terms annexed to it.

There was a dispute over the final payment for the building works, but that appears to have been resolved, and some of the properties had been sold, at least by the point that the Court of Appeal heard the matter.

Court of Appeal

The Court of Appeal preferred to look at three types of agreement (land sale, building contract, and profit share) which the parties might have entered into. It then considered various points at which such agreements might have become binding on the parties: the point at which the heads of terms were completed, the date of sale of the land and the date of entering into the JCT.

Neither Court found any significant evidence of performance of any of the terms, indicating that the parties intended to be bound by the heads of terms, despite entitling them as subject to contract.

The Court of Appeal agreed with the trial judge that the heads of terms were unlikely to amount to a binding agreement to sell land, given that the agreement fell short of the stringent provisions of section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989, and that the term that the property was transferred to James and Kevin personally had not been reflected in reality.

Both Courts also drew inference from the fact that the only contractual emanation of the heads of terms was the JCT, indicating that if the parties had intended upon a binding agreement for the rest of the terms they would have entered into one.

“Subject to contract”

Both Courts also attached much importance to the subject to contract tag. The Court of Appeal pointed out the authority of Regalian Properties PLC and another v London Docklands Development Corporation [1995] 1WLR 212 which provides that: “…in the absence of special facts (which the judge explained by reference to a number of separate conditions which needed to be fulfilled) the deliberate use of the words “subject to contract” had the usual effect so that, in the event of no contract being entered into, any resultant loss must lie where it fell.”.

The special circumstances in this case might have been substantial performance of the terms, but in this case, having carefully analysed the chronology of events, the Court could not find any performance which amounted to a special fact.

“Without prejudice”

Incidentally, the Court of Appeal pointed out that the use of the label “without prejudice” did not appear to be appropriate in these circumstances. The parties were not at that time in a dispute, and the use of the label added nothing except confusion. There will be times where it would be appropriate to use the label on heads of terms, but normally these would be times when there was a dispute in contemplation, and the parties did not want to water down their evidence by indicating they were willing to settle.

Practitioners should take comfort from this decision, as it indicates that heads of terms which are appropriately titled, will be construed as working, not binding, documents. On the other hand, no doubt James and Kevin will have incurred costs which they have not been able to fully recover from Neil, and as such, perhaps they might (with the benefit of hindsight) have been better to clearly indicate to Neil that there were no special deals.

Click here to read a transcript of Farrar and another v Rylatt and others

Michelmores has announced a new two-year charity partnership with The Charlie Waller Memorial Trust, a charity working to educate young people on the importance of staying mentally well, and how to do so.

From January 2020, Michelmores will fundraise in support of The Charlie Waller Memorial Trust, across its offices in Bristol, Exeter and London.

The Charlie Waller Memorial Trust, based in Berkshire, was set up by Sir Mark and Lady Waller, in memory of their son Charlie, who sadly took his own life whilst suffering from depression. The charity’s work focuses on delivering talks, education and training to young people, teachers and those who work with them about positive mental health. They provide education and training to primary health care and other professionals, in identifying and supporting those with depression as well as offering training and self-help resources to universities and colleges to promote resilience and mental wellbeing.

Lady Waller, Head of Fundraising at Charlie Waller Memorial Trust said:

“We are thrilled to have been announced as Michelmores’ Charity Partner and are looking forward to working with them over the next two years. The money raised by the three offices in London, Exeter and Bristol will mean that we can run many more training sessions in schools, universities, FE colleges and workplaces and enable more people to understand and talk openly about depression and other mental health problems, stay mentally well and access appropriate treatment.”

Every two years, Michelmores invites applications to become its dedicated charity partner. Submissions are shortlisted and the winning charity is selected through a staff vote.

Michelmores staff raise approximately £40,000 annually for their nominated charity partner through initiatives such as the 5K Charity Run, the Christmas bizarre, the National Three Peak Challenge and many other fundraising events each year.

For further information on the Charlie Waller Memorial Trust, please visit their website here.

I am often asked by clients what is the difference between executors and attorneys.

The role of attorney and executor are similar to some extent but also very different. Both roles involve attending to somebody else’s financial affairs but in different contexts. The main difference is when that person can make decisions for another – depending on whether they are to act during that person’s lifetime, or after their death.  In addition, attorneys and executors are appointed in different ways by entirely separate documents.

An attorney is appointed by an individual (the Donor) to act on their behalf during their lifetime by the creation of a Lasting Power of Attorney (LPA). An attorney can be appointed to act in respect of either the Donor’s health and welfare matters and/or their property and financial affairs. In this article, I will be focusing on attorneys appointed to deal with a Donor’s property and financial affairs. Subject to the LPA being registered with the Office of the Public Guardian, and any restrictions that may be placed on the scope of their authority written within it, an attorney appointed under a LPA can make decisions on behalf of the Donor in respect of his or her property and financial affairs. This authority to act can extend to making decisions even when the Donor has lost the requisite capacity to be able to make those decisions themselves.

The appointment of an attorney automatically ends on the death of the Donor, at which time their executor becomes responsible for dealing with their financial affairs.

By comparison, an executor is generally appointed in the Will of a person (the Testator). The appointment only comes into effect once the Testator has died, at which point the executor becomes responsible for administering the estate. In the same way that an attorney cannot act under a LPA for a Donor after their death, an executor appointed in a Will cannot act for a Testator during the Testator’s lifetime. The appointment of an executor only comes into effect when the Testator has passed away.

The role of attorney and executor also differs in how they make decisions. An attorney must ensure that they have made every effort to allow the donor to make their own decisions before they decide on a course of action on the Donor’s behalf, and must act in the donor’s best interests at all times. This is set out under the Mental Capacity Act 2005.

In contrast, an executor must act in accordance with the provisions of the Will and is subject to duties set out in various legal instruments, such as the Administration of Estates Act 1925 and the Trustees Act 2000. These duties include collecting in and safeguarding the assets of the estate, paying all debts and liabilities and distributing the estate to the beneficiaries in accordance with the terms of the Will.

It is crucial for both the person choosing to appoint attorneys and executors (and of course those who are due to act) to understand the difference between these very separate and distinct roles, even if the same person is to act as both attorney and executor. Both roles create a heavy weight of responsibility and there are strict penalties for failing to act in the correct manner in either role.

If you would like further assistance or advice about appointing attorneys or executors or if you wish to review your existing appointment please contact Gemma Shepherd.

This article was first published on LexisNexis on 10/10/2019

Energy analysis: The Crown Estate has released the UK’s first major offshore wind leasing round in a decade. Ian Holyoak, partner at Michelmores LLP, points out that the capacity released is only a quarter of the previous round as the Crown Estate seeks to balance the strong market appetite for new seabed rights with the interests of other seabed users and the potential environmental impact.

Original news

The Crown Estate reveals next round of Offshore Wind Leasing, LNB News 19/09/2019 36

The Crown Estate has launched Offshore Wind Leasing Round 4, which has opened up seabed rights for offshore wind development around England and Wales estimated to allow for the production of at least seven gigawatts of electricity. The Crown Estate, which manages the seabed surrounding England, Wales and Northern Ireland, will now allow potential developers to bid for project sites. The opening of Round 4 follows 18 months of engagement with the market and stakeholders.

What is the Crown Estate Offshore Wind Leasing Round?

The Crown Estate Offshore Wind Leasing Round 4 is the next round of auctions of seabed rights for offshore wind projects in the waters around England and Wales. It is the first opportunity for offshore wind developers to obtain new seabed rights since the last award of rights in 2010 (Leasing Round 3). The Crown Estate has indicated Leasing Round 4 will result in the release of at least 7 GW of new seabed rights, up to a maximum of 8.5 GW.

There are four bidding areas that will be up for grabs in Leasing Round 4:

• ‘Dogger Bank’—off the coast of Northumberland, North Yorkshire and County Durham
• ‘Eastern Regions’—a large area directly south of the Dogger Bank off the coast of Lincolnshire, Norfolk and Suffolk
• ‘South East Region’—off the coasts of East and West Sussex and the south coast of Kent, and
• ‘Northern Wales and Irish Sea’—off the coasts of Northern Wales, Lancashire, Merseyside and southern Cumbria

Within the four areas above, potential bidders will be free to identify and put forward their chosen project sites. The minimum individual project size is 600 MW in the Dogger Bank area, and 400 MW in all other bidding areas, with the maximum individual project size being 1.5 GW in all areas.

Leasing Round 4 will incorporate a three-stage tender process. The first stage will include an evaluation of a potential bidder’s financial capability and technical experience, to ensure bidders meet a minimum required standard. The second stage focuses on the details of a bidder’s proposed projects. Project submissions as a part of the second stage will be assessed on the basis of a number of pre-defined criteria relating to project capacity, project density and other technical variables.

Once through these first two stages, a potential bidder will be able to participate in a multi-cycle bidding process, with the award for each project to be determined by the option fees bid by eligible bidders. One project will be awarded per daily bidding cycle, with bidding cycles continuing until the 7 GW has been awarded (or exceeded). According to The Crown Estate, the process has been designed in this manner to allow for more price transparency, allowing participants to adjust their bidding strategy as the round progresses.

What is the anticipated timeline for the latest leasing round?

The overall leasing process is set to run from October 2019 through each of the stages of the tender process up to signature of an agreement for lease for successful bidders in Autumn 2021.

The first stage for potential bidders, submission of a pre-qualification questionnaire (PQQ), will run for 14 weeks from October 2019 until January 2020. The overall tender process is expected to take approximately 12 months, with a plan-level habitats regulations assessment (HRA) taking a further 12 months.

It is worth noting that the timeline for Leasing Round 4 is not legislatively mandated, so the timelines set out by The Crown Estate should be considered in that context. It is possible that the anticipated timelines will shift as the process progresses.

How does the latest round differ from previous rounds?

The Crown Estate seems to have been at pains to ensure that the design and methodology of Leasing Round 4 has considered the views of a range of stakeholders, given the political and economic context in which this round will take place. The announcement of Leasing Round 4 comes following almost two years of stakeholder consultation, through which several tangible changes were made to the model initially proposed by the Crown Estate in 2017. The model ultimately adopted for Leasing Round 4 is substantially different to Leasing Round 3 and previous rounds.

One key difference in Leasing Round 4 as compared to Leasing Round 3 is the amount of capacity released. While not unexpected, the capacity to be released as a part of Leasing Round 4 represents approximately a quarter of the capacity released under Leasing Round 3. The Crown Estate cited the need to find a balance between the strong market appetite for new seabed rights, the interests of other seabed users, as well as the potential environmental impacts from further offshore wind development. The Crown Estate’s ‘Resource and Constraints for Offshore Wind: Methodology Report’ reveals weight was given to range of factors, including the visibility from shore and the impact on shipping and fishing. Each of these factors had an impact on the location, and ultimately the total capacity, of the rights released as a part of this round.

Perhaps the most notable difference in the latest leasing round is the role of the ‘option fee’. The ‘option fee’ in Leasing Round 4 will act as both the bid at the auction stage, as well being one of the bases upon which the base rent under a lease for a project is to be calculated (at both pre-generation and operational stages). In contrast, the revenue model adopted for projects awarded under Leasing Round 3 was based on a percentage of the revenue generated by a project. The latest model accordingly shifts a certain amount of development and generation risk back to the developers and funders on each project, particularly during development stages.

On a similar theme, Leasing Round 4 will also not incorporate the co-investment aspects seen in Leasing Round 3, whereby the Crown Estate invested directly by funding a proportion of a developer’s consenting costs. Assistance from Crown Estate in the new Leasing Round comes in the form of study and feasibility support, information collation and ‘enabling’ works packages. The Crown Estate’s guidance document indicates ongoing engagement and facilitation will be available to successful bidders, particularly in relation to consenting and environmental impacts. The latter will be of particular note, given the recent progression of the 2017 Extension projects through the HRA to the rights award stage.

Is there anything unexpected?

As with any energy generation projects, the availability and location of cabling and grid connections are crucial to the viability of a project. The Crown Estate identified concerns around cabling and grid connections as a key feature of stakeholder feedback during the consultation process leading up to the latest leasing round. This remains one of the key unknowns in the Round 4 process.

The underlying regulatory basis for offshore transmission is, of course, well understood by the market and it will apply equally to the projects developed as a part of Leasing Round 4. The transmission infrastructure will be developed by the developer of the windfarm and then transferred to an Offshore Transmission Owner (OFTO) which will either be selected through a competitive tender process or directly appointed by Ofgem.

However, the feedback to the consultation raised a number of questions that the Crown Estate has been unable to address head-on, and which are unlikely to be resolved prior to the bidding stage of the process. In particular, whether transmission could be accommodated within existing transmission routes (where the bidding area abuts already developed seabed), and how future development of grid infrastructure may impact grid connection availability in constrained landfall areas (for example within Suffolk). On the latter point, the Crown Estate has revealed that when designing the amount of capacity that will be allowed in any region, it did not explicitly take into consideration the findings of the National Grid’s Electricity System Operator (ESO) desktop connection feasibility study, which assessed grid connection and possible cable routes for the regions. Developers will, accordingly, need to make use of the resources provided by the Crown Estate and undertake their own assessments of the financial viability and consent risk for potential cable routes and grid connection locations prior to submitting bids.

Notwithstanding these points, in the main, given the long and detailed consultation process undertaken, there are few surprises in the documentation released by the Crown Estate launching Leasing Round 4. It broadly aligns with the previous documentation released and many stakeholders are likely to have already begun progressing internal planning for these projects.

What potential implications does it have for the UK energy sector?

The launch of Leasing Round 4 appears to have been received positively by the majority of stakeholders in the energy sector and, unsurprisingly, particularly by those engaged in or seeking to engage within the renewables sector. Offshore wind is a key feature of the government’s future plans for decarbonisation of the UK energy supply chain and it seems likely that the private sector will be similarly enthusiastic about investing in the technology through Leasing Round 4. The strong government support will no doubt be viewed favourably in contrast to what is seen as a general cooling in government support for renewable energy development on a wider level, most notably in the area of small-scale generation.

The energy supply chain and the local energy sector business in the areas from which these projects will be constructed and serviced will naturally also benefit from both the construction and operation of the offshore windfarms as a result of the development of rights released under this latest leasing round. From the perspective of UK energy security and job creation, there would appear to be little to complain about in the announcement of Leasing Round 4.

Assuming the round is a success—and there is no reason to suggest otherwise given the success of past rounds—it is also likely to add to the narrative of offshore wind being seen as a ‘thermal generation killer’. Coming at the same time as historically low prices seen in the most recent Contract for Difference (CfD) auction round for offshore wind, Leasing Round 4 may add weight to arguments against new government-supported developments of non-renewable forms of electricity generation. Ever the punchbag in the renewables sector, Hinkley Point C will undoubtedly continue to receive its share of criticism, as proponents point to the Crown Estate’s ambition to deliver future leasing opportunities in line with market and government appetite. However, the need for baseline generation and technological advances to address the inherent volatility of wind generation will remain.

Holyoak was interviewed by Grania Langdon-Down of LexisNexis.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

The Michelmores Energy Team has significant experience advising on the financing, development and sale/purchase of wind projects. If you or your company would like any further information, please contact Ian Holyoak.

Average read time: 2.5 minutes. 

Every playground has one so why should the Financial Conduct Authority (“FCA”) miss out on all the fun?

In software development, “sandbox” is a word commonly used to describe an isolated testing environment for new apps or programmes. The regulatory sandbox is just that – a framework set up by the FCA, the regulator of the financial services sector in the UK, to allow small scale, live testing of innovations by private firms in a controlled and safe environment.

The FCA’s aim in building the Sandbox was to reduce time-to-market for businesses wishing to innovate while providing support in identifying appropriate consumer protection safeguards to build into these new products.

How it works – the basics

Authorised and unauthorised firms and technology businesses are able to apply to enter the Sandbox via the FCA website once a new round of applications (“Cohort”) has been launched. Within the application form, applicants have to set out how they meet the eligibility criteria. If accepted, participants are usually subject to a less onerous regulatory regime via waivers and protection from enforcement action which together with guidance and informal steers comprise the “Sandbox tools” available to participants as they develop their products. For example, businesses seeking to introduce new technologies in the banking and investment markets have benefited from reduced capital adequacy requirements.

Advantages

The Sandbox is a good example of collaboration between regulators and innovators aimed at encouraging the realisation and full potential of technologies, such as artificial intelligence, whilst protecting the consumer. It recognises that innovation happens faster when businesses can test new ideas without the burden and cost of compliance with exhaustive consumer protection and is better when it is tested in a live environment with real consumers on a trial basis. Other benefits include:

• Proof from experimentation improves access to capital for innovators.
• Consumers benefit because new technology-based products are brought to market sooner.
• Direct communication between fintech developers, businesses and regulators creates a more cohesive and supportive industry.
• Successive trial-and-error testing within a controlled environment mitigates the risks and unintended consequences such as unseen security flaws when a new technology is adopted in the market too quickly.

The information gathered during each Cohort cycle feeds into a lessons learned report (October 2017 report here), reflecting on insights gained and lessons learned from testing products which ultimately assists in shaping a new regulatory framework to govern these products. More recently the FCA published a report outlining the impact of innovation on firms that have been supported through the sandbox and how it promotes effective competition in the interest of consumers (here).

What’s next?

Applications to Cohort 5 closed on 30 November 2018. On the 29 April 2019 it was announced that 29 businesses of 99 applicants were accepted. A list of the firms accepted can be found here. Applications are now open for Cohort 6 – apply by 31 December 2019.

Given the continued popularity of the Sandbox, it is likely that further Cohorts will follow. Steps to create a Global Financial Innovation Network and global regulatory sandbox are being taken.

Average read time: 3 minutes.

Why is storage important?

The transition of the electricity network in the UK to a smarter, flexible and more modern system has been underway for some time, with Distribution Network Operators (DNOs) transitioning to Distribution System Operators (DSOs) with more responsibility for actively managing the distribution network. Storage, whether by battery or other technology, provides opportunities for increased flexibility for the electricity network, in particular at times when there is an imbalance between generation and consumption.

Advancements in battery technology and a developing battery industry mean storage projects with over 550MW capacity are now being proposed by developers. However, current regulatory controls have made it difficult for battery storage technology at this scale to be widely deployed.

What are the existing planning challenges for storage?

Currently, there is no definition of “electricity storage” within planning law, which has led to a lack of clarity in relation to planning requirements.

The current regulatory regime is not clear on whether electricity storage technologies constitute an electricity generating scheme. The Planning Act 2008 requires that where an existing or extended electricity generating station results in a capacity of over 50 MW in England, and 350MW in Wales, it will be classified as a Nationally Significant Infrastructure Project (NSIP).  As a result of this, a Development Consent Order is required.

This means a different application process for planning, taking the decision from the local planning authority and moving it to the Planning Inspectorate (i.e. Government approval).

What is the latest consultation on the planning system for storage?

In response to push-back from the industry on an earlier consultation in January 2019 regarding the treatment of electricity storage within the planning system, BEIS has issued a follow-up consultation along with two published two draft orders; the Infrastructure Planning (Electricity Storage Facilities) Order, and the Electricity Storage Facilities (Exemption) (England and Wales) Order.

The original proposals covered England only, and were to retain the 50MW NSIP threshold for standalone storage facilities, and to provide a new capacity threshold for co-located sites. The revised proposals are (in summary) to carve out electricity storage (other than pumped hydro) from the NSIP regime. This means that a standalone storage project (other than pumped hydro) would not fall under the NSIP regime (unless directed by the Secretary of State) and for co-located projects involving storage, the storage element would not trigger the NSIP threshold by itself.  It is proposed this would apply through England and Wales. The consultation on these proposals is open until 10 December 2019 and can be found here.

The BEIS proposals set out in the draft orders and consultation seek to clarify the planning law requirements by introducing a new definition of “electricity storage facility”.  Under the proposals, electricity storage facilities (other than hydroelectric pumped storage facilities) would be exempt from the requirement to obtain a Development Consent Order and consent under s.36 of the Electricity Act 1989.  In other words, larger storage projects could receive consent from local planning authorities under the country’s Town and Country Planning Act.  While there are advantages to the NSIP regime, there is potential for the planning process to take significantly longer and cost more, than for a project with a lower capacity, creating a significant challenge for larger storage projects.

The proposed changes to the planning regime could therefore reduce the pre-construction costs which might otherwise have been in place.  It will also allow developers who have capped their projects at 49.9MW (in England) to access larger project capacities, which can unlock investment.

The new proposals, if implemented, are likely to come as a welcome change for developers adding exempt electricity storage facilities to existing electricity generating stations.

However, it is important to note that a Development Consent Order may still be required where the development also involves non-electricity storage related element.

In what is being described as “the biggest change to the private rental sector for a generation” the Government has recently reported that it intends to abolish the use of section 21 Notices, seeing an end to the so called “no-fault” eviction process for assured shorthold tenancies (“ASTs”).

At the same time, the Homes (Fitness for Human Habitation) Act 2018 and the Tenant Fees Act 2019 have recently come into force – the latest in a whole series of statutory restrictions introduced since 2015. It appears that the statutory freedom enjoyed by landlords since 1989 is well and truly coming to an end.

Section 21 proposal

Currently, under Section 21 Housing Act 1988, landlords may terminate a periodic AST without providing a reason for doing so and with as little as 8 weeks’ notice.

The procedure for ASTs has historically been criticised by tenants’ associations and more recently by the Prime Minister, who has labelled it “unfair and ‘wrong”. Its abolition is therefore welcome news for tenant groups, however will remove certainty and autonomy from property owners, in what is otherwise a highly regulated area.

Although “no-fault” evictions will end, landlords will still be able to terminate ASTs provided they establish a legitimate reason for doing so, eg wanting to move into the property themselves or wanting to sell the property.

In a bid to level the playing field between landlords and tenantes the wider reform package also includes proposals to improve the Section 8 eviction process (the process for obtaining possession, where a tenant is in default) including speeding up the court process. This is welcome news for landlords as currently the Section 8 process is costly and time consuming, with cases being drawn out over long periods due to oversubscribed court lists.

It is unclear when the proposed changes will come into effect, but until they do Section 21 will remain in force.  Landlords wishing to regain possession in the near future, would therefore be well advised to press on and serve a Section 21 notice soon, before it is abolished.

Homes (Fitness for Human Habitation) Act 2018

Under this Act a new covenant will automatically be implied into most new residential tenancies of less than 7 years, granted after 20th March 2019 (including those which continue as statutory or contractual periodic tenancies after that date) a covenant that the dwelling is fit for human habitation throughout the tenancy. For tenancies caught by the Act and created before 20th March 2020 the implied covenant starts as from 20th March 2020. If a dwelling is not up to the appropriate standard a tenant will be able to take action in the courts for breach of covenant. Further details are available on the Government website.

Tenant Fees Act 2019 (“TFA”)

The TFA applies from 1st June 2019 to the grant of all new ASTs, licences to occupy and student accommodation. For existing tenancies there is a period of grace until 1st June 2020.

The TFA imposes a ban on requiring any payments from tenants or their guarantors, apart from certain “permitted payments”, set out in schedule 1 to the TFA. The Act also prohibits landlords and letting agents from requiring tenants to enter a contract with a third party for a service or insurance, although there are a number of limited exceptions.

Sanctions are imposed for non-compliance, including restrictions on using the s21 eviction procedure, if a Landlord has taken prohibited payments and not returned them.  For further details see the Government website.

Average read time: 4 Minutes.

Under s110 (1) of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the Construction Act), parties are required to:

1. “provide an adequate mechanism for determining what payments become due under the contract and when, and
2. provide for a final date for payment in relation to any
   sum which becomes due.”

To some extent, parties are free to agree contractual payment terms. This has resulted in the courts hearing numerous cases about applications and payment notices. Until recently, however, little guidance has been given on s110 of the Act. The appeal case of Bennett (Construction) Ltd v CIMC MBS Ltd (formerly CIMC Systems Ltd) [2019] EWCA Civ 1515, helps to clarify the position.

Background

Bennett was the main contractor for the construction of a new hotel in London. Bennett subcontracted to CIMC the design, supply and installation of 78 prefabricated modular bedroom units for the hotel. These were to be manufactured in China and shipped to the UK. The contract price was over £2 million.

Whilst CIMC was appointed by Bennett under a standard form JCT contract, the predetermined interim payment clauses were replaced with revised payment terms called ‘Milestones’.

Milestone 1: “20% deposit payable on execution of the contract;”

Milestone 2: “30% on sign-off of a prototype room in China by Bennett;”

Milestone 3: “30% on sign-off of all snagging items by Bennett;”

Milestone 4: “10% on sign-off of units in Southampton;”

Milestone 5: “10% on completion of installation and snagging.”

Following numerous defects with the 78 modular units, milestones 2 and 3 were not signed off, despite CIMC transporting some of the units to the UK at its own risk.

CIMC argued that the milestones did not amount to an adequate payment mechanism as the payment terms and the specification did not state by what date the “sign-off” must be done by Bennett. Consequently, as no deadline was given, and the sign off was at Bennett’s discretion, CIMC argued that there was no due date or final date for payment.

TCC

The TCC concluded that milestones 2 and 3 did not comply with the provisions of the Construction Act. They contained a specific “sign-off” process but lacked specific criteria and timescales about what payments became due and when in accordance with s110.

Accordingly, CIMC was entitled to interim payments in respect of the value of the work it had undertaken and it was irrelevant whether the units had reached a stage of completion at which they could have been signed off.

Court of Appeal

Bennett appealed and the CA had to consider:

1. whether a regime requiring payment of a percentage of the contract sum on “sign-off” of a particular stage of the works complied with the Construction Act; and
2. if it does not, should the whole stage payment process be replaced with the Scheme of Construction Contract’s monthly valuation and values based upon the amount of work completed.

Issue 1

The CA overturned the TCC’s finding on the first issue. It found that there was no reference in the agreement to an actual “sign-off” being required. It concluded that, as a matter of construction, “sign-off” was a generic reference to the achievement of a stage and would inevitably be assessed objectively. In other words, the CA did not consider that the wording used meant that a certificate was needed as a condition precedent of the amount becoming due.

The CA also concluded that having no express date for payment was irrelevant as the milestones would be paid on the completion of the relevant stage.

Issue 2

The CA reiterated the existing principle that the payment provisions in Part II of the Scheme for Construction Contracts are only necessary if and to the extent that the contract is non-compliant, as provided in s110(3) of the Construction Act.

When considering the Scheme, Coulson LJ noted that:

“[the Scheme] was not designed to delete a workable payment regime which the parties had agreed and replace it with an entirely different payment regime based on a radically changed set of parameters.”

As such, the CA favoured a common sense approach which caused no harm to the parties’ original agreement and only applied paragraph 7 of Part II of the Scheme. This “catch all” provision made “commercial sense” – where a mechanism is inadequate due to there being no agreement as to the timetable for payment, the timetable is provided by paragraph 7 (7 days after completion).

Conclusions

This decision of the CA is interesting because it considered that the words requiring a “sign off” was, on an objective test, not a pre-condition of payment and was therefore compliant with the Act. However, there are many contracts which include arrangements where the payer issues a certificate stating that the works have been completed, before the monies become due. Whether these are a pre-condition of payment and are therefore, unlawful, is a matter of wording used in the contract. Of course, in the context of an off-site manufacturing scenario, a pre-condition of receiving a vesting certificate is an acceptable pre-condition.

This case also makes clear the courts’ commitment to seek to honour the payment regime actually agreed between those parties.

One of the first duties of an executor of a Will is to check that the Will is valid – i.e. it has been correctly executed and is the last Will. The next step is to try to identify the beneficiaries of the Will. If there are charitable beneficiaries steps should be taken to correctly identify which charity is intended to benefit.

On the face of it, the above sounds very straightforward, however, this is not always the case. Charities do change names or merge or sometimes have ceased to exist by the time of the testator’s death. Complications can also arise if the Will has been drafted poorly leading to uncertainty about which charity should benefit. If a charity is named in a Will the Will drafter should check the Charity Commission website to ensure that there have been no name changes or mergers and not only recite the correct charity name in full but also quote the charity’s Registered Charity Number – RCN. Charities details can quickly and easily be verified using this link.

If the Will does not make alternative provisions for the above events, and where uncertainty has arisen, what should an executor do?

It is a common misconception that the bequest will immediately fail for uncertainty and therefore fall to form part of the residuary estate. This is not the case. The executor in this circumstance must act carefully and with due diligence to mitigate becoming personally liable for incorrectly administering that bequest.

In the first instance the executor must try to establish what the deceased’s intentions were. If there was a clear intention to benefit a charitable cause and that intention was important to the deceased then the executor should consider the doctrine of cy-près. This doctrine allows the redirection of the intended bequest to a similar charity to the one specified in the Will rather than letting the bequest fail.

The executor, however, should still be careful not to take matters fully into their own hands. They should consult the Charity Commission in the first circumstance.

In certain scenarios the Charity Commission will not be able to intervene and it may be necessary for the executors to apply to the courts or the Attorney General for a direction under the Royal Sign Manual.

In order to safeguard their personal liability, executors would be wise to seek professional advice from a specialist probate solicitor if the above circumstance has arisen.

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We are regularly asked by developer clients, to advise on disputes which have arisen as a result of an alleged failure to use reasonable endeavours to perform obligations. The property market is ever-changing and what may have been a priority or a good prospect for a developer at the time of entering into the contract, which is very often before the development has even got off the ground in terms of viability and planning, may not be when the time comes for performance. All too often the eagerness of the developer to secure the site from its competitors drives an early exchange of conditional contracts with the developer being bound by obligations that it later does not want to carry out.

It seems that the perception among some developers is that an obligation to use reasonable endeavours is so vague in its nature that it will encompass all manner of sins and excuses for non-performance. Unfortunately, the Courts do not agree and the case of Gaia Ventures Limited V Abbeygate Helical (Leisure Plaza) Limited serves as a useful reminder.

The facts and background

The facts and background of the case are complex, but, essentially, Abbeygate was liable to pay overage of £1.4m under a contract if the various conditions were satisfied prior to the long stop date. Abbeygate was to use reasonable endeavours to satisfy those conditions as soon as reasonably practicable, and it will come as no surprise that the conditions were not satisfied in time and the overage was avoided. Gaia pursued Abbeygate for breach of contract seeking payment of the overage.

Disputes concerning the exercise of reasonable endeavours, or not as the case may be, are always very fact-sensitive, but, it is fairly widely accepted that where a party is to use reasonable endeavours it is entitled to have regard to its own commercial interests. It was obviously in Abbeygate’s interest to avoid the overage payment if possible and so, in seeking to avoid payment, it engineered a timetable that resulted in the conditions being satisfied after the long stop date. However, the court found against Abbeygate and held that the reasonable endeavours caveat did not extend to the timing for performance. It held that the obligations on Abbeygate were effectively two-fold; it had to use reasonable endeavours to satisfy the conditions and, distinct from that, it had to do so as soon as reasonably practicable. The result was that if it was reasonable for Abbeygate to satisfy a condition, to which commercial interests could be weighed into the mix, then Abbeygate had to take such action as soon as reasonably practicable. Abbeygate was not entitled to take into account its commercial interests in deciding when the obligation should be performed.

Worst still for Abbeygate (although it would not have changed the outcome) it was found that it had not used reasonable endeavours to satisfy the conditions. Abbeygate had been careful to create a complicated structure for the development to give the impression that the delays were necessitated by ensuring adequate funding was in place; a valid commercial concern. However, the court found that Abbeygate had in fact manipulated the timetable, not to address funding concerns, but to achieve its aim of avoiding the payment.

Abbeygate was punished for what was viewed as sharp-practice and was required to pay the overage.

What you can do

There are some clear lessons to be learned from this case not just for developers, but for any party subject to a requirement to use reasonable endeavours:-

1. Make sure you understand the extent of the obligation; not just what you have to do, but when you have to do it.
2. Ensure that where delay or non-performance is necessary, the reasoning is carefully documented and founded on reasons of commercial soundness. The excuse cannot be that the market has changed and it is no longer a good deal.
3. If you anticipate not wanting or not being able to comply with obligations take early advice on the steps that can be taken to protect you from a breach of contract claim. The evidence the Court considers when determining whether there has been a breach is the conduct of the parties prior to the breach and so it is important to understand the options available to you when considering the extent to which contractual obligations have to be complied when the deal to which they relate is no longer commercially or financially sound.

The property litigation team at Michelmores has a wealth of experience in advising clients on the issues raised in this article; both from a tactical perspective with the aim of avoiding litigation or the threat of it, or once litigation is afoot. For more information please contact Charlotte Curtis.

Carr v Evelyn and Others is a Decision of the First-tier Tribunal handed down on 16 August 2019. The case provides welcome guidance on the law governing the ground of sound estate management, used to recover possession of a farm protected under the Agricultural Holdings Act 1986.

Background Legal Structure

Section 27(3) of the Agricultural Holdings Act 1986 (“1986 Act”) contains various grounds on which a landlord can seek to recover possession of an agricultural holding protected under the 1986 Act. The list includes:

• bad husbandry;
• a requirement for non-agricultural use where planning permission is unnecessary; and
• where the landlord seeks to recover possession on the ground of sound estate management.

Whenever a landlord gives a notice to quit in reliance upon a section 27(3) ground, if the tenant gives a counter-notice, then the landlord must apply to the First-tier Tribunal (“FTT”) for consent to the operation of the notice to quit. Before the FTT, the landlord faces two hurdles. First, he must establish the particular ground on which the notice to quit is given under section 27(3). Secondly, he must persuade the FTT that the Tribunal should not withhold consent on the basis that “in all the circumstances it appears to them that a fair and reasonable landlord would not insist on possession”.

Where a tenant has died, and the process of succession is underway before the FTT, then a landlord can make an application under section 44 of the 1986 Act to rely upon any of the grounds contained in section 27(3). Where a landlord makes such an application within succession proceedings, he must still satisfy the fair and reasonable landlord requirement.

The Case

The crux of the case was whether the Landlords were entitled to have consent granted by the FTT to the operation of a Notice to Quit, where the Landlords argued that they should do so in the interests of the sound management of their estate.

The submission made on behalf of William Carr was that the real underlying motivation behind the Landlords’ application was a desire to remove the Carr family from the estate and that the application was, in effect, “a construct to achieve that purpose”. The Tribunal concluded that it was “satisfied that the motive underlying the section 44 application had been the [Landlords] wish to remove the Carr family from the estate. The Tribunal does not form that view lightly”.

Importance of the Case

The importance of this case is not about the Landlords’ motivation or the FTT’s findings with regard to that. The interest lies in the bigger picture as to the FTT’s analysis of the law relating to a landlord’s wish to rely upon the ground of sound estate management to recover possession of a farm protected under the 1986 Act and features relevant to that analysis.

The Facts

By a tenancy agreement dated 3 July 1964, Graham Carr became the tenant of an agricultural holding known as Home and Pishill Farm, extending to some 158 hectares, and forming part of the Stonor Estate in Oxfordshire. It was common ground that the Holding is protected under the 1986 Act.

Graham died on 15 July 2016, and one of his sons, William, applied for succession. The application was opposed by the Landlords, who, as trustees of the J P M H Evelyn 1997 Settlement, are the owners of the Stonor Estate. The Landlords served a notice to quit under Case G, but also issued their own application, under section 44 of the 1986 Act, for the FTT’s consent to the operation of the notice to quit, based upon the ground of sound estate management.

In 2018, the Landlords conceded that William was an eligible person for the purposes of the application, satisfying all three of the ‘close relative’ condition, the ‘livelihood’ condition and the ‘occupancy’ condition. The Landlords also conceded that William was suitable, having regard to (a) the extent to which he had been trained in, or has practical experience of, agriculture; and (b) to his age, health and financial standing. The Landlords however reserved their right to challenge William’s suitability, having regard to other ‘relevant matters’. Those relevant matters included historic issues which existed between Graham and the Landlords. The FTT concluded that William was “a more than suitable person, or candidate, to take on the tenancy of the holding”.

William’s Financial Standing

One ground upon which the Landlords opposed William’s suitability was based on the contention that William and his wife were “persons of substantial wealth”. Full disclosure of the Carr family’s financial position was made and it was then analysed by the FTT in the Decision.

The FTT rejected the Landlords’ submission that a person (such as William) who, independently of his economic relationship with the holding, has sufficient income and resources for his economic survival, is not a person suitable to take on a tenancy of an agricultural holding, because the purpose of the succession provisions is intended only to be available to those who, without the benefit of such provisions, would suffer hardship.

In determining that William was, in all respects (training, skills, resources, health and character) a suitable person to carry on the farming of the land and to be tenant of the holding, the FTT went on to observe that:

“Far from his wealth, or resources, constituting a handicap, or bar, to his suitability as a tenant, they reinforced that suitability, in that they afford the [Landlords] the security and satisfaction that he has the resources available to ensure the proper farming of the holding and to meet, in full, all his obligations as the tenant of the holding”.

Sound Estate Management

In its 40-page Decision, the FTT addressed thoroughly the principles that apply and the previous case law.

The starting point is the decision of the Divisional Court in National Coal Board v Naylor [1972]. From that case the principle was established that sound management referred, not to the management of the estate, as an economic unit, but the management of the land comprised in the estate; that is to say, the management of the estate as an agricultural unit. It follows that a proposal based on sound estate management is not to be judged by the effect upon the ‘landlords’ pocket’, but the effect that the proposal would have on the management of the particular farming estate.

The FTT considered the proposition where the purpose of the termination of the tenancy was to sell, or to develop, land or buildings within a holding, in order to raise money for necessary expenditure on the estate. The Tribunal concluded that this would or could constitute sound management of the estate.

The FTT considered the impact of an earlier decision of the Agricultural Land Tribunal (“ALT”) in Collins v Spofforth (2008). The FTT agreed with the ALT’s proposition that the fact that the landlord hopes, or intends, that a particular course of action will be profitable, does not preclude that activity from constituting sound estate management, if, otherwise, it falls within the ambit of sound estate management. The amalgamation of holdings on an estate might constitute sound estate management. However, that is dependent upon whether, for example, the estate was made up of a number of unviable holdings, the farming of which was likely to fail.

The Landlords’ Plan

It was not until May 2017, some 9 months after Graham’s death, that the Landlords launched their Section 44 application. The sound estate management ground was based upon the Carrs losing the entirety of their tenancy and the holding being divided between two tenants. 132 hectares of the Carr holding land (327 acres) would pass to the Stracey family and 25 hectares (62 acres) to the Hunt family. Inevitably that resulted in a focus upon the farming enterprise of the Straceys.

As regards that, the FTT accepted the expert evidence which expressed concern as to the Straceys’ capital base. The FTT concluded:

“Taking all matters together, the Tribunal is not at all persuaded that the proposed extension of the Straceys’ holding would do anything other than impose serious potential strains on the Straceys’ business. Far from improving the long term viability of the Straceys’ business and so protecting the farming and husbandry of the land farmed and, under the [Landlords] proposals, to be farmed by the Straceys, it seems clear to the Tribunal that the proposed amalgamation might very well have the opposite effect and, in consequence, put at risk the continued farming and husbandry both of the Straceys’ current holding and of the prospectively expanded holding”.

The FTT decided that these risks reinforced its view that there was no basis upon which the FTT could be satisfied that the current proposals are desirable upon grounds of sound estate management.

Fair and Reasonable Landlord

The FTT went on to consider the fair and reasonable landlord test, albeit that it was unnecessary given the conclusions that it had reached. The Tribunal concluded that the Landlords’ case did not satisfy that test.

Conclusion

The above is the briefest summary of a complicated case, reflected in the 40-page Decision. However, as in the Spofforth case, the attempt on the part of the Landlords here to use sound estate management as a ground to recover possession failed. Whether this case will spark an interest on the part of other landlords, in relation to this ground for the recovery of possession, remains to be seen.

The Tribunal agreed that the first respondent’s response querying the need for the full extent of Code rights was perfectly reasonable. However, the first respondent was criticised for not waiting for an explanation and adopting   a confrontational tone, together with making unnecessary demands for technical information. Such demands had not been considered necessary when the basic site survey terms had been agreed.

The Tribunal decided that the standoff had been caused  by CTIL gold plating its access requirements and the obstructive approach of the first respondent. The second respondent also sought its costs stating that it could not grant access when the freeholder was refusing it. The Tribunal did not agree that this was a correct reading of the legal relationship between the respondents and could not see why the housing association needed separate representation.

The decision

The Tribunal decided that the successful parties were the first and second respondents in the light of the agreement reached. The fact of that agreement meant the Tribunal did not have to consider the respondents’ arguments to resist the granting of Code rights. However, in another warning, it confirmed that overly technical arguments about the form of Code notices would not succeed, in line with the decision of Cornerstone Telecommunications Infrastructure Ltd v Keast [2019].

Arguments about whether a Code agreement should be enforced were described by the Tribunal as “window dressing”, although CTIL can be said to have won that point, as the agreement reached conceded such rights should be granted.

The other main issue, apart from the indemnity, was how the rights of access should be expressed. The row was provoked by CTIL when they adopted a scattergun approach in asking for all Code rights. However, the Tribunal found the first respondent’s position“at best obtuse, and at worst deliberately obstructive.”

So, whilst the respondents were the successful parties,  the proceedings were conducted in a manner which was wholly disproportionate to the dispute. As such, although CTIL was ordered to pay the costs of the respondents, they were capped at £5,000 each. The overall costs were over £100,000 so it seems likely that only about 20% of the actual costs incurred by the respondents were recovered.

Tribunal’s conclusion

The judgment makes it clear that rows about surveys are unwelcome and if they have to be heard, recovery of costs on the scale incurred in this case will not be permitted.

However, landowners will welcome the Tribunal’s parting shot which is that unquestioning cooperation from property owners cannot be demanded. As the Deputy President observed, “the claimant’s wooing of potential site providers has become a little less rough, but its technique still has a long way to go.”