This week's bulletin covers recent cases on mistakes in rent review clauses, whether a front door is a "landlord's fixture, as well as an overview of the landlord and tenant aspects of the long-awaited Building Safety Bill 2021. All this plus insights from around the firm and our usual positive news.
Monsolar IQ Ltd v Woden Park Ltd [2021] EWCA Civ 961 – Court of Appeal upholds decision correcting an error in a rent review clause
The appellant in this case was Woden Park Ltd, the landlord of a solar farm. A lease had been granted to Monsolar IQ Ltd, for a term of 25 years at an annual rent of £15,000 with provision for an annual rent review.
When the lease was granted the landlord and tenant were owned by the same beneficial owner, the tenant company being an SPV for the purpose of holding the lease, with a view to the lease, planning permission and development rights for the solar farm being sold to a third party in due course. What was accepted, therefore, was that the landlord was unlikely to receive any rent from the original tenant and so the operation of the rent review provision was to be considered in light of the fact the lease would be assigned to a well-advised buyer.
The rent review provision meant if implemented in the way in which it was drafted, the rent would be compounded by all of the previous years' RPI, i.e in the third year the previous year's rent would increase by the aggregate RPI increase over the first, second and third years of the term, and so on. On the tenant's figures this would lead to an annual rent of £76m by the 25th year of the term.
The first instance judge relied on Chartbrook Ltd v Persimmon Homes ltd [2009] 1 AC 1011 which held a clear mistake in the drafting of a document could be corrected as a matter of construction and concluded:
(a) it was clear there was a mistake in the drafting of the rent review clause, on the basis the outcome of the formula within the clause was irrational, arbitrary or illogical; and,
(b) the mistake could be corrected by one of two methods (which it was, ultimately accepted, produced the same outcome).
The Court of Appeal agreed with the first instance judge and dismissed the appeal. When considering whether there was a clear mistake, the Court of Appeal took into account the general purpose of rent review clauses and the intended purpose of this rent review clause in particular; the fact that the literal interpretation of the clause was nonsensical and absurd; and, that it was easy to see how the error came about.
As to whether it was clear how the clause could be corrected, the Court of Appeal dismissed the appellant's suggestion the clause was intended to be upwards-only and declined to correct the error so as incorporate a provision for upwards-only review. Therefore the first instance judge's order was upheld.
The case is a useful reminder that where a lease contains an obvious mistake and it is clear how that mistake should be corrected, the Court can make a declaration on one party's application as to the true interpretation of the lease.
Fixtures, Fittings and Front Doors
In the recent decision of Marlborough Knightsbridge Management Ltd v Fivaz [2021] EWCA Civ 989 the Court of Appeal determined that the front door of a flat was not a "landlord's fixture", but was part of the essential structure of the flat.
Mr Fivaz owned 2 flats in a block owned by Marlborough. Mr Fivaz replaced both doors without reference to Marlborough. Some years later, Marlborough complained that his actions constituted a breach of the leases and sought a determination of breach in the first tier tribunal (FTT). Marlborough relied on a tenant covenant not to remove any of the landlord’s fixtures without the landlord's written consent.
The term "landlord's fixtures" was not defined in the lease. Although widely used, it is generally considered to be a difficult concept and a term to be avoided. A fixture is generally understood to be something which is annexed to the property and a landlord's fixture must by definition be something other than a tenant’s fixture (ie, one which is installed and removable by the tenant).
The FTT found that the doors were landlord's fixtures and had been removed. Mr Fivaz appealed successfully to the Upper Tribunal (UT) which concluded that the doors were an inherent part of the demised premises and were not “landlord’s fixtures”.
Marlborough appealed. The Court of Appeal dismissed the appeal and held that the entrance doors were part of the original structure of the flats and, on that basis, were not landlord's fixtures.
When considering whether the doors were "fixtures" Arnold LJ commented, "The starting point when considering this issue is that every building is composed of things, such as bricks, mortar and so on, which were chattels prior to their incorporation into the building. Once incorporated into the building, however, they become part of the land. Thus their legal status changes from being personal property to being real property."
The doors were an essential part of the structure since they afforded privacy and security to the tenants. The absence of a door would derogate significantly from the grant of the flat. It could not be said that the construction of a flat was complete until the front door was hung.
This case provides some useful clarity on a difficult point of contractual interpretation.
Building Safety Bill 2021 – landlord and tenant aspects
On 5 July 2021 the Government published its long-awaited Building Safety Bill, which will implement Dame Judith Hackitt's recommendations made following the Grenfell Tower fire. The Bill proposes (amongst other things) notable changes to the law of landlord and tenant as summarised below.
- New service charge regime – the Bill introduces a new category of service charge called Building Safety Charges, covering costs in connection with building safety measures such as the day-to-day costs incurred by appointment of a building safety manager, preparation of a building safety case and resident engagement.
- Remediation works – new restrictions will be placed on landlords preventing them from re-charging leaseholders for remediation costs unless the landlord has taken reasonable steps to obtain any available grants, and to pursue third party claims (e.g insurance, guarantees and claims against developers/contractors).
- Residents' duties – The Bill will place duties on owners and residents of residential units in occupied higher-risk buildings not to act in a way that creates a significant risk of a building safety risk materialising and not to interfere with relevant safety items. Where residents fail to comply, the accountable person (i.e the landlord or management company) may issue a contravention notice requesting compliance which will be enforceable by the court.
- Access to premises – residents will be required to provide access to dwellings for relevant building safety purposes at a reasonable time and provided that the accountable person has given 48 hours' prior written notice. The County Court will have the power to make an order requiring access to be given if residents fail to comply.
- Building safety information – landlords will be required by regulations to provide building safety information to residents, failing which tenants will not be required to pay the rent, service charges or building safety charge due for any period before the information is provided.
For a more in-depth summary of the Building Safety Bill please see the below 'Insight' link.
Insights from around the firm
- The Building Safety Bill 2021: a summary guide
- Podcast: Positive influencers: a conversation with Sue Brown
- A1 Moratoriums – a missed opportunity?
- PPN 07/21: Update to legal and policy requirements to publish procurement information on Contracts Finder
- Webinar: Trowers Tuesdays – ageing workforce
Positive news
- A major rewilding project has been announced for England - The plan is to re-wild 21,000 football pitches' worth of land in South Downs National Park, creating new woodlands and meadows where wildlife can thrive.
- Canada had appointed its first indigenous governor general - In a move hailed as a 'historic step' Canada this week appointed Mary Simon to the role of governor general. It is the first time an indigenous leader has held the position. She is a long-time champion of Inuit rights.
- A critically endangered antelope staged a comeback - Kazakhstan confirmed that its population of critically endangered saiga antelope has more than doubled since 2019. Areal surveys revealed the numbers have bounded back from 334,000 to 842,000 following a nationwide conservation initiative.
