Property litigation weekly update — 17 June 2021
Members of the team this week have reported on a recent Upper Tribunal's case concerning development value in enfranchisement and decision of High Court considering the scope of litigation privilege within a property dispute.
All this alongside the recent insights from our colleagues around the firm and a dose of positive news.
Breaking news;- on 16th June 2021 the government announced that the moratorium on forfeiture of commercial leases is to be extended until 25 March 2022. Other measures announced in outline only – details to follow.
Development Value in enfranchisement - building specific
The UK Upper Tribunal (Land Chamber) considered the issue of future development value payable to the outgoing freeholder in a claim for the acquisition of the freehold by the leaseholders in a collective enfranchisement claim.
House Of Mayfair Ltd v Aitchison & Ors  UKUT 73 (LC) (23 March 2021) came down to the value payable for potential roof development of the building. The leaseholders in the block exercised their right to claim the freehold under the Leasehold Reform, Housing and Urban Development Act 1993, but the parties could not agree on the "hope value" element of the premium payable for the possibility of a roof development.
The freeholder argued that a new flat could be built on the roof of the building; however there was no existing access to the roof without going through the top floor flat. The freeholder sought to establish that the top floor flat would be highly motivated to allow such development as that leaseholder and the freeholder were in effect the same person, the leaseholder of that top floor flat being the sole director and shareholder of the freehold company. This would mean any prospective purchaser of the freehold would have to acquire two interests in order to realise the development potential on the roof, the freehold and the top floor flat (or part thereof for access).
The Upper Tribunal determined that this route of value could not be an assumption; it was a question of fact specific to the building in question. In this case the Upper Tribunal considered there was no evidence that the freeholder had taken any steps in seven years of ownership to realise additional development value by altering the top floor flat or otherwise, to progress a development scheme. The development value payable by the leaseholders was therefore significantly limited.
Should a freeholder want to obtain development value, it is clear that it will need to be obtainable for the building and steps need to have been taken towards a scheme.
If you would like further information or advice about enfranchisement in general please contact enfranchisement specialist, William Bethune.
Litigation privilege in property disputes
A recent decision of the High Court (Ahuja Investments Limited v (1) Victorygame Limited and (2) Surjit Singh Pandher  EWHC 1543 (Ch) Appeal Ref. CH-2021-000113A) has recently considered the scope of the obligation to disclose legal advice in the context of a property dispute.
In a misrepresentation claim concerning the sale of a property, an important issue was what the Claimant's former solicitors knew and what they had told their client.
Key evidence was two documents, a letter of claim written by the Claimant's new solicitors to the Claimant's former solicitors and the response from the former solicitor's insurers.
Given the lack of cooperation and conduct of the former solicitor the Claimant had decided that the only way to obtain a substantive comment from the former solicitors was to threaten to issue to issue proceedings. No instructions had been given to issue proceedings and the dominant purpose of the letter before action sent by the Claimant's new solicitors to its former solicitors had been to obtain information relevant to the proceedings, and not to bring different proceedings against the former solicitors.
The Claimant said that although the correspondence was under pre-action protocol for professional negligence, the real purpose was to elicit information to be used in the present misrepresentation proceedings. That would make it privileged in the misrepresentation proceedings. The Defendants argued that, assessed objectively, that was not the dominant purpose of the correspondence.
In the light of this the Defendant applied as part of the misrepresentation claim for disclosure of the letters and any similar correspondence. As a result, the Claimant was ordered to produce the two documents to the Defendants. The Claimant appealed against the order.
Litigation privilege – legal principles
The key question of the appeal was whether the documents were brought into existence for the sole or dominant purpose of conducting the current proceedings.
The rationale for litigation privilege is that a defendant or potential defendant should be free to seek evidence without being obliged to disclose the results of their research to his opponent on the basis that those engaged in litigation may require professional legal advice and any communication brought into existence for the dominant purpose of being used in litigation must be kept confidential so that such advice or information may be freely given or obtained without fear of disclosure. Accordingly, the determining factor in the appeal was whether the letter before action and response came into existence for the dominant purpose of being used in the current proceedings, as viewed objectively.
The court decided that the dominant purpose of bringing the correspondence into existence was to obtain information for use in the current proceedings.
The court also considered whether the dual purpose of the correspondence amounted to deception and, if so, whether such correspondence would retain the protection of privilege.
Tellingly, whilst the court did not condone the tactics used, having found that the dominant purpose was to obtain information for the purposes of the current proceedings, there was no principled reason why the protection of privilege should not be available anyway for that information. Accordingly, whilst the former solicitors and their insurers may have been misled this did not alter the Appeal Court's conclusion; the reason why the documents exist was to get the information in the misrepresentation proceedings – and therefore privileged from disclosure in those proceedings. Therefore the appeal was allowed. The documents did not have to be disclosed.
This decision serves as a reminder of limits of litigation privilege and the need to consider carefully the dominant purpose when obtaining information and what position is set out in any related correspondence.
Unopposed lease renewal claims pilot scheme
In January 2018, the HM Courts and Tribunal Service commenced a pilot scheme to deal with unopposed lease renewal claims under the Landlord and Tenant Act 1954. Under the pilot, all claims which are issued in the Central London County Court will be automatically transferred to the First-tier Tribunal (Property Chamber) to be dealt with.
The aims of the scheme were to ensure that all such claims were dealt with smoothly and quickly, and to reduce the public resources in Court spent on claims. It was hoped that the time from issue of proceedings to a final hearing should be reduced to 20 weeks, and parties will be allowed the opportunity of only one three month stay at the outset to try to settle the claim.
The draft directions were also amended to remove the need for case management conferences, extensive disclosure exercises, witnesses of fact or Scott Schedules being exchanged. Expert valuation evidence remains, but is to be produced at an earlier stage. At the final hearing, the FTT judge (sitting as a District Judge) is assisted by a valuer/assessor. The Tribunal applies the Civil Procedure Rules, including the costs rules, rather than the differing Tribunal rules.
Cases that are dealt with in the FTT progress within the proceedings at a much faster pace, with less scope for the parties to agree stays (beyond the initial 3 month stay available at the beginning of the claim) to allow settlement discussions to take place. This may place a larger emphasis on parties engaging in early negation of the new lease terms of the new lease and agreeing extensions of time for issue of proceedings to allow such negotiations to continue.
The Property Litigation Association (the PLA) have now reported that they have been informed that this pilot scheme, which has been running since January 2018, is due to become permanent. There will be an opportunity however for either party to request that the case should be dealt with by a Circuit Judge at the Central London Country Court, in cases that are high value or complex. The start date is yet to be agreed. Watch this space for confirmation of when it formerly comes into place.
Insights from our colleagues around the firm
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- Employment basics: Gearing up for summer
Positive news stories