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Ground Rents

ESCALATING GROUND RENTS & THE ROLE OF RECOMMENDED SOLICITORS.

Below is the text of a brief submission I made to the DHCLG but first a little additional background as to why I made it.

The role of recommended solicitors has been much commented upon and has generated a fair amount of fury on the part of buyers who felt themselves inadequately advised about escalating ground rents. A survey by the Leasehold Knowledge Partnership found 71% of leasehold house buyers used developer recommended solicitors. The possibility of claims against recommended solicitors has been widely canvassed in the media, as another article on the LKP website illustrates, but beyond that and a general expression of outrage, the “recommended solicitor problem” has not been forensically analysed, hence the submission below, which asks in effect “How did recommended solicitors get recommended by developers of new-build leaseholds with escalating ground rents?”

When new-build leaseholds with escalating ground rents started to come on to the market (from about 2009), it is a matter of record that many solicitors were not alive to the pitfalls with which such properties came but it is unlikely that they were all unaware. Notwithstanding this, the lack of awareness seems to have been particularly widespread among recommended solicitors. Let me make this clear, more research is needed and I am not suggesting that all recommended solicitors failed buyers, let alone making any comment on individual cases, but, if it is right that the unawareness was particularly prevalent among recommended solicitors, it is a legitimate area of enquiry to ask how that might have come about?

This is what I said in my supplementary submission:

I have already made one submission but given the extended deadline I thought I ought to add something re one matter I had neglected to comment upon which is the role of recommended solicitors in relation to leasehold mis-selling. I think the selection of recommended solicitors by developers has been insufficiently considered.

It is a matter of record that many buyers of “new” leaseholds with escalating ground rents complain they were not properly advised by recommended solicitors.

It does not seem to me that the process of how solicitors came to be recommended has been considered.

Did developers, for example, select solicitors to recommend on the basis of draft reports on title?

If so did developers effectively make their recommendations based on the advice they knew in advance such solicitors would provide?

If so there is a case for saying that, even if the solicitors acted in good faith, the developers had assumed a duty of care towards the buyers and ought to be liable for the advice buyers received.

Given that the current Minister has indicated reforms are not going to affect past transactions this may be of some importance as to the justification for such a course.

Ibraheem Dulmeer of the Leasehold Advisory Service and I wrote about the chequered history of recommended solicitors and the potential ethical difficulties of acting as a recommended solicitor in the Law Society’s ‘Property in Practice’, Issue 59, June 2017 in an article reproduced on Lease’s website . On the back of that I was invited to supply the leasehold module for the Law Society’s Conveyancing Quality Scheme 2018 update, which I did with an experienced conveyancer, Suzanne Broughton of Wolferstans solicitors (in fact we ended up contributing 3 of the course modules). The specification for the leasehold module specifically asked that we should cover:

  1. Understanding the potential dangers of buying or lending on leasehold properties with leases containing provisions for escalating ground rents and other excessive charges
  2. Advising clients of the risks of proceeding with such transactions.
  3. Understanding the potential for claims against conveyancers if clients are not properly advised.

This is something, I take as an implicit endorsement of the original article, and its cautions about the position of recommended solicitors. Those cautions are now expressed in amplified form in the CQS 2018 leasehold module.

This is why it would be interesting to know how recommended solicitors were selected. Not only about the mechanics of the selection process, but the criteria the developers applied. It would be interesting to know too, what solicitors were rejected and why? Most of all it would be interesting to know how aware of the pitfalls the developers were and how consciously they pursued a strategy to ensure sales of what many buyers would now describe as “toxic leaseholds” were not impeded by properly cogent legal advice.

If there was a pattern in the appointment and rejection of recommended solicitors which meant that  recommended solicitors, as a group, were likely not to warn buyers about the risks associated with escalating ground rents, or at least not in terms which buyers would readily understand, to what extent can the buyers be said to truly have had independent legal advice?

In this scenario, those who acted as recommended solicitors and who did not give adequate warnings about escalating ground rents, may have been entirely innocent of any collusive behaviour with developers but, in their selection, the advice given to buyers may, nonetheless, have been pre-determined by the developer.

That is why I do not think it is enough for the Government to say in effect: “This has all turned out terribly and (when eventually we have time to legislate) we will make sure it doesn’t happen in the future but the past is the past and we can do nothing about that.” Unless and until the role of recommended solicitors has been investigated and in a thorough and forensic way, the suspicion will remain that something did not simply go wrong but was caused to go wrong and, if the advice given to buyers was controlled by developers, it would be very much harder to justify letting what happened in the past go by uncorrected.

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Ground Rents

ESCALATING GROUND RENTS: THE EVIDENCE (SUCH AS IT IS)

“The point that I am trying to make is that these onerous clauses, leases and terms do not get there by accident; they are put there by whoever wrote that lease to start with. The developer has set out to do that, and then the management company and the managing agent continue to make these excessive charges. We need to look at sorting that out, so the onerous clauses are not there to be explained to a buyer by either the estate agent or the conveyancer. They should not be there in the first place.“
Beth Rudolf, Director of Delivery, Conveyancing Association giving evidence to the HCLG Select Committee’s Inquiry into Leasehold 10th December 2018

This is another piece about the problem of “modern new build leaseholds” subject to increasing ground rent clauses and other onerous terms but it is not the promised third article in the series leading up to possible remedies against developers – that is in the pipeline – but as the HCLG Select Committee’s Inquiry into Leasehold progresses, some interesting evidence is emerging.

The point made by Beth Rudolf, giving evidence on the 10th December 2018, quoted at the top of this post would appear self-evident, but it was not one put to Jennie Daly of Taylor Wimpey at the previous session on the 18th November 2018, when the following evidence was given:

Jennie Daly: … Taylor Wimpey does have a voluntary assistance scheme for our customers who were affected by a specific 10-year doubling ground rent clause. We took the matter extremely seriously when it was brought to our attention around autumn 2016. The reason for that timing is that the leases we created with that specific clause were used on new developments between 2007 and 2011, and they were coming up for their first doubling and were starting to cause concerns to customers.

Before proceeding, let me be very careful here, Jennie Daly is a recent appointee (April 2018) to the Taylor Wimpey board and her knowledge of what happened historically will be derived from what information she will have received from briefings and, possibly what she has established by her own research, and although she joined the company in 2014, it is not even necessarily the case that she was part of the “we” to whom she was referring when she said:

“We took the matter extremely seriously when it was brought to our attention around autumn 2016.“

But, having given all those caveats, and making it clear moreover, that nothing which follows suggests Jenny Daly was doing other than her best to give the evidence as she understood it to be, that answer bears rather closer consideration. The “matter” was not a previously undiscovered manufacturing defect in a product, which may well only come to a manufacturer’s attention after a product has been in circulation for some years, it was:

“a specific 10-year doubling ground rent clause“

which, as Beth Rudolf rightly observed, is one of those terms which

“do not get there by accident; they are put there by whoever wrote that lease to start with.“

Jennie Daly did go on in her evidence to say of the clause:

“The reason for that timing is that the leases we created with that specific clause were used on new developments between 2007 and 2011, and they were coming up for their first doubling and were starting to cause concerns to customers.“

but it follows that “the matter” that was taken “extremely seriously” can only have been that people were starting to notice and complain about the draconian effect of the clause, not any concern on Taylor Wimpey’s part that the clause had been drafted and inserted in these leases in the first place.

The bland reassurance, with its apparent edge of candour, that “the matter” had been “taken extremely seriously when it was brought to our attention” averted a whole raft of other questions that might, reasonably, have been asked about how the clause originated and just how anyone thought it was justifiable in the first place. The question might that equally have been asked was: if the clause was not used after 2011, how had the change been sanctioned without someone, somewhere in the company, having had it brought to their attention?

While that last question will have to be left hanging, there is actually some evidence about the genesis of the doubling ground rent clause and, strangely, it comes from 2007, when the clause was first introduced.

On Tuesday 25 September 2007 in an article entitled ‘New warning on small print’ with the sub-heading “We unearth a disturbing new trend in leases – a buried clause that that means ground rent can double in 10 years” Homes & Property Newsletter told the tale of an intending purchaser in of a flat in a Taylor Wimpey development in Mill Hill; the report quotes the intending purchaser, who had demanded the return of his £2,000 deposit as saying:

“Even first-time buyers know about ground rent, but they expect it to be a small and fixed amount, as it has always been, … But in my case, when I looked through the 19-page draft lease from Taylor Wimpey for a modest flat in Mill Hill, I discovered that the initial ground rent may be only £300 a year — but by 2057 it would be £9,600.”

The Taylor Wimpey did return the deposit as a gesture of “goodwill” but their response, also quoted in the report, is enlightening:

“[the rent review is] George Wimpey UK policy and is in place on all leasehold developments … Historically, most ground rent review clauses were tied to the Retail Price Index (RPI). But house price inflation has significantly outstripped RPI, and developers are looking at terms and conditions that better reflect this.”

The source of the latter part of this quotation (and one presumes the first part as well) was David Bridges, who, from his biography on LinkedIn, served with Taylor Wimpey:

“April 2007 – June 2008
Headed up Sales & Marketing, Strategy & Partnerships, Sustainability and Start-ups. Sat on the Board of Taylor Wimpey UK, a £4b turnover business which delivered over £600m profit in the year to the end of December 2007.“

which indicates, not only that the clause had been inserted as a matter of considered policy but that the handling of the buyer’s complaint in 2007 had reached up to board level.

I should add, that although I have not researched this closely, from my experience, the reference to ground rents “historically” being linked to RPI would require quite an extended meaning of “historically” to include the relatively recent. My experience would accord more closely with what was said to Homes & Property Newsletter by the intending buyer (who, my researches suggest, was a chartered surveyor):

“Even first-time buyers know about ground rent, but they expect it to be a small and fixed amount, as it has always been …I have since spoken to several solicitors who confirmed that, like me, they had never heard of this, and described it as outrageous … ”

Much of what is in this post was covered by a piece by LKP at the end of 2016, indeed Jenny Daly’s reference to the matter having been brought to Taylor Wimpey’s attention in 2016 may be a reference to the LKP’s having raised the issue of doubling ground rents with Taylor Wimpey then. Be that as it may, the recent evidence to the Select Committee adds a new topicality to the story and certainly justifies revisiting it.

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Ground Rents

NOTES ON A SCANDAL: FREEHOLDERS & MEDIEVAL ROBBER BARONS (PT 2)

IN BRIEF
Could the Housing Act Trap render escalating ground rent a derogation from grant? Summing up his series on the unfairness of escalating ground rent, Rawdon Crozier proposes a way out of the dungeon (see NLJ,8 March 2019, p13
New Law Journal, 5 April 2019, LEGAL UPDATE Property, page 13 – http://www.newlawjournal.co.uk

Part 1 of this speculative article ) explained the Housing Act Trap. Part 2 explores whether the trap might render escalating ground rent a derogation from grant and thus, as a matter of law, capable of being struck down.

Derogation from grant: the principle
‘The expression “derogation from grant” conjures up images of parchment and sealing wax, of copperplate handwriting and fusty title deeds. But the principle is not based on some ancient technicality of real property … it is a principle which merely embodies in a legal maxim a rule of common honesty. It was imposed in the interests of fair dealing.’

Johnston & Sons Ltd v Holland [1988] 1 EGLR 264 at 267J

 

Derogation from Grant is a Rule of law
Megarry & Wade (Law of Real Property, 5th edition) described derogation from grant as a free-standing and independent rule of law, an analysis endorsed by the Court of Appeal in Johnston & Sons Ltd v Holland [1988] 1 EGLR 264.

It applies to all forms of grant and, while commonly associated with leases and other contracts relating to land, it is also encountered in contracts concerning:

    • Intellectual property, eg Gloucester Place Music Ltd v Le Bon [2016] EWHC 3091 (Ch) where the serving of notices by members of Duran Duran under the United States Copyright Act 1976 s 203 to terminate assignments to the claimant of the US copyrights in 37 songs, was held to be a derogation from the original licensing agreement.
    • Shipping; although the term itself is often not used, the doctrine that an individual term must not undermine a contract’s ‘main purpose’ is identical and the link was acknowledged by Rowlatt J in M Isaacs and Sons, Limited v William Mcallum and Company, Limited [1921] 3 K.B. 377
    • Franchising, eg Stone & Ashwell (t/a ‘Tyre 20’) v Fleet Mobile Tyres Limited [2006] EWCA Civ 1209.

Derogation from grant is an exception to the general rule expressed by Lord Neuberger in Arnold v Britton [2015] UKSC 36 that the ‘fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing  from the natural language’. The absence of a conflict is, perhaps, best illustrated by one of the most often cited re-statements of derogation from grant being found in Platt v London Underground [2001] 2 EGLR 121 (a judgment of Neuberger J, as he then was).

Remedies
Derogation from grant may give rise to a variety of remedies according to the particular circumstances.

    • An award of damages against the grantor, Platt v London Underground.
    • An injunction or declaration to prevent the grantor from exercising, what would be, but for the derogation, its legal rights, Gloucester Place Music Ltd v Le Bon.
    • The construction of contractual provisions so as not to undermine the main contractual purpose, William Hill (Southern) Ltd v Cabras (1986) 54 P. & C.R. 42.
    • The striking down of clear contractual terms to which the parties have agreed, Glynn v Margetson & Co [1893] A.C. 351
    • Providing a defence to an otherwise well-founded claim to enforce statutory or contractual rights brought by the grantor against either the other contracting party or even a stranger to the original contract (see below).

The most striking example of the flexibility and breadth of derogation from grant is British Leyland v Armstrong Patents [1986] AC 577, [1986] 1 All ER 850, a decision of the House of Lords falling into the last of those categories.

British Leyland brought a claim against the manufacturer of exhaust pipes, designed to fit Leyland cars. The House of Lords held that, although the copying had been indirect, it was infringement under the Copyright Act 1956. Despite this apparently well-founded claim, an injunction to assert the copyright and prevent the exhaust pipes’ manufacture was refused on the grounds that limiting car owners’ rights to repair their cars economically would be a derogation from the grant implicit in the sale of a motor car, and although a stranger to the contract of sale, the exhaust pipe manufacturer, nonetheless, had a defence by virtue of the implicit grant.

Armstrong’s effect is similar to that of Caparo Industries v Dickman [1990] 2 AC 605 (HL) in relation to the duty of care in tort, permitting the extension of derogation from grant to meet new situations, see per Lord Bridge at 627D:

‘… it seems to me within the capacity of the common law to adapt to changing social and economic conditions to counter the belated emergence of the car manufacturer’s attempt to monopolise the spare parts market in reliance on copyright in technical drawings by invoking the necessity to safeguard the position of the car owner.’

Overriding clear words in a contract
Glynn v Margetson, a shipping case, is the locus classicus: a contract in a Bill of Lading contained a deviation clause and the ship made an ostensibly permitted deviation, but the goods in question were perishable and ruined as a result. It was held that the deviation undermined the essential nature of the contract. Lord Halsbury said this: ‘Looking at the whole of the instrument, and seeing
what one must regard … as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract,’ (emphasis added).

Benefits matter
It is axiomatic that to be engaged, derogation from grant does not require a contract to be of no benefit to one party (total failure of consideration covers that eventuality). There will always be some benefit from contracts to which derogation from grant applies: the goods in Glynn v Margetson were physically shipped and delivered, the intending passengers in Anglo Continental Holidays v Typaldos [1967] 2 Lloyd’s Rep. 61 would still have had a cruise and the purchasers of Leyland motor cars in Armstrong may have had many miles of motoring before any need to repair arose. The test is whether there has been ‘substantial’, rather than total, deprivation (see Johnston & Sons Ltd v Holland at 267M).

Principles
Platt v London Underground Ltd concerned the lease of a kiosk by the entrance to an underground station. The kiosk should have enjoyed a steady flow of passing travellers but the entrance was closed for major works. Neuberger J held that this was a derogation from grant and awarded the lessee damages. As the case concerned actions by the landlord after the grant, not all the principles he set out are directly material to a derogation arising from terms of a lease but those applicable can be summarised as follows:

    1. A landlord cannot take away with one hand that which he has given with the other
    2. It is necessary to establish the nature and extent of the grant.
    3. The court should ask itself which obligations on the part of the grantor, if any, can be regarded as necessarily implicit, having regard to the particular purpose of the transaction.
    4. There is an overlap between the obligation not to derogate from grant, the covenant for quiet enjoyment, and a normal implied term.
    5. An express term should, if possible, be construed so as to be consistent with ‘the irreducible minimum’ implicit in the grant.
    6. Not only the terms of the lease, but the surrounding circumstances at the date of the grant as known to the parties have to be taken into account.
    7. The circumstances as they were at the date of the grant are very important.
    8. In assessing what the parties to a contract actually, or must have, contemplated, the court should focus on facts known to both parties and statements and communications between them; contract is concerned with communication as well as mutuality.

Cause & effect
Is there a derogation from grant as a result of an escalating ground rent clause? Nothing conclusively defines the irreducible minimum implicit in the grant of a long lease and the question will, inevitably, be fact-sensitive in any event. Material factors may include the following:

    • A long lease gives rise to a legal estate and is one of only two forms of tenure preserved as a legal interest after 1925; an Assured Shorthold Tenancy vulnerable to mandatory and discretionary grounds of possession is inherently less secure.
    • A long lease and an assured tenancy cannot co-exist, Richardson v Midland Heart Ltd [2008] L & T.R. 31; not only is relief against forfeiture inapplicable, because of ss 5, 8 & 45 of the Housing Act 1988 the mechanisms for termination are mutually exclusive; an assured tenancy can only be determined by the landlord by serving a s 8 notice: compare Richardson with the recent Court of Appeal decision in Golding v Martin [2019] EWCA Civ 446.
    • The duration of the lease—in many instances, terms of 999 years were sold.
    • Whether or not a property was marketed as ‘virtually freehold’.
    • The impact on value and marketability —even if technically marketable at the time of purchase through unawareness about escalator clauses, an actionable diminution in value would, prima facie, have occurred at the date the lease was entered into, Nykredit v Edward Erdman (No 2) [1997] 1 WLR 1627 (HL).
    • The amount of equity in the property.
    • Anything known to the developer/vendor at the time—one which had, say, had the onerous nature of the ground rent escalator drawn to its attention in 2007 (see Pt 1), might find itself in particular difficulties.

If an escalating ground rent and the consequences of the engagement of the Housing Act Trap were held to deprive a long leasehold of its essential quality and were thus a derogation from grant, a court would first be required to attempt to construe the term so as to be consistent with ‘the irreducible minimum implicit in the grant’. However, construing a clause which says ‘Pay £x’ or ‘Pay £f(x)’ (where f(x) is a formula increasing x over time) as anything other than what it says would be difficult (particularly post Arnold v Britton). Were the clause not capable of being ‘read down’, the only course would be to reject it in its entirety. The sewer could thus, potentially, afford a means of escape.

Apart from striking down offending clauses, were the argument perceived to have merit, it might put pressure on a government, which currently has set itself against retrospective legislation to aid existing leaseholders, to act to achieve a balance between the competing interests of leaseholders and freeholders by imposing a cap on escalating ground rents below the Housing Act limits, something which has just been recommended in the Report on Leasehold Reform by the Housing, Communities and Local Government Select Committee published on 18 March 2019.

Postscript
The report’s annexes include a letter dated 4 March 2019 to the chair, Clive Betts MP, referencing my evidence, in which David Jenkinson of Persimmon Group, says:

‘Mr Crozier, the barrister, raises the issue properties having rents above £250 pa (£1,000 in London) being subject to the forfeiture provisions more often associated with short-term assured tenancies. We would welcome this (presumably unintended) loophole being closed by legislation for long leases. Our documentation contains an agreement by the landlord that it is not entitled to rely on the non-payment of rent ground stated in the Housing Act 1988.’

This week a group of leading housebuilders issued a ‘pledge’, trumpeted by the government, to limit ground rent increases to RPI. Acknowledging the disapplication of relief against forfeiture was unintended may prove to be a useful concession but, as RPI-linked increases will still trigger the Housing Act Trap and the provisions applicable on the termination of assured shortholds and long leases remain mutually exclusive, the government and the housebuilders seem not to have grasped the problem. Perhaps the time has come to try derogation.

Copyright NLJ & Rawdon Crozier
Rawdon Crozier is a barrister & mediator practising from KBG Chambers (www.kbgchambers.co.uk).

Categories
Ground Rents

NOTES ON A SCANDAL: FREEHOLDERS & MEDIEVAL ROBBER BARONS – PART 2 OUT TODAY IN NEW LAW JOURNAL – PART 1 HERE TO READ.

Notes on a Scandal: Freeholders & Medieval Robber Barons is published today in New Law Journal

New Law Journal has many attractions for the legal author, not only is the turnaround for articles quick, publication can be within a couple of weeks, making it topical, but the quality of writing is high so one can bask in the reflected glory of being in the company of the other contributors in a respected legal journal. NJL is also very good with its copyright arrangements, which means that I can now reproduce in full Part 1 of Notes on a Scandal from the 8th March’s NLJ here now:

Comparisons were being made between freeholders and medieval robber barons (see, eg Hansard 18/7/2000 col 246) long before ‘The leasehold mis-selling scandal’, which, by some estimates, left over 100,000 homeowners stuck with leasehold properties they cannot sell, primarily as a result of escalating ground rent provisions (although there are widespread complaints about hidden charges and other onerous lease terms). Leaseholders feeling themselves thus afflicted, might well liken one particular side effect of escalating ground rent provisions — ‘The Housing Act trap’ — to being robbed by the baron and then flung into the dungeon sewer for good measure. However, as those familiar with films set in medieval castles know, the castle sewer can sometimes offer a means of escape.

This speculative two-part article considers whether, through the mechanism of derogation from grant, the sewer might do so in this case.

Perhaps the pithiest summation of derogation from grant is Lord Denning MR’s in Moulton Buildings Limited v City of Westminster [1975] 30 P & C R 182 at [186]:

‘If one man agrees to confer a particular benefit on another, he must not do anything which substantially deprives the other of the enjoyment of that benefit: because that would be to take away with one hand what is given with the other.’

It is sometimes mischaracterised as rule of construction, or as an implied term or covenant, but, while it may so manifest itself in particular cases, it is an independent rule of law that can give rise to a cause of action or even, as in British Leyland v Armstrong Patents [1986] AC 577, [1986] 1 All ER 850 afford a noncontracting party a defence to a claim brought by one of the contracting parties if the enforcement of that party’s strict legal rights would amount to a derogation from grant.

This introductory article explains how escalating ground rents give rise to the trap, which deems long leases assured, or assured shorthold tenancies, notwithstanding that they were sold at or about comparable prices to similar freeholds and, until the advertising watchdog put an end to the practice, were often marketed as ‘virtual freeholds’.

Escalating ground rent clauses
Historically, ground rents associated with long leases tended to be small and for a fixed amount, but from about 2007clauses with escalating ground rents were introduced by national housebuilders who
also increased the number and proportion of free-standing dwellings sold with long leases rather than as freeholds. Although there is one early newspaper report dating back to 2007 of a sharp-eyed buyer having picked up that the Taylor Wimpy ten-year-doubling ground rent starting at £300 a year would have reached £9,600 per annum by 2057, appreciation that there was a problem with escalating ground rents did not really break until midway through 2016.

At the 2016 Lease Conference, which was held in February, there was no talk of them; by the following February there was a clamour.

The Housing Act trap
One of the consequences of escalating ground rent clauses, described as ‘The Ground 8 trap’, was noted in the government’s consultation paper Tackling Unfair Practices in The Leasehold Market
(December 2017), at para 75: ‘The government is aware that, where ground rents exceed £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant. This means, for even
small sums of arrears, leaseholders could be subject to a mandatory possession order if they were to default on payment of ground rent.’

‘The Ground 8 trap’ is something of a misnomer and ‘The Housing Act 1988 trap’ would be a more accurate description because The Ground 8 trap is only the most obvious consequence of a wider problem. The trap arises from interplay of s 1(1) and (2) and Sch 1 of the Housing Act 1988, which, respectively, define assured tenancies and list those tenancies which cannot be assured tenancies. Section 96 of the Housing Act 1996 then operates to make assured tenancies entered into on or after 28 February 1997 an assured shorthold tenancy unless it falls within one of the exceptions. Since the basic definition provides that any tenancy under which a dwelling is let as a separate dwelling ‘is for the purposes of this Act an assured tenancy’, a long lease could always theoretically have been caught, but the historically low levels of ground rent associated with long leases meant that most
did not exceed the £250 per year or £1,000 per year in London used to define ‘Tenancies at a low rent’ under Sch 1, para 3A. The idea that many long leases would be outside the exception was dismissed when the then Housing Bill was debated in the House of Lords—Hansard (Lords) 24 October 1988, Volume 500, Col 1461-2.

Ground 8
Ground 8 is one of the mandatory grounds for possession under the Housing Act 1988, Sch 2 and it applies when—at the date of the service of the notice under s 8 of the Act and at the date of the hearing:

    •  if rent is payable weekly or fortnightly, at least eight weeks’ rent is unpaid;
    •  if rent is payable monthly, at least two months’ rent is unpaid;
    •  if rent is payable quarterly, at least one quarter’s rent is more than three months in arrears; and
    •  if rent is payable yearly, at least three months’ rent is more than three months in arrears;

Its effect is not just that small amounts of arrears of ground rent can result in leaseholders being subject to a mandatory possession order if they default on payment but that there is no ability to
apply for relief from forfeiture. While it is right that the arrears must still be outstanding at the date of the hearing, not every defaulting leaseholder will be in a position to pay, notwithstanding that they may have considerable equity locked up in their leasehold property. That equity is lost when the possession order is made. Moreover it is not always the leaseholder who loses; a possession order determines the leasehold interest and any mortgagee loses their security as well—also without any possibility of rectifying the matter by applying for relief against forfeiture. With higher initial levels of ground rent and escalator clauses, a long lease can either be outside the tenancy at a low rent from
the outset or cease to be a tenancy at a low rent within a relatively short time thereafter.

Ground 8 is not the only trap
Ground 8 is not the only mandatory ground which could potentially apply to a long lease not at a low rent, the other mandatory grounds are:

    • Ground 7A, conviction for certain offences or antisocial behaviour;
    • Ground 7B, immigration status; and
    • Ground 6, if the lease gives the freeholder the right under certain circumstances to carry out work on the leasehold property.

Additionally, while a court may be unlikely to exercise its discretion under any of the discretionary Grounds 9 to 17 in Sch 2, that they may apply at least gives rise to a risk that a leaseholder may end up facing proceedings from an aggressive freeholder (it is not as if history suggests that aggressive
freeholders do not exist). Furthermore, the right of first refusal on a sale of the freehold for leaseholders of flats under the Landlord & Tenant Act 1987 is also ousted because that too has
a low rent test.

Might derogation from grant provide an escape?
Part 2 will consider the protean nature of derogation from grant, the remedies to which it gives rise and whether the effect of the Housing Act trap on a long lease is to take it below the irreducible minimum implicit in the grant so as to amount to a derogation.

First Published in New Law Journal 8th March 2019
© NLJ & Rawdon Crozier

Categories
Ground Rents

THE TENANT FEES ACT 2019: NO HELP FOR THOSE CAUGHT BY THE HOUSING ACT TRAP

Eight months before the much publicised Select Committee on Leasehold was launched on 24th July 2018,another enquiry had been launched on the 16th November 2017; the last evidence for that enquiry came in on the 26th February 2018 and the Committee’s report had been completed in March 2018. The product was a bill, which passed into law in June 2019 as the Tenant Fees Act 2019 and it is probably a wonderful bit of legislation, although, as ever, I shall hold fire and see how it works in practice before praising it too highly. It prohibits the charging of a lot of fees that landlords and managing agents currently charge and restricts the amounts which can be charged in relation to those fees which are permitted and provides a mechanism for varying leases so that terms do not conflict with the provisions of the Act.

While the Tenant Fees Act 2019 does not abolish leasehold, it might have provided remedies for much of what those saddled with burdensome modern long leaseholds find most problematic and as it applies to assured shorthold tenancies, it might have given a silver lining to the Housing Act Trap about which I have written quite a lot. But here is the rub; it is not retrospective and it excludes long leases. So it does none of those things for existing long leaseholders caught in the Housing Act Trap.

It is noteworthy that none of the evidence the Inquiry that lead to the Tenant Fees Act came from anyone affected by the leasehold mis-selling scandal but the Select Committee was the same and had the rolling behemoth of Parliamentary business checked, taken a breath and engaged in some joined-up thinking, it is possible that a much more worthy piece of legislation could have been produced. When the bill was debated, however, across four debates (two in the Commons and two in the Lords) only Maria Eagle raised the issue of long leaseholders and even then neither the long lease exception nor whether the provisions should apply to existing leases was discussed. Lord Shipley even seemed to think that long leaseholders were not afflicted by the same levels of charges and fees.

The Tenant Fees Act.

The key provisions are Sections 1 & 2; Section 1 provides:

(1) A landlord must not require a relevant person to make a prohibited payment to the landlord in connection with a tenancy of housing in England.
(2) A landlord must not require a relevant person to make a prohibited payment to a third party in connection with a tenancy of housing in England.

Section 2 makes similar provisions in relation to managing agents.

Under Section 28 “relevant person” has the meaning given by section 1(9) (and see subsection (2) of this section);

Section 1(9) defines a “relevant person” as
(a) a tenant, or
(b) subject to subsection (10), a person acting on behalf of, or who has guaranteed the payment of rent by, a tenant.

“tenancy” means—
(a) an assured shorthold tenancy other than—
(i) a tenancy of social housing, or
(ii) a tenancy which is a long lease,…

The definition of “tenant” is expressed as one of those irritatingly non-exclusive definitions, so beloved of legislators and, I suspect, pretty much no-one else, in any event
” ‘tenant’ includes—
(a) a person who proposes to be a tenant under a tenancy,
(b) a person who has ceased to be a tenant under a tenancy,
(c) a licensee under a licence to occupy housing,
(d) a person who proposes to be a licensee under a licence to occupy housing, and
(e) a person who has ceased to be a licensee under a licence to occupy housing;

Leasehold Reform, Housing and Urban Development Act 1993
Section 7.— Meaning of “long lease”.
(1) In this Chapter “long lease” means (subject to the following provisions of this section)—
(a) a lease granted for a term of years certain exceeding 21 years, whether or not it is (or may become) terminable before the end of that term by notice given by or to the tenant or by re-entry, forfeiture or otherwise;
(b) a lease for a term fixed by law under a grant with a covenant or obligation for perpetual renewal (other than a lease by sub-demise from one which is not a long lease) or a lease taking effect under section 149(6) of the Law of Property Act 1925 (leases terminable after a death or marriage or the formation of a civil partnership );
(c) a lease granted in pursuance of the right to buy conferred by Part V of the Housing Act 1985 or in pursuance of the right to acquire on rent to mortgage terms conferred by that Part of that Act;
(d) a shared ownership lease, whether granted in pursuance of that Part of that Act or otherwise, where the tenant’s total share is 100 per cent; or …

Categories
Service Charges

ARNOLD V BRITTON [2015] UKSC 36; [2015] 2 W.L.R. 1593 (SC)

My article ‘Arnold v Britton – why the tenants lost’ is out in the Landlord & Tenant Review (L. & T. Review 2015, 19(5), 209-211).

In it I consider whether the Supreme Court’s decision has made “commercial absurdity” arguments harder to run in cases concerning the interpretation of leases and explain how the particular circumstances of how the case proceeded at first instance may limit the apparent impact of the decision.

I also hint at an interesting point on a landlord’s entitlement to retain surpluses, which wasn’t run at first instance. There wasn’t space to cover the point in detail in the article and it’s probably worth another article in itself.

Categories
Service Charges

IS A SURPLUS FROM A FIXED SERVICE CHARGE THE LANDLORD’S?

In my recent article on Arnold v Britton in the Landlord & Tenant Review, I only had space to allude briefly to the question of whether a surplus from a fixed service charge accrues to the landlord but the answer is by no means as clear as a casual look at Woodfall would suggest. The decision of Walton J in Frobisher (Second Investments) Ltd v. Kiloran Trust [1980] 1 WLR 425 is often cited as authority for the proposition that a landlord has an absolute right to any surplus but the case actually decided that any right of recoupment rested in contract rather than trust: see 430B.

It is true that in Arnold v Britton on the first appeal Morgan J and in the Court of Appeal Davis LJ expressed the view that if payments made under the fixed service exceeded the amount of the landlord’s expenditure, the benefit of any surplus would accrue to the landlord for her own benefit but their comments, strictly, were obiter and are contrary to the Court of Appeal’s decision in Brown’s Operating System Services Ltd v. Southwark Roman Catholic Diocesan Corporation [2007] EWCA Civ 164, [2007] L&TR 25.

The contrary view was also expressed in Friends Life Management Services Limited v. A & A Express Building Limited [2014] EWHC 1463 (Ch), which is notable for being a decision of Morgan J, who decided in that case that a landlord is not necessarily entitled to retain surpluses for his own use: see 43.

Whether a contractual right to retain a surplus exists would appear to depend on the particular terms of the lease in question, although this is bound to be something that will be tested in future litigation.

A big problem for tenants would appear to be that if a right of recoupment is found to exist in their favour, on existing case law, it would appear to arise only at the end of the lease, which would make any right to recoupment problematic even in a lease of relatively short duration, not least because a lessee would lose the right in the event of a lease’s being terminated prematurely, for example by reason of a tenant’s breach of covenant — see Brown’s Operating System Services per Smith LJ 33.

Insofar as a right to recoupment may rest on an implied term, the ability to imply a term in a lease has recently been the subject of argument in the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited. The point under consideration was whether a term could be implied to entitle a tenant to a repayment of rent paid before but partially attributable to a period after the tenancy had been determined by the exercise of a break clause.

The submissions can be viewed at https://www.supremecourt.uk/watch/uksc-2014-0158/071015-am.html.

 
 
Categories
Service Charges

OOOPS – THAT SHOULDN’T HAVE HAPPENED, LET ALONE TWICE.

The appeals of Jarowicki & Prokhorova [2016] UKUT 435 (LC)

Paragraph 3 of Martin Rodger QC’s judgment in these two service charge appeals says all one needs to know about the cases of Prokhorova v Old Ford Housing Association and Jarowicki v Freehold Managers (Nominees) Limited which came together on appeal:

“ Each of these short appeals concerns a decision of the FTT under section 27A in a dispute over the amount of the service charge payable by the tenant of a leasehold flat. Although there is no other connection between the appeals we have determined them together because they share one striking feature, that is that in neither case did the decision of the FTT determine the fundamental question raised by the application, namely what amount was payable by the tenant to the landlord as a service charge.”

As to what should happen, the answer is at paragraph 11:

” We do not underestimate the practical difficulty of quantifying the sum payable in certain cases. In this case, for example, the FTT stated that the necessary information had not been made available by the Housing Association during the hearing. Nevertheless, the FTT has adequate case management powers under rule 6 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to direct at any time that a party should provide the information necessary to enable the tribunal to determine the amount of the service charge payable. Where the necessary information is not available at the hearing, or where it is not reasonable to expect the FTT to devote its own limited resources to the task of calculating what may be a large number of individual figures, the appropriate course is likely to be to direct the landlord or management company to recalculate the service charge in light of the tribunal’s decision and then to submit it to the leaseholder for agreement, giving both parties the right to apply to the tribunal if agreement cannot be reached. In all cases, however, the final responsibility for determining the sum payable lies with the FTT.”

Interestingly the landlord in the Jarowicki appeal resisted it on the basis that the sum owing could be worked out easily enough or could be corrected under the slip rule; both arguments were given short shrift at paras 17 & 18:

“17. … In circumstances where the potential for confusion and uncertainty was so great, it was incumbent on the FTT to make clear the answer to the statutory question posed by section 27A(1)(c) by determining the amounts payable as service charges. It should have stated those amounts as absolute figures rather than as percentages or proportions of unspecified sums which it left to the parties to interpret. Its omission to do so is was a breach of its duty to record its decision clearly and to provide proper reasons. If it was unable to do so on the basis of the information provided (which we think likely) it should have followed the course suggested in paragraph 11 above.

“18 Nor do we accept that the omission of the FTT to state the amount of the service charges payable is a matter which could have been dealt with under the slip rule. That failure was not a clerical mistake or an accidental slip or omission. It was fundamental to the statutory question which the FTT was required to determine. For that reason we allow the appeal.”

It is noteworthy that in Jarowicki, the Upper Tribunal did not simply remit the case to the the FTT for the appropriate figures to be calculated, at 19, Martin Rodger QC said this:

“In this case we consider it appropriate not simply to remit the decision to the FTT for further consideration, but to set it aside and require that the application be re-determined. It is apparent from the tribunal’s inability to specify figures, from the appellant’s application for permission to appeal and from the request of the respondent to provide further documents that the material presented to the FTT was incomplete and confusing. At the joint request of the parties the FTT made its decision on the basis of their written representations alone, without either party or the tribunal having the opportunity to seek or provide clarification of disputed facts. Many of Mr Jarowicki’s complaints concerned the quality of services provided and his evidence consisted of his own first hand observations supported in some cases by photographs. The FTT did not explain why it did not accept that evidence and it is difficult to see how it could evaluate it without hearing from the parties in person. In all of these circumstances we consider that the parties should be given the opportunity to present their cases in full, before either the same or a differently constituted tribunal.”

The two decisions must be seen as welcome in making clear the need for the rigour which should be applied by FTT in determining service charge liabilities.

One Way of avoiding the Problem

In the latest leg of the Phillips v Francis litigation – PCTA v Francis – before the FTT in October, it proved possible to deal with a 5 year tranche of service charges in a little under 5 days (notwithstanding that the trial bundle ran to 20 lever arch files)  by using Scott Schedules, which, I would suggest, ought to be the norm in larger service charge disputes. Furnishing the FTT with an electronic copy may not save it from having to determine individual liabilities but it should ensure that when a judgment is produced there will be no doubt about what has been awarded and in respect of which invoice.

Don’t Forget Service Charges are Contractual

My only slight carp about this otherwise admirably robust judgment is that the opportunity was not also taken to remind the FTT that whereas there is no burden of proof on landlord or tenant in relation to determining reasonableness, service charge claims are claims for a contractual liability and the burden of proving that a sum is contractually due in the first place lies on the landlord.

Although there is no direct authority on the point in relation to the FTT, I would suggest that the reasoning in Foilagen v Ritjo Properties (1981) The Times, 12 October 1981 (CA) applies which means that, in cases where what is contractually due is at issue, it is the landlord who should go first, regardless of by whom the application has been made.

Categories
Ground Rents

STRIKING DOWN A RENT REVIEW CLAUSE

Since writing about derogation from grant as a possible remedy to the Leasehold Mis-selling Scandal, in particular in a two part article “Notes on a scandal: freeholders and medieval robber barons” in New Law Journal last year I have been asked whether there is a case of a rent review clause having been struck down for it and the answer is, in the case of a long lease, not so far as I am aware, but it has been used where an escalating rent clause has taken an assured tenancy out of statutory protection.

The case is Bankway Properties Ltd v Pensfold-Dunsford [2001] EWCA Civ 528 [2001] 1 W.L.R. 1369 in which a previous landlord had entered into what was expressed to be an assured tenancy under the Housing Act 1988 but it appeared that the landlord wanted the lease to qualify as an assured tenancy to obtain the tax benefits of the business expansion scheme.

The tenants were two individuals on housing benefit, who, being desperate to obtain accommodation, did not read the agreement very carefully and possibly not at all. The initial rent was £4,680 per annum. The tenants did not notice that there was a provision in the lease for the rent to increase to £25,000, a sum which there was no prospect of their paying and caused the tenancy to cease to be an assured tenancy because it was above the upper rent limit..

The landlord’s thinking seems to have been that possession could be recovered by increasing the rent and either relying on the existence of rent arrears, which he duly sought to do, or because the tenant would voluntarily surrender possession when asked for the increased rent.

The case was heard in the Court of Appeal by a two judge court consisting of Lady Justice Arden and Lord Justice Pill, who found for the tenants but their primary reasons for doing so was on different grounds.

Arden LJ relied on the principle that the provision allowing the rent to be increased to £25,000 was an improper attempt to evade the mandatory statutory scheme for security of tenure, while Pill LJ relied on the inconsistency between that provision and the intention of the parties to grant an assured tenancy as a matter of true construction of the agreement (see [58]).

Arden LJ commented at [42] that because there was no common intention to create a different obligation for the purpose of misleading the parties there was no sham in the sense used in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (CA). Nor were the appellants misled or under a mistake.

However, as she explained at [43]:



“… there is a variant on the usual definition of sham where a question arises whether an agreement is not intended to have the effect stated but is intended to evade the operation of a statute out of which the parties cannot contract. This doctrine has been developed and applied by the courts not only in the context of the Rent Acts (see Antoniades v Villiers , above) but also in the context of agricultural tenancies ( Johnson v Moreton [1980] AC 37 and Gisburne v Burton [1989] 1 QB 391 ), the question whether a hire purchase agreement is in fact an unregistered bill of sale (see for example Re Watson (1890) 25 QB 27 ), the question whether a sale and repurchase agreement is an unregistered company charge (see for example Re George Inglefield Ltd [1933] Ch.1 ), the question whether an absolute conveyance is in fact a mortgage (see for example Re Duke of Marlborough [1894] 2Ch 133 ), the question whether a transaction is in substance an unauthorised reduction of share capital contrary to the Companies Acts (see for example Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 ) and the question whether a sum payable under a contract is a penalty (see for example Bridge v Campbell Discount [1962] AC 600 ). In these types of situations, as Lord Ackner put it in Antoniades v Villiers , above at 466, the question is: what was the substance and reality of the transaction entered into by the parties? The Court is not bound by the language which the parties have used. It may for instance conclude, when it examines the substance of the transaction, that what the parties have in their agreement called a sale and repurchase of book debts is in truth a registerable charge over them.


44. For this purpose, the court can look at all the relevant circumstances, including the subsequent conduct of the parties (see per Lord Jauncey in Antoniades v Villiers , above, at 475). There does not have to be a common intention to enter into other obligations or to deceive a third party: in Antoniades v Villiers for instance, the “licensees” acknowledged in writing that their agreements with the landlord did not have the protection of the Rent Acts (see Antoniades v Villiers , above, at 457-8). Lord Templeman points out in Antoniades v Villiers that the earlier case of Street v Mountford , above, had established that “where the language of licence contradicts the reality of the lease, the facts must prevail. The facts must prevail over language in order that parties may not contract out of the Rent Acts” (at 463). Or, as Lord Esher MR put it in Re Watson , above, “the Court ought never to let a sham document, drawn up for the purpose of evading an Act of Parliament prevent it from getting at the real truth of the matter”.“



Arden LJ went on to consider the relevant provisions of the Housing Act 1988 and concluded at [49] that they did not permit parties to an assured tenancy to agree to vary the statutory scheme for security of tenure so as to reduce the level of protection available to the tenant.

The provision allowing the rent to be increased to £25,000 was not in substance or reality a provision for the fixing of rent (the landlord never expected to receive rent of that amount), and was instead a provision to enable the landlord to recover possession otherwise than in accordance with the mandatory scheme, and amounted to an unenforceable contracting out ([51] and [54]).

It was a device masquerading as a provision for increase in rent, the sum not being rent at all on a true analysis ([55] and [56]).

Pill LJ, on the other hand, expressed having some difficulty with the concept of unlawful contracting out from the legislation, and based his decision on an analysis of the contract, which made it clear that an assured tenancy was intended. The statutory purpose of the assured tenancy was to give long-term security ([66]).

The clause providing for the rent increase was “inconsistent with the statutory purpose which it was the main object of the agreement to achieve” ([67]) and had to be ignored.

Arden LJ endorsed this approach at [58] saying:

 

“… Pill LJ reaches the same conclusion as myself on the basis of the inconsistency between clause 8(b)(iii) and the intention of the parties to grant an assured tenancy as a matter of the true construction of the agreement: see Glynn v Margetson & Co [1893] AC 351 . The citations from the speeches of Lord Bridge and Lord Templeman set out above show that inconsistency, or repugnancy, and pretence are alternative bases for their decision in Antoniades v Villiers [1990] 1 AC 417 , and I accept that inconsistency is relevant and applicable in this case too.“


Glynn v Margetson is one of those shipping cases in which the term ‘derogation from grant’ is not used but the doctrine that an individual term must not undermine a contract’s ‘main purpose’ is identical and the link was acknowledged by Rowlatt J in M Isaacs and Sons, Limited v William Mcallum and Company, Limited [1921] 3 K.B. 377.

Is there a case of a rent review clause having been struck down for derogating from grant? The answer is “Yes”.

 

Categories
Service Charges

SERVICE CHARGES: CONTRACTUAL LIABILITY UNDER THE LEASE; FAIRNESS & ESTOPPEL BY CONVENTION

I’ve made this observation before but the starting point of any determination under Section 27A of the Landlord & Tenant Act 1985 of the amount of a service charge liability ought to what is prima facie contractually due under the lease.

However in the FTT where one or both parties may be unrepresented, the terms of the lease are not always uppermost in the minds of the landlords  and tenants in dispute, something conveniently illustrated by Admiralty Park Management Company Limited v Ojo [2016] UKUT 421 (LC) which was decided in September 2016. The case also offers some useful guidance as to how the FTT should proceed where the parties have neglected to apply their minds to something so basic as: what is actually due under the lease?

Ojo also offers useful guidance on procedural fairness and rather less useful guidance on the application of estoppel by convention (by which I mean, it employed a slightly flawed analysis of estoppel by convention albeit to produce the right result).

In Ojo the FTT of its own motion raised for the first time at the start of the hearing decided that the service charges had not been calculated in accordance with the method prescribed by the lease and, having refused the management company, to which the service charge was payable an adjournment, to deal with the point, it went on to hold that the tenant was not liable to pay service charges for the years 2010 to 2014 for services provided by the appellant.

On appeal it was argued that there had been a serious procedural irregularity in the conduct of the proceedings in that the FTT should only have decided the issues raised by the parties and not raised the impermissibility of the mode of calculation of its own motion or, as a fall-back position, that the requested adjournment should not have been refused.

Essentially what had happened in relation to the calculation was that the managing agent had apportioned charges equally between a number of different properties it managed for the same landlord, whereas, under the lease, what should have been charged was a proportion of the service charge expenditure on the single property in which the tenant’s flat was situated.

The exact consequence of apportioning the service charges in this way was impossible to ascertain and was likely to have varied from year to year.The method of accounting adopted by the appellant (which the appellant’s managing agent inherited from a previous agent) was more simple and convenient because it avoided the need to keep separate accounts for each of nine buildings, but it was accepted that it did not conform to the scheme laid down by the lease. No objection to the appellant’s mode of accounting had ever been taken by the tenant nor any other tenant on the estate.

The FTT had asked the appellant’s representative how the method of apportionment it had adopted could be reconciled with the charging provisions of the lease and it its decision had dealt with the exchange which had ensured as follows:

“The short answer appeared to be: this is the way the respondent has run the estate. In other words the respondent could not submit that it had followed the service charge regime outlined above. Later, after a substantial adjournment for [the appellant’s representative] to take full instructions, he sought to justify the respondent’s position by seeking to argue that it was entitled to charge Mr Ojo on this basis by virtue of an estoppel by convention as this was the way in which the service charge had been calculated for a number of years. All blocks, he argued, were treated to the same regime and there were useful and beneficial economies of scale. That, with respect, arguably confuses management with charging for it, though it might well be for Mr Ojo’s benefit. But it also runs the risk that a tenant in one building is charged for works carried out in another building for which he has no liability. That much is clear from the schedule submitted by the respondent which starts with a charge for another block for which Mr Ojo has no liability. Further, it would be wholly unacceptable to allow a litigant to put forward such an argument at this late stage, without pleadings, evidence, and advance notice to Mr Ojo that the respondent was claiming the service charge on some variation of the contractual basis.”

Having refused to allow the appellant any further opportunity to attempt to answer the point it had raised, the FTT went on to determine that, because the appellant was unable to justify the charges it sought to recover by reference to the terms of the lease, the tenant’s liability was nil for the four years in issue. It described this outcome as “inevitable though regrettable” because it was clear that the tenant should owe something but the amount was impossible to determine on the limited evidence available.

Three issues arose on appeal:
(1) Whether the FTT had acted without jurisdiction, or in a way which was procedurally unfair, by reaching its decision on the basis of a new point which had not been relied on by the tenant or identified before the hearing, and without the appellant having been allowed an effective opportunity to consider and address it.
(2) Whether the tenant was prevented from objecting to the manner in which the Management Charges had been calculated in the past, because he had not raised any such objection since at least 2009.
(3) What Management Charge, if any, was the tenant liable to pay in respect of the years 2010 to 2014.

On the first issue, the Upper Tribunal (The deputy President, Martin Rodger QC) in relation to the FTT’s having raised the terms of charging provisions of its own motion was robust and cited the following passage from Regent Management Limited v Jones [2012] UKUT 369(LC) the Tribunal (His Honour Judge Mole QC) on the entitlement of the LVT (the FTT’s predecessor tribunal) to raise issues which had not occurred to the parties:

“The LVT is perfectly entitled, as an expert tribunal, to raise matters of its own volition. Indeed it is an honourable part of its function, given that part of the purpose of the legislation is to protect tenants from unreasonable charges and the tenants, who may not be experts, may have no more than a vague and unfocussed feeling that they have been charged too much. But it must do so fairly, so that if it is a new point which the tribunal raise, which the respondent has not mentioned, the applicant must have a fair opportunity to deal with it.”

Although the Deputy President did not demur from the decision in Birmingham City Council v Keddie [2012] UKUT 323 (LC) in which it had been said that the LVT was not “an inquisitorial tribunal”and that:

“… where an LVT does feel compelled of its own volition to raise an issue not raised by the application or the parties, it must as a matter of natural justice first give both parties an opportunity of making submissions and if appropriate, adducing further evidence in respect of the new issue before reaching its decision.”

he went on to say:

“28 Where an application is made to the FTT for a determination under section 27A of the 1985 Act the overarching question to be addressed is, usually: what sum, if any, is payable as a service charge by leaseholder. In order to answer that question a number of sub-questions or individual issues are likely to have to be addressed, but the tribunal’s most important task is to determine that amount.

29 Bearing in mind the FTT’s overriding objective of dealing with cases fairly and justly, avoiding unnecessary formality, seeking flexibility and using its expertise effectively, care should be taken by tribunals to avoid adopting an approach which is too narrow, technical or fixated on adherence to procedure for its own sake. This is especially the case where one or more of the parties is unrepresented and where the FTT is likely to be very much better equipped than the parties to identify all of the important issues which need to be considered before the correct sum due from the leaseholder can be identified. An experienced tribunal, guided by the overriding objective, will have no difficulty in distinguishing between a point of significance which the parties may have overlooked, and a point with no real merit which it would be in nobody’s interest to raise for consideration.

30 In this case the appellant’s departure from the scheme of accounting required by the lease was so fundamental that it was both proper and inevitable, in my judgment, that the FTT should raise the issue at the hearing. When it appeared to the tribunal that sums had been claimed and included in the service charge which fell outside the scope of the fifth schedule because they related to other buildings, it was undoubtedly entitled to ask for an explanation. The fact that Mr Ojo may not have appreciated that the service charges were being demanded on a different basis from the lease did not require the FTT to shut its eyes to an obvious and potentially fatal irregularity. It was, in any event, part of Mr Ojo’s challenge to the service charges that they included at least one item of expenditure, on the employment of a caretaker, which was not wholly for the benefit of his building or even of his estate. It was within both the broad question which the FTT was required to determine, namely the quantum of Mr Ojo’s liability, and this more specific issue, for it to consider the extent to which the charges were consistent with the contractual scheme.

31 I therefore do not accept that part of Mr Fain’s argument which suggests the FTT was simply not entitled to raise the issue of the compatibility of the appellant’s practices with the contractual charging provisions.”

As to the refusal of the adjournment, however – and perhaps inevitably given the history outlined above – the Deputy President was equally clear, saying, at 32:

“… As was emphasised in both Regent Management and Keddie , where a tribunal raises a new point which has not previously been referred to by either party, before reaching its decision it must as a matter of natural justice give both parties an opportunity of making submissions and, if appropriate, adducing further evidence in respect of the new issue. The FTT regarded it as unacceptable to allow the appellant to put forward an argument based on long practice without giving notice in advance to Mr Ojo. I agree that that would have been unfair, but the same unfairness was visited on the appellant by its not being given adequate notice of, or a sufficient opportunity to respond to, the point taken by the FTT.”

He therefore agreed that the FTT’s decision had been arrived at on a basis which was unfair.

The Deputy President went on to hold at 45:

“It would be unfair for Mr Ojo now to be allowed to dispute his liability in those circumstances on grounds which he had chosen not to raise for many years. For him to be permitted to do so would require the appellant to recalculate the service charges back at least to 2009 in order to ascertain Mr Ojo’s correct contribution, which may be more or less than the sums he has actually been charged. If Mr Ojo has been overcharged (and there is no basis for the conclusion that he has) it would mean that other leaseholders in the estate have been under charged, but it would be difficult for the appellant to recoup the shortfall after so prolonged a lapse of time. In all of those circumstances I accept the appellant’s case that Mr Ojo’s liability should be ascertained on the assumption that the lease allowed the appellant to apportion liability for costs incurred in relation to the estate as a whole amongst all of its leaseholders, rather than requiring it to apportion liability for work to an individual building only amongst the leaseholders of that building.estoppel by convention”

and determined his service charge liability accordingly.

The modern law of estoppel has been bedevilled by a laxity of expression and a failure of analysis; something I examined a few years ago in an article in Landlord & Tenant Review – The fraudulent tenant: equity, estoppel and statutory purpose (Case Comment on Newport City Council v Charles [2008] EWCA Civ 1541; [2009] 1 W.L.R. 1884) L. & T. Review 2010, 14(2), 63-66. The result is that the main species of the ‘modern’ estoppels, proprietary estoppel, promissory estoppel and estoppel by convention have often been misidentified and the law applicable to each has been subject to a degree of cross-contamination. Estoppel by convention is the one modern estoppel of which it is probably correct to say that it is a “shield and not a sword” (as I explained in the L&TR Article, there is a long history of the phrase having been used of “infancy” but the evidence of its ever having been applied to estoppel of any kind before 1975, when it was said in Crabb v Arun DC [1976] Ch. 179 is dubious to say the least).

Estoppel by convention thus operates regularly and quite properly as a defence to recovery of historically overpaid sums but it does not conventionally assist in establishing a future (or currently unpaid or disputed) liability. The difference between estoppel by convention and proprietary and promissory estoppel, I would suggest (although I would accept this is implicitly suggested rather than being explicitly stated by the authorities) is that because it relates to past actions, reliance and detriment  is presumed, whereas the two latter require reliance and detriment to be proved

The Deputy President’s summary at 45 does, however, suggest that because the exercise of going back and calculating the tenant’s actual liability was, in all probability, if not impossible, prohibitively expensive, recovery on the basis of promissory estoppel might well have been justifiable on the basis of actual detriment, which is why I am not critical of the result, only the route by which it was reached.

On the need to consider first the tenant’s contractual liability and on fairness, Admiralty Park Management Company Limited v Ojo is an exemplary decision.