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CHANGES MADE BY THE FIFTH EDITION OF THE STANDARD
CONDITIONS OF SALE
MALCOLM WATERS Q.C
ELIZABETH OVEY
11 New Square
Lincoln‘s Inn
London
WC2A 3QB
DX 319 London
Telephone: 020 7831 0081
Email: [email protected]
www.radcliffechambers.com
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Changes made by the fifth edition of the Standard Conditions of Sale
Talk by Malcolm Waters QC and Elizabeth Ovey
The Standard Conditions of Sale (SCS) are published jointly by Oyez and the Law Society. They first
appeared in 1990 and are drafted by a working party consisting of three Oyez members and three
Law Society members.
The proposal for a new edition of the SCS came in August 2010 from the Law Society, which was
keen for a new edition to be published alongside the promotion of its Conveyancing Quality Scheme
(CQS) and the introduction of the new Conveyancing Protocol. The Law Society wanted to amend
the SCS to bring them more closely into line with conveyancing practice, so avoiding the need for long
lists of ritualised amendments in special conditions. That is now reflected in step 24 of the Protocol,
which says that the draft contract prepared by the seller‘s solicitors should incorporate the latest
edition of the SCS and should not include further clauses unless they are necessary to accord with
current law or to implement specific and informed instructions from the seller.
Because the impetus for the fifth edition of the SCS came from two initiatives in residential
conveyancing – the CQS and the Protocol – there has not been the same pressure for a new edition
of the Standard Commercial Property Conditions (SCPC). The SCPC are currently in their second
edition, published in 2004. It is thought unlikely that a new edition of the Commercial Conditions will
be published until the secondary legislation for e-transfers is in place.
Condition 1.4 - VAT
1.4.1 The purchase price and the contents price are inclusive of any value added tax.
1.4.2 All other sums made payable by the contract are exclusive of any value added
tax and where a supply is made which is chargeable to value added tax, the
recipient of the supply is to pay the supplier (in addition to any other amounts
payable under the contract) a sum equal to the value added tax chargeable on
that supply.
SCS 1.4 previously said that all sums payable under the contract were exclusive of VAT. It has now
been amended to provide that the purchase price and any separate contents price are inclusive of
VAT, though any other sums payable under the contract continue to be exclusive of VAT. The
change is unlikely to be significant in the sale of residential property, which will either be exempt or, if
it‘s a new property, zero rated. However, the SCS are sometimes used for the simpler commercial
transactions, and the parties would almost certainly want to override SCS 1.4 by an appropriate
special condition where the sale is either standard rated or the Transfer of a Going Concern.
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Condition 1.5 – Assignment and sub-sales
1.5.1 The buyer is not entitled to transfer the benefit of the contract.
1.5.2 The seller cannot be required to transfer the property in parts or to any person
other than the buyer.
Previous editions of the SCS expressly prohibited the buyer from assigning the benefit of the contract,
but did not exclude the buyer‘s right under the general law to require the seller to transfer the property
directly to a sub-buyer: see Pittack v Naviede [2011] 1 W.L.R. 1666 where the contract was governed
by the fourth edition of the Standard Conditions, and it was held that the buyer was entitled to insist
on the seller transferring the property directly to a sub-buyer and could rescind when he refused to do
so. The position is changed in the fifth edition by a new condition 1.5.2, which expressly states that
the seller cannot be required to transfer the property to a person other than the buyer (so bringing the
SCS into line with the SCPC in this respect).
Condition 2.2.1 – quantification of the deposit
2.2.1 The buyer is to pay or send a deposit of 10 per cent of the purchase price no
later than the date of the contract.
SCS 2.2.1 now provides that the deposit is now to be 10% of the purchase price (that is, the purchase
price for the property) and not, as previously, 10% of the total of the purchase price and any separate
chattels price – or ―contents price‖ as it is now called. The reason for the change is to avoid
uncertainty about the amount of the deposit where negotiations over contents are ongoing right up to
exchange.
Condition 2.2.4 – payment of the deposit
2.2.4 The deposit is to be paid:
(a) by electronic means from an account held in the name of a
conveyancer at a clearing bank to an account in the name of the seller’s
conveyancer or (in a case where condition 2.2.5 applies) a conveyancer
nominated by him and maintained at a clearing bank; or
(b) to the seller’s conveyancer or (in a case where condition 2.2.5 applies)
a conveyancer nominated by him by cheque drawn on a solicitor’s or
licensed conveyancer’s client account
2.2.5 If before completion date the seller agrees to buy another property in England
and Wales for his residence, he may use all or any part of the deposit as a
deposit in that transaction to be held on terms to the same effect as this
condition and condition 2.2.6.
There have also been some changes to SCS 2.2.4, which regulates the way the deposit is paid. As
before, the deposit may be paid either by electronic means or by cheque. Where it is paid
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electronically, SCS 2.2.4(a) now requires the payment to be made both from and to a conveyancer‘s
account with a clearing bank; but there is no longer any requirement for the payment to be made in
cleared funds (which is different from the position on completion). The drafting of condition 2.2.4 has
also been amended to make it clear that, where the seller is in a chain, a deposit paid by cheque, as
well as one paid electronically, can be paid directly to a conveyancer higher up the chain.
Condition 3.1.2 - incumbrances
3.1.2 The incumbrances subject to which the property is sold are:
(a) those specified in the contract
(b) those discoverable by inspection of the property before the date of the
contract
(c) those the seller does not and could not reasonably know about
(d) those, other than mortgages, which the buyer knows about
(e) entries made before the date of the contract in any public register
except those maintained by the Land Registry or its Land Charges
Department or by Companies House
(f) public requirements.
There is a small but significant change to SCS 3.1.2, which sets out the incumbrances subject to
which the property is sold. By virtue of the new paragraph (d), these now include incumbrances,
other than mortgages, ―which the buyer knows about‖. This is in line with the open contract position:
see per Millett J. in Rignall Developments Ltd v Halil [1988] Ch. 190, 200D-E. The Explanatory Notes
to the fifth edition say that this change has been made because it would be unfair for the buyer to be
able to take action against the seller for a matter which the buyer knew about, albeit that the sale was
not expressly made subject to it. Arguably, however, the change creates undesirable uncertainty by
making the question whether the seller is able to transfer the title he has contracted to sell depend in
part on an investigation into the buyer‘s state of knowledge at the date of the contract.
Terms removed from the fifth edition – retained land and definition of the property
It may be worth noting in passing two terms which featured in earlier editions of the SCS but have
been omitted from the fifth edition:
The old SCS 3.4 made provision for reciprocal rights to be granted and reserved in cases where
the seller was retaining land near the property being sold. This term has been deleted, on the
basis that the issue is too complex to be dealt with adequately by a general condition and should
be covered by an appropriate special condition incorporating an agreed form of transfer.
The old SCS 4.4.2 provided that, where it was reasonable, the buyer could require the seller, at
his own expense, to provide a statutory declaration setting out facts needed to establish the exact
boundaries of the property, to prove the ownership of boundary features or to identify parts of the
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property with different titles. The removal of this term from the fifth edition means that a buyer
who thinks he needs a statutory declaration of this kind will have to bargain for it expressly.
Condition 4.6.3 – implied covenants for title
4.6.3 The transfer is to have effect as if the disposition is expressly made subject to
all matters covered by condition 3.1.2 and, if the property is leasehold, is to
contain a statement that the covenants set out in section 4 of the Law of
Property (Miscellaneous Provisions) Act 1994 will not extend to any breach of
the tenant’s covenants in the lease relating to the physical state of the
property.
The background to SCS 4.6.3 is that, where a disposition of leasehold land is made with full or limited
title guarantee, section 4 of the Law of Property (Miscellaneous Provisions) Act 1994 provides for the
implication of a covenant that there is no subsisting breach of a condition or tenant‘s obligation, and
nothing which would render the lease liable to forfeiture. In its unmodified form, the implied covenant
would thus make the seller liable if the lease were liable to forfeiture by reason of a breach relating to
the physical condition of the property. That, however, would conflict with SCS 3.2.2, which provides
that a leasehold property is sold:
―subject to any subsisting breach of a condition or tenant‘s obligation relating to the physical
state of the property which renders the lease liable to forfeiture‖.
The amended SCS 4.6.3 is designed to remove the conflict by providing that the transfer must contain
a statement that the covenant implied by section 4 does not extend to any breach of the tenant‘s
covenants in the lease relating to the physical state of the property. The inclusion of that statement in
the transfer will be effective under section 6(1) of the 1994 Act to limit the scope of the section 4
covenant by making the disposition expressly subject to any liability to forfeiture by reason of a breach
relating to the physical state of the property.
Condition 4.7 - Membership of company
Where the seller is, or is required to be, a member of a company that has an interest in
the property or has management responsibilities for the property or the surrounding
areas, the seller is, without cost to the buyer, to provide such documents on
completion as will enable the buyer to become a member of that company.
Condition 4.7 is a new term which applies where the seller is required to be a member of a
management company or other company with an interest in the property. In such a case, the seller
must provide the buyer on completion with any documents which the buyer will need to become a
member of the company.
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Condition 5.1 – risk and insurance
5.1.1 The property is at the risk of the buyer from the date of the contract.
5.1.2 The seller is under no obligation to the buyer to insure the property unless:
(a) the contract provides that a policy effected by or for the seller and
insuring the property or any part of it against liability for loss or
damage is to continue in force, or
(b) the property or any part of it is let on terms under which the seller
(whether as landlord or as tenant) is obliged to insure against loss or
damage.
5.1.3 If the seller is obliged to insure the property under condition 5.1.2, the seller is
to:
(a) do everything necessary to maintain the policy;
(b) permit the buyer to inspect the policy or evidence of its terms;
(c) if before completion the property suffers loss or damage:
(i) pay to the buyer on completion the amount of the policy monies
which the seller has received, so far as not applied in repairing
or reinstating the property, and
(ii) if no final payment has then been received, assign to the buyer,
at the buyer’s expense, all rights to claim under the policy in
such form as the buyer reasonably requires and pending
execution of the assignment hold any policy monies received in
trust for the buyer.
(d) cancel the policy on completion.
5.1.4 Where the property is leasehold and the property, or any building containing it,
is insured by a reversioner or other third party, the seller is to use reasonable
efforts to ensure that the insurance is maintained until completion and if,
before completion, the property or building suffers loss or damage the seller is
to assign to the buyer on completion, at the buyer’s expense, such rights as
the seller may have in the policy monies, in such form as the buyer reasonably
requires.
5.1.5 If payment under a policy effected by or for the buyer is reduced, because the
property is covered against loss or damage by an insurance policy effected by
or on behalf of the seller, then, unless the seller is obliged to insure the
property under condition 5.1.2, the purchase price is to be abated by the
amount of that reduction.
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Probably the most important change made by the fifth edition is the amendment of SCS 5.1 to provide
for the risk to pass to the buyer on exchange, as it would under the general law. That contrasts with
the position in each of the previous editions of the SCS, under which SCS 5.1 provided that the seller
retained the risk until completion (though without being under any obligation to insure) and the buyer
was given the right to rescind if at any time before completion the physical state of the property made
it unusable for its purpose at the date of the contract.
The old condition 5.1 was always controversial, and it was frequently varied in practice by special
condition. The background to the previous version of SCS 5.1 is that, just after the publication of the
first edition of the SCS in 1990, the Law Commission published its Report on the Risk of Damage
after Contract of Sale (Law Com. No. 191, April 1990). The Report concluded that the position under
the general law (namely, that risk passes to the buyer on exchange) was unsatisfactory and a trap for
the unknowledgeable. The Law Commission, however, stated that it was not proposing legislative
intervention at that stage because SCS 5.1 had largely achieved the Commission‘s objective of
establishing a general rule that risk should pass on completion in the absence of express agreement
to the contrary. The Lord Chancellor‘s Department subsequently indicated, in March 1992, that a
decision to amend SCS 5.1 to place the risk on the buyer from exchange would require
reconsideration to be given to the Commission‘s conclusion that no legislation was required in this
area. That implicit threat of legislative intervention played an important part in the decision to
maintain condition 5.1 in its original form for the first four editions of the SCS.
For the fifth edition, however, the working party felt that the time had come to bring SCS 5.1 into line
with the perceived preference of conveyancers that risk should pass on exchange (which is the
position taken by the SCPC). So the new SCS 5.1.1 has been amended to say that the property is at
the risk of the buyer from the date of the contract. The contract does not oblige the buyer to insure
the property, but the buyer will normally be well-advised to do so, since, in contrast to the position
under the earlier editions, he will now be obliged to complete even if the property is reduced to a
smoking ruin between exchange and the completion date.
There are, however, two cases in which the seller will be obliged to insure the property, and these are
spelt out in SCS 5.1.2. The first is where the contract provides that an existing policy put in place by
the seller is to continue in force. The second is where the property is let and the seller (whether as
landlord or as tenant) has an obligation to insure the property under the terms of the lease.
SCS 5.I.3 sets out the seller‘s duties in those cases where he is obliged to insure under condition
5.1.2 – these include giving the buyer the policy moneys, or assigning the right to claim under the
policy, if the property is damaged between exchange and completion.
SCS 5.1.4 makes provision for cases where the property is leasehold but the lease obliges someone
other than the seller to insure. In this situation, the seller‘s obligation is to use reasonable efforts to
ensure that the insurance is maintained until completion and, if the property is damaged between
exchange and completion, to assign to the buyer whatever rights he has in the policy moneys.
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SCS 5.1.5 deals with the case where payment under the buyer‘s policy is reduced because the
property is also insured under a policy maintained by the seller (i.e. where there is ‗double
insurance‘). In this case, SCS 5.1.5 provides that, unless the seller was obliged to insure under SCS
5.1.2, the purchase price will be abated by the amount of the reduction in the payout under the
buyer‘s policy.
Condition 5.2 – occupation by the buyer
5.2.1 If the buyer is not already lawfully in the property, and the seller agrees to let
him into occupation, the buyer occupies on the following terms.
5.2.2 The buyer is a licensee and not a tenant. The terms of the licence are that the
buyer:
(a) ...
(g) if the property is leasehold, is not to do anything which puts the seller
in breach of his obligations in the lease; ...
The effect of the new SCS 5.2.2(g) is that, where the buyer is let into occupation pending completion
and the property is leasehold, the buyer must not to do anything which puts the seller in breach of his
obligations under the lease.
Condition 6.3 – apportionments
6.3.1 On evidence of proper payment being made, income and outgoings of the property
are to be apportioned ...
The requirement of evidence of payment is new. In practice, sellers have long been required to
produce the last demands or receipts to enable apportionment calculations to be made and checked
and the new requirement gives contractual weight to this practice. It goes further, however, by
referring solely to payment and providing that the payment must be ―proper‖.
Condition 6.4 – amount payable
6.4 The amount payable by the buyer on completion is the purchase price and the
contents price ... adjusted to take account of:
(a) ...
(c) any sum payable under condition 5.1.3.
Paragraph (c) is new and reflects the changes made to condition 5, already discussed.
Condition 6.7 – means of payment
6.7 The buyer is to pay the money due on completion by a direct transfer of cleared
funds from an account held in the name of a conveyancer at a clearing bank and, if
appropriate, an unconditional release of a deposit held by a stakeholder.
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As already noted, sums payable at completion must be cleared funds, although that requirement does
not apply to payment of the deposit. There is no change in that respect in this condition. What is new
is the requirement that funds paid by direct transfer should come from an account in the name of a
conveyance at a clearing bank, a requirement which does also apply to payment of the deposit. In
both cases, the aim is to combat fraud and to assist compliance with measures to prevent money-
laundering.
Condition 6.8 – notice to complete
6.8 At any time after the time applicable under condition 6.1.2 on completion date, a
party who is ready, able and willing to complete may give the other a notice to
complete.
The first phrase of this condition replaces the words ―At any time on or after completion date‖ which
appeared in the fourth edition and its predecessors. Read literally, the previous clause enabled a
seller to serve notice to complete on the morning of completion date, before the buyer had in any way
failed to comply with his obligations under the contract. At common law, a notice to complete making
time of the essence can be served immediately there is a breach of a contractual obligation (see
Behzadi v. Shaftesbury Hotels Ltd. [1992] Ch. 1, in which the relevant obligation was in fact an
obligation to deduce title rather than to complete). The fifth edition offers something of a halfway
house; failure to make payment before the time specified in SCS 6.1.2 does not necessarily constitute
failure to complete on completion date (and thus a breach of contract), but for the limited purposes
specified in that condition treats completion as delayed until the following day.
It is to be noted that Special Condition 5 now offers the parties the opportunity to change the time
specified in SCS 6.1.2 and 6.1.3. It is thought that that may be of particular use where there is a
chain of transactions.
Condition 7.1 – errors and omissions
7.1.1 If any plan or statement in the contract, or in the negotiations leading to it, is or
was misleading or inaccurate due to an error or omission by the seller, the
remedies available to the buyer are as follows ...
This condition has been amended so that it expressly deals only with errors or omissions by the
seller. Although there was no such express limitation in previous editions, the condition went on to
deal with remedies available to the buyer, so the limitation was implied. It follows that in the (perhaps
unlikely) event of an inaccurate plan or statement resulting from an error or omission by the buyer,
there are no contractual provisions restricting the seller‘s right to rescind for misrepresentation. Even
as respects the buyer, the condition is subject to the reasonableness test in s.3 of the
Misrepresentation Act 1967, which has to be applied to the circumstances of the particular case. It is
thus a challenge for the draftsmen of standard conditions, although of course the Standard Conditions
attempt to strike a reasonable balance.
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SCS 7.2.1, making provision for the return of the deposit and documents in the event of rescission,
expressly applies to rescission by either party.
Condition 7.2 – late completion
7.2.2 Compensation is calculated at the contract rate on an amount equal to the
purchase price ...
Previously compensation was calculated on an amount equal to the purchase price and the chattels
price.
An omitted condition – commonhold
The fourth edition, published in 2003, contained provisions designed to take account of the new
possibility of commonhold tenure under the Commonhold and Leasehold Reform Act 2002. Since
commohold, far from being a panacea, has apparently been greeted largely with apathy, the relevant
provisions have been deleted from the fifth edition. In a case involving commonhold land, appropriate
provision should now be made in the Special Conditions.
Condition 9 – contents
The time-hallowed, but perhaps unfamiliar, word ―chattels‖ has been removed from this condition and
the word ―contents‖ has been substituted, but it is otherwise unchanged. Special Condition 3 still
makes provision for a list identifying the contents which are included in the sale, but also makes
provision for a list identifying fixtures which are excluded. This is, of course, intended to minimise the
scope for dispute.
Special Condition 6 – representations
6. Neither party can rely on any representation made by the other, unless made in
writing by the other or his conveyancer, but this does not exclude liability for fraud
or recklessness.
Provisions of this kind (and more extreme provisions) are commonly encountered in practice, often in
standard forms of pre-contract enquiries. This is, however, a difficult area. The underlying purpose is
the desire to avoid prolonged disputes about what may have been said orally and about what reliance
may have been placed on an oral statement which the party allegedly relying on it did not seek to
confirm in writing. Nevertheless, there is clearly scope for circumstances to arise in which it seems
unjust that a party cannot rely on a clear, and possibly undisputed, representation (including,
arguably, one made in writing on behalf of a party by someone who is not that party or his
conveyancer), although it was plainly intended that he should rely on it. Special Condition 6 is
another attempt to hold the balance, having regard to the requirement of reasonableness under the
Misrepresentation Act 1967. It is thought that the Act applies in this context as well as in relation to
SCS 7.1.1, since the condition seeks to exclude liability for oral misrepresentations.
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The appearance of this provision as a special condition rather than as one of the standard conditions
reflects observations by Edwards-Stuart J. in Morgan v. Pooley [2010] EWHC 2447, distinguishing
between a non-reliance clause which is one of many lengthy clauses and which does not stand out in
any way, and a clause which, for example, is known beforehand, appears separately, is in large print
and is easily readable. In the former case, the clause may be vulnerable to the argument that if the
contract is avoided for misrepresentation the clause goes with it. In the latter case, the party
subsequently seeking to rely on the misrepresentation has had the opportunity to appreciate that he is
being invited to enter into the contract on the basis that he will not be able to rely on any
representations, or on certain types of representations. He is able to decline to proceed further on
that basis or to take other steps to protect himself, such as obtaining written confirmation of any
representation on which he wishes to rely. In the particular context with which we are concerned, it is
thought that the party himself is more likely to read the special conditions than to make his way
through the minute print of the standard conditions and that solicitors are more likely to draw attention
to special conditions than to standard ones (cf. per Dillon J. in Walker v. Boyle [1982] 1 W.L.R. 495: ―I
cannot believe that residential house purchasers throughout the land would be overjoyed at having
such lengthy explanations of the National Conditions of Sale ritually foisted upon them‖).
This is an area of law which has seen a spate of recent activity. During the last two years or so, the
possibility of agreement by the parties that a particular state of affairs (such as non-reliance on
previous statements) may form the basis of a transaction has been increasingly recognised and has
become known as ―contractual estoppel‖, to be distinguished from estoppel by convention: see
Springwell Navigation Corp. v. J.P. Morgan Chase Bank [2010] 2 C.L.C. 705, a decision of the Court
of Appeal. The cases have followed and built upon the previous decision of the Court of Appeal in
Peekay Intermark Ltd. v. Australia & New Zealand Banking Group Ltd. [2006] 1 C.L.C. 582, which
concerned, so far as material, a clause in a contractual risk disclosure statement which read, ―It is an
express term ... that you are not relying on any communication (written or oral) made by ANZ Bank...‖.
That clause was found to give rise to a contractual estoppel. The doctrine of contractual estoppel was
then explored further in Springwell. The Court of Appeal, rejecting an argument that Peekay had
been decided per incuriam, went on to say that in cases of contractual estoppel, unlike cases of
estoppel by convention, there is no requirement that it would be unconscionable for the party alleged
to be estopped to resile from the convention.
One further question in Springwell was whether s.3 of the Misrepresentation Act applied to a clause to
the effect that a party had not relied on and acknowledged that the other party had not made any
representations about the advisability of purchasing the product. The theoretical difficulty is that if the
parties are indeed proceeding on the basis that no representations have been made (whether or not
that is true in fact), such a clause arguably does not restrict or exclude liability for misrepresentation,
since there can have been none. The Court of Appeal, however, adopted the earlier approach of
Christopher Clarke J. in Raiffeisen Zentralbank Osterreich AG v. Royal Bank of Scotland Plc [2010]
EWHC 1392 (Comm.), that if a representation has in fact been made, such a clause is an attempt
retrospectively to alter the character of what has been said and thus in substance to restrict or
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exclude liability. No such issue arises in relation to Special Condition 6, which is a straightforward
attempt to exclude liability.
In many of these cases the context has been commercial and the courts have held parties to their
contractual bargain. It remains to be seen how far that will be the case in the rather different field of
residential conveyancing. In practice, one of the most significant effects of Special Condition 6 may
be the encouragement it offers solicitors to make sure that their clients have obtained written
confirmation of any representation on which reliance is being placed.
Special Condition 7 – occupier’s consent
7. Each occupier identified below agrees with the seller and the buyer, in
consideration of their entering into this contract, that the occupier concurs in the
sale of the property on the terms of this contract, undertakes to vacate the property
on or before the completion date and releases the property and any included
fixtures and contents from any right or interest that the occupier may have.
Note: this condition does not apply to occupiers under leases or tenancies subject
to which the property is sold.
Such clauses are of course frequently found in residential conveyancing and Special Condition 7 has
been included for ease of use and reference. It will be noted that the occupier‘s contractual
obligations are owed to both the seller and the buyer.
Other points on the front and back pages
The front page now contains a box in which conveyancers can record details of the respective
solicitors or other conveyancers and the details of the exchange of contracts.
The back page now provides space for the identification of a conveyance to receive notices. The
position as to service by e-mail remains unaltered; the general position under SCS 1.3.3(b) is that
service by e-mail is not authorised, but if an e-mail address is given on the back page it has the effect
of authorising service by e-mail.
Malcolm Waters QC
Elizabeth Ovey
Radcliffe Chambers,
11 New Square,
Lincoln‘s Inn
20th October 2011
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HUMAN RIGHTS FOR PROPERTY LAWYERS
ROBERT PEARCE Q.C
11 New Square
Lincoln‘s Inn
London
WC2A 3QB
DX 319 London
Telephone: 020 7831 0081
Email: [email protected]
www.radcliffechambers.com
Human rights for property lawyers
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Robert Pearce QC
Incorporation of Convention rights
Principal methods by which Convention rights are given effect in English domestic law:
A court ―determining a question which has arisen in connection with a Convention right must
take into account any [decision of the European Court of Human Rights (and other European
materials)], whenever made or given, so far as, in the opinion of the court … it is relevant to
the proceedings in which that question has arisen‖: HRA 1988 s 2
―So far as it is possible to do so, primary legislation and subordinate legislation must be read
and given effect to in a way which is compatible with the Convention rights‖: HRA 1988 s 3
Declarations of incomparability may be made by the High Court and above: HRA 1988 s 4
―It is unlawful for a public authority to act in a way which is incompatible with a Convention
right‖: HRA 1988 s 6
The margin of appreciation is applied by the ECHR, proportionality is applied by the ECHR and in domestic law
The EHCR allows the state an appropriate margin of appreciation. English domestic law does not apply a margin of appreciation, but should regard a decision by the EHCR that a matter is within the state‘s margin of appreciation as a ―signal‖ to the national court that the decisions of appropriate authorities as to the content of rights within that area should receive appropriate respect
1.
The usual technique for testing whether an act of a public authority is compatible with a Convention right is to ask whether the act, insofar as it interferes with a Convention right, is a proportionate means of achieving a legitimate aim.
Convention rights most relevant to property lawyers
Article 6 – right to a fair trial
Article 8 – right to respect for private and family life
Article 14 – prohibition of discrimination
First Protocol Article 1 – protection of property
First Protocol Article 1
―Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.‖
Structure of FPA1
FPA1 contains three distinct but interconnected rules2:
(1) A general rule enunciating the principle of peaceful enjoyment of property,
(2) A rule covering deprivation of possessions and subjecting it to conditions.
1 Ofulue v Bossert [2009] Ch 1 [36] Arden LJ.
2 James v UK (1986) 8 EHRR 123
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(3) A rule recognising the right of the state to control use of property in accordance with the
general interest.
Scope of FPA1
A possible approach:
(1) Is there a “possession”?
This term has a wide but not unlimited meaning, equivalent to ―asset‖. But it does not extend to e.g. the non-assignable goodwill of a NHS general practitioner: R v Waltham Forest NHS Primary Care Trust
3.
(2) What is its extent?
Enforcement of a liability voluntarily assumed under civil law will not generally engage FPA1.
Examples:
Termination of a limited interest
Ownership of land acquired under an enclosure award subjected the owner for the time being
to chancel repair liability enforceable by the PCC. The PCC was not a public authority. Even
if it had been, the enforcement of the liability would not have engaged FPA1 as it (i) was an
incident of the ownership of the land originally acquired under the award and (ii) had been
voluntarily assumed by the current owners: Aston Cantlow and Wilmcote with Billeseley PCC
v Wallbank4.
By contrast, FPA1 may be engaged by a detriment arising under legislation which regulated a transaction at the time of its creation.
Examples:
The Consumer Credit Act 1974 section 65 (1) and 127 (3) provided that an improperly
executed regulated agreement was unenforceable. A pawnbroker lent money against
security on the terms of an agreement that was improperly executed. In consequence the
borrower retained the sum advanced and the security. Lord Nicholls characterised the
provisions of s 127 as a statutory deprivation of the lender‘s rights rather than a delimitation of
the right granted by the transaction, with the consequence that there was a deprivation of
possession under FPA15. Compare Lord Hope: FPA1 was not engaged as the agreement
under was subject to sections 65 (1) and 127 (3) from its inception6: Wilson v First County
Trust (No. 2).7
LTA 1954 provided that a court could not entertain a tenant‘s request for a new tenancy
unless he had given a negative counternotice. The tenant erroneously gave a positive
counternotice. Pre-HRA authority had construed the Act as barring a tenant who gave a
positive counternotice from thereafter giving a negative one. The Court of Appeal
characterised that construction as a deprivation of the tenant‘s right to claim a new tenancy
rather than the delimitation of the right to make a claim. It followed that under HRA s 3 the
3 [2007] 1 WLR 2092
4 [2004] 1 AC 546
5 Para 44
6 Para 107
7 [2004] 1 AC 816
- 16 -
court had to consider whether to reinterpret the relevant provisions of LTA 1954 to give effect
to the tenant‘s FPA1 Convention rights: Pennycook v Shaws (EAL) Ltd8.
(3) Is the interference complained of a deprivation of possession within the second rule or the exercise of control within the third rule?
Relevance of the distinction:
The specific terms of rules (2) and (3) differ.
Both rules are similar in that the interference complained of must have a legitimate aim and
be a proportionate means of achieving that aim.
The payment of compensation is generally regarded as significant in determining whether a
deprivation of possession is proportionate but not in determining whether the exercise of
control is proportionate.
Examples:
The Leasehold Reform Act 1967 enabled long lessees of houses to purchase the freehold interest at less than full market value. The ECHR characterised the legislation as authorising a deprivation of the freeholder‘s possession, and held that it was directed at the achievement of a legitimate aim and that the means employed were proportionate, and hence that the legislation was consistent with FPA1. The decision would plainly been otherwise had no compensation been payable: James v UK
9
Provisions of the Limitation Act 1980 and the Land Registration Act 1925 enabled title to registered land to be acquired by adverse possession without notice to the registered proprietor. The ECHR characterised the legislation as being concerned with the control of the use of land, and held that it effected a legitimate aim and that the means employed were proportionate, notwithstanding the absence of compensation: J A Pye (Oxford) Land Ltd v UK
10
Article 8
―1. Everyone has the right to respect for his private and family life, his home and his correspondence
2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.‖
“Home”
Meaning of ―home‖: an autonomous concept not dependent on a proprietary or contractual right or lawfulness of occupation.
Scope
Evolution of the application of Article 8 to claims by public authorities for possession of residential property occupied by non-secure tenants:
Harrow LBC v Qazi11
(HL: committee of 5) Article 8 could not be relied to defeat contractual or proprietary rights to possession.
Majority view:
8 [2004] Ch 296
9 [1986] 8 EHRR 123
10 [2007] ECHR 700
11 [2004] AC 983
- 17 -
―The court is merely the forum for the determination of the civil right in dispute between the parties … Its task is to resolve the dispute according to law. In doing so it would, of course, have to consider whether the landlord was entitled to possession as a matter of our ordinary domestic law (i e apart from the Human Rights Act 1998), taking into account the various statutory provisions which operate in this field. But once it concludes that the landlord is entitled to an order for possession, there is nothing further to investigate. The order is necessary to protect the rights of the landlord; and making or enforcing it does not show a want of appropriate respect for the applicant's home.‖ (Lord Millett para 108)
Minority view:
An Article 8 defence based on proportionality should in principle be admissible.
Connors v UK12
(ECHR): In a claim for possession against gipsies, the summary possession procedure, notwithstanding the possibility of a separate claim for judicial review, violated the defendants‘ Article 8 rights, as it provided insufficient procedural safeguards.
Kay v Lambeth BC13
(HL: committee of 7) Connors required reasoning in Qazi to be clarified.
Majority view:
―A defence which does not challenge the law under which the possession order is sought as being incompatible with article 8 but is based only on the occupier's personal circumstances should be struck out … But if the requirements of the law have been established and the right to recover possession is unqualified, the only situations in which it would be open to the court to refrain from proceeding to summary judgment and making the possession order are these: (a) if a seriously arguable point is raised that the law which enables the court to make the possession order is incompatible with article 8 … , (b) if the defendant wishes to challenge the decision of a public authority to recover possession as an improper exercise of its powers at common law on the ground that it was a decision that no reasonable person would consider justifiable, he should be permitted to do this provided again that the point is seriously arguable‖ (Lord Hope para 110).
NB – the test of whether it was a decision that no reasonable person would consider justifiable is narrower than proportionality
Minority view:
An Article 8 defence based on proportionality should in principle be admissible.
McCann v UK14
:
(ECHR) Connors not confined to gipsies or to Lord Hope‘s category (a):
―The loss of one's home is the most extreme form of interference with the right for respect for the home. Any person at risk of an interference of this magnitude should in principle be able to have the proportionality of the measure determined by an independent tribunal in the light of the relevant principles under [article 8], notwithstanding that, under domestic law, his right of occupation has come to an end.‖ (para 50)
Doherty v Birmingham CC15
(HL: committee of 5) Kay v Lambeth BC followed.
Kay v UJK16
12
(2004) 40 EHHR 189
13 [2006] 2 AC 465
14 (2008) 47 EHRR 913
15 [2009] 1 AC 367
16 [2010] ECHR 1322
- 18 -
(ECHR) McCann followed. ―…the applicants were dispossessed of their homes without any possibility to have the proportionality of the measure determined by an independent tribunal. It follows that there has been a violation of article 8 of the Convention in the instant case.‖ (para 74)
Manchester City Council v Pinnock17
(SC: court of 9) ― … the following propositions are now well established in the jurisprudence of the European court: (a) Any person at risk of being dispossessed of his home at the suit of a local authority should in principle have the right to raise the question of the proportionality of the measure, and to have it determined by an independent tribunal in the light of article 8 , even if his right of occupation under domestic law has come to an end … (b) A judicial procedure which is limited to addressing the proportionality of the measure through the medium of traditional judicial review (i e, one which does not permit the court to make its own assessment of the facts in an appropriate case) is inadequate as it is not appropriate for resolving sensitive factual issues … (c) Where the measure includes proceedings involving more than one stage, it is the proceedings as a whole which must be considered in order to see if article 8 has been complied with …: (d) If the court concludes that it would be disproportionate to evict a person from his home notwithstanding the fact that he has no domestic right to remain there, it would be unlawful to evict him so long as the conclusion obtains—for example, for a specified period, or until a specified event occurs, or a particular condition is satisfied. Although it cannot be described as a point of principle, it seems that the European court has also franked the view that it will only be in exceptional cases that article 8 proportionality would even arguably give a right to continued possession where the applicant has no right under domestic law to remain …‖ (para 45)
―Where … there is a clear and constant line of decisions whose effect is not inconsistent with some fundamental substantive or procedural aspect of our law, and whose reasoning does not appear to overlook or misunderstand some argument or point of principle, we consider that it would be wrong for this court not to follow that line‖ (para 48)
“.. if our law is to be compatible with article 8, where a court is asked to make an order for possession of a person's home at the suit of a local authority, the court must have the power to assess the proportionality of making the order, and, in making that assessment, to resolve any relevant dispute of fact‖ (para 49).
Hounslow LBC v Powell18
(SC: unanimous view of 5) Working out of practical implications of Powell
Implications of the above developments for claims to which a public authority is not a party
Pinnock, and the previous House of Lords and Supreme Court cases, are expressed not to
deal with such claims19
.
The domestic law applicable to such claims can be challenged as being incompatible with
Convention rights.
The court is itself a public authority.
The domestic court is obliged to follow a ―there is a clear and constant line of decisions‖ of the
ECHR.
17
[2011] 2 WLR 287
18 [2011] 2 WLR 287.
19 See e.g. Pinnock at [50].
- 19 -
EIGHT USEFUL CASES EVERY PROPERTY LAWYER SHOULD
HAVE
IN THEIR BACK POCKET
MARIE-CLAIRE BLEASDALE
11 New Square
Lincoln‘s Inn
London
WC2A 3QB
DX 319 London
Telephone: 020 7831 0081
Email: [email protected]
www.radcliffechambers.com
- 20 -
EIGHT USEFUL CASES EVERY PROPERTY LAWYER SHOULD HAVE
IN THEIR BACK POCKET
by Marie-Claire Bleasdale
1 The cases that I have chosen to talk about fall into 2 categories:
a cases that you may need to be aware of, and advise clients about, to avoid
potential problems. Another way of looking at some of these is as cases to have
up your sleeve to use to your clients advantage if the other side slips up.
b Cases that may help when you are in trouble, particularly cases that may
help you avoid the potential consequences of mistakes.
Most of the cases that I have chosen to tell you about are recent decisions of the Courts.
Some of them have particularly caught my attention because the outcomes are slightly
shocking because of the disparity between the default of the losing party and the resulting
financial gain of the winning party.
2 I am going to start off by telling you about some recent developments in the law relating
to residential service charge claims. The Landlord and Tenant Act 1985 regulates the
recovery of service charges from residential occupiers and there have been 2 important
decisions in this area of the law in 2011 which highlight the importance of an in-depth
understanding of the statutory requirements if a landlord is going to be able to recover
service charges in full.
Daejan Investments v Benson [2011] EWCA Civ 38, [2011] 1 W.L.R. 2330
3 This case concerns a landlord's failure to comply with the consultation requirements in
respect of major works; the Court of Appeal's decision highlights how very important
careful compliance is, and the difficulties a landlord will face if it needs to ask the LVT for
dispensation.
4 Daejan Investments is the freeholder of a block comprising shops with flats above known
as Queens Mansions, it carried out major works of repair costing more than £400,000 to
the block, but 5 of the leaseholders complained that it had failed to comply with the
statutory requirements for consultation contained in the Service Charges (Consultation
Requirements) (England) Regulations 2003. Daejan was seeking to recover
£270,000 from those 5 leaseholders for the works, however because of the failures in
consultation, unless it could obtain a dispensation from the LVT under section 20ZA(1) of
the 1985 Act, it was limited to £250 per flat i.e. £1,250 instead of £270,000.
5 Daejan had obtained 4 estimates for the works, and the decision as to who to instruct
- 21 -
was between 2 contractors Mitre and Rosewood, the tenants wanted to see the estimates
but were not given access to Rosewood's estimate until 11th August 2008. At a LVT pre-
trial review hearing that took place on 10th August 2008 an employee of Daejan told the
tenants that the contract had been awarded to Mitre. (It turned out that this was a mistake
but the statement to the tenants was never corrected).
6 Although Daejan's initial notice of its intention to carry out the works was given correctly,
the LVT held that Daejan's stage 2 notice was defective, it failed to provide a summary of
the observations received from the lessees and Daejan's responses, it failed to make the
estimates it had obtained available for inspection. And Daejan's statement that Mitre was
to be the contractor had been made before the 30 day consultation period had expired,
and so deprived the lessees of an opportunity to make observations.
7 The financial consequences of the failure to obtain dispensation were significant to
Daejan - £268,750. But the Court of Appeal confirmed that that fact was irrelevant to the
decision as to whether to dispense, the dispensation was from the consultation
requirements, not the consequences of non-compliance. And the focus had to be on the
consequences of non-compliance. The Court of Appeal held that prima facie a
curtailment of consultation was a substantial non-compliance with the consultation
requirements. And confirmed that in appropriate cases the tribunal can treat a loss of
opportunity to make representations as a significant prejudice without having to speculate
on what would have happened.
8 The Court of Appeal also held that significant prejudice to the tenants was a
consideration of the first importance in determining how to exercise the dispensatory
discretion. It gave examples of cases where dispensation might be appropriate:
- the need for emergency works
- the availability of a single specialist contractor
- a minor breach of procedure causing no prejudice to the tenants.
If like me you act for landlords in this area of law, I am afraid that list make sober reading
because of the frequency with which landlords make mistakes in this area, the limited
application of the examples and the attitude that the LVT frequently takes to commercial
landlords. Although the last example 'a minor breach of procedure causing no prejudice
to tenants' seems helpful, in the Daejan case it appears that the works were competently
carried out at a competitive price but the Court was prepared to infer significant prejudice
simply from a lost opportunity to make representations, even though by the time of the
LVT hearing the tenants had seen the missing estimate but had not been able to identify
the comments that they would have made in the consultation process.
- 22 -
LB Brent v Shulem B Association [2011] EWHC 1663 (Ch); [2011] 27 E.G. 77 (C.S.); [2011] N.P.C.
69;
9 This was another residential service charge case, in it Morgan J considered the
circumstances in which section 20B of the Landlord and Tenant Act 1985 will prevent a
landlord from recovering service charges. Section 20B effectively imposes a limitation
period for the recovery of costs as service charges. Within 18 months of a landlord
incurring a cost that it intends to pass on to its lessees by was of a service charge it must
either make a demand for service charges under section 20B(1) or give notice that the
costs have been incurred under section 20B(2). Prior to Morgan Js decision there was
some uncertainty in the case law as to what any section 20B(2) notice should contain.
10 The LB Brent had sent a letter to its leaseholders estimating the amount of its costs
incurred in major works to the blocks of flats in question, although the works were almost
complete and staged payments had been made under the building contract the estimate
was identical to the estimate of service charges that had been provided as part of the
section 20 consultation process before the works were commenced. Morgan J had to
determine whether this letter was a demand under the lease, so satisfying section 20B(1),
and if not whether it was a notice under section 20B(2). The amounts being claimed in
the proceedings came to around £250,000 and if the landlord couldn't show it had
complied with section 20B it was going to be unable to recover any of the costs.
a Morgan J held that the letter could not be a demand because the lease permitted the
recovery of a due proportion of actual expenditure, a letter claiming a proportion of
estimated expenditure and offering to make a refund if the claim was overstated was
not in his judgment a valid demand under the lease.
b He further held that a section 20B(2) notice had to state an amount of costs that the
landlord had incurred (and if an amount was stated it would be valid even if it later
turned out to be an overestimate), and had to state that the tenant would
subsequently be required to contribute to the costs by the payment of a service
charge. The letter relied on failed to state an amount of costs incurred.
11 This case illustrates the importance of a landlord processing service charge accounts
promptly and taking care to serve a section 20B(2) notice whenever it is anticipated that
there will be a delay in recharging costs to its residential tenants. Morgan Js decision has
clarified what has to be stated in a section 20B(2) notice. If there is a delay it will often be
because there are difficulties in determining what sums are due to a contractor for
example under a disputed contract for major works. Or difficulties in determining how the
costs should be apportioned across the various lessees. Morgan Js decision has
simplified what the landlord will need to do, because he has approved an approach
- 23 -
whereby the landlord calculates its maximum potential liability and serves a notice
specifying that amount.
NYK Logistics (UK) Ltd v Ibrend Estates BV [2011] EWCA Civ 683; [2011] 2 P. & C.R. 9;
12 If you have advised clients regarding the exercise of a break clause you will be aware of
the the care that needs to be taken in ensuring that a client complies strictly with the
requirements of a break clause in order to validly terminate the lease. The case of NYK
Logistics v Ibrend Estates illustrates how seriously there requirements are taken by the
Court, with consequences that can seem quite unreasonable.
13 Ibrend were the landlord and NYK the tenant of warehouse premises, the lease
contained a break clause which required the tenant to give 6 months notice in writing,
and the break was expressed to be conditional on the payment of rent up to and
including determination and the delivery of vacant possession on the date of termination.
14 NYK gave a valid notice to break and in the run up to the date of termination tried to
negotiate with the landlord regarding dilapidations. Ibrend did not act promptly in relation
to its schedule of dilapidations so that the detail of the works that the tenant was
responsible for were not agreed until 2 days before the date for delivering possession of
the unit back to the landlord.
15 NYK asked the landlord for an extra week on site to do the dilapidation repair works, and
proposed that it retain security guards on site to keep the unit secure because of the
incidence of vandalism on the estate. Both of these requests were reasonable, especially
given the fact that the landlord had been solely responsible for the delay in dealing with
dilapidations with the result that the 2 days that the tenant had left in the premises was
insufficient to complete the works. However the landlord did not respond to the requests
for time or for instructions on what to do with the keys, or securing the premises.
16 The tenant tried to contact the landlord on the termination date to return the keys and
again did not get a response. It therefore retained the keys and allowed workmen onto
the site to do the remaining repairs, a small van load of items were left in the unit and it
maintained a security presence. The landlord then relied upon these acts to say that NYK
had not given vacant possession so the lease had not been validly determined.
17 The Court of Appeal said that the landlord was right and the lease had not been
determined in accordance with the break clause. It had little sympathy for NYK stating
that it should have appreciated that it was obliged to give up vacant possession. In the
- 24 -
absence of any response from the landlord it should have left the premises. NYK had
done nothing on the termination date to show that it was giving up possession, it should
have taken everyone off site, informed the landlord that it had vacated and returned the
keys to the landlords agents. By allowing workmen on site after the termination date it
was using the premises for its own purposes.
18 This case shows how very careful tenants exercising break clauses need to be.
Bethell Construction Ltd v Deloitte & Touche [2010] EWHC 3664 (Ch)
19 Another case where one party has sat back and waited to see if the other falls into an
elephant trap is Bethell v Deloitte & Touche. This case was a negligence claim against
accountants that was issued in 2007 before the expiry of the limitation period, the claim
form was then sent to the Defendants but expressly not by way of service, and the parties
then entered into an agreement extending time for the service of the claim form and the
particulars of claim to allow the parties to comply with the pre-action protocol. The terms
of the agreement were that time for serving the Claim Form and particulars of claim would
be extended to 14 days after either side gave notice that the claim should proceed.
20 Negotiations were not successful and over 3 years after the claim had been issued the
Claimant's solicitors served particulars of claim on the Defendant's solicitors, this caused
the Defendant's solicitors to serve a letter giving notice that the 'stay' was terminated. The
Defendant's solicitor's letter did not remind the Claimant's solicitor of the detail of the
agreement that had been reached in 2007 or draw his attention to the obligation to serve
the Claim Form.
21 The Judge had no doubt that the letter had been carefully phrased so as not to warn the
Claimant's solicitor of his omission and was seeking to set a trap for him to fall into. He
held that although the letter incorrectly referred to a stay, which he described as
'infelicitous' because what was actually in place was an extension of time for serving the
claim form, it had not been done to deliberately mislead and that looked at objectively a
reasonable recipient with knowledge of the agreement for an extension of time would
have understood what was being referred to and so would not have been misled.
22 The trap worked because the Claimant's solicitor appears to have forgotten that the claim
form had not been served and so failed to serve it within the 14 day period, so the
Defendant applied for a declaration that there were no valid proceedings before the
Court.
- 25 -
23 HHJ Hodge QC sitting as a High Court Judge held that the claim form had not been
served, the agreed period of its validity had expired and it was not appropriate to exercise
any discretion to deem the claim form validly served or authorise irregular service. The
negligence claim said to be for millions of pounds against the accountants was
transformed by this decision into a negligence claim against the Claimant's solicitors.
Mannai v Eagle Star [1997] AC 749
24 In a property context one of the most obvious cases to rely upon when there has been a
mistake is Mannai, it related to the construction of a notice to break a lease that
specified 12th January 1995 rather than 13
th January 1995 as the date for termination of
the lease. It sets out the objective analysis that has to be applied taking into account all of
the information that a reasonable recipient of the notice would have known, and
determining what the reasonable recipient would have understood the notice to mean.
Where it would be obvious to the reasonable recipient that a mistake has been made,
and what the notice should have said instead, then that mistake is unlikely to invalidate
the notice.
25 It wont surprise any of you to hear that this case is frequently cited, a search of Westlaw
gives 403 reported cases in which it was cited since the House of Lords decision in 1997.
And I propose to draw your attention to some of the recent cases that have considered it.
MW Trustees Ltd v Telular Corporation [2011] EWHC 104 (Ch); [2011] L. & T.R. 19
26 This case is another recent case arising out of a tenants attempts to exercise its right to
break a lease early. The lease stipulated that the break notice had to be served by hand
or special delivery. Unfortunately the tenants served the notice exercising the break on its
former landlords who had assigned the reversion. The former landlords informed the
tenants that they were no longer the landlords. As a result of which the tenant emailed
the landlord attaching a copy of the break notice asking them to advise her if she needed
to take any further steps to exercise the break. The landlord replied stating that it was
forwarding the email to its managing agents.
27 The tenant's email was duly forwarded to the managing agents and they responded by
email directly to the tenant with a copy of the break notice attached stating
a we accept the attached letter, and
b we confirm we are happy for you to break the lease.
The email also asked the tenant to serve a further copy of the break notice on the
landlord. Unfortunately that was not done.
28 All of the parties accepted that the break notice had not been served in accordance with
- 26 -
the break clause because it was neither addressed to or served on the actual landlord.
The issue was whether the landlord was estopped from denying that the break had been
exercised or had waived their right to rely upon deficiencies in the notice and service of
the notice.
29 Peter Smith J referring to Mannai held that these questions had to be determined by
determining the objective meaning of the email taking into account the factual
background. He accepted that there is no duty on a landlord to draw a tenant's attention
to deficiencies regarding notices served under a lease. The landlord argued that the
email simply acknowledged receipt of the notice to break, but Smith J considered that
read objectively it went further than that and held that the statement by the managing
agents that the notice was 'accepted' by the managing agents resulted in an estoppel or
waiver binding on the landlords.
Eminence Properties v Heaney [2010] EWCA Civ. 1168
30 A further interesting and useful decision this time of the Court of Appeal is the case of
Eminence Properties v Heaney. It concerns a contract for the sale of property. Mr
Heaney is a property developer who had contracted off-plan to purchase 13 flats in a
block owned by Eminence Properties. 13 contracts were exchanged one for each flat in
December 2007, completion of each flat was to be by reference to the date that each
became ready for occupation. The 4th edition of the standard conditions of sale were
incorporated into the contract. The contractual completion date was later fixed as 4th
December 2008, by that time a downturn in the market had meant that Mr Heaney was
having trouble raising the funds to complete, he was also trying to renegotiate the
contract seeking either a lower purchase price or a higher specification for the flats.
31 Mr Heaney failed to complete on the completion date and the solicitors for Eminence
served notice to complete in respect of each contract on 5th December, the notices
complied with the contract, they stated that Eminence were ready and able to complete
and called on Mr Heaney to complete within 10 working days not including the date of
service of the notice. In the letter under cover of which the notices were served
Eminence's solicitor stated various facts regarding Mr Heaney's liability for daily
compensation and legal costs and then stated 'we calculate the final date for completion
under the notice is 15th December 2008'. That date was incorrect, it was exactly 10 whole
days after the service of the notice rather than 10 working days.
32 On 17th December 2008 Eminence's solicitors wrote to Mr Heaney's solicitors stating that
the time for completion under the contract had passed, that Mr Heaney had failed to
complete and that the letter should be treated as formal notice of rescission and that Mr
- 27 -
Heaney's deposit had been forfeited.
33 Mr Heaney's solicitors responded the next day asserting that the early notice of
rescission amounted to a repudiatory breach of contract which Mr Heaney accepted and
seeking the return of his deposit. The findings of fact regarding this were that it was
screamingly obvious that a mistake had been made and that Mr Heaney was delighted to
have an opportunity to avoid his obligations under the contract.
34 When Eminence's solicitors received this response it replied immediately stating that it
had only intended to terminate the contract once the time for completion had expired and
that Eminence was willing and able to complete. Mr Heaney's solicitor replied saying that
the rescission had been unambiguous and immediate, and they couldn't retrospectively
change the fact of rescission.
35 Lord Justice Etherton gave a judgment with which the other two members of the Court of
Appeal agreed. He held that the notice of rescission was not to be looked at in isolation.
He held that the legal test is simply stated. And the issue highly fact sensitive.
[The test] is whether, looking at all the circumstances objectively, that is from
the perspective of a reasonable person in the position of the innocent party,
the contract breaker has clearly shown an intention to abandon and
altogether refuse to perform the contact.
He also added
All the circumstances must be taken into account insofar as they bear on an
objective assessment of the intention of the contract breaker. This means that
motive, while irrelevant if relied upon solely to show the subjective intention of
the contract breaker, may be relevant if it is something or it reflects something
of which the innocent party was, or a reasonable person in his or her position
would have been, aware and throws light on the way the alleged repudiatory
act would be viewed by such a reasonable person.
36 Looking at all the facts he found that the letter had not been a repudiatory breach he
relied upon the fact that the letter showed that the sender was clearly mistaken as to the
contractual terms rather than trying to vary them, that a reasonable recipient receiving
the notices would have realised that a mistake had been made.
37 He also supported his conclusions by observing that Eminence had been ready and able
to complete and it was Mr Heaney who was in default because of the economic
downturn, i.e. the contracts were highly advantageous to Eminence and onerous for Mr
- 28 -
Heaney. That the error had not been pointed out by Mr Heaney's whether because it had
not been noticed or because they were waiting for Eminence to fall into the trap he did
not decide, but he did hold that it would have been obvious to them that, if they had
pointed out the mistake it would have been conceded immediately by Eminence.
Maridive & Oil Services SAE v CNA Insurance Co (Europe) Ltd [2002] EWCA Civ 369; [2002] 2
Lloyd's Rep. 9
38 Finally I would like to refer to another older case. In my experience there is a common
misconception that because any amendment to proceedings is deemed to date back to
commencement of the proceedings, if your cause of action was incomplete when the
claim was started and only crystallised as a result of steps taken after the
commencement of proceedings it is not possible to amend to rely upon the later steps.
39 This can particularly apply in property litigation if, after service of the defence, you either
realise a notice is defective, or decide that you want to serve a further notice as a belt
and braces approach to make sure that all bases are covered.
40 In Maridive Oil the Defendants were guarantors under a Bond and took a point in their
defence that the demand served on them was not valid as it was served by the wrong
person, the demand having been served by Maridive and not P&I (another party) as
required by the Bond. Having considered the defence Maridive arranged for the service of
a fresh demand by P&I and then served a reply relying on it. It later applied to amend the
particulars of claim to rely upon the demand (the application being made after the
limitation period had expired which would explain why the case made its way up to the
Court of Appeal).
41 The Court of Appeal confirmed that there is no rule of law or practice that prevents the
grant of permission to amend to plead something that had happened after the
commencement of proceedings where, but for the amendment, the cause of action would
fail. Whether or not permission should be granted is a matter for the Judge's discretion
depending on the justice of the case.
Marie-Claire Bleasdale
Radcliffe Chambers
11 New Square
Lincoln’s Inn
20th October 2011