Real Estate Focus – April 2023

Supreme Court warning to developers buying local authority land

In R (on the application of Day) v Shropshire Council [2023] UKSC 8 the plans of a developer who purchased land for development from a local authority - and obtained planning permission for development from that same authority - were blocked by the rights of local residents. 

Longstanding legislation - the Public Health Act 1875 and the Open Spaces Act 1906 - grants local authorities powers to acquire and provide recreation grounds and open space for use by the public. Where such powers are exercised, the land is subject to a statutory trust in favour of the public and members of the public have a right of access for the designated purpose. Before disposing of such land, the local authority must advertise its intention to do so and must consider any objections lodged. If the local authority disposes of the land having complied with that procedure, the land is freed from the statutory trust. But what happens if it fails to do so? 

That is what happened in this case, as the local authority seller did not realise that the land it was selling was subject to such a statutory trust. That fact was discovered by an aggrieved resident who trawled through the local authority archives. 

The local authority argued that despite the non-compliance, the statutory trust was extinguished on the sale of the land. The Supreme Court unanimously disagreed: the rights enjoyed by the public under the trust would only be extinguished if the local authority complied with the correct procedure. The grant of the planning permission should also be quashed.

The leading judge commented that: “I recognise that this leaves a rather messy situation in which [the buyer] no doubt bought the land in the expectation of being able to develop it. But that is a consequence of the [local authority’s] acknowledged failure to do the necessary investigative work... if, as a result of this appeal, other local authorities and parish councils decide to take stock of how they acquired and now hold the pleasure grounds, public walks and open spaces that they make available to the public to enjoy then that, in my judgment, would be all to the good.”

High street rental auctions on the horizon

The Levelling Up and Regeneration Bill (the Bill) had its first reading before the House of Commons in May 2022 and at the time of writing is at the Committee Stage in the House of Lords. 

One aspect of the Bill that has caused some controversy is the proposal to grant local authorities powers to instigate rental auctions for vacant high street commercial premises and to compel the landlord to enter into lettings with the successful bidder.

The premises that are at risk of local authority intervention are those located in a high street or town centre and which the local authority considers to be suitable for “high street use”. This covers a broad range of uses including shops, offices, restaurants, public entertainment and light industrial. 

Two further conditions must also be met before the local authority can intervene: 

• The vacancy condition requires the premises to have been unoccupied continuously for 12 months, or alternatively unoccupied for at least 366 days in the last two years. 
• The local benefit condition, which is met if the local authority considers that occupation would be beneficial to the local economy, society or the environment.

For further details of the proposals in the Bill, see our May 2022 Real Estate Focus. 

On March 31, 2023 the Department for Levelling Up, Housing and Communities published a consultation on the implementation of the rental auctions. It seeks views on:

• the auction process itself (for example should there be a reserve price?) and how prescriptive it should be; 
• a standardised framework for an agreement for lease and lease, including whether the former should require the landlord to carry out certain pre-letting works. The Bill already covers some key lease provisions such as the term, which must be between 1-5 years, and that the lease  will not benefit from security of tenure; 
• who should bear the costs associated with the whole auction process; 
• whether Minimum Energy Efficiency Standards (MEES) requirements should be disapplied in the case of lettings made through such rental auctions; and 
• new Permitted Development Rights to support the policy.

It will be critical to get these details right if the scheme is to succeed and to avoid the risk of landlords becoming increasingly unwilling to invest in the high street. 

The consultation closes on June 23, 2023. 

Register of high-rise residential buildings now live

As mentioned in our March 2023 Real Estate Focus, new regulations in force on April 6, 2023 impose a requirement to register higher-risk buildings with the new Building Safety Regulator. Registration is part of the wide-ranging new building safety regime introduced by the Building Safety Act 2022.

The register is now live. Existing occupied high-rise residential buildings must be registered in the new register by September 30, 2023. After that date, it is an offence if a building is occupied but not registered. New buildings completed after October 1, 2023 must (amongst other things) be registered before the building is occupied.  

A high-rise residential building is defined for these purposes as a structure that has at least seven floors or is at least 18 metres in height and has at least two residential units. There are some exemptions from registration, including any building used entirely as a care home, secure residential institution, hospital or hotel.

Legal responsibility for registration rests with the “principal accountable person”, being the person or organisation (such as a housing association, local authority or company) that owns or is accountable for the building’s safety and responsible for maintaining its structure and common parts. For further information about accountable persons, please see our briefing here.

The register and accompanying guidance are available online: https://www.gov.uk/guidance/register-a-high-rise-residential-building.

Opposing business lease renewals on ground (f): the debate continues

Tenants occupying premises for the purpose of their business are entitled to seek a new lease on the termination of their current lease under the Landlord and Tenant Act 1954 (the Act) unless the lease is “contracted out” of the security of tenure regime. 

However, there are various grounds on which the landlord can oppose the grant of a new lease, including the ground contained in s.30 (1) (f) of the Act. This entitles the landlord to resist the grant of a new lease if it has a genuine firm and settled intention to redevelop the premises or carry out substantial works of construction and requires vacant possession to do so.

Ground (f) has generated a considerable amount of litigation, notably S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 6. The landlord in that case designed an “artificial” scheme of works which had no real commercial purpose other than to satisfy ground (f) and therefore to obtain possession of the premises. The landlord acknowledged that it only intended to carry out the works if the tenant did not vacate the premises voluntarily. The Supreme Court held that this was not good enough: ground (f) envisages that the landlord must intend to do the works regardless of the tenant’s stance. For further details see our December 2018 Real Estate Focus. 

Man Limited v Back Inn Time Diner Limited [2023] EWHC 363 (Ch) is another case in point. Showing the requisite intention for a successful objection under ground (f) has both a subjective and an objective element. The latter includes the availability of finance. One of the issues in this case was whether the landlord had discharged the burden of proving that it would be able to fund its proposed redevelopment. 

The court held that the “reasonable prospect” test that is usually applied in relation to the likelihood of obtaining planning permission should also apply here: the landlord needed to show that it had a real or reasonable, as opposed to a fanciful, prospect of being able to obtain the finance to redevelop within a reasonable time after the termination of the lease. On the evidence, the landlord had failed to disclose sufficient financial documents to prove its case. 

While clearly bad news for the landlord in this instance, the case nevertheless provides useful guidance for landlords seeking to rely on ground (f) in the future.