There were winners and losers in 1997, a year of significant decisions for property’s major players. Sandi Murdoch reports.
Property law’s year in the courts started slowly, gained in both quantity and quality, and went out with a bang. Tenants’ break clauses were high on the list of litigation topics for 1997. Reed Personnel Services Ltd v American Express Ltd [7] 1 EGLR 229 demonstrated that tenants need to take great care to satisfy preconditions. This is the case even where these take the softer form, requiring merely reasonable, as opposed to complete, performance of existing obligations.
The Court of Appeal in Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [7] 1 EGLR 39 caused problems for landlords by ruling that a personal right to break is not lost until an assignment of a registered lease is completed by registration at the Land Registry.
Finally, the House of Lords courted controversy in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [7] 1 EGLR 57 by overturning the well-established rule that a break notice which stipulates an incorrect date is automatically invalid. Henceforth, a wrong date, or other error, will render the notice void only if it misleads a reasonable recipient.
This ostensibly fairer rule is one which is much more difficult to apply in practice; good news for lawyers but not necessarily for anyone else.
The House of Lords was on firmer ground when, on the same day as its ruling in Mannai, it handed down its decision in Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [7] 1 EGLR 52. Here, as is by now well known, the House refused to accept the Court of Appeal’s view that an injunction should now be available to enforce a “keep open for trade” covenant. Hence the law returns to its former position where a landlord whose tenant is in breach must settle for damages, provided, of course, that loss can be proved.
In the field of rent reviews, the story of 1997 was that of tenants seeking to force downwards reviews on their landlords. The cases have fallen into two groups. The first consists of those in which a review clause is unquestionably upwards and downwards, but where only the landlord appears to be able to trigger the review process: see Royal Bank of Scotland plc v Jennings [7] 1 EGLR 101 and Addin v Secretary of State for the Environment [1997] 1 EGLR 99.
The second batch of cases raised the issue of whether the review clause is upwards only or upwards and downwards: see Royal Insurance Property Services Ltd v Cliffway Ltd [6] EGCS 189, Standard Life Assurance v Unipath Ltd [1997] 38 EG 152, and Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 41 EG 153.
The outcome in both hinges on the precise wording of the clause in question. In the first type, the court is seeking to judge whether the clause confers on the landlord an option to review, or whether it requires a review. Only in the latter instance will the tenant succeed.
In the second type, the courts have rejected any suggestion that there is a presumption that a clause is upwards or downwards except where there is a clear provision that it is upwards only. The result, therefore, depends entirely on the court’s view of what the parties have said.
Life was quiet on the litigation front in the residential field, and practitioners have had to get their kicks from parliament’s changes brought about by the Housing Act 1996. That said, the year ended with the Court of Appeal deciding (in Church Commissioners for England v Baines [7] PLSCS 235, shortly to be reported in Estates Gazette) that three of its previous decisions (the most well known of which was Pittalis v Grant [1989] 2 EGLR 90) were wrong.
The important result is that Rent Act protected subtenants of 1954 Act tenants do not lose their statutory protection when the business tenancy comes to an end. This will come as a very unpleasant Christmas present to those who have done deals on the basis that vacant possession can be obtained in such circumstances.
Valuers won a significant victory this year over professional negligence. In Omega Trust Co Ltd v Wright Son & Pepper [7] 1 EGLR 120 the Court of Appeal had to decide whether a “client’s use only” clause in a valuation report for a mortgage lender was effective to avoid any duty of care to a second company which ultimately provided part of the loan.
The court ruled that, without this clause, the valuers would have been liable to both lenders. However, the disclaimer (which was held to be reasonable for the purposes of the Unfair Contract Terms Act 1977) made the crucial difference.
But since then, the judge in Secured Residential Funding Ltd v Nationwide Building Society [7] EGCS 138 has reached precisely the opposite conclusion, on fairly similar facts. He held that the valuers owed no duty of care to the undisclosed principal of the firm which commissioned the valuation but that, had they done so, their disclaimer would have been struck down!
As to what exactly a valuer’s duty of care involves, the case of Legal & General Mortgage Services Ltd v HPC Professional Services unreported February 20 1997 serves as a reminder that, for the moment at least, the “margin of error” principle remains valid as an indicator either for or against negligence.
Of more immediate concern is the ruling by Thomas J in Interallianz Finanz AG v Independent Insurance Co Ltd [7] EGCS 91 that, where a valuer knows that the subject property has recently changed hands, he or she must take all reasonable steps to uncover the price, an awareness of which should influence the valuation.
The recent decision of the House of Lords in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd November 27 1997 settles the important question of when a lender’s action against a valuer “accrues” for the purposes of the Limitation Act. Moreover, it does so in a way which appears destined to provide plenty of work for the profession in terms of retrospective valuation and expert evidence.
The House of Lords effectively followed the earlier decision of the Court of Appeal in First National Commercial Bank plc v Humberts [5] 1 EGLR 142 in ruling that the crucial date is that on which the borrower’s outstanding debt, including any unpaid interest, is no longer covered by the combined values of the property and the borrower’s covenant.
The worst decisions for valuers in 1997 were probably those in Interallianz Finanz AG v Independent Insurance Co Ltd [7] EGCS 91, Coventry Building Society v William Martin & Partners [1997] EGCS 106 and Britannia Building Society v Hallas (t/a Wild & Griffiths) [1997] EGCS 117, where a valuer’s chances of successfully pleading contributory negligence against a mortgage lender received a severe blow.
In those three cases, all decided in the space of a month, the courts ruled that such matters as an over-highloan-to-value ratio or (most important) the failure to check the borrower’s finances properly could not amount to contributory negligence, since they did not cause the type of loss for which the valuer would be liable.
It is hoped that this principle will be overturned in 1998!
Valuers were not the only property professionals to look somewhat ruefully at their treatment by the courts in the last year. The case of Theodore Goddard v Fletcher King Services Ltd [7] 32 EG 90 appeared to place a very onerous burden on managing agents by holding that they could be liable, along with the landlords’ solicitors, for defects in the drafting of a lease. And, in Gardner v Marsh & Parsons [1997] 1 EGLR 111, a surveyor who negligently missed structural defects in a newly converted maisonette found himself liable to the purchasers for £29,000 damages on the “diminution in value” principle. This was notwithstanding that, by the time the case came to court, the landlord had rectified all the defects without cost to the purchasers!
As for the agencies, three cases in the last year have illustrated the difficulties surrounding agreements which seek to provide sole selling rights (and, to a lesser extent, sole agency). The agents in Dowling Kerr Ltd v Scott [6] EGCS 177, Chris Hart (Business Sales) Ltd v Mitchell 1996 SCLR 68 and Harwood v Smith [1997] NPC 158 must all have thought that their fees were secure. All of them, however, found the courts in no mood to give them the benefit of the doubt when it came to interpreting their terms of business.
On the other hand, agents in both Freedman v Union Group plc [7] EGCS 28 and Raja v Rollerby Ltd [1997] EGCS 79 succeeded in drafting confirming letters which outflanked the normal requirement of “effective cause”. Which just shows that some you win, even though most you lose.
