The Law Commission’s recent consultation on law reform could be a chance to make history, according to Bryan Johnston. Here he shares how the Property Litigation Association seized its chance to help shape the future
In 1517, Martin Luther posted his 95 Theses on the door of All Saints’ Church in Wittenberg, sparking the Protestant Reformation and causing irrevocable splits within the established church and political turmoil across Europe.
On 14 July 2016, the Law Commission posted the 13th programme of law reform consultation on its website. The consultation closed on 31 October 2016.
While not as dramatic or profound as the consequences of Luther’s actions, the Law Commission’s consultation is to be welcomed as a public invitation for ideas to reform existing law. Indeed, the commission is to be lauded as inviting ideas that could form the basis of a “property reformation”.
The Property Litigation Association (PLA) has provided a detailed response to the consultation, highlighting some of the areas of property law that we consider are ripe for reform.
Landlord and Tenant (Covenants) Act 1995
Like the practice of indulgences opposed by Luther, the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”) is an angry boil waiting to be lanced. We have previously highlighted the wholly unsatisfactory manner in which the 1995 Act is applied (see “Stop tinkering, start reforming”, EG, 28 May 2016, p98). This is bad for both landlords and tenants and is even recognised judicially as creating results that defy commerciality and basic common sense. For example, the inability for a guarantor to provide a repeat guarantee or take an assignment of the lease is a particular lowlight.
The PLA has already provided the Law Commission and Department for Communities and Local Government with a detailed overview of the problems caused by the 1995 Act. More importantly, the PLA has proposed a drafting solution that not only deals with the absurdities of the 1995 Act, but also has cross-industry backing.
Leasehold enfranchisement
The problems with the leasehold enfranchisement regime merit a thesis in themselves. The legislation is found over a number of sources and has “evolved” in an ill-considered and piecemeal fashion. The PLA’s view is that further tinkering at the edges of the regime by way of amendment will only exacerbate the problem.
The solution, eloquently submitted by Damian Greenish to the Law Commission, is to replace all of the enfranchisement legislation with a new statute providing universal rights of enfranchisement covering all residential property with a single procedure and a single valuation regime.
Landlord and Tenant Act 1987
The Landlord and Tenant Act 1987 (“the 1987 Act”) is crying out for reform. It has been judicially described as “an ill-drafted, complicated and confused Act”, and that was 25 years ago (Sir Nicolas Browne-Wilkinson V-C in Denetower Ltd v Toop [1991] 1 EGLR 84).
It has probably been described by practitioners as much worse.
A specific issue is the absence of a definition of what is meant by a “building” for the purpose of exercising the right of first refusal in cases where the premises are part of an estate comprising several buildings. Given the struggles as to what a “house” is meant to be, a “building” was going to cause even more definitional challenges. Unfortunately, Long Acre Securities Ltd v Karet [2004] EWHC 442 (Ch); [2004] 2 EGLR 121 has served to cause further problems rather than provide much needed (and anticipated) clarification.
Statutory amendment could resolve this one issue. However, there are others. A more radical solution would be to simply repeal Part I of the 1987 Act. Given the extensive enfranchisement rights that exist as well as the right to manage under the Commonhold and Leasehold Reform Act 2002, there seems little point in preserving the right of first refusal conferred by this unsatisfactory Act.
Commonhold and Leasehold Reform Act 2002
The Commonhold and Leasehold Reform Act 2002 itself is far from being a legislative masterpiece. The PLA would welcome the amendment of the statute to clarify that once the right to manage (“RTM”) is acquired, the RTM company becomes the “responsible person” in respect of compliance with health and safety/fire safety legislation and is the entity subject to any enforcement proceedings. This is to make it clear that the freeholder is not responsible even though the freeholder remains the legal owner.
Similarly, liability for planning or listed building compliance should rest with the RTM company. Any enforcement should only be against the RTM entity. Once the RTM has been acquired, the freeholder is unable to enforce the management covenants in the lease and is powerless to ensure compliance.
Section 20 of the Landlord and Tenant Act 1985
Section 20 of the Landlord and Tenant Act 1985 (“the 1985 Act”) obliges landlords to embark on a consultation exercise with tenants in respect of major works and qualifying long-term agreements. In Lessees of Foundling Court and O’Donnell Court v Camden London Borough Council and others [2016] UKUT 366 (LC); [2016] PLSCS 233, the Upper Tribunal held that head landlords have to consult with sub-tenants as well as tenants, making an already cumbersome process all the more so.
The PLA proposes that the 1985 Act be amended to allow for the head landlord to give notice to its tenants requiring details of sub-tenants. The tenants should then be under an obligation to respond to the head landlord within a specific time period.
The PLA also considers that the consultation requirements should be relaxed where the landlord is a company owned by the leaseholders of the building. The cost and complexity of complying with the 1985 Act is an unnecessary burden upon such entities.
Section 121 of the Law of Property Act 1925 – Rentcharges
Presently languishing in a form of purgatory, rentcharges are heading the way of the Albigenses. Existing rentcharges will be abolished in 2037. However, until then they continue to exist – and cause headaches.
Roberts and others v Lawton and others [2016] UKUT 395 (TCC); [2016] PLSCS 245 highlights the need for reform along the lines of making the right to recover arrears and the right to subsequently register a rentcharge lease conditional on a demand having being properly made which alerts the property owner of the statutory right of redemption.
Options
These pages have in recent years often contained sorry tales of break clauses going wrong. This has led to tenants being bound into their leases unintentionally as a result of a technical failure in the operation of the break clause (eg failure to strictly comply with a break provision even where the breach has no real consequence) or due to a very minor and insignificant breach of the lease (eg the payment of an undemanded and very small amount of historic late-payment interest).
Cases such as Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382; [2014] 2 EGLR 41 and Avocet Industrial Estates LLP v Merol Ltd and another [2011] EWHC 3422 (Ch); [2012] 1 EGLR 65 highlight the unfairness of the strict contractual construction approach taken by the court. While not in itself legally wrong, it produces inequitable results.
The PLA would propose that any contractual option reform should allow the court to grant relief in limited circumstances where the non-compliance with the strict break requirements has caused no material prejudice to the party receiving the break notice. This may in itself generate case law on what material prejudice might be, but it would seem to be a fairer outcome than the rigid and strict approach currently adopted. Reform could go as far as creating a rebuttable presumption of compliance by the party seeking to exercise the option. However, that might be too radical a proposal to ever make the statute books.
A new year, a new age?
The Law Commission admirably invited reform proposals in its consultation. The PLA and others have taken up the call and have responded to the consultation. The Law Commission will publish the outcome during 2017. While nothing is predestined, the PLA hopes that some of the above will be embraced and endorsed. Whether there is a more radical property reformation remains to be seen. However, in the words of another radical with Martin Luther in his name: “I have a dream…”
Bryan Johnston is a partner at Dentons UKMEA LLP, writing on behalf of the Property Litigation Association
