The authors of the Alienation Protocol have done it again. Guy Fetherstonhaugh QC unveils their latest offering, the Alterations Protocol
In my View from the Bar column almost exactly a year ago (14 February 2015, p77), I announced that the authors of the Protocol for Applications for Consent to Assign or Sublet were putting the finishing touches to a new Protocol for Applications for Consent to Carry Out Alterations (“the Alterations Protocol”), which would join the first as a free resource for the property profession. Finishing touches can take time to get right, but we are now satisfied that we have achieved our goal.
Substance, not process
Like our first protocol, we hope that the Alterations Protocol will be useful to the lawyers and surveyors who practice in this litigious field. It is in the interests of all that, if there are arguments to be had over tenants’ applications for consent to carry out alterations, the real issues should swiftly be identified and resolved at minimum cost, avoiding tiresome disputes over process.
Thus, tenants who follow the protocol will face fewer irritating requests from their exasperated landlords for documents that should have been supplied in the first case; and landlords will not suspect that the tenant is holding back on the real details. Correspondingly, costs will not be run up in the early stages dealing with sheer matters of form.
Disputes will of course remain – but at least they will involve real matters of substance which will have been identified at an early stage. Here too, however, the protocol is designed to eliminate as many as possible of the usual suspects in these disputes: its accompanying guidance note, although not purporting to be a full set of advice for all situations, does attempt to cover the areas where parties typically go wrong in these disputes.
The usual suspects
Here then are my favourites, drawn from many years of considering disputes over whether objection can validly be made to proposed alterations.
Consider first the tenant who buys the next-door flat and wants to knock through and create what some agents like to call a lateral living apartment. The landlord cannot unreasonably withhold consent to alterations, and the tenant, not unreasonably, points to the limited nature of the works that will be involved, and the negligible impact upon the landlord. What is often overlooked, though, is that the party wall will not usually be demised, so that the tenant’s proposal will involve a trespass, to which the landlord is of course entitled to withhold consent. Such disputes do not therefore touch upon reasonableness, although parties often waste considerable costs before they are alerted to the point.
Next, there is the tenant who proposes to carry out alterations designed to improve the way in which it can carry on the use permitted under its lease. The covenant against alterations in its lease is very prescriptive, let us say, and appears to prohibit such works. All may not be lost however, bearing in mind the approach of the Court of Appeal in Bickmore v Dimmer [1903] 1 Ch 158, one of those comparatively little-known gems. In that case, the court held that a tenant who carried on the business of a jeweller and watchmaker had been entitled to fix a large clock on the outside of the wall of his shop by means of six iron bolts, which were bored into the stone to a depth of six inches, notwithstanding a covenant that forbade “any alteration” to the premises.
Two of the judges held that the word “alteration” in the relevant covenant must be limited to alterations that would affect the form or structure of the building. The third judge, Stirling LJ, added that there must be excepted from the covenant, not only things absolutely essential to the carrying on of the business, but also things fixed to the premises for the purpose of carrying on the business in a reasonable, ordinary, and proper way. Accordingly, if the proposed alterations allow the tenant to carry on its business in a reasonable, ordinary and proper way, then the tenant is afforded a good argument to support its claim to be able to carry out the work, notwithstanding the contractual constraint.
Third, take the case of the business tenant who faces an absolute prohibition on carrying out alterations. Another little-known resource, Part I of the Landlord and Tenant Act 1927, may come to its aid. This allows tenants to carry out possibly wide-ranging works to their holdings, in the face of the most stringent leasehold restrictions, if (simplifying matters somewhat) they are able to satisfy the court that the works will add value to the premises at the end of the lease.
And fourth, consider the role fixtures have to play in all this. Perhaps one of the most difficult areas of property law, usually involving disputes of fact, expert evidence, custom and authority, this is very much an area where good expert guidance is needed at an early stage if fixtures are successfully to be removed.
These topics, and more, are touched upon in the guidance note to the Alterations Protocol. It is our hope that the protocol itself will focus the parties on the substance of the proposed alterations, avoiding conflict where possible, and minimising delay and expense where that is not possible, while the guidance note will offer some assistance in navigating these troubled waters.
And now to the third protocol. We have a few ideas, but suggestions are welcome.
• The full text of the Alterations Protocol is reproduced below, but the explanatory note and a full guidance note can be found at www.propertyprotocols.co.uk
PROTOCOL FOR APPLICATIONS FOR CONSENT TO CARRY OUT ALTERATIONS
1. Preliminary
1.1 This Protocol applies where a tenant wishes to carry out alterations to its premises, but a provision in its lease (“the alterations clause”) imposes restrictions upon alterations.
1.2 The aim of this Protocol is to ensure that tenants and landlords exchange sufficient information in a timely manner to minimise the scope for disputes between them; and to enable any such disputes to be readily resolved.
1.3 It is not the function of this Protocol to provide advice to the parties. However, some guidance is set out in the accompanying Guidance Note.
2. The application for consent
2.1 An application for consent to carry out alterations must be sufficiently detailed for the landlord to understand the scope of that for which consent is sought.
2.2 The content of each application will depend upon the terms of the lease and the nature of the works to be carried out. However, when making an application for the landlord’s consent for alterations the tenant should ensure that its application describes the works (where appropriate by reference to detailed plans, drawings and specifications) and makes reference to the relevant provisions of the lease and any statute so that it is possible to identify:
2.2.1 whether the proposed alterations fall within the demised premises;
2.2.2 whether the proposed alterations are structural or non-structural;
2.2.3 the works for which the landlord’s consent is needed;
2.2.4 any works for which the landlord’s consent is not needed;
2.2.5 those works which are (i) absolutely prohibited under the terms of the lease so that the landlord has an unfettered right to withhold consent and (ii) those works from which the landlord may withhold consent only where it is reasonable.
2.3 The tenant should aim to provide such information in a single package so that the landlord is able to consider all materials supporting the application as a whole.
2.4 The application should be served on the landlord by the tenant in accordance with the terms of the lease. If the tenant is aware that the landlord has retained agents or lawyers, it should also send a copy of the application to them.
2.5 A tenant should consider whether its application should contain an undertaking to pay the landlord’s reasonable costs of considering the application. If so, it may set this out within its application (see section 4 below).
2.6 The tenant may be entitled to rely upon the provisions of Part I of the Landlord and Tenant Act 1927. If so, the tenant must serve on its landlord notice of its intention to make the improvement within that Act. There is no prescribed form of notification but the notice must have with it a specification and plan of what is proposed showing the part of the premises affected.
2.7 The tenant should consider what requirements its lease and any relevant statute impose concerning the form of and address for its application.
3. The landlord’s response to the application
3.1 Within five working days of receiving the tenant’s application, the landlord should confirm receipt to the tenant. If the landlord either (a) believes that the tenant’s application does not include enough information for a decision; or (b) requires time to ascertain what further information it might require in order to deal properly and reasonably with the application, the landlord should so notify the tenant at the same time.
3.2 Where the landlord is itself a tenant, and the terms of its own lease require it to seek its own landlord’s consent to any proposed alterations, the landlord should consider whether it has obligations to its tenant to pass applications onto its own landlord. In any event, the landlord should aim to serve on its own landlord copies of the application and supporting documents reasonably promptly. This should be done even if the landlord has not yet consented to the application (although it should not be taken to imply that such consent will be given).
3.3 If the landlord is entitled to its reasonable and proper legal and other costs in connection with the application and grant of consent, then it should set out its position on such costs in its response (see Section 4 below).
3.4 A landlord is under no statutory obligation to respond to the tenant’s application within a reasonable time, although the terms of the lease may require it to do so. Even if on the proper construction of the lease there is no such obligation, it will be good practice for the landlord to respond reasonably promptly. If it unreasonably delays its response, this might amount to “withholding” consent unreasonably. The conduct of the landlord may also be relevant when the costs of any subsequent dispute resolution procedure come to be apportioned.
3.5 The landlord’s response to the tenant should be sufficiently detailed to enable the tenant to understand the position of the landlord. It should in particular state whether the landlord:
3.5.1 consents, and if so whether any conditions are attached to such consent;
3.5.2 withholds its consent because it does not have sufficient information, and if so what further information it requires;
3.5.3 refuses its consent, and if so the reasons for such refusal.
3.6 Where the landlord has reasonably requested further information from the tenant in support of the tenant’s application, the tenant should provide that further information as soon as is reasonably possible and in any event before the information already provided in support of the application becomes out of date. The landlord should aim to request and the tenant should aim to provide any further information as a single package.
3.7 A landlord whose consent is requested for alterations is not obliged by statute to give reasons for refusal in writing. However, in any proceedings to establish whether consent was unreasonably withheld, the landlord will be confined to those reasons that it can prove that it held at the time that it withheld consent. The landlord should therefore express its reasons in writing (at least in outline), because that will set out its position for the record and enable the tenant either to deal with the landlord’s objections, so far as it is able, or to reconsider its approach altogether. Again, the conduct of the landlord in failing to set out its position clearly in writing may be relevant when the costs of any subsequent dispute resolution procedure may come to be apportioned.
3.8 If the case is one to which Part I of the Landlord and Tenant Act 1927 applies, the landlord has three months in which to serve a notice of objection.
4. Costs of applications
4.1 A landlord will often be entitled to its reasonable and proper legal and other costs in connection with the application and the grant of consent. The lease itself will usually make express provision for this; even if it does not, then depending on the circumstances, the landlord will usually behave reasonably if it refuses to consider the application for consent unless and until the tenant has agreed to safeguard its position in costs.
4.2 When making its application for consent, the tenant should therefore offer to provide an enforceable undertaking (for instance, from a solicitor) to meet such costs or, in the absence of such an undertaking, should agree to make a payment on account in an appropriate amount.
4.3 In agreeing the amount of the undertaking or payment on account, the parties should take into account, as appropriate, the complexity of the proposed works, the value of the property in question; any requirement to seek the consent of any other party (such as a lender or superior landlord); any need for external professional advice; any conditions requiring compliance; and any extraordinary feature of the proposed transaction.
4.4 If the tenant does not wish to give an open-ended undertaking, it should offer an undertaking to pay costs up to a specified and appropriate amount.
4.5 If the landlord considers the undertaking offered by the tenant to be insufficient (eg because it is insufficiently secured or the fixed amount offered is inadequate) and it is not willing to complete its consideration of the application unless and until a sufficient undertaking is given, the landlord should give its reasons to the tenant.
4.6 If subsequently the landlord considers that its costs will exceed the tenant’s undertaking or payment on account, it should promptly notify the tenant, with reasons, of any further sum required.
4.7 The landlord should not delay its consideration of the tenant’s application on the basis only that the parties are seeking to agree an increased amount to which the tenant’s undertaking for, or payment on account of, costs should be limited. The landlord should process the application by doing work up to the limit of the tenant’s undertaking or payment on account.
5. Dispute resolution
5.1 If the tenant believes that its landlord has unreasonably withheld or delayed its consent, the parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation and, if so, endeavour to agree which form to adopt. Both the landlord and tenant may be required by the Court in subsequent proceedings to provide evidence that alternative means of resolving their dispute were considered.
5.2 The options for resolving disputes without litigation include: Arbitration by a suitably qualified and experienced lawyer agreed upon by the parties or appointed in default of agreement from the Property Panel of the Chartered Institute of Arbitrators by the President of that Institute; Expert determination by an independent third party (for example, a barrister, solicitor or surveyor experienced in the relevant field); or Mediation – a form of facilitated negotiation assisted by an independent neutral party.
5.3 If the parties cannot reach agreement after complying with this Protocol then the final step will be for the dispute to be referred to Court.
6. Matters following the grant of consent
It will be good practice for the parties to ensure both that the grant of landlord’s consent and the detail of the alterations consented to by the landlord are properly recorded (where possible, with photographs), (a) to assist on the question whether the alterations are to be disregarded upon any review of the rent payable under the lease (ordinarily, they would be but this may need recording); (b) in view of any obligation to reinstate the premises at the end of the lease (which again may need recording); and (c) to help in determining to what compensation the tenant might be entitled at the end of the lease. Even where consent is not required, a record may be desirable in case of later dispute (as is often the case with internal demountable partitions, for example).
Guy Fetherstonhaugh QC is a barrister at Falcon Chambers, and has written the Alterations Protocol together with Jonathan Karas QC, also of Falcon Chambers, and Nicholas Cheffings and Mathew Ditchburn, partners in Hogan Lovells International LLP
