In a world that has had enough of experts, is it the end of the line for property lawyers?
I recently found out that “post-truth” was Oxford Dictionaries’ international word of the year for 2016. Lawyers have never been particularly popular with the public and no doubt readers have their fair share of good lawyer jokes or anecdotes. So after Michael Gove notoriously bemoaned last year that “people in this country have had enough of experts”, it got me thinking about whether, in this “post-truth” world we now live in, the same applies to legal experts. Or more precisely, does the property industry still need property lawyers?
As a fresh-faced solicitor it always interested me how there were common situations where reality wasn’t reflected in the underlying legal documents. Often this was because of the parties’ desire to proceed, with a reliance that any issues would be resolved with the parties acting reasonably; sometimes it was simply to save money.
While in many situations there would be no issues, sometimes getting it wrong results in more costs and wasted time. So, you may be very disappointed, but probably not surprised, to hear it, but, yes, the property industry still does need legal experts.
With this in mind, I thought it would be useful to consider a few of the more common situations (and their potential pitfalls) I have seen, where lawyers can still help.
The acquiescent landlord
Allowing a tenant into early occupation before concluding legal paperwork is understandable: tenants are keen to get in as soon as possible and landlords want the rent to start rolling in. Or it could simply be the end of an excluded tenancy and the landlord thinks that he can simply re-use the same lease prepared by his solicitors.
This is all too common and the main risk is of inadvertently creating a protected tenancy with unclear terms.
The eager tenant
Tenants love occupying properties early. I’ve known some cases where it has been a number of years before parties think about documenting terms. Aside from the risk of various options available to a landlord to make the tenant leave, one additional but less obvious risk to the tenant is non-payment of stamp duty land tax (SDLT) and the consequential penalties and interest that may follow.
While stamp duty used to be a document-based tax, SDLT is based on the underlying transactions and so may well be payable in relation to periodic tenancies that may have arisen by not having formal terms.
A similar issue arises where a tenant occupies a property under a licence contained in an agreement for lease, as SDLT becomes payable on “substantial performance” rather than the date that the lease is actually granted.
The oral variation
“Loose lips sink ships,” so the saying goes, and this equally applies to leases. Assuming that a lease has been made by a deed, a further deed would normally be required to formally vary the lease. However, beware the “parol variation” whereby variations made orally can occur if there is consideration. What, for example, would happen if you orally permitted a tenant to pay rent at a reduced rate for a number of payment periods and then sold the property? Would this bind a purchaser?
The DIY enthusiast
Which came first: the chicken or the egg? The fit-out or the lease? Tenants are often hesitant to finalise fit-out plans until the lease is completed because of the cost, but at the same time want to commence fitting out as soon as they take occupation. It is all too common for works to be consented to informally but not documented properly. This leaves the tenant vulnerable to having to remove them and the landlord at risk of damage to the property. Retrospective licences to carry out works ultimately protect the parties but sometimes nothing formal is entered into.
The break up
Telling a landlord or tenant that you want to break a lease is straightforward, isn’t it? If only that were the case: to be done properly, you need to check the provisions of the lease; ensure you identify the correct party and addresses you need to send it to; and comply with any specific terms. The consequences of getting it wrong and potential sums involved are huge and it is hardly surprising that there is so much litigation relating to the service of break notices.
But what if the parties decide after a break notice has been exercised that they wish to continue the lease? Can they act and pretend that the notice had never been served? Unfortunately not. The law is clear that once a break notice has been served, it cannot be unilaterally withdrawn and any agreement to withdraw the break notice is deemed to create a new tenancy by implication.
Long live lawyers
Clearly there continue to be risks to parties if they don’t have legal experts to help them. While I suspect that property documents will ultimately become more standardised and follow the likes of Joint Contracts Tribunal (JCT) contracts, Loan Market Association (LMA) loan documents and International Swaps and Derivatives Association (ISDA) derivative contracts, given the complexities and relationship between the documents and real life, it will never be so simple that parties can create the documents themselves. They will continue to need legal experts to negotiate and advise them. For the time being at least, anyone proclaiming the death of legal experts is a bit premature – and their thoughts can be labelled “fake news”.
By James Letchford, partner at Irwin Mitchell
