Early warning

Glenda Ferneyhough discusses a recent case prompting practitioners to draw their clients' attention to the details of a lease, as well as other decisions of interest to conveyancers

The recent decision of the Upper Tribunal
of the Lands Chamber in the case of Roundlistic Ltd v Jones and another [2016] UKUT 325 (TCC) is salutary reading for anyone who might be tempted to bypass providing a client with a detailed explanation as to the
terms of the lease they are about to purchase.

In the case, the respondent tenant's lease
of a maisonette had been extended under
the Leasehold Reform, Housing and Urban Development Act 1993. The tenant sublet a maisonette under an assured shorthold tenancy. The lease did not contain a covenant against subletting but did limit the use to that of 'a single dwelling house in the occupation of the lessee and his family'.

The lease also contained typical provisions to
the effect that when the upper maisonette was sold the lease would contain similar terms. There was no lease of the upper parts in place but a
later deed was established requiring the landlord to be responsible for maintaining the upper
parts in repair, which also contained a mutual enforceability covenant. The upper maisonette
was let at various times on short tenancies.

The appellant landlord made an application to the First-tier Tribunal requesting a determination that the tenant was in breach of covenant by subletting. The tribunal agreed that the lease did preclude subletting but held that the course of use by the landlord in letting the upper maisonette had given rise to an estoppel. Moreover, it considered that the Unfair Terms in Consumer Contracts Regulations 1999 applied to the provisions on use in the lease: this was an unfair term because it imposed more onerous terms on the lessee, as a consumer, than applied to the upper maisonette.

When the matter was heard on appeal, the Upper Tribunal agreed with the construction of the wording but, on the facts, did not consider that there was a case of estoppel. It agreed that the 1999 Regulations could apply but stated that as
the Regulations contain an express saving for contractual terms which relate to statutory provisions, the terms included in the lease renewal made under the 1993 Act could not be challenged.

The decision seems to be a fair outcome, in that the wording of the lease was clear, but it does act as a clear warning to conveyancers to draw their clients' attentions to the likely effect of a restriction of this nature. There is a suggestion in the decision that it might be possible for the flat owner to apply for modification or discharge of the covenant under section 84 of the Law of Property Act 1925. In the light of the background, I wonder whether terms have now been agreed to vary the lease in order to allow subletting on payment of a commensurate sum.

Restrictive covenants

Restrictive covenants continue to be the subject
of litigation. In the case of Birdlip Ltd v Hunter
and another [2016] EWCA Civ 603, the Court
of Appeal had to consider whether restrictive covenants limiting building and use contained
in conveyances in 1909 and 1910 of neighbouring properties in Gerrards Cross constituted a building scheme. Planning permission was granted for
the construction of two detached houses on part of a plot affected by the covenants. The landowner applied to court for a declaration that the covenants could not be enforced by a neighbour due to the absence of a building scheme.

The judge declined to grant the requested declaration, as he considered that the facts indicated that other sales had taken place containing similar covenants - these could
be considered to be mutual covenants affecting
a defined area. The landowner subsequently appealed the decision.

On the facts before it, the Court of Appeal did not consider that a scheme had been created
at the outset by reference to a defined area of
land. Moreover, it ruled that there was insufficient evidence that it had been intended that the
benefit and burden of the covenants would pass
to successive owners of the various plots. The judges considered that extrinsic evidence to show the likely extent of the land would be unlikely to be sufficiently compelling to indicate that a building scheme existed.

The case provides some comfort that a
building scheme enabling mutual enforcement
of restrictive covenants between neighbours is unlikely to have been created by the typical wording of restrictions imposed in the early 20th century which are still recorded on the charges register of so many titles in the 21st century. However, the case doesn't offer full reassurance that these covenants can be ignored, as it may be possible for a neighbour to prove that the benefit of the covenants has been annexed to their land. Restrictive covenant indemnity insurance is still likely to be the preferred option where land is to
be developed in possible breach of covenant.

Mortgage conditions

It is interesting to see that the Court of Appeal
has had to consider mortgage conditions affecting the buy-to-let market in Alexander
(as representative of Property 118 Action Group)
v West Bromwich Mortgage Co Ltd [2016] EWCA
Civ 496. The appellant took out an interest-only tracker mortgage for a buy-to-let investment in 2008 on the basis that the rate after 2010 would be 1.99 per cent above the Bank of England base rate. The lender sought to increase the rate, relying on the right in its standard terms to change the terms if it is in the interest of carrying out prudent business. There was also a right to require repayment of the lending in full on
one month's notice.

The Court of Appeal overturned the decision
of the lower court and ruled that the standard conditions could not override the product that
had been offered, which must therefore remain
a tracker mortgage. It also considered the fixed 25-year term of this interest-only mortgage to
be an intrinsic feature.

The decision is understood to have benefited over 6,000 borrowers who would have otherwise been at risk of increases to their mortgage payments and is a considerable financial blow
to the West Bromwich Building Society.

Determined boundary application

Finally, I have often wondered whether a determined boundary application might be the correct route for a client with a boundary dispute. Our clients look at us in disbelief when we tell them that properties are registered at the Land Registry only with general boundaries. The judgment in a recent case in the Upper Tribunal
of the Tax and Chancery Chamber, Bean v Katz [2016] UKUT 168 (TCC), contains a useful summary of the process undertaken by the Land Registry when it receives a determined boundary request and states that the Land Registry is bound to have to consider any title issue that may arise, as well as the quality of the plan.

Doubt had been expressed in the remarks made in the case of Murdoch v Amesbury [2016] UKUT 3 (TCC) as to whether the Land Registry had a remit to consider title when dealing with this type of application, but the judge in Bean was quite clear that the Land Registration Rules 2003 permit this. For those who would like to find out more, the Land Registry Blog contains a recent article on this subject by assistant land registrar Richard Hill.

Glenda Ferneyhough is a partner at SA Law @SA_Law salaw.com