Update: residential property

Beware the accidental easement

The case of London Tara Hotel Limited v Kensington Close Hotel Ltd [2010] EWHC 2749 (Ch) reminds us of the constant need for vigilance if property owners are not to find themselves subject to a neighbour's prescriptive easement.

In 1973, the landowner in this case had granted a personal licence to its neighbour to use a roadway crossing its land at an annual fee of £1 'if demanded'. The licence wasinitially for one year and then from year to year, until determined by four weeks' notice.

From 1980 onwards, the neighbouring property, which was operated as a hotel, was bought and sold several times and, although the licence to use the roadway had been personal to the original licensee, the subsequent owners continued to use the roadway.

In 2007, after a fall out between the two hotel owners over a possible combined redevelopment, the landowner served notice on its neighbour to terminate the 1973 licence. The neighbour continued to use the roadway and an injunction was sought. The neighbour argued that a right of way by prescription had been acquired as a succession of owners had used the roadway as of right for at least 20 years following expiry of the personal licence in 1980, when theoriginal licensee sold.

The High Court came down on the side of the neighbouring owner as it should have been within the reasonable contemplation of the landowner that the neighbouring property would have changed hands within the 20-year period, rendering useless the protection of a personal licence.

It is crucial that landowners and those managing property monitor who is exercising any rights they have granted and check that the conditions of any licence continue to be met, including whether a fixed-term licence has expired without the use ceasing, or a licence fee reserved but uncollected.

Borrowers' privilege waived

Conveyancers will be reminded by the case of Mortgage Express v Sawali [2010] EWHC B23 (Ch) of how legal professional privilege is so easily and frequently waived by clients in their mortgage application forms.

In this case the High Court held that the borrowers had waived their right to legal professional privilege over those items in their files that would otherwise have been protected by signing a mortgage application form that contained a declaration consenting to 'their entire file' being handed over to the lender on request. The court did not consider such a waiver to be 'unduly onerous or unfair'.

As has long been established, when a conveyancer acts for both borrower and lender on a mortgage, two separate retainers are created. No waiver of confidentiality or legal professional privilege is implied on the part of the borrower in favour of the lender, nor is there any authorisation implied for the solicitor to disclose to the lender anything passing between the borrower and the solicitor. Where a single file has been kept, it must not be handed over to the lender without the borrower's consent, unless the lender can show a prima facie case of fraud.

If, however, the borrower in his mortgage application has given authority for the whole file to be handed over, the borrower has expressly waived his right to privilege. In Sawali the High Court found that the mortgage application form contained an unambiguous, irrevocable and binding authority for the whole file to be handed over upon the lender's request.

It is usually the case that conveyancers do not advise their clients on completing their mortgage application forms and would only infrequently see a copy of the form later in the transaction. As well as advising clients of their obligations to the lender under the Council of Mortgage Lenders' Handbook, it would be prudent for conveyancers to flag up to clients, when acting for both borrower and lender, that the lender can request the whole of their file, including communications that would otherwise be privileged, where they have expressly waived those rights in their mortgage application form.

SDLT planning squeezed

With the increase in stamp duty land tax almost upon us for properties selling for over £1m, it is an increasing temptation for buyers' minds to turn to the possibility of using an SDLT saving scheme.

From 6 April, purchases of over £1m will attract SDLT at a rate of five per cent. With a pressing need to boost the public purse, it is probably no coincidence that there appears to be a pincer movement against the use of SDLT planning.

Against a background of the top 15 banks in the UK having adopted the government's code of practice on taxation for banks, albeit reluctantly and under pressure, in January HM Revenue & Customs issued a document aimed at deterring SDLT planning and announced that they would be challenging avoidance schemes.

Although the code of practice on taxation does not directly prevent banks lending on transactions where there is SDLT planning, the majority are refusing to lend. This leaves it largely only open to cash buyers to exploit any window of opportunity that the schemes may offer.

This is compounded by HMRC's announcement that none of the SDLT avoidance schemes they have 'fully analysed has the effect the promoters claim'. HMRC mentions four schemes in particular, all of which involve a sub-sale combined with either a claim to alternative finance relief, a distribution as a dividend in specie, a gift or the use of partnership rules.

HMRC claims that either the SDLT provisions do not apply in the way envisaged by the schemes or they fail because 'the targeted anti-avoidance rule operates to neutralise any tax advantage'.

The note also announces that HMRC is now comparing transactions reported to the Land Registry with land transaction returns made to HMRC and gives a warning on time limits for the launch of an HMRC enquiry.

In the absence of the submission of a land transaction return, notwithstanding that a disclosure letter has been submitted or a scheme reference number received, the time limit for the opening of an enquiry of nine months from the filing, delivery or amendment of a land transaction return does not begin to run.

Clearly the government and HMRC are eager to stamp out the widespread use of SDLT saving schemes before they become a consideration in any reasonable size purchase.

Party wall security strengthened

The growing enthusiasm for excavating often multiple basements in houses in close proximity gives rise to considerable concerns of the risk of damage to neighbouring properties. Clearly adjoining owners have the protection of the Party Wall etc Act 1996 in their armoury, but the case of Kaye v Lawrence [2010] EWHC 2678 (TCC) has strengthened their hand in the ability to request security against potential compensation claims for damage to their property.

Before this case it was commonly thought by party wall experts interpreting the Act that security was only available when works were carried out to the party wall or on the adjoining owner's property. The Technology and Construction Court confirmed in this case that security is available for all works carried out pursuant to the Party Wall Act, because all works permitted by the Act, whether to the party wall or within six metres of the party wall, potentially give rise to an adjoining owner's right to compensation for damage caused.

This case reminds us that when our clients receive a Party Wall Act notice care should be taken to consider whether, in the circumstances of the works to be carried out and the likelihood of damage, security should be requested.

Enfranchisement

Landlords may be alarmed by the case of Cadogan v Panagopoulos [2010] EWCA Civ 1259, in which the Court of Appeal found that a caretaker's flat was a 'common part' within the meaning of the Leasehold Reform, Housing and Urban Development Act 1993 and could be acquired by a nominee purchaser under a collective enfranchisement claim.

There were five flats in the building, with a storage area and caretaker's flat in the basement. Three of the tenants had a right to the services of a caretaker and two of them could require a resident caretaker under the terms of their lease.

The court found that the word 'common' encompassed anything shared between the property and other parts of the development or anything that benefitted or was of concern to the other occupiers. For the most part the court considered that it was the caretaker's services that were the common benefit, rather than the use of the flat, but acknowledged that a resident caretaker needed a flat designated for that purpose.

The court took these elements together to indicate that the caretaker's flat could be regarded as a 'common facility' under the terms of the Act and found that it was 'reasonably necessary' for the management of the block and could be acquired by the nominee purchaser to facilitate the accommodation of a caretaker.

Clearly this judgment demonstrates that the Court of Appeal is willing to take a common sense approach to interpreting the Act so as to give effect to the spirit of the Act and follow the well-settled approach of conferring on tenants 'those advantages which parliament must have intended them to enjoy'.

Another recent case on collective enfranchisement offered 'sensible flexibility' to allow the nominee purchaser to acquire only those parts of the building that were needed for the proper maintenance or management of the property to be enfranchised, rather than being forced to acquire the entirety of a building.

In Hemphurst Ltd v Durrels House Ltd [2011] UKUT 6 (LC) LRA/27/2009, a landlord had granted a 999-year lease of the roof surface and air space of the building, together with the right to construct flats on the roof. The nominee purchaser did not want to acquire all the property demised by the 999-year lease, only those parts of the roof that were required for the maintenance of the remainder of the building. The Leasehold Valuation Tribunal had decided that all or nothing had to be acquired. The Upper Tribunal, however, found that there was nothing in the Act requiring this, and a nominee purchaser could acquire as much of a building as is needed.

This case is a decision of the Upper Tribunal, whereas Panagopoulos was in the Court of Appeal, but again a common sense approach has been followed to uphold the spirit of the Act and enable a nominee purchaser to take only that part of the building needed for management or maintenance purposes. Landlords, however, will feel uneasy at the prospect of part of their building being carved away in an enfranchisement claim, leaving them with a somewhat unattractive property holding.