The impact of the Housing Grants, Construction and Regeneration Act 1996 on property contracts

United Kingdom
Stamp duty

Under the apparent misapprehension that the cause of European unity will be aided by trying to copy European stamp duty rates, Gordon Brown has hiked duty on property sales to 3% - a 200% increase in 9 months. How long before the rate is 6% as in Ireland and the Netherlands? What price 10% as in Portugal? Although more aggressive duty avoidance has been forestalled by the courts in recent months, there are other ways of creating a saving. With the rate on share transfers still at 0.5% there is a powerful incentive to look at property companies - investors should be considering acquiring property through corporates to ease the stamp duty costs of on-sale or establishing permanent nominees for property holdings. At these rates, taking stamp duty costs seriously makes more sense than ever.

Consent Subject to Licence

A year ago the Court of Appeal held that a letter giving consent to a tenant to carry out works but marked "Subject to Licence" was sufficient consent under the terms of the particular lease. The point has cropped up again, this time in the context of a restriction on assignment.

In Next plc v National Farmers Union Mutual Insurance Company Limited the relevant letters were one stating that subject to satisfactory references solicitors would be instructed to issue a draft licence, and one confirming that satisfactory references had been received and that solicitors had been instructed to issue a draft licence. Both these letters were headed "Subject to Licence". The tenant received the draft licence, approved it, executed it and returned it to the landlord's solicitor. Further financial information on the assignee then came to the landlord's notice and the landlord's solicitors informed the tenant that on the basis of that information the landlord intended not to give consent.

The tenant successfully applied for a declaration that consent had in fact been given by the landlord.

Whilst the court accepted that the requirement in the lease for a direct covenant from an assignee suggested that a formal licence was contemplated, this did not, in the absence of contrary indication, mean that consent could not be given in another manner. The correspondence as a whole and the forwarding of the draft by its solicitors clearly signified that the landlord had consented and the "Subject to Licence" heading on the letters did not displace that. The lease required a consent, not necessarily a formal licence.

The use of "Subject to Licence" headings should not be relied upon to protect a landlord's position. Instead, more thought should be given to structuring any relevant letter to make it clear that the consent in question is not yet given (and will not be until there is a formal licence in place) and is dependent upon further outstanding information.

The action to take in any given case will depend on the terms of the lease but, for instance, appropriate correspondence might include a phrase like "Our consent will not be given other than in the form of a completed formal licence....etc". Advice will always be required whether what is proposed conflicts with any requirement for the landlord to act reasonably.

When is a repair a renewal?

In Minja Properties Limited v Cussins Property Group Plc an office block was to be refurbished prior to sale. The leases obliged the landlord to keep the structure in "good and tenantable repair" and required the tenants to allow the landlord access to the property to carry out repairs and to pay for the repairs through the service charge.

One item in the refurbishment programme was the installation of new (and upgraded) window frames to replace the existing corroded steel ones. This would cost each tenant over £6,000 and one of the tenants objected. It argued that replacing the window frames was a renewal not a repair, was therefore outside the scope of the landlord's obligation and so beyond what the tenants should have to pay through the service charge. The tenant refused to allow the landlord access.

The court ordered the tenant to allow access. These works were a renewal of part, and as such were within the landlord's repairing obligation. Further, even though the new windows were an improvement on the original ones, the replacement was still a repair.