ABG Property Newsletter – August 2012

TUPE and service provision changes

The EAT has confirmed that there will be no service provision change for the purposes of TUPE where, on a change of contract, there is also a change in the underlying client.

In this case there was a change in the contract for security services in a building when ownership of the building also changed. The employee was employed by the contractor as a security officer for a block of student accommodation. The contract was with a property company which eventually went into administration. Management of the site was then taken over by another company which continued to pay the contractor for the security services.

The accommodation block was subsequently acquired by a new owner and the contractor lost the security services contract to a new contractor. The original contractor told the employee that his employment had transferred to the new contractor, but the new contractor disagreed and his employment was terminated. He then brought unfair dismissal claims against both the original and new contractors.

An Employment Judge ruled that TUPE had applied despite the change in ownership of the building, but this decision has now been overturned by the EAT. It ruled that TUPE had not applied to transfer employment to the new contractor. This was because the client receiving the service had changed and so, in cases where ownership or management of commercial property changes and facility services are changed at the same time, facilities staff will not transfer to the incoming facilities provider. Employment liabilities remain with the outgoing contractor.

Property development disputes and delays

The High Court has recently considered a case involving delays in building a property development and considered the meaning of the expressions “with due diligence” and “to use reasonable endeavours”.

A building company had contracted to carry out works with due diligence and to use its reasonable endeavours to procure completion of the works by the target date or as soon as reasonably possible thereafter. Completion of the works was delayed due to a lack of funds on the part of the builder.

The Court ruled that the company had failed to use reasonable endeavours to complete the work. It had made efforts, which had been unsuccessful, to raise additional finance, but this did not amount to reasonable endeavours to procure completion because the fundraising did not relate directly to the physical conduct of the works.

The owners had subsequently allowed the builder to resume work, but then terminated the contract on the grounds of the builder’s repudiatory breach. The Court ruled that the owner had not waived the builder’s breach of contract and had not lost its right to terminate in the short period of 2 weeks that had passed after the builder had resumed work.

Despite this ruling it should be noted that questions of waiver and the use of reasonable endeavours are always questions of fact and it should not be assumed that in every case there will be no waiver of the breach of contract where there is delay in effecting termination.

Contracts for sale of land and verbal terms

A contract for the sale of land can only be made in writing and the written contract must include all the terms which the parties have agreed, either expressly or by reference. The contract must be signed by or on behalf of each party.

In previous case law it has been ruled that a contract for the sale of land is not void simply because there is also a separate verbal contract for a related transaction. However the land contract must be separate from the rest of the transaction and this will not apply if the land contract is conditional on the carrying out of obligations in another agreement.

In a recent case the Court of Appeal applied the written contract rule in the context of a supplemental agreement which varied a written agreement for the sale of land. The supplemental agreement was void because all of the supplemental terms that had been agreed were not included in the written document.

In this case the parties had entered into an agreement for the sale of land (a medical centre) which was to be leased back to the sellers. Completion was conditional upon the buyer obtaining planning permission.

Subsequently the parties agreed a reduction in price because it was proving expensive for the buyer to enter into a Section 106 agreement with the local council. The price reduction was contained in a written supplemental agreement, but the seller claimed that it had been verbally agreed that the buyer would carry out building works at the medical centre in return for the price reduction. This building works term was not included in the written supplemental agreement.

The buyer failed to carry out any building works and the seller claimed damages for breach of the building works term. The seller argued it was a separate freestanding verbal agreement, not part of the written supplemental agreement and therefore enforceable.

The Court of Appeal pointed out that when parties to a contract agree to vary it, they are in effect entering into a new contract. This means that an agreement varying an existing contract for the sale of land will only be valid if made in a written document containing or incorporating all the terms that were agreed for the original sale contract. Therefore the supplemental agreement was void because the building works term had not been included in it.

The message emerging from this case is that parties to land transactions should record all of the terms relating to the land sale agreement in writing and thus avoid arguments about whether any non-included terms form part of the land transaction or form part of a separate transaction.

Business rates relief for empty commercial properties

Empty non-domestic properties may qualify for exemption from business rates either indefinitely or for a fixed period. Retail properties qualify for 100% relief for a continuous period of 3 months. The exemption applies to the property and a change of ownership during the 3 months period does not trigger a fresh 3 months exemption. The 3 months period and the exemption continue to run if there is short-term occupation of the property (less than 6 weeks) by a tenant or licensee.

Industrial and warehouse properties qualify for similar 100% relief for a period of 6 months.

If the property is reoccupied for 6 weeks or more, the owner can claim a further period of exemption (3 months for retail, 6 months for industrial) when the property becomes vacant again.

In a recent case a warehouse was cleared and vacated by the tenant in June. Subsequently the tenant used the warehouse for the temporary storage of documents for a period of just over 6 weeks from November to January. The documents were stored on pallets which occupied only 0.2% of the warehouse’s floor space.

The High Court has ruled that the occupation of only 0.2% of the floor space did amount to actual occupation for the purposes of business rates liability and so, when that occupation ended, a new period of empty rates relief was triggered.

This decision will be welcomed by property owners who have been hit by the restriction of empty rates relief. It removes some of the uncertainty around whether short-term occupation and use of 6 weeks or more can successfully trigger a fresh period of empty rates relief. There must be an intention to actually occupy the premises plus use of the premises which is of practical benefit to the occupier. Even if, as in this case, the extent of the use is very slight, this will amount to actual occupation and a new period of empty rates relief can be claimed.

Discharge of restrictive covenants following material change of circumstances

Under the Law of Property Act 1925 the Lands Tribunal can discharge or modify a restrictive covenant affecting land where it is no longer possible for it to serve its original purpose due to changes in the character of the property or the neighbourhood or other material circumstances.

In 2002 a land owner sold part of his estate, the main house. The property transfer imposed several restrictive covenants on the buyer for the benefit of the land owner and his family and descendants.

Later the original land owner disposed of most of the remainder of his estate in 2008 to a different buyer. The 2002 buyer wanted to refurbish and redevelop the house and applied for the restrictive covenants to be discharged or modified. This application was granted by the Lands Chamber because the sale of the majority of the rest of the estate to a third party who was not entitled to the benefit of the covenants was a material change of circumstances. The original purpose of the covenants, which was to benefit the retained estate, could not be served when only a small part was now retained by the original land owner.

 

The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Siobhan Goodacre
sgoodacre@abg-law.com
+44 (0)115 934 3325

Wendy Shaw
wshaw@abg-law.com
+44 (0)115 934 3303