Commercial Property Newsletter Summer 2011

Summer 2011

Welcome to our quarterly legal update for the commercial property industry.

For more information or if you have any comments about this newsletter, contact Jo Clark, a solicitor in our commercial property team or Maureen Edwards, our business development manager.

What exactly does 'vacant possession' mean?

Can a landlord withhold consent if a superior landlord refuses to cooperate?

Accidentally creating contracts by email

The Bribery Act bites

What does 'vacant possession' mean?
- the hidden dangers

Of all conditions attaching to a break option, giving up vacant possession may seem the most innocuous. However, a recent case highlights the hidden dangers of these words.

In NYK Logistics (UK) Ltd v Ibrend Estates BV (2011) the tenant exercised a break option conditional upon giving vacant possession. The tenant met with the landlord to agree a terminal dilapidations schedule. The parties recognised that it was not possible to complete all the works before the break date and so the tenant suggested that it should be allowed a further week after the break date to complete the works.

Unfortunately (and crucially in this case), the landlord did not reply to this offer before the break date but, despite this, the tenant's contractors stayed in the property for four days after the break date to carry out the works. The landlord then alleged that vacant possession had not been given.

The Court of Appeal ruled that vacant possession requires the property to be empty of people and the landlord must be able to assume and enjoy immediate and exclusive possession, occupation and control of the property.

The premises must also be empty of chattels, although the court thought that this obligation was only likely to be breached if any items left in the property substantially prevent or interfere with the landlord's enjoyment of the right of possession of a substantial part of the property.

The court found that vacant possession had not been given and the break had not been effectively operated.

This case highlights why the Lease Code does not recommend giving up vacant possession as a condition to a break clause, and suggests instead that a tenant 'gives up occupation', which is a less stringent requirement to empty the property of people and belongings.

The Code also recommends that landlords should serve schedules of dilapidations at least six months before the termination date.

The message from the courts is that tenants must follow any break conditions to the letter to avoid any argument that the break was not properly exercised.

help>

Can a landlord withhold consent
- if a superior landlord refuses to cooperate?

In Eaton Mansions (Westminster) Ltd v Stinger Compania de Inversion S.A. (2011) the tenant applied to its landlord to carry out some works. The landlord could not unreasonably withhold consent, and the landlord itself had to obtain consent from the freeholder, who had absolute discretion to refuse consent under the headlease.

The landlord argued that it was entitled to refuse consent because the tenant's proposal would put the landlord in breach of the headlease, and the freeholder had not agreed to it. The tenant argued that the landlord could not reasonably rely on the freeholder's opposition unless it could show that doing the works would actually be in breach of the covenant in its head lease.

The Court of Appeal disagreed with the tenant, but did state that even though the freeholder was not required to give consent, the landlord must still consider the freeholder’s stance on the issue and not refuse consent just because the freeholder is not under a duty to act reasonably.

The landlord was not expected to 'force the issue' with the freeholder and it was not necessary for the landlord categorically to show that the proposed works would give rise to a breach of the headlease, but the landlord should consider what the attitude of the freeholder would have been at the relevant time.

If the freeholder would have confirmed that the proposal would not amount to a breach of the headlease, then it would be unreasonable for the landlord to refuse consent.

So, if an intermediate landlord receives an application from a tenant, the position of the freeholder will be relevant regardless of whether the freeholder needs to act reasonably. If the freeholder is willing to consent, you are not necessarily obliged to consent, but you remain obliged to act reasonably in determining the application.

help>

How to avoid creating contracts by email a reminder
the importance of 'subject to contract'

Most of you are of course aware of the need to mark pre-contract correspondence 'subject to contract'.

This is to avoid any inadvertent exchange of contract. You may also be aware of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which provides that a contract for the sale or other disposition of an interest in land must be (1) in writing, (2) signed by, or on behalf of, each party and (3) incorporate all the terms which have been expressly agreed between those parties in one document (or, where contracts are exchanged, in each). Furthermore, there must also be an intention to create legal relations.

In Green (liquidator of Stealth Construction Ltd) v Ireland, the High Court suggested that an exchange of emails may under be capable of fulfilling the requirements of section 2.

Following previous case law, the parties accepted that, by typing their names at the end of their respective emails, they had "signed" them for the purposes of section 2. Section 2 also requires that there must be either a single document, or identical documents which are exchanged. The court thought that where a recipient of an email replies to it, so that an email 'string' is created, this was capable of constituting 'one' document for the purposes of section 2.

It considered that this was 'the electronic equivalent of a hard copy letter signed by the sender being itself signed by the addressee'. The court contrasted this with the position where the recipient creates a new email to send a reply.

Luckily in the end the court ruled that no contract had in fact come into existence. This was because the exchange of emails did not refer to all the terms which had been orally agreed between the parties. In addition, the emails were 'not expressed in terms which suggest binding obligations on the parties' – i.e. there was no intention to create legal relations through the emails. The email which constituted the offer contemplated that a further document would be drawn up.

However, the point remains that typing a name at the end of an email constitutes signing for section 2 and attaching a string of emails could constitute all the terms in one document. A cautious approach would be not to create email strings and to begin each email as if it were a fresh piece of correspondence. However, ensuring all emails are marked 'subject to contract' will still suffice to avoid a contract being formed.

help>

No more days at the races?
- the Bribery Act arrives

You will have noticed in the press that the Bribery Act 2010 came into force on 1 July 2011.

Previously, bribery-related offences were limited to transactions that involved public officials. The Act now extends bribery offences to cover all private sector transactions, although it only deals with bribery and not other forms of white collar crime such as fraud or anti-competitive behaviour. Contravention of the Act can gives rise to criminal penalties for organisations and individuals including directors and employees.

In relation to gifts and corporate hospitality, such expenditure should not contravene the Act provided that expenditure is for legitimate commercial purposes. The Act is not intended to prohibit hospitality, promotional or similar business expenditure, provided that expenditure is reasonable and proportionate.

The Act also provides that a full defence may be available provided the company can show that it had adequate procedures in place that are designed to prevent bribery. What counts as ‘adequate’ will ultimately depend on the nature of that company’s business, its size and its complexity. Further guidance on the procedures can be found on the Ministry of Justice website.

For the time being then, invitations for a week’s holiday in Barbados may now be out of bounds, but race days and the odd meal out should not contravene any laws.

help>

www.bbc-law.co.uk

This email newsletter from Burt Brill & Cardens is free, confidential and optional.

You pay nothing to be on the list, we will never provide your email address to anyone without your consent and if you ever want to be removed from our list just click 'unsubscribe' below.

Don’t forget this is general comment and Burt Brill & Cardens accepts no responsibility for any actions taken or not taken in reliance on it. You should take legal advice relevant to your circumstances before acting or deciding not to act.

Burt Brill & Cardens is regulated by the Solicitors Regulation Authority, SRA number 62912

Unsubscribe

© Burt Brill & Cardens 2011

Legal Statements