LEGAL UPDATE 2024 Some key cases from 2024 explained

Antony Phillips

Antony is a partner at European law firm, Fieldfisher, where he is Head of Real Estate and also heads the Property Litigation team. He deals exclusively with contentious (and potentially contentious) issues relating to commercial, mixed use and residential property. Throughout his career, Antony has had a strong emphasis on public sector work, helping clients unlock value in their property portfolios and dealing with issues arising from public sector clients’ ownership and development of their real estate holdings. Antony is a regular speaker at ACES conferences and other events and is an honorary member of ACES.

Antony, a regular speaker at ACES national events, led a team of young lawyers and surveyors at the AGM, but agreed to write his annual update of key cases pertinent to public sector surveyors. 

Introduction 

In this case law update, we look back at a number of key decisions of 2024. We consider disputes relating to restrictive covenants, consent applications and forfeiture, before delving into two cases arising from the Landlord and Tenant Act 1954, in each case drawing out key takeaways for property professionals and practitioners. 

Modification of lease covenants 

Blackhorse Investments (Borough) Ltd v London Borough of Southwark [2024] UKUT 33 (LC) 

This case related to an application to modify covenants under Section 84 of the of the Law of Property Act 1925 relating to a long leasehold interest. 

The tenant, Blackhorse Investments, was the long leaseholder of the Black Horse Pub in Southwark. The tenant sought to demolish and replace the building with a residential building of six stories with commercial premises (including a pub) on the ground floor. The landlord, Southwark Council, had (acting in its capacity as local planning authority) granted permission for this redevelopment. However, several covenants in the lease prevented the project from moving forward. These covenants included restrictions on assigning part of the premises, obligations to obtain a licence for the sale of alcohol on or off the premises, an obligation to operate as a ‘refreshment house’ for as long as the premises were licensed for the sale of alcohol, and restrictions against cutting or maiming timbers or other structural parts of the demised premises. 

The tenant applied to the Upper Tribunal (UT) for modification of the covenants under s84. This section allows for the modification or discharge of restrictive covenants affecting the use of freehold land. Jurisdiction can also extend, in certain circumstances, to leasehold covenants – in particular, long leaseholds of at least 40 years and where there is 25 years unexpired. To succeed under s84, an applicant is required to establish that at least one of the statutory grounds is satisfied and persuade the Tribunal to exercise its discretion to discharge or modify the covenant. 

Due to issues relating to service of the application, Southwark, as landlord, never received a copy of the application and, in the absence of challenge, the UT proceeded to order the modifications without a hearing. Southwark subsequently challenged the UT’s jurisdiction under s84 of the Act. 

The Tribunal held that that a restriction on assigning part of the land was not a restriction ‘as to the user’ of the land. It also held that the obligation to obtain a licence and the requirement to operate as a "refreshment house" were positive covenants. The UT did, however, agree that the restriction against cutting was restrictive and modified this accordingly. 

Key takeaways 

• S84 of the 1925 Act only gives the Tribunal the jurisdiction to modify covenants that restrict the use of land 

• Under s84 of the 1925 Act, the Court has no power to modify alienation and keep open covenants in a lease 

• Any procedural missteps can jeopardise the success of an application and lead to costly delays. 

Consent to alterations 

Messenex Property Investments Ltd v Lanark Square Ltd [2024] EWHC 89 (Ch) 

This case concerned a tenant's application for consent to carry out works under its lease. Like many leases, this was governed by s19(2) of the Landlord and Tenant Act 1927, which implies into all leases containing a covenant not to carry out alterations without the landlord's consent contains a proviso that consent to improvements will not be unreasonably withheld. 

The tenant, Messenex Property Investments Ltd, proposed significant structural alterations to a mixed-use building in London. These alterations included extensive internal restructuring to accommodate new commercial units and additional floors. Correspondence regarding the tenant’s proposals was exchanged over a period of years, but consent was not granted. The tenant subsequently applied for a declaration that the landlord had unreasonably withheld consent. 

The landlord relied upon the following grounds in support of its position, including: 

1. the tenant’s failure to provide structural engineer’s drawings 

2. a lack of clarity in the tenant’s proposals 

3. the fact that the proposed works would involve trespass; and 

4. the tenant’s failure to provide an unconditional undertaking for the landlord’s reasonable costs. 

The landlord succeeded on grounds (i) and (iv) only. The court determined that the failure to provide structural engineers’ drawings in respect of the additional floors to be constructed was a reasonable reason for withholding consent. The works were extensive, and the landlord’s own planning application contained a report which queried whether the building could support additional floors. The tenant’s case was also sufficiently clear: it was accepted by the court that the tenant’s case could develop up until proceedings are issued. Grounds (ii) and (iii) were not considered reasonable reasons to withhold consent. 

Overall, the landlord's decision to withhold consent was reasonable, as all the reasons were self-standing: a 'bad’ reason did not invalidate a ‘good’ reason. 

Key takeaways 

• Tenants bear the burden of proving unreasonableness in alterations cases. Tenants must provide comprehensive and clear proposals to support their applications for consent 

• Landlords should clearly identify and substantiate standalone reasons for withholding consent 

• Timely decisions and thorough consideration of alternatives are essential. 

Forfeiture and waiver 

The Tropical Zoo Ltd v The Mayor and Burgesses of Hounslow London Borough Council [2024] EWHC 1240 (Ch) 

In 2012, a lease was granted by Hounslow LBC to the tenant over land and buildings close to Heathrow Airport, which the tenant intended to develop into a zoo. The lease included specific obligations to complete development works within two years of grant i.e. by 2014. The lease contained a standard forfeiture clause (the “forfeiture clause”). It also contained a bespoke clause which required the tenant to remedy any breaches within two months from service of written notice to do so from the landlord (the “remediation clause”). 

In 2020, following failure to complete the development works, the landlord served notice pursuant to the remediation clause and, upon subsequent non-compliance with the same, served a s146 notice pursuant to the forfeiture clause requiring works to be completed within a reasonable time. While the landlord put a rent stop in place, the tenant continued to tender rent. All but three payments were promptly returned by the landlord's agent; the three in question were returned some months later. 

The tenant sought a declaration that: 

1. it was not in breach of the remediation clause; and 

2. the landlord had waived the right to forfeit. It also sought relief from forfeiture in the alternative. 

The court held that the remediation clause was a freestanding tenant covenant, material breach of which triggered a right of re-entry and forfeiture. It further found that there was no waiver of the right to forfeit; delays in returning three rent payments did not constitute acceptance of rent by landlord. This was due to three principal reasons: 

1. delays by the agent in returning rent were contrary to the landlord’s instructions not to accept rent 

2. the agent’s authority was limited in scope, it performed a ‘treasury function’ only; and 

3. the tenant was aware that the rent was being returned yet continued to pay in the hope of engineering a waiver. 

Relief from forfeiture was also refused. 

Key takeaways 

• Bespoke forfeiture clauses can provide landlords additional enforcement options; however these are unlikely to be acceptable to the majority of commercial tenants 

• In order to preserve a right to forfeit, landlords must remember to implement and monitor any rent stop, return payments and cease all contact with the tenant 

• Landlords and tenants should seek legal advice to navigate complex forfeiture scenarios. 

Lease renewals under the Landlord and Tenant Act 1954 

Kwik-Fit Properties Ltd v Resham Ltd [2024] EWCC 4 

This case concerned an uncontested lease renewal under the Landlord and Tenant Act 1954. S35 of the Act gives the court discretion to determine terms of the new lease, having regard to the parties’ interests and the current lease terms. It is for the party seeking a change to the current tenancy to establish that it is fair and reasonable and there must be a good reason to impose the new term. 

In this case, the tenant, Kwik-Fit Properties Ltd, sought a 15-year lease renewal with break clauses at years 5 and 10. It contended that the break clause was critical for business flexibility (allowing adjustments to changing conditions and demand). It also claimed that company policy required leases of 10-15 year terms with five-year breaks, which it said reflected market practice. The landlord opposed the inclusion of the breaks, claiming it would have a significant impact on its reversion and long-term investment strategy. 

The court declined to include the break clause. The court applied a similar test to that used for landlords seeking redevelopment break rights, namely whether there was a ‘real possibility’ of a need to terminate due to the premises becoming unsuitable for the tenant’s business. The court found that the tenant’s reasoning did not specifically apply to the premises but, instead, reflected a general desire for flexibility. Further, there was no evidence that leases with five-year breaks was market practice in the quick-fit car maintenance industry generally. The tenant's evidence further undermined its own claim that the company only entered into leases with 5-year breaks. 

Key takeaways 

• Courts will carefully balance the competing interests of landlords and tenants in renewal lease disputes 

• Tenants seeking a break right must rely on matters specific to the premises, demonstrating a real possibility of unsuitability. Generic flexibility arguments or non-property-specific evidence will not suffice 

• Landlords should prepare evidence to show why proposed changes are unreasonable (albeit the burden is on the tenant to prove fairness and reasonableness). 

Redevelopment under the 1954 Act (ground (f)) 

Sainsbury's Supermarkets Ltd v Medley Assets Ltd [2024] 

Section 30(1)(f) of the Landlord Tenant Act 1954 (often referred to as the 'redevelopment ground') has long proved fertile ground for dispute between parties. 

By way of recap, s30(1)(f) provides that a landlord may oppose an application for a new tenancy where it is able to show “that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding”. 

In this case, Sainsbury’s Supermarkets Ltd leased the whole of a building in London from Medley Assets Ltd. It operated a supermarket from ground floor; the basement (save for a small area) and upper floors were vacant. The landlord served a notice to end the tenancy, citing ground (f). The landlord had originally obtained planning permission to convert the upper floors to residential flats. However, by the time of the trial, it had revised its proposal to lower the basement floor, and refurbish the upper floors to offices. The proposed works to the ground floor were limited to works to widen the staircase from the ground floor to upper floors. 

Shortly before trial, the tenant vacated the small part of the ground floor that would be affected by the landlord's proposals. By the time of trial, the landlord had still not commenced any works. 

The primary issues for consideration by the court were the extent of 'the holding' for ground (f) purposes and whether the planned works satisfied the ground (f) criteria. The tenant argued that only the occupied portion at the time of the trial should be considered 'the holding'. The landlord maintained that the entire property should be considered for the purposes of ground (f), as the redevelopment plans involved significant changes to the overall structure. 

The court found the 'holding' was restricted to those parts of the demise occupied at the time of the ground (f) trial. It considered that the landlord’s intention was undermined by the factual evidence, notably that: 

1. the scheme of work had been devised after service of the s25 notice 

2. although extensive documentation was in place, there no realistic plan for works 

3. the works had still not commenced more than two years after the documents said they would be completed; and 

4. the landlord’s expert was further found to be unreliable: its report contained many errors. 

As to the nature of the works, it was held that the works to the ground floor were not sufficiently significant to meet ground (f); the basement works involved excavation and new underpinning, which were works to the landlord’s freehold reversion and therefore not works to ‘the holding’. 

Key takeaways 

• Where operationally feasible, tenants can retreat to part of the holding unaffected by the works before the ground (f) trial, then move back into the demise before the trial of the terms of the tenancy 

• Floor lowering schemes may not fall within ground (f) if they extend beyond ‘the holding’ and into the landlord’s reversion 

• Preparation and organisation remain key to landlords establishing the intention to redevelop. That means: 

• Ensuring all evidential requirements are met by the date of hearing 

• Disclosing contemporaneous evidence of funding as soon as possible 

• Demonstrating that planning permission has been granted or clearly will be granted. 

• Landlords need to show that works can be done in the way proposed and they are in fact implementing them, and not merely delaying until the outcome of the ground (f) trial. 

Conclusion 

It has been yet another busy year for the property world. These key cases from 2024 provide useful guidance on key areas such as the modification of leasehold covenants, alterations applications, forfeiture, and the 1954 Act, all being areas that affect the work of ACES members on a day-to-day basis.