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Property Law Quarterly Update

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Welcome to the autumn edition of the Clarion Property Newsletter. Our property and property finance teams continue to grow and we are taking this opportunity to introduce two of our new recruits. Philip Dine has joined our banking and finance team as a legal director. He has a wide experience in acting for both lenders and borrowers with a key focus on financing commercial property portfolios and property development transactions.

Sophie Morley is a property litigator with over 15 years of experience. She has a particular expertise in acting on landlord and tenant disputes.

As new members of the team, we obviously required Philip and Sophie to pen an article for our newsletter! Philip has followed on from our spring edition of the newsletter and looks at the effect of minimum energy efficiency standards. From April 2018, landlords of buildings must not grant new leases of a building if the energy efficiency of that building is less than an E rating unless it registers an exemption. Previously, we looked at the effect of these new regulations on landlords and tenants. Philip now considers their impact on lenders.

Sophie looks at the issue of the services of notices in property transactions and disputes. A recent case has highlighted how key it is that a notice is served exactly as prescribed by the document it relates to. You would expect us to say this but we would always advise that a solicitor is instructed to serve a legal notice particularly if the consequences of getting it wrong could be costly.

Energy Efficiency - A lender's perspective

Philip Dine has recently joined Clarion’s banking and finance team as a legal director specialising in real estate finance, acting for both funders and borrowers. He has spent considerable time working with several funders to develop and improve their real estate offering.

Following on from our Spring 2017 newsletter, Philip considers the energy efficiency of a property through the funder’s eyes and recent developments.

The energy efficiency of a building is becoming more important to funders, as well as property owners. Ben Lamb's article in the Spring 2017 Edition detailed the key issues for property owners and a copy of the article can be found here.

The funder's view

But what is the funder’s view? There has been a gradual shift towards greater interest in the energy rating of a property with some funders now requiring Energy Performance Certificates as part of its property due diligence, even if there is no statutory requirement to have one in place. There are two key drivers for the funder’s interest:

1. Financial viability
The statutory obligation of a property owner to improve the energy efficiency of poorer fairing properties increases the likelihood of higher CAPEX liabilities in the short to medium term. Funders are increasingly concerned that poorer energy efficiency ratings and the impact on a property owner’s ability to meet additional CAPEX costs could result in potential breaches of financial covenants in their funding agreements.

2. Investment properties
Similar to the risk of financial viability is the potential risk that a property owner will not be able to let a property unless energy improvements are made (the statutory risk) or that tenants are increasingly more interested in energy efficiency when considering whether to take a lease of a property (the tenant factor). On an investment portfolio the serviceability for the loan repayments will largely be dependent on the income stream from the occupational rents so it is a risk that funders (and property owners) need to be alive to.

Funders would appear to be rightly concerned about energy efficiency – the point is no longer an unquantifiable risk at some distance in the future.

Homebuyers

But is there light at the end of the tunnel for those questioning why energy improvements need to be made? The Guardian recently reported that government-funded research by the Lender’s Group has found that homebuyers could take out bigger mortgages if a property’s EPC rating was factored into the lending criteria of banks and building societies. The premise is that the most energy efficient properties are cheaper to run and therefore assist with affordability.

The research found that buyers would be attracted by the “perception of value”, putting a real added value on the most energy efficient properties. Experts are quoted in the Guardian as saying that the proposal could be a “major driver” in linking energy performance to house prices (a key driver for property owner’s to strive for the best energy efficiency in their properties).

Whilst the research focussed on the residential market and retail lending, the principle that energy efficiency can have a positive impact (other than the obvious environmental and cost considerations) to all real estate funding in the future should not be discounted. The proposal would also logically have a positive impact on the insulation and building industries.

The building industry

Turning to the building industry, the requirement for new properties to meet certain levels of energy efficiency will usually be included as part of the development proposals at planning stage. The proposal, if it came to fruition, would hopefully see a surge in demand for the most energy efficient of buildings with first time buyers keen to maximise their buying power through improved affordability with lenders.

Whether or not better energy efficiency will lead to measured improvements in property values and lending criteria is still too early to call, but the recent research would certainly suggest that the wheels are in motion.

If you have any queries about this article or wish to discuss real estate funding please do not hesitate to contact Philip Dine on philip.dine@clarionsolicitors.com


Take notice! Get service right

I have recently joined Clarion as Legal Director in the Property team. I have specialised in property litigation for over 15 years. During that time I have dealt with property disputes including multi-million pound developments and a land dispute that ended up in the High Court. The unsual aspect of the last case was that the piece of land in dispute was so small that the other side's solicitor and I could not both stand on it at the same time!

In almost all of the issues that come across my desk, I will need to serve or review service of a document or notice. The purpose of the notice can be extremely varied, to make someone do something, to stop someone doing something, to start a process running or to bring a process to an end. Sometimes a letter simply needs to arrive on time.

Content and service

Whether it be a notice to exercise an option, terminate a lease or implement a rent review, there will be rules governing the content of the notice and how it needs to be served. Established case law says that a notice must be clear and be obvious as to what the notice intends to achieve. Any minor errors will be overlooked if the overall effect of the notice is clear. For example, a notice to terminate lease on 31 April would be deemed to have actually intended 30 April. However, if the document is specific as to how a notice must be served or what it must contain, those specific rules must be complied with.  The classic example is that if a notice is required to be served on blue paper, an identical notice served on pink paper will not be a valid notice.

Where to serve?

In May, a case on service of notices came before the Court of Appeal (Grimes v TheTrustees of the Essex Farmers and Union Hunt). The parties were landlord and tenant of agricultural land.  The lease stated that the tenants address was “24 Glebe Way” and the lease provided for any notices to be served on the tenant at the address given in the lease or such other address has previously been notified in writing. At the date of entering into the lease the tenant had already moved from 24 Glebe Way and had notified the landlord of its change of address under a previous lease. The landlord denied receiving the letter confirming the change of address. The landlord served a notice to terminate on the tenant and the tenant refused to vacate. When a new tenant was installed on the land the previous tenant bought proceedings for a declaration that the tenancy had not been validly terminated and that he had been wrongfully dispossessed of the land as a result.

The landlord argued that they had served notice on the address given in the lease, in accordance with the terms of the lease. The wording of the lease allowed a notice to be served “at the address given in the particulars or such other address has been previously been notified in writing”. The judge in the first instance Court held the notice had been validly served. Even if the landlord had received notification of the change of address the word ‘or’ in the lease gave the landlord the choice of addresses at which to serve the notice. The tenant appealed. The Court of Appeal looked at the circumstances as a whole. Could it really be possible that one party to a contract could tell the other party of a change of address and yet it still be valid for a notice to be served at the old address? How could the recipient be expected to know what was in a notice left at premises it could no longer access? The Court of Appeal held that it cannot have been the parties intention that there were multiple address options for service of the notice. As such, the appeal was allowed and the tenant awarded compensation.

Lessons to learn

This case goes to show that whether serving a notice or receiving one, it is crucial that you obtain specialist advice to ensure that your position is protected and that the notice has the intended effect.

If you have any queries about this article please do not hesitate to contact Sophie Morley on sophie.morley@clarionsolicitors.com