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Protecting Your Property

on Monday, 23 October 2017.

Property can often be a charity's main asset. It is a valuable, secure asset which, as long as it is looked after properly can provide a home for your charitable operations and depending on your constitution, often an income to support charitable work.

There are however, many pitfalls that property owners can fall into which degrade the value of that asset. In recent months, a number of high profile cases have highlighted some of these pitfalls.

Repair

The primary way to protect your asset is to physically look after it. Keeping something in a good condition is more efficient than repairing something which has fallen into disrepair. However, if you let property to a tenant, the condition it is maintained in won't be within your direct control and so you need to be mindful of this when agreeing the lease.

Think about the arrangement between the landlord and tenant. If you are sharing the property with them, the landlord may retain direct responsibility for repairing the property. However, if the tenant (or tenants) are to be the only occupier, then it is more usual for the lease to be structured as follows:

1. The tenant is obliged to keep the property in a good state of repair.

2. If the tenant does not keep the property in that good state of repair, the landlord can step in, carry out necessary repairs and recover the cost of doing so from the tenant.

3. The landlord should inspect the property regularly and if there are items in disrepair, exercise the right to step in and remedy these defects.

Even where a lease passes on the liability for repair to the tenant, the landlord can be liable for injury or damage caused by a lack of repair under the Defective Premises Act 1972. If injury is caused by a disrepair which is a breach of the tenant covenants in a lease, the landlord can be liable if they have the right to step in but have not exercised it. In the sad case of Dodd v Raebarn Estates Ltd and others, Mr Dodd died after falling down some steep stairs with no handrail at a property he rented. The property was owned by Raeburn, sublet to a developer and they in turn sublet to a third party who granted the lease to Mr Dodd. Here the eventual claim against the freeholder, which could have exceeded £1m, was unsuccessful, but the case offers a useful reminder of the effects of the Defective Premises Act on all landlords.  Charities should pay particular regard to this to ensure that they protect their assets and funds. 

Security of Tenure

A ruling in the case of Camelot Property Management Limited and another v Roynon is likely to have significant consequences for guardian property companies who use licence agreements to place occupiers into properties and serves as a warning to landlords in general.

This case highlights the need for landlords to ensure they have an appropriate agreement in place which will allow them to regain possession of the property when they expect to be able to. In particular, landlords should exercise caution when granting occupation of a specific area as this is likely to amount to a grant of exclusive possession, resulting in a tenancy. In the case of commercial property, security of tenure can be excluded and so it is important to consider whether occupation will amount to a tenancy and take steps to exclude the lease if appropriate so that possession can be recovered at the end of the term.

Bristol City Council owned an elderly people's residential home which was vacant. They engaged a property guardian company, Camelot Property Management Ltd, to place 'guardians' into the property in order to guard against the risk of squatters entering the property.

One guardian, Mr Roynon, entered into an agreement to occupy specific rooms, together with access to a communal kitchen and bathroom. The agreement stated that it was a licence and that exclusive possession was not granted.

However, when notice to quit was served, Mr Roynon refused to vacate, claiming that he was an assured shorthold tenant and benefitted from statutory rights to remain in the property.

The court held that Mr Roynon had exclusive possession of the two rooms and that the agreement was therefore an assured shorthold tenancy, notwithstanding the fact it was labelled as a licence.

The Court found that, although a degree of access and control of the rooms was retained by Camelot, the terms of the agreement were not inconsistent with exclusive possession, since landlords often retain the right to enter property to inspect and carry out repairs.

Having a tenant claim security of tenure can have a substantial impact on a charity's funds, plans for the property and value of assets. It can often be costly and time consuming to remove them and recover possession of the property either to re-let it, occupy it yourself or to sell it.

Break Clauses

If a tenant negotiates a break clause into their lease, there are important considerations from a landlord's perspective. If a tenant is seeking to exercise a break clause, the landlord should be aware that conditions in the break clause can often make it difficult for the tenant to operate the break clause. There is no obligation on a landlord to be helpful to the tenant and advise the tenant what it must do to comply with any break conditions. Landlords should not accept keys from the tenant or secure the property without first seeking legal advice, as this can inadvertently end the lease.

In Riverside Park Ltd v NHS Property Services Ltd, Riverside granted NHS a 10 year lease with an option for the tenant to determine the lease on the 5th anniversary of the term. To exercise the break, NHS was required to give 6 months’ notice in prescribed form and to give vacant possession to Riverside on or before the break date. 

The property was open plan when the lease was granted but the tenant (with the landlord's approval) installed a large amount of partitioning, kitchen units, floor coverings, window blinds, an intruder alarm and water stand pipes. NHS failed to remove the works by the break date.

Riverside claimed that the partitions were chattels and that the partitioning was a substantial impediment to its use of the property for letting purposes. The partitioning was described to the court as a 'rabbit warren,' far from the open-plan layout preferred by most tenants.

On this basis, Riverside argued that the break was ineffective as, by their remaining at the property, vacant possession was not given. The High Court agreed. Relevant to their decision was that the partitions were:

  • standard demountable partitions which were not fixed to the structure but held in place by screw fixings affixed to the raised floor and suspended ceiling;
  • their arrangement was unique to NHS and was generally not what other tenants looked for; and
  • they prevented or interfered with Riverside’s right of possession because it had left behind chattels which substantially prevented or interfered with the enjoyment of the property.

Therefore, the tenant had failed to meet the condition to give vacant possession and had not validly exercise the break clause. It was liable to pay rent for the remainder of the term.  Enforcing the conditions on a break clause properly means that the landlord is not prejudiced by receiving back a property which it cannot lease out again.  With the significant obligations on charities to preserve charitable funds, it is important to take steps to ensure that any property which is intended to be leased out has paying tenants whenever possible.

5 Top Tips

  1. Ensure any leases you grant oblige the tenant to look after the property.
  2. Undertake regular checks to monitor the condition of the property.
  3. Consider stepping in and undertaking repairs where tenants are in default (but do not do so without legal advice).
  4. Make sure you protect yourself from tenants obtaining security of tenure where this was not your intention.
  5. Enforce break clauses - especially where a new tenant might be hard to find.

Summary

These are just a few pitfalls highlighted by recent cases. If you are considering letting out property or have tenants already consider these points to protect your assets and spend less on maintenance and more on fulfilling your charitable objectives.


For more information please contact Jess Booz in our Charity Law team on 0117 314 5483.

 

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