The importance of being earnest (in your inspection)

The recent case of Trevallion v Watmore and another (30 June 2016), which concerned a dispute over the registration of leasehold title to a small piece of land, reminds us why buyers must carry out a careful inspection of the boundaries of any property prior to purchase.

Numbers 46 and 52 Melville Street in Sandown are adjoining properties. The Trevallions’ title to 46 comprised an unregistered 1,000-year underlease, granted in 1954. The demise included a triangular piece of land at the end of the garden of 52. The owners of 46 used it for storage and a six-foot fence had been erected between 52 and the triangular land.

Title to 52 was registered and the title plan included the triangular land. The register made no reference to the underlease of 46.

In 2013, Miss Watmore and Mr Bell (W and B) bought 52. Prior to purchasing, they carried out an inspection of the garden but, as a large fuchsia bush concealed the fence, W and B did not see the discrepancy between the registered plan for 52 and the area occupied by the Trevallions at 46. Unsurprisingly, when the Trevallions applied to register their title to the triangular land following completion, W and B objected, arguing that it belonged to them in accordance with their registered title.

In order to decide on the ownership of the triangular land, the Property Chamber of the Land Registration First-Tier Tribunal considered the provisions of the Land Registration Act 2002 (LRA 2002) and, in particular, whether the underlease of 46 was an overriding interest.

By way of a quick recap: overriding interests are interests not mentioned on the Land Registry title to registered land, but which will nevertheless bind any party with an interest in that land. Paragraph 2, schedule 3 of the LRA 2002 states that an interest belonging to a person in actual occupation is an overriding interest, unless it belongs to a person ‘whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition and… of which the person to whom the disposition is made does not have actual knowledge at that time’.

W and B obviously didn’t have actual knowledge, so the judge had to decide if a ‘reasonably careful inspection of the land’ would have revealed the boundary discrepancy. W and B said they had looked around the garden. However, the judge (who actually visited the site to carry out her own boundary inspection) held that they had not been vigilant enough, as 46’s occupation of the triangular land would have been obvious on a ‘reasonably careful inspection’ of the garden. Had W and B looked behind the fuchsia bush to check that the boundaries followed the title plan, they would have noticed the fence and could have raised enquiries (or would at least have known about the issue before proceeding with the purchase).

This was bad news for W and B as it meant the underlease of 46 took effect as an overriding interest and the Trevallians’ occupation took precedence, meaning that they were successful in their application to register their leasehold title to the triangular piece of land.Points to take away for practitioners:

• Always advise clients to carry out a careful inspection of the property in order to check for any discrepancies or reasonably obvious interests; and

• If you are on a site visit, take the registered title plan with you and check the boundary lines match what is on the ground.

Stand and deliver: Facilitating development

Developers often face a catalogue of complex issues to overcome when knitting together a development site, which may well include the presence of existing easements, rights, and use restrictions. The rules by which a local authority can intervene to assist in overcoming difficult third-party rights have recently been revised under section 203 of the Housing and Planning Act 2016.

Section 203 replaces section 237 of the Town and Country Planning Act 1990, pursuant to which high-profile development projects such as the Walkie Talkie building and Tottenham Hotspur’s new stadium were enabled. As under section 237, the general principle remains that a person may carry out building or maintenance work, even if it involves interfering with a relevant right or interest or breaching a use restriction, where certain conditions apply. In effect, the rights of a neighbouring property owner (including rights to light) are converted into an entitlement to compensation only. The result being that affected property owners cannot injunct a development scheme and prevent its implementation.

The section 203 powers are exercisable in respect of works on land which has been acquired by or vested in a ‘specified authority’. The definition of specified authority has been widened so that the beneficiaries of these provisions are not only local authorities, but other public bodies, such as government departments and statutory undertakers.To benefit from these statutory provisions, certain conditions apply. The land must be the subject of a relevant planning consent and must have become vested in a specified authority or been appropriated by a local planning authority for planning purposes. In addition, the development must be related to the purposes for which the relevant land has been acquired or appropriated. The final, and new, condition is that the specified authority ‘could acquire the land compulsorily’ to enable the development. The interpretation of this new requirement is currently unclear and, no doubt, further guidance will be required. Real estate lawyers dealing with development sites should bear in mind that, even though section 203 came into force on 13 July 2016, where land was appropriated or acquired prior to this date, there are transitional provisions in place which mean that the land can still benefit from these revised powers.

A slightly obscure, but understandable, point to note is that land owned by the National Trust is exempt from these provisions. Consequently, section 203 does not authorise any interference with a right or interest annexed to land owned by the National Trust.

Once the section 203 requirements have been met, a successor in title, such as a private developer, enjoys the benefit of the overriding of rights and use restrictions. If a client is currently contemplating development on a site which is affected by private rights, bear the section 203 provisions in mind.

AGA-Do-Do-Do

When acting for a prospective tenant entering into a lease, it is important to consider at the outset the provisions of any authorised guarantee agreement (AGA) that they may be required to provide on any future assignment, pursuant to the alienation provisions in the lease.

In most instances, solicitors acting for landlords will annex a standard form AGA to their precedent lease, which (subject to compliance with section 16 of the Landlord and Tenant (Covenants) Act 1995 (LTCA)) will detail the continuing obligations of the outgoing tenant following an assignment.

At some point post-assignment, the landlord and assignee may then seek to vary the terms of the lease to effect a commercial agreement reached between them.

Generally, where a variation is made without a guarantor’s express consent, that guarantor will be released from their continuing guarantee obligations, unless the variation is objectively insubstantial, or will not prejudice them.

The position under section 18 of the LTCA is that a former tenant, who is a guarantor under an AGA, is not liable for any increased liability to the extent that it arises from a ‘relevant variation’ which takes place following the assignment. A relevant variation is, essentially, a variation that the landlord has (or had pre-assignment) an absolute right to refuse.

Some forms of AGA seek to overcome the risk that the tenant will be released on any future variation by imposing an obligation on the former tenant to expressly consent and be party to any future variation. To avoid any inadvertent release, many standard form AGAs go further than this and include a confirmation from the former tenant that they will not be released from their liability by any future variation (whether expressly consented or not).

While section 16 of the LTCA does not specifically allow for the inclusion of such provisions, nor does it expressly prohibit an outgoing tenant from agreeing to guarantee the tenant covenants, as varied. Currently, it remains untested as to whether such arrangements would fall foul of the anti-avoidance provisions of the LTCA and so be void.

For practitioners advising landlords, care should be taken to ensure that any variation agreed does not amount to a surrender and re-grant of the lease – as this would automatically divest the former tenant of their AGA obligations. For practitioners advising tenants, it is prudent to analyse the provisions of an AGA before the lease is entered into and advise tenant clients accordingly, so that they are clear from the outset as to the extent of their potential future liabilities, including post-assignment.

Amy France, pictured, James Noble, and Alexandra Townsend-Wheeler are solicitors at Forsters

@ForstersLLP www.forsters.co.uk