Update | Property: recent co-ownership cases and the tightening of service charge consultation requirements

Clients often find the concept of co-ownership difficult to grasp and the recent case of Pankhania v Chandegra [2012] EWCA Civ 1438 serves usefully to highlight the importance of having an express declaration of trust setting out clearly the co-owners’ intentions and of keeping it up to date by variation, if circumstances change and the co-owners wish the declaration of trust to reflect this.

In the Pankhania case an aunt and nephew bought a property together. The nephew did not contribute towards the deposit and paid half the mortgage payments for a relatively short period of time. The remainder of the time, his aunt and her husband or his aunt alone made the mortgage payments. The transfer of the property had contained an express declaration of trust that the aunt and her nephew held the beneficial interest as tenants in common in equal shares. The aunt claimed that there had been an understanding between the parties at the time of the purchase that she was to be the sole beneficial owner and that the property would be her family home. The High Court mistakenly applied the principles in Stack v Dowden [2007] UKHL 17 and looked at whether a contrary intention to joint beneficial ownership could properly be inferred by looking at the facts and the behaviour of the parties. The Court of Appeal found that the High Court had misunderstood the significance of the express declaration of trust and that it was not open to the court to impose a resulting, implied or constructive trust of the kind referred to in Stack v Dowden. An express declaration of trust is conclusive unless it is varied by the parties, rectified or set aside in exceptional circumstances, such as fraud.

Co-owners who marry must, however, be made aware that the family courts have the power to make a property adjustment order and a judge is not obliged to uphold the terms of an express declaration of trust. The court will have regard to the parties’ intentions as to how they held the property during the marriage, but there are other factors that the court will take into account, such as financial needs, which could result in a declaration of trust not being upheld.

The need for accuracy

The recent High Court decision in Harsten Developments Ltd v Bleaken [2012] EWHC 2704 (Ch) is a timely reminder of the need to take care that the information given in replies to pre-contract enquiries and on property information forms is accurate and not to assume that replies caveated with disclaimers will protect sellers against claims for misrepresentation. This is a case where a small development plot was sold at auction. When the developer started work on the land it discovered that the hedge it was intending to remove to facilitate the works did not belong to the property, as had been stated in the auction particulars. There was also a drainage pipe running under part of the plot, which had not been revealed in the seller’s property information form. The sellers claimed that they did not know about the pipe, although evidence from the previous owner confirmed that she had informed them about the pipe when she sold the property to them. The constraints on the site caused by the true position of the boundary and the presence of the pipe meant that the property was substantially different from what the buyer had been led to expect. The court found that these were actionable misrepresentations which met the criteria in Standard Condition 7 for rescission. The sellers were ordered to repay the purchase price to the developer, together with interest and damages, including conveyancing costs and SDLT. In the meantime the market had fallen substantially, resulting in devastating financial consequences for the sellers.

Clearly giving misleading information can be disastrous for sellers in extreme circumstances such as these. The property information form does emphasise the need for correct answers to be given, but prudent conveyancers flag this up with their clients and check the information given for obvious inaccuracies. If a successful action in misrepresentation were to be brought against a seller, that seller might look to their conveyancer via a professional negligence claim for falling short of their duty as a prudent conveyancer. It is in everyone’s interests for care to be taken to provide accurate information.

Total contribution

The landlord’s consultation process for the recovery of the cost of works from tenants via service charge has long been a cause of consternation and confusion. The recent case of Phillips and Goddard v Francis [2012] EWHC 3650 (Ch) serves to clarify the way in which qualifying works need to be assessed under the Landlord and Tenant Act 1985, as amended. The case concerned a holiday park in Cornwall where tenants objected to the more than threefold increase in service charge over a three-year period, to cover the cost of improvement works.

The court accepted that the definition of qualifying works in section 20ZA(2) of the Landlord and Tenant Act 1985 was not helpful and that a common sense approach needed to be taken. Whether the works were qualifying works or not was a question of fact, having regard to the nature and extent of the works in question. The legislation in its amended form does not accommodate the previous practice of qualifying works being identified as one or more sets of works to be consulted upon on a project by project basis. Nor is there now any “triviality threshold” which qualifying works could fall below and still be recoverable notwithstanding the absence of consultation; these low-level costs can no longer be omitted from the overall calculation of expenditure. Now all qualifying works must be included, unless the landlord is intending to bear the cost itself. The expense of all qualifying works must be added together to arrive at the overall tenants’ contribution and establish if it exceeds the current annual limit of £250 per tenant in any one service charge year. Where works are spread over more than one year a new limit will be applied for each year.

As the judgment brought out, the emphasis has shifted from identifying and costing the works before they start to a focus on the amount of each tenant’s total contribution for that year. Out goes the previously applied three point test, endorsed by the Court of Appeal prior to the changes in the legislation, of identifying if the planned works were qualifying works, whether they formed more than one set of works and if any of the sets fell below the “triviality threshold”. Now a section 20 consultation notice must be given to the tenants setting out the landlord’s intention to carry out qualifying works, where the cumulative cost of the works will produce a tenant’s contribution of more than £250 in any service charge year.

This case has caused much concern amongst managing agents as it produces less certainty for landlords and the inevitable unpopular consequence for tenants of higher management charges.

Lessons learnt

Scott Walby v Scott Walby [2012] EWHC 3089 (Ch) gives us a welcome prompt to ensure that on a sale of part there is set out clearly in the transfer exactly what rights are granted in favour of the buyer and reserved for the benefit of the seller, so that subsequently there should be no need for a claim of implied grant or reservation. In this case the court reaffirmed the long standing distinction between a claim to an implied reservation and implied grant of an easement, the starting point being that generally the reservation of an easement
will not be implied and must be
expressly reserved.

In this case a farmer transferred some land to his son and the boundary of the land transferred was through some farm buildings. There was a drainage system under the farm buildings. The drainage system had been installed shortly before the transfer to the farmer’s son and the main purpose of the drainage system was to drain effluent produced by the cattle using the farm buildings. In the transfer to his son the farmer did not reserve an easement to use the drainage system, but this was not flagged up as an immediate problem because the farmer continued to hold the buildings and land on a lease under which he was able to use the drainage system. When the lease came to an end, with no drainage easement, it was not possible for the farmer’s retained part of the buildings to be used for housing cattle.

This case illustrates the challenges posed to anyone seeking to demonstrate that easements were impliedly reserved in a transfer of land. It usefully sets out the tests for easements of necessity, reciprocal grant and common intention, none of which the farmer in this case was able to satisfy. The court re-emphasised that it would not readily imply a reservation of an easement on the basis that a grantor ought not to derogate from his grant. The essential message to take away from the judgment is that the conveyancer dealing with a sale of part must be aware of all easements required for the continued use and enjoyment of the retained land and for these to be reserved expressly in the transfer.

The judgment also commented on the Law Commission’s recommendations in its report ‘Making Land Work: Easements, Covenants and Profits à Prendre’ where it advocates the removal of the distinction between implied grant and implied reservation, to be replaced by a regime where an easement is implied “where it is necessary for the reasonable use of the land at that date”, bearing in mind the use of the land at the time of the grant; any relevant physical features on the servient land; any intention for the future use of the land, known to both parties at the time of the grant, so far as relevant; the available routes for the easements sought; and the potential interference with the servient land or inconvenience to the servient owner.

The Law Commission considers that these factors “replicate the most useful and practical features of the current law, particularly in their focus on the physical characteristics and the intentions of the parties for future use” at the time of ?the transfer.