The Firm

Dewar Hogan is an established property disputes firm delivering high quality commercial and residential legal services to real estate owners, occupiers, investors, and developers, based in the UK and overseas. The firm’s current matters include development work such as opposed lease renewals, rights of light, party wall, and access issues; asset management; disputes over land ownership; professional negligence claims; and various residential issues and disputes.

The opportunities

The firm is looking for an experienced and confident associate solicitor with 4 to 7 years pqe, and for senior lawyers with relevant experience who are interested in working on a consultancy basis. All roles offer flexibility both in terms of working days and location.

To make contact

All applications or expressions of interest will be treated as confidential. CVs should be sent to ronhogan@dewarhogan.co.uk, or an application may be made by completing and submitting the form below. If you would like to discuss one of these opportunities, please don’t hesitate to call Ron Hogan on 020 7832 6413 (dd).

OFF-PLAN CONTRACTS – THE PRIORITY OF SECURITY INTERESTS, AND UNILATERAL NOTICES

This is our fifth blog in a series relating to issues about off- plan developments. The following links will take you to the earlier blogs:

Off-plan investments and the risk of lost deposits

Off-plan investors – do they have security and if so where are they in the queue

Claims arising from failed off-plan investments 

Developers, deposits, penalties

There are no doubt many buyer-funded property developments that are completed to the satisfaction of all concerned, and which prove to be a good investment for the buyers. However, the ones that tend to receive more publicity are the schemes where the developer goes into administration or liquidation, and the investors lose substantial deposits.

Buyer-funded schemes started at a time when it was difficult for property developers to obtain development finance. These schemes are funded by buyers in the sense that they pay high deposits which are released to the developer to fund the cost of construction and, in some cases, the purchase of the site. This is in contrast to most property purchases where deposits are held by sellers’ solicitors and only released to the sellers on completion of the purchase.

This blog discusses the limited protection that is available to a purchaser by registering a notice, usually a unilateral notice (“UN1”), at HM Land Registry. This is done, or should be done, immediately after a purchaser has contracted with a developer. In the present context the purpose of the notice is to protect the priority of the security which is created by the contract.

Many developers will be companies that have been formed solely for the purpose of acquiring and developing land. In many cases their only sources of finance will be purchasers’ deposits. When a developer has acquired a site (funded by purchaser’s deposits) it may decide to obtain bank finance, and if by that stage the developer’s title is not burdened by too many unilateral notices a bank may be prepared to offer additional funding in return for a mortgage, or charge, over the development land. The following two common problems can arise in relation to UNIs.

Late registration of a UN1 leading to the loss of priority

Provided a purchaser who contracts with a developer, registers his UNI before the bank registers its charge at HM Land Registry, then the purchaser’s interest (which takes the form of security) ranks in priority to the bank’s interest. In general terms, and in practice, this means that on any sale the purchaser would be entitled to be paid his debt before the debt due to the bank. However, the problem that sometimes arises is that purchasers’ solicitors fail to register UN1s promptly and before the registration of a bank’s charge. This may be disastrous for purchasers if the developer goes into administration or liquidation. After the payment of the debt due to the bank there may not be any funds available for creditors whose interests rank after the interest of the bank.

The risk of cancelling, or agreeing to cancel, a UN1

A contract between a purchaser and a developer may require the purchaser to cancel any UNI in certain circumstances. For example it may require a purchaser to cancel a UNI if the developer wants to create a charge in favour of a bank. The question that arises is whether by doing so the purchaser losses priority. The answer probably turns on the proper interpretation of the cancellation provisions of The Land Registration Act 2003. We do not believe there are any reported cases on the point, but there are persuasive arguments that support the proposition that priority is lost if a UN1 is cancelled. Purchasers’ solicitors should give appropriate advice on the point (eg the position is not clear, and counsel’s advice should be obtained).

Another problem to which cancellation may give rise is in relation to rescission. It is almost a standard term in an off-plan contract that if development has not been completed by a long-stop date then the purchaser may rescind and require the developer to refund his deposit. In some cases contracts may go on to provide that the purchaser is required to cancel any UNI if he rescinds. If he does so he may lose his priority, and to make matters worse he may be unable to obtain a refund of his deposit from the developer.

Off-plan schemes involve buyers taking leases in properties such as apartments, student accommodation, hotel rooms, and self-storage units. They may be marketed as low-cost, but high-yield investments. Although the legal language used is that of routine conveyancing, this often masks complicated transactions, and issues that require careful consideration. The impression of some observers is that purchasers and some solicitors do not appreciate this until it is too late.

Dewar Hogan specialises exclusively in advice and representation in relation to commercial and residential property disputes, including professional negligence claims against solicitors and conveyancers. This includes advising off-plan investors on common issues that arise when a scheme fails. They include the rescission of contracts and claims for the return of deposits; navigation through any insolvency procedures that follow; and collateral claims, including professional negligence claims against investors’ solicitors or conveyancers.

If you are an investor, or you represent a group of investors, we’d be delighted to hear from you: info@dewarhogan.co.uk.

Whilst we continue to await details of the Renters’ Reform Bill, which is expected to abolish the “no fault” eviction procedure under section 21 of the Housing Act 1988, in practice some landlords may have already lost the ability to end an Assured Shorthold Tenancy by simply giving two months’ notice.

Where the tenancy in question was granted on or after 1st October 2015 (including where an earlier tenancy has been renewed after September 2015), a s.21 notice will not be valid unless the landlord has complied with certain obligations to provide information and documents to their tenant. More specifically: providing to the tenant a copy of the appropriate version of the ‘How to Rent’ booklet, an Energy Performance Certificate and, where appropriate, a Gas Safety Record.

All these documents should of course always be provided to a new tenant before their occupation of the premises begins. There has been much discussion in recent years about whether a landlord who has omitted to supply one or more of these documents at the appropriate time can recover the right to serve a s.21 notice by sending the missing paperwork to the tenant at a later date (including, for instance, days before serving a s.21 notice). The position has recently been made somewhat clearer by the Court of Appeal Judgment in Trecarrell House Ltd v Rouncefield [2020] EWCA Civ 760. In this judgment, the Court decided that late service of a Gas Safety Record would be sufficient to enable a landlord to serve a s.21 notice, provided that the Gas Safety Record was in existence at the time when it should have been served.
Whilst this judgment allows landlords a little more leeway than many had anticipated, it leaves us with a number of scenarios in which a landlord’s ability to serve a s.21 notice is, at best, uncertain. For example, if the landlord omitted to obtain a Gas Safety Certificate before the tenant moved into the property, or if the most recent certificate at that point was over 12 months old, it is doubtful whether the landlord can ever be entitled to serve a s.21 notice. It should further be noted that the appeal in Trecarrell was decided on a majority of two to one: Lord Justice Moylan considered that a more restrictive reading of the statute should have been adopted, which would have meant a landlord’s failure to provide a copy of the Gas Safety Record to their new tenant before they moved in would permanently have barred them from serving a s.21 notice.

As this case focused heavily on the interpretation of a regulation about time limits for service of Gas Safety documents, and there is no equivalent provision in respect of EPC certificates, it also remains distinctly possible that if a landlord cannot show that an EPC certificate was served at the appropriate time, they may be permanently debarred from making use of the s.21 notice procedure. The risk of failing to serve a How to Rent booklet having the same effect appears lower, as there is no specific deadline in the regulations for this information to be provided to the tenant, but it is still possible that a Judge might one day confront this issue and decide that ‘late’ provision of the booklet is ‘too late’ for the purposes of being able to serve a s.21 notice.

There are therefore a number of situations in which a Tenant might argue that the landlord can never obtain possession by using a s.21, and so their tenancy can only ever be ended if the landlord becomes entitled to serve a s.8 notice. From the landlord’s point of view it is of critical importance that clear and conclusive records are kept throughout the life of the tenancy. This is also an important issue for managing agents, who will no doubt want to make their responsibilities clear in their terms and conditions.

Landlords who find themselves caught out by these rules may well wonder whether the reforms of s.8, expected to form part of the much-anticipated Renters’ Reform Bill, will provide a get-out: a new means for a landlord to end a tenancy where none of the present s.8 grounds apply. This currently seems unlikely. The only changes to s.8 we have been given reason to anticipate are tweaks to the existing grounds relating to persistent late payment of rent and anti-social behaviour. It remains possible that those drafting the bill will decide that the abolition of s.21 calls for a wider expansion of the s.8 regime by way of balance, perhaps even a catch-all provision along the lines of ‘the landlord has some other adequate reason’, but as this would seem to run contrary to the stated goal of increasing renters’ sense of security the inclusion of such a provision in the Bill, even as a transitional measure, seems fairly unlikely.

Many residential blocks in London are plagued by management issues. The common ones are service charges, alterations, and sub-letting. Lessees are usually concerned about service charges, whereas landlords are concerned about the other issues. In many cases neither the landlord nor the tenant wants to incur legal fees, so they do their best to try to resolve difficulties themselves. They may even resort to litigation and represent themselves. Sometimes this leads to resolution, but it can make the problem even more difficult to resolve. If a lease allows legal costs to be claimed through the service charge it makes it easier for landlords to decide that they should be represented, although it will not necessarily help if a landlord is asked to fund costs in advance. If a lease does not allow costs to be claimed through the service charge, then funding is a problem that a landlord may only be able to resolve by obtaining voluntary contributions.

Dewar Hogan specialises exclusively in advice and representation in relation to residential and commercial property issues. They include the full range of residential landlord and tenant matters, right to manage, lease extensions, and freehold acquisitions. Many cases involve landlords’ claims for forfeiture and lessees’ claims for relief from forfeiture. The firm also advises about related funding issues.

The firm offers a variety of fee arrangements from fixed fees to contingency fees. In some cases it may be possible to arrange funding for court fees and other disbursements, and after the event insurance. The firm is prepared to hold preliminary discussions on an informal basis in relation to cases which involve serious allegations and/or consequences.

OFF-PLAN INVESTMENTS AND THE RISK OF LOST DEPOSITS

Picture the scene. An off-plan investor contracted two years ago and paid substantial deposits. The longstop date has passed and construction is continuing – but slowly. The investor is losing faith in the developer and is impatient. He has the right to rescind the contract and require the developer to repay the deposits. What should he do? Should he hope for the best and do nothing or should he rescind?

Where you stand on an issue does of course depend on where you sit, and if you’re an experienced investor who has so far done well out of this sort of investment then you might well decide to wait and see. Appetite for risk and the market will be factors the investor will take into account. Where we, and other litigation lawyers, sit is somewhere very different. Day to day we live in a world of claims and disputes. Therefore is it any wonder we’re more sceptical than most! Please bear that in mind in what we are about to say.

What does it mean to rescind a contract for the purchase of land or, in the context of this article, probably an apartment? In general it means cancelling the contract. This ends the seller’s obligation to sell and the buyer’s obligation to buy. If the development is later completed and the buyer changes his mind he would have to enter into a new contract. Most off-plan contacts include the right to rescind and the right is usually exercised by giving written notice to the seller. That is the easy part of the process.

Where there is a right to rescind there is usually an obligation on the seller to return the deposits. These are usually substantial sums of money – often six figure sums. A typical contract would require the deposits to be refunded within a certain period after notice is given to rescind.

No doubt there are cases where contracts are rescinded and deposits returned but we never see those cases! The cases we see are ones where investors rescind and by doing so trigger their entitlement to the return of their deposit but nothing, or next to nothing, happens. The investors are either ignored or persuaded by the developer to allow them more time for a variety of reasons, eg refinancing, the imminence of completion. Investors are often inexperienced and more inclined to hope for the best than take any positive action. This is a common reaction even in cases where the only asset the developer appears to own is the property under construction, and often the developer is an off-shore company!

Experience shows that if an investor has decided to rescind and claim back his deposits he should take action as early as possible and certainly while the developer has a positon to protect. There is probably no point in doing so when the developer is heading for administration or liquidation. Timing is everything.

Rescinding an off-plan contract is straightforward and it should be relatively inexpensive, but the next step calls for more resolve. If the developer is not willing to refund the deposits then the investor can – and should if possible – take proceedings, and winding up proceedings usually have the most impact. If these steps are taken at the right time there is a good chance that the deposits will be refunded or protected in some other way, eg a director’s personal guarantee.

It’s important to remember that any question of rescission, or recovery of deposits, is only likely to arise after the longstop date, which will probably be at least 12 months after the parties have entered into the contract. By that time most of the legal work will have been done by an investor’s conveyancer. His fees will have been paid and he will be dealing with other transactions. If he is asked will the conveyancer be willing and able to provide advice on rescission and enforcement of the developer’s obligation to return the deposits?  While the conveyancer will probably be willing to give general advice he may not have the insight to give the investor what he needs at this point which is firm and specific advice about enforcement. Although he may be reluctant to do so it is in the investor’s interest to obtain specialised legal advice at this stage.

If an investor rescinds but does not put the developer under pressure to return the deposits then he is likely to join the majority of investors who will in due course go into battle with administrators and liquidators for years. In the end he may secure a dividend but it will probably only be a fraction of his original investment.