LAWYERS TO THE REAL
ESTATE & CONSTRUCTION
INDUSTRY
www.klgates.com
Spring 2008
Overriding Interest
Uninsured damage: who
should shoulder the risk?
between 6 and 12 months following
the occurrence of uninsured
damage during which a landlord
must decide whether or not to
rebuild the premises. The tenant
continues to pay rent and service
charge during this period. If the
landlord elects to reinstate the
premises, at that point the damage
is deemed to have been damage
caused by an insured risk. The
provisions of the lease relating to
insured damage then apply as
between the landlord and the
tenant (i.e., a rent suspension
coupled with an obligation of the
landlord to rebuild). If the landlord
fails to make an election, the tenant
can break the lease. To be
consistent, the tenant's obligation to
repair should be suspended
immediately upon the occurrence
of the uninsured damage.
The continuing threat of terrorist attack
makes uninsured damage a key issue
on commercial lettings. The historic
position in England and Wales has
been that the tenant bears all the risk (a
tenant will normally take a lease on full
repairing and insuring terms).
However, this position was reached
against a background where there were
very few circumstances in which
insurance against a particular risk could
not be obtained. The position in
today's market is potentially quite
different. It is easy to anticipate
circumstances where it would be
difficult to find insurers willing to
insure certain buildings against damage
caused by terrorism and, even where
cover was available, the premiums
could be prohibitively expensive.
The underlying issue is the allocation
of risk. Who should bear the risk of
uninsured damage? At one end of the
spectrum, the tenant bears all the risk;
at the other, the landlord. The position
in today's market appears to be that the
tenant should bear some of the risk, but
not all of it. Practitioners have
developed a number of ways of
apportioning the risk allocated to the
tenant. For example:
Leases often provide for a period of
Another method often adopted
entails a tenant receiving the
benefit of an immediate rent
suspension (including service
charge) coupled with the landlord
having a defined period during
which to elect whether or not to
rebuild the premises. If the
landlord elects not to rebuild (or
fails to elect within the relevant
Welcome to the Spring Edition.
Continuing the firm’s European
expansion, we are pleased to announce
that earlier this month we opened an
office in Paris. This complements K&L
Gates’ significant London presence and
growing Berlin office which the firm
established in January 2007.
On 1 January 2008, the firm also
combined with Hughes & Luce LLP, a
150 lawyer Texas firm with offices in
Austin, Dallas and Fort Worth. This
makes K&L Gates a 1,500 lawyer firm
with 24 offices located throughout the
United States, Europe and Asia.
Contents
Uninsured damage: who should
shoulder the risk?
1
The Planning Bill
2
Deals
3
Legal cases
4
Who to contact
4
Overriding Interest
period), the lease comes to an end
immediately and the tenant can
walk away. If however the landlord
elects to rebuild, the tenant is
responsible for contributing a fair
proportion (based on the floor area
of the premises relative to the gross
internal lettable area of the building
of which the premises form part) of
the rebuilding costs. The tenant's
contribution is however capped at a
figure equal to a defined period's
worth of rent. Again, the tenant's
obligation to repair should be
suspended immediately upon the
occurrence of the uninsured
damage.
The 2007 Code for Leasing Business
Premises (the "Code") recommends
that, following uninsured damage to
premises, the lease should provide for
the tenant to receive the benefit of a
rent suspension immediately and, if the
landlord elects not to rebuild the
premises, that the tenant should be
able to terminate its lease. This
approach does not seem to have been
widely adopted even by certain of the
institutional landlords who have
"signed up" to the Code. That said, the
Code says relatively little about the
issue and does not deal clearly with all
the implications of uninsured damage,
including, for example, the issues of
what happens to the tenant's obligation
to repair the premises and whether the
service charge should also be
suspended.
So, what is fair in today's market? In
what some might say is a typical
lawyer's response, we would say that it
depends on the circumstances of the
letting. For example, a tenant with a
25 year lease with the benefit of
business security of tenure has a greater
interest in a premises than a tenant
with a three year contracted-out lease
and perhaps in those circumstances a
tenant should shoulder more of the
risk. The rent and how that has been
calculated will also be a key factor but,
more often than not, the deciding
factor is the strength of the tenant’s
position.
We do however feel that market
practice is changing and that the norm
may become a fair sharing of the risk,
with the tenant's proportion depending
on the nature and extent the interest
that it is to receive in the premises.
Whether this does become common
practice notwithstanding the Code
remains to be seen.
The Planning Bill
The Planning Bill was introduced in
the House of Commons on 27th
November 2007. Here is a summary of
its main provisions.
2
The Bill will create a new system of
development consent for nationally
significant infrastructure projects,
covering certain types of energy,
transport, water, waste water and
waste projects.
A major role in the new system is to
be played by a new independent
body to be called the Infrastructure
Planning Commission. The
Commission will be responsible for
examining applications for
nationally significant infrastructure
projects and also for deciding any
applications when there is in force a
relevant national policy statement.
Development consent will be given
SPRING 2008
in the form of an order which may
also confer upon developers certain
rights for the purpose of facilitating
the project. These rights may
include the compulsory acquisition
of land where there is a compelling
need in the public interest.
National policy statements will set
the framework for decisions by the
Commission. The Secretary of State
may designate a statement for the
purposes of the Bill only if there has
been public consultation.
The Secretary of State will be
responsible for determining
applications where there is no
national policy statement and will
have similar order-making powers
to the Commission.
Greater use is made of written
representations with less reliance
on oral representations.
The Bill sets a deadline of six
months for the examination
procedure and a further three
months for the Commission to take
a decision or (as the case may be)
make recommendations to the
Secretary of State.
The Secretary of State is to be
given the power to make
regulations for the imposition of a
‘Community Infrastructure Levy’.
The aim of this new levy is to
ensure that costs incurred in
providing infrastructure to support a
development can be met, partly or
wholly, by land owners who have
benefitted from an increase in the
value of their land from the grant of
the planning permission.
www.klgates.com
Deals
RREEF
K&L Gates was appointed recently
to the core UK panel to undertake
legal services for RREEF, the UK based operation of the global
RREEF business which is the real
estate and infrastructure division for
the asset management activities of
Deutsche Bank AG. We are already
busy working on a major town
centre redevelopment and disposal
opportunity and we have been
instructed on the management of 3
large retail assets, shopping centres
and retail warehouse parks with
redevelopment opportunities.
Anglo Irish Bank
We acted for Anglo Irish Bank
Corporation plc in relation to the
bank's provision of a £180m
refinancing facility and a £20m
working capital facility secured on a
portfolio of 110 industrial and
commercial properties in the UK.
The deal required a crossdepartmental team led by Real
Estate Partner Justin Salkeld and
Banking Partner Richard
Williamson. The team comprised
Gareth Lawson in Banking, Peter
Davis in Tax and Fiona McPhillips,
Juno Davidson, Marianne Pomfret
and Kate Hillier in Real Estate.
Young & Co.’s Brewery, P.L.C.
On 4th January 2008 Young & Co.'s
Brewery, P.L.C.'s sale of the Ram
Brewery, Wandsworth successfully
completed. Contracts had been
exchanged in August 2006. The
sale price, including the sale of the
nearby site at Buckhold Road which
completed on 5 July 2007, was
£69m. The deal was led by Real
Estate Partners Wayne Smith and
Chris Major together with
Construction Partner Kevin
Greene.
Nationwide Building Society
We acted for Nationwide Building
Society in connection with their
£38.5m loan facility to a Jersey
borrowing vehicle secured against
UK real estate assets. Our team
was led by Real Estate Partner
Justin Salkeld and Banking Partner
Richard Hardwick.
Capmark Bank Europe PLC
We advised Capmark Bank Europe
PLC in relation to its €80.5m loan
facility to a Luxembourg borrowing
vehicle in order to finance the
acquisition of real estate in
Germany. Banking Partner,
Jonathan Lawrence, led the deal.
ABN Amro Bank NV
Jonathan Lawrence recently acted
for ABN Amro Bank NV in relation
to a €90m facility secured against a
portfolio of German real estate
assets.
SPRING 2008
3
Overriding Interest
www.klgates.com
Legal cases
Surrenders
Options
Estate Agency
A land option agreement provided for
the prior surrender of an existing
business tenancy of the land. However
the contracting-out provisions of the
Landlord and Tenant Act 1954 were not
complied with prior to the making of the
agreement. It was held that the option
was valid even though the surrender
obligation contained within the
agreement was unenforceable.
A landlord, in order to avoid the exercise
by its tenant of an option to acquire the
landlord's freehold interest in a property,
transferred the property to a wholly
owned subsidiary company. Specific
performance was ordered against the
landlord requiring it to procure the
transfer of the property by the subsidiary
to the tenant.
Where a seller claimed possessory title to
a garden adjoining his property but the
local authority disputed that claim, it was
held that the seller's estate agent did not
commit an offence under s. 1 of the
Property Misdescriptions Act 1991 by
including the garden in her particulars of
sale.
Comment: The tenant obtained relief
even though the corporate veil of the
subsidiary was not pierced and the
transfer to it was said not to be a sham.
Comment: The estate agent had no
reason to disbelieve the information
supplied to her regarding ownership of
the garden, and the particulars made no
representations as to title.
Ultimate Leisure - v - Tindle, CA
Coles - v - Samuel Smith Old Brewery
(Tadcaster), CA
Lancashire County Council - v Buchanan, DC
Party Walls
Sale Agreement
Repairs
A householder who wished to construct
an extension demolished without the
consent of his neighbour a party fence
wall that was not in a poor or unstable
condition. The neighbour was granted
an interim injunction preventing further
work on the boundary and requiring the
householder to erect a temporary
replacement barrier.
A sale agreement provided for the buyer
to pay the purchase price and the seller's
legal fees by 1.00 pm on the completion
date. At 2:45 pm on the date stated in a
completion notice served by the seller,
the buyer tendered the purchase price
but not the legal fees. The Court held
that the seller was entitled to rescind the
contract and forfeit the buyer's deposit.
Where a property was left by a tenant in
a dilapidated condition but was ripe for
redevelopment, the Court held that the
damages due to the landlord were to be
assessed by reference, not to the cost of
repair, but to the work that would
survive redevelopment.
Comment: The householder's actions
represented a trespass and wrongful
interference with the neighbour's
property.
Comment: It was the failure to pay the
legal fees, not the timing of the payment,
that was fatal to the buyer's claim to the
property.
Udal - v - Dutton, TCC
Chinnock - v - Hocaoglu, ChD
Comment: The fact that the landowner
could not comply with its surrender
obligation, which was a breach, did not
relieve it of its obligation to sell the land.
Who to Contact
For further information contact
Steven Cox
steven.cox@klgates.com
T: +44 (0)20 7360 8213
Milton McIntosh
milton.mcintosh@klgates.com T: +44 (0)20 7360 8259
Bonny Hedderly
bonny.hedderly@klgates.com
Comment: S. 18(1) of the Landlord and
Tenant Act 1927 capped the landlord's
recovery.
Ravengate Estates - v - Horizon Housing
Group, CA
K&L Gates
110 Cannon Street
London EC4N 6AR
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T: +44 (0)20 7360 8192
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SPRING 2008
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