Litigation annual review 2002: Property disputes

Conflicts with the overriding objective

Parties in dispute are compelled by the Civil Procedure Rules (" CPR") only to commence proceedings as a matter of last resort. This approach is particularly well suited to property disputes where the parties have been in, or will continue to have, a long term relationship (especially in the context of landlord and tenant issues). Such relation-ships are generally not best served by a decision being imposed by, for example, a judgment. The CPR have "encouraged" opponents to consider seriously offers made to resolve the dispute either before the commencement of proceedings or shortly after the commencement of proceedings, otherwise the party who dismisses such an approach "out of hand" risks adverse costs orders and "colouring" a Judge's view of their case.

One area of property disputes which does not sit comfortably with "commencing court proceedings as a last resort", is lease renewals under the Landlord and Tenant Act 1954. That Act requires a tenant, if it wishes to preserve its prima facie right to a new tenancy, to commence court proceedings claiming a new lease within four months of service of a statutory notice terminating its tenancy. However, by that stage, it is not clear that there is even a dispute between the parties as to the new lease terms and the commencement of proceedings can hardly be said to be "last resort"; and yet the tenant has no choice. Further, once proceedings have been commenced, the CPR require an expeditious and pro-active management of the proceedings; but the reality is that the parties require time to negotiate the new lease terms and, in the vast majority of cases, it is entirely unnecessary to have a court determination. This results in unnecessary use of court time and the parties incurring costs for dealing with these proceedings.

Fortunately, some Judges (but by no means all) have given sensible directions for such proceedings, including ordering a stay, to give the parties a reasonably opportunity to negotiate the new lease terms. Further, recent changes to the CPR for these type of proceedings recognise their unique nature and should serve to provide consistency in approach and avoid costs being incurred unnecessarily.

That said, both the original, and now amended, CPR have served to encourage parties to "get on" and negotiate the new lease terms within sensible time periods, rather than let these continue for many months (and in the worse cases, over many years).

During the last three to four months, and especially since the events of 11th September, we have seen an increase in the number of instructions from clients who have reviewed their commitments in light of the current market and are either seeking to minimise future liability or ensure that an opponent's obligations owed to them are met in full. For example:

· A client has recently reassessed its obligations under an agreement for lease to take a long lease of an anchor unit in a shopping centre. From the client's point of view, the figures no longer "stack up". We have reviewed in detail the landlord's obligations under that agreement to assess whether it is in breach of them and to find, therefore, a "window of opportunity" for the client to exit that agreement, together with recovery of the (significant) deposit paid by the client, but without a material Property disputes Conflicts with the overriding objective exposure to a claim for specific performance or substantial damages.

· A landlord client became nervous when a company under an agreement for lease with it indicated that it would not take the new long lease at an initial yearly rental in excess of £1m for relatively unique premises. A detailed review of the obligations of the pro-posed tenant to take the new lease, adopting a robust approach in correspondence with the proposed tenant (in which we were, in effect, laying a paper trail in case it should be necessary to seek a court order for specific performance to compel the party to take the lease, but at the same time seeking to persuade the party to comply with its obligations) has avoided this scenario developing further.

For 2002, we await the enactment of the Commonhold and Leasehold Reform Bill. This contains provisions making it easier for tenants of residential properties to obtain (new) longer leases and participate in collective enfranchisements. Whilst primarily aimed at the residential sector, certain pro-visions, such as the right to manage, could impact adversely on mixed residential and commercial use properties. The concept of "commonhold" is not to be imposed retrospectively but we are currently monitoring the progress of this proposed legislation for a number of our clients.

More generally, we anticipate continuing to receive instructions of the type mentioned above, but probably fewer instructions in relation to clearing sites of legal problems and adverse occupants for new developments (unless the market for a particular area is strong and justifies the new development). Inevitably we will see an acute awareness by parties, subject to property type liabilities, of their respective rights and obligations resulting in a less relaxed attitude towards, for example, tenant default.

The other articles contained in the Litigation Review 2002 may be found on by clicking on ‘your latest information’ on our website www.law-now.com. Alternatively, to access a PDF of the complete review please click here.

For further information on this article please contact the author Tony Marks by telephone on +44(0)20 7367 2508 or by e-mail at [email protected].

For further information on this review in general, please contact Tim Hardy on +44 (0) 20 7367 2533 or by e-mail at [email protected].