Development cases: Key decisions despite Covid chaos

7th January 2021

The majority of headlines throughout 2020 and early 2021 were dominated by Coronavirus – from a public health perspective and in terms of impact on the economy.  One area in which the news was not all doom and gloom, however, is property development – with some housebuilders even experiencing something of a fiscal stimulus measures-related boom.  As business goes on (albeit not necessarily ‘as usual’), Walker Morris’ Claire Acklam reports on key cases which are likely to be of interest or assistance to developers.

In this development case round-up, Claire offers legal and practical advice issues connected with:

• the remote and valid execution of deeds and documents
• the protection and enforcement of rights to light
• the courts’ discretion to grant negative declarations
• the high profile, controversial issue of developing despite restrictive covenants on land.

Execution of deeds and documents

Early in 2020 Walker Morris published general advice about the remote execution of documents.  That advice remains pertinent, and it continues to be the case that the legal position differs according to whether the document in question is a deed or other legal document, and that existing formalities for the valid execution of deeds (including, in particular, the requirement for the physical presence of a witness) subsist [1].

Two cases in the development context, however, highlight other issues in relation to the execution of deeds, which housebuilders/developers may wish to note.

In Signature Living Hotel Ltd v Sulyok [2] a property development company borrowed money from two lenders for a hotel development project.  The loans were backed by guarantees.  When the company failed to repay the loans, the lenders requested payment from the guarantor.  The guarantor argued that the ‘guarantees’ were unenforceable because, while they purported to have been made as deeds, they had not been witnessed.

The High Court held that, while the guarantees had not been executed correctly as deeds, they were nevertheless effective and enforceable as ordinary contracts.  Remember: so long as all of the fundamental requirements for a contract are present (offer; acceptance; consideration (that is, money or money’s worth); certainty of terms; and intention to create legal relations), a binding contract can be formed without any written documentation, execution or other formality whatsoever.

Consideration is not required for a deed but is required for a contract.  The High Court in Signature Living confirmed that the courts will look at the commercial reality of the situation as a whole to determine whether or not there is any consideration.  In a commercial transaction there almost always will be.  In this case, the purported guarantees were entered into in consideration of the lenders making the loans and the court confirmed that consideration need not benefit a guarantor directly, but can consist of some benefit conferred on a borrower.

This case is a reminder that it is important to get the formalities right if you need a document to take effect as a deed.  In some cases, that will be an essential legal requirement of the particular transaction (such as transfers and certain leases of real estate, mortgages, appointments of trustees, powers of attorney, and variations of existing deeds, for example).  In others it may be preferred as a particular safeguard against fraud or mistake, or because deeds allow for a longer limitation period of twelve years (the contractual limitation period is generally just six years).

The case is also a reminder, however, that even where things go wrong, there might be an alternative solution; and some solution is, of course, better than none.

Transactions and legal documents are often completed in the absence of authorised signatories, with pre-signed pages sometimes being affixed to facilitate completion where parties and signatories are not all in the same room.  This, of course, may be even more commonplace post-Covid.  In some cases, the documents in question may have been altered or amended in the last minute period between being circulated to and seen by signatories, and completion.  The Bioconstruct Gmbh v Winspear [3] case, which concerned a loan made to a company in relation to the development of an energy plant, clarifies the courts’ approach to the validation of deeds executed in this way.

In 2008, obiter comments made in the case of Mercury Tax Group Ltd v HMRC [4] suggested that the affixing of pre-signed signature pages to an altered version of a document rendered it invalid.  Bioconstruct confirmed that position early in 2020.

So what does that mean for developers?  Parties and practitioners must note that execution of a deed will only be valid if the finalised version is circulated before signature.  If any late amendments are required, re-execution will be necessary.

The execution and completion of deeds and other documents is a legal minefield.  To make matters more complicated, the law in this area is subject to significant flux.  Apart from the cases and issues flagged in this briefing, Walker Morris has also published articles on the latest cases to highlight the risks of inadvertent completion of contracts over e-mail; execution of documents via electronic signatures and automatic e-mail footers; and the remote electronic execution of documents via video-link (or similar).  As recently as 7 December 2020, HM Land Registry has updated its guidance on execution of deeds to confirm that, while the physical presence of a witness is still currently required, there is no reason why the witness and signatory cannot be separated by glass, so that deeds can be witnessed in a Covid-safe manner, say through a car or house window.

When it comes to the proper execution of any type of legal documents and/or the completion of contractual arrangements or corporate, financing and/or real estate transactions, developers should ensure that they take specialist legal advice.

Right to light – injunctive relief

When it comes to the enforcement of a right to light there has perhaps been a tendency, since the 2014 Supreme Court decision in Coventry v Lawrence [5] (which confirmed that the courts should take a flexible approach when considering whether to order damages instead of an injunction), for developers and their professional advisers to assume that the courts will be slow to order an injunction, and will opt to award financial compensation (damages) instead.  The High Court’s decision in Beaumont Business Centres v Florala Properties Ltd [6], from spring 2020, puts paid to that notion.

In this case Beaumont had become aware of Florala’s plans to redevelop its property in the City of London in such a way that might interfere with the light to Beaumont’s high-end serviced office building.  The parties initially entered into neighbourly discussions as to how the matter might be resolved, but negotiations broke down.  Florala commenced works and Beaumont issued court proceedings seeking an injunction and damages for wrongful interference with its right to light.  Florala completed its redevelopment and argued that Beaumont was not genuinely concerned to protect its right to light, and merely sought to extract a ransom payment, such that an injunction should not be awarded.  Florala also argued that where a room is already poorly lit, there can be no actionable interference with a right to light in any event.

The High Court found for Beaumont.  It declared that Beaumont would be entitled to an injunction requiring the cutback of Florala’s now completed redevelopment plus compensatory damages, or to Wrotham Park/negotiating damages [7] instead.

The judgment bears reading in its entirety as it covers a number of issues pertinent to the obtaining of injunctions and/or the calculation of damages in lieu in a development context, plus it contains detailed analysis of how to calculate loss of light.  For the purposes of this case round-up, however, the key points for developers to note are:

• An injunction is the court’s primary remedy in respect of a rights to light infringement. While the court does have discretion and a flexible approach should be adopted, the burden remains on the respondent to an injunction application to prove that an injunction should not be awarded.
• To enforce its right to light, an applicant must demonstrate that its property will be or has been made substantially less comfortable or convenient due to the reduction in light.
• In practice in this case, that was demonstrated by a reduction in lettings and rent. Whilst work on a new development neighbouring Beaumont’s property and greater competition in the relevant market also contributed to reduced lettings/rent, this was a luxury serviced office building and every little shift in advantage or disadvantage mattered.
• The fact that a property or room might already be poorly lit and dependent upon artificial light is irrelevant. An applicant will still be entitled to an injunction if the [proposed] neighbouring development makes things even worse.
• The fact of prior negotiations and even an historical rights of light deed were insufficient to prove that Beaumont was not genuinely concerned to protect its right to light and was not therefore entitled to an injunction.
• The fact that Florala’s development had been completed by the date of the hearing was irrelevant and did not affect Beaumont’s entitlement to an injunction.
• Factors which weighed in favour of the grant of the injunction were that Florala had proceeded with development in full knowledge of Beaumont’s concerns. It had therefore acted in a “high handed, or at least unfair and unneighbourly manner”.  (As to the relevance of the parties’ conduct in injunction cases, see further the Alexander Devine decision, discussed in detail below.)

Apart from providing a stark reminder that the courts will not shy away from ordering a developer to demolish a completed project if there has been a right to light infringement, this case provides useful practical guidance as to when an infringement might be proven, even in an already poorly lit building.  It also demonstrates how important the factual matrix, and in particular the nature of the buildings involved, can be.

Negative declarations

Right of way disputes, like all neighbour disputes, can be highly fraught, and often involve missing or non-existent documentary evidence.  That can especially be the case when the land in question is proposed development land which has only been subject to rural or agricultural use and/or has not frequently changed hands and been subject to recent title checks and regularisation.  The Malvern Mews [8] case is of particular interest because of the manner in which just such a dispute was resolved.

The case reads like a comedy of errors.  A dispute arose when a landowner discovered that another party, a neighbouring tenants association, had bricked up a gate which had provided access from the owner’s land into a private lane.  The tenant’s association claimed that it owned the private lane, but couldn’t evidence that; and the landowner claimed that it had a right of way over the lane, but it couldn’t evidence that.  The landowner brought a case based on trespass, demanding compensation and that the gate be unbricked.  The landowner also reserved the right, in due course if/when it could obtain evidence, to claim a right of way easement.

The tenants association accepted that it had trespassed and undertook to unbrick the gateway.  The court awarded damages to the landowner in respect of that trespass.  However, in circumstances where the landowner had failed to establish a right of way, and to prevent further argument and litigation on the subject, the court took the unusual decision to exercise its discretion to grant negative declaratory relief.  That is, the court declared that the landowner did not have a right of way.

The judgment makes interesting reading for its guidance on whether and how a court should consider making negative declarations such as this.  The important point of practice for landowners, occupiers and developers, however, is to beware commencing litigation precipitously or where there is real evidential uncertainty.  Not only could a claim for positive action fail, but in fact a negative declaration – from which there may be no coming back – could ensue.  The landowner in this case had issued court proceedings for trespass as a swift and robust reaction to the tenant association’s unexpected bricking-up, but it ended up losing out on a potential claim.

Discharge/modification of restrictive covenants

The existence of restrictive covenants, and whether there is potential for discharge or modification, is a perennial concern for developers.  The recent Supreme Court decision in Alexander Devine [9] case brings the issue sharply into focus.

This case has, throughout its journey to, and having reached, the Supreme Court, received a lot of publicity.  That is partly because of its legal significance, but partly because it deals, on the one hand, with a property developer (often a much-maligned breed when it comes to the media/public at large) and, on the other, a charitable trust for terminally ill children.  A short summary of the legal and factual background should therefore suffice.

Millgate Developments Ltd obtained planning permission to carry out a housing development on land that was unaffected by the restrictive covenant. It was a condition of the planning consent that Millgate provide affordable housing. In order to satisfy the condition, Millgate built 13 homes and bungalows on adjacent land in breach of restrictive covenants which specifically prohibited the use of the development land for building or for any purpose other than parking of motor vehicles. Millgate was aware of the covenants and of objections raised by the beneficiaries of the restrictive covenants, but continued to build regardless. The development land was adjacent to a children’s hospice which had the benefit of the covenants.

In 2016, the Upper Tribunal (Lands Chamber) decided the case in favour of Millgate and allowed 13 houses which had been built on the Development Land in breach of the restrictive covenant to remain. The beneficiaries then successfully appealed to the Court of Appeal, with the result that the development was found to be unlawful and at risk of demolition.  In the meantime, Millgate had agreed to sell the development to Housing Solution Ltd, who appealed the Court of Appeal’s decision to the Supreme Court.

The Supreme Court dismissed Housing Solution’s appeal.

The Supreme Court began by stating that the section 84 “contrary to public interest” ground requires a narrow interpretation.  That meant that, in this case, the court had to weigh the public interest in 13 affordable homes not going to waste against the public interest in a hospice providing sanctuary for children dying of cancer without the risk of adverse effects from a neighbouring housing development.  The Supreme Court therefore confirmed that the conduct – good or bad – of the developer tells nothing of the merits of what the land will be used for, and is therefore irrelevant at this initial “jurisdictional” stage.

However, an injunction is an equitable remedy.  That means it is a remedy that is underpinned by fundamental fairness and awarded by the court at its discretion, as opposed to a legal remedy that is available as of right to a successful claimant.  The Supreme Court held that, when it comes to the discretionary stage, conduct can and should be taken into account.  In this regard it noted that Millgate could have built on unencumbered land within its bank in the area, but chose not to do so. Millgate also chose to proceed with the development without applying to discharge or modify the covenant, probably because it knew that it would struggle to satisfy the “contrary to public interest” ground. The Supreme Court took a dim view of what it termed the developer’s “deliberate and cynical breach” and ordered that it must not be allowed to benefit from presenting the courts with a fait accompli.

The key takeaways for developers are to ensure that their conduct is exemplary when discovering and dealing with beneficiaries of restrictive covenants, and that any application under section 84 should be made before building works commence.

How we can help

Walker Morris’ development specialists provide a cross-discipline, full range of legal advice for developer/housebuilder clients from planning, land acquisitions and sales, development and construction, regulatory and health & safety and commercial advice, to litigation & dispute resolution strategies.

Claire Acklam is a Senior Associate Solicitor in the Commercial Dispute Resolution team, with a particular specialism in advising on all forms of developer disputes, both from a pre-emptive risk-management perspective and when it comes to resolving issues after they have arisen.  Please do not hesitate to contact Claire for further advice or assistance.

[1] for the time being at least, but see our recent briefings Law Commission report on electronic signatures and ‘Electronic signatures: Where are we now and where are we going?‘ for advice on the anticipated direction of travel on this issue

[2] [2020] EWHC 257 (Ch)

[3] [2020] EWHC 7 (QB)

[4] [2008] EWHC 2721 (Admin)

[5] [2014] UKSC 13

[6] [2020] EWHC 550 (Ch)

[7] for more information and advice in relation to this type of damages, please see our earlier briefing

[8] The Mayor and Burgesses of the London Borough of Brent v Malvern Mews Tenants Association [2020] EWHC 1024 (Ch)

[9] Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45