Real estate update – summer 2018

Decision time: Case round-up

Overage was payable despite the inability to build

In the case of London and Ilford Ltd v Sovereign Property Holdings Ltd [2018], London and Ilford Ltd (the "Developer") purchased a property from Sovereign Property Holdings Limited (the "Seller") with the intention of redeveloping the office space at the property into residential flats. The purchase was subject to an overage agreement which required the Developer to pay the Seller the sum of £750,000 if a certain “trigger event” occurred during the overage period. The trigger event was the Developer's receipt of prior approval from the Local Planning Authority under the Town and Country Planning (General Permitted Development) (England) Order 2015 for the "development of the Property comprising of a change of use ... to a use falling within Class C3 (dwelling houses) of the Permitted Development Order." Unusually, the obligation to obtain the prior approval was that of the Seller, with the Developer approving the plans submitted with the application. London and Ilford Ltd received the prior approval that they applied for, but were subsequently notified that the construction of the flats would breach building regulations. The scheme involved the removal of one of the staircases which would mean the development would not comply with the fire safety requirements of the building regulations and therefore the flats could not be built.

Despite the fact that the flats could not be built, Sovereign Property Holdings Ltd claimed its £750,000 because London and Ilford Ltd had gained their prior approval as defined by the "trigger event".

London and Ilford Ltd argued that they should not have to pay the overage on the basis that the purpose of an overage agreement was to provide a commercially valuable benefit in exchange for payment, and that prior approval for a change of use was only valuable if the 60 residential units could be lawfully built.

The Court of Appeal said that there was no mention in the overage agreement of compliance with building regulations or any other requirement that might need to be met before the units could be built; if the parties wanted to make this a requirement of the overage agreement, they should have done so at the time. Essentially, London and Ilford Ltd were found to be liable for the overage payment, a situation that could have been avoided had it satisfied itself of the viability of the scheme before entering into the agreement.

The case highlights once again the issues that arise with overage, and how carefully any trigger event needs to be drafted. Perhaps it would have been better to define the approval as one which was capable of implementation or to specify that overage would only be payable on disposal of the completed units. The case is another example of where the court has refused to intervene where a commercially aware and legally advised party simply strikes a bad bargain.

A index linked rent review clause that got lost in translation

Disputes about the interpretation of contracts are common. In some cases, the words the parties have used may genuinely be ambiguous. In others, the literal meaning of the words may be quite clear but one party argues that the literal meaning does not accord with what was really intended.

In the leading case of Investors Compensation Scheme Ltd v West Bromwich Building Society [1997], Lord Hoffman set out five key principles to be applied when interpreting contracts. His view was that the words should be given their ordinary and natural meaning. The court must ask what an objective observer would have understood the contract to mean, had she been furnished with the background context known to the parties – the so-called matrix of fact. This does not include knowledge of the parties' subjective intentions or pre-contract negotiations. Evidence of these matters is excluded. In essence, words should generally be given their ordinary and natural meaning unless this creates a commercially absurd result. 

So when is an outcome absurd enough to justify departing from the ordinary and natural meaning of the words used. In the seminal case of Chartbrook v Persimmon Homes [2009] the House of Lords was faced with the interpretation of complex provisions for calculating the sale price of a residential development. On a literal interpretation, Chartbrook was entitled to the first £76.34 per sq ft of net sales value plus 23.4% of the surplus. Persimmon argued that the parties had actually intended that Chartbrook would receive the greater of £76.34 per sq ft or 23.4% of the net sales price, not both. If correct this would reduce the price from £9,168,427 to £5,580,616. 

The House of Lords accepted that there was nothing unworkable about Chartbrook's literal interpretation but it was "commercially nonsensical" as Chartbrook would receive an absurdly high proportion of the sale proceeds. Lord Hoffman said:

"there is not, so as to speak, a limit to the amount of red ink or verbal rearrangement or correction that the court is allowed. All that is required is that it should be clear that something has gone wrong with the language ad that it should be clear what a reasonable person would have understood the parties' to have meant."

Some considered that Chartbrook went too far. How could commercial parties have confidence in their agreements if the court was free to re-write them?

The opportunity arose for the Supreme Court to revisit this approach in Arnold v Britton [2015]. This was a dispute about the service charge provisions in a lease. Here the court was not prepared to depart from the clear words used. Whilst commercial common sense was an important factor "a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed".

The mere fact of a commercial absurdity was not enough to indicate that a literal interpretation could not have been intended. The unlucky tenants may not have foreseen the consequences of the service charge provisions but that was not the same thing as saying that they did not intend to sign up to the provisions as drafted at the time.

This "no nonsense" approach to interpretation has again surfaced in the recent Court of Appeal case of Trillium (Prime) Property GP Ltd v Elmfield Road [2018].

In this case, the parties to an existing lease had entered into a reversionary lease in December 2005. The reversionary lease started on 25 March 2010. The reversionary lease provided for the Initial Rent (£1.2m) payable under that reversionary lease to be reviewed “by multiplying the Initial Rent by the [Retail Prices] Index for the month preceding the relevant Review Date and dividing the result by the Base Figure”. The Base Figure was the Index for September 2005. So a literal interpretation of the rent review provisions resulted in a "double counting" as the 2010 rent of £1.2m was increased by reference to a 2005 index. The tenant argued that this could not have been the parties' intention. The Court of Appeal disagreed. Applying Arnold v Britton it held that the ordinary and natural meaning of the words were clear and there was no obvious mistake on their face. The court held that the whilst the rent review provisions were unusual and provided for a greater increase in rent than standard indexation would have produced, it was not possible to say with any certainty that it was irrational or an obvious mistake considering the other terms of the transaction. Therefore, the court held that the strict terms of the review provision should apply. Whilst the result of the drafting may seem uncommercial, it was not for the court to delve into the overall commerciality of the parties' agreement.

The court was unable to correct the meaning of the rent review clause through the process of interpretation. So it remains the case that parties cannot rely on the courts to save them from a bad bargain. Where the words used are clear, parties can expect to be held to them in the absence of an obvious mistake.

Whether a claim in rectification would have succeeded is a different matter. However this was not pleaded before the court.

Can you rely on a non-reliance clause?

When commercial parties contract, they usually want to restrict their potential liabilities to the four corners of the document. The law sometimes has other ideas. The Court of Appeal recently handed down its judgement in the case of First Tower Trustees Limited v CDS (Superstores International) Limited [2018] confirming that a non-reliance clause in a lease was subject to section 3 of the Misrepresentation Act 1967, and accordingly had no effect unless it satisfied the requirement of reasonableness as set out in Section 11 of the Unfair Contract Terms Act 1977.

The case related to the lease of commercial premises. Unknown to the tenant the premises were so contaminated with asbestos that they were dangerous to enter.

In replies to pre-contract enquiries, the landlord indicated that it had not received notice of any environmental problems, but added that the buyer must satisfy itself. Between the answer being given and the tenant completing the leases, the landlord was notified of a potential problem with asbestos, but the reply was not updated. When the tenant completed the leases and began works to the property, substantial amounts of asbestos were found. The costs of remedial works and alternative accommodation while the works were carried out were substantial. These costs formed the subject of a claim against the landlord for, amongst other things, misrepresentation.

However, the landlord argued that it was not liable for misrepresentation because the lease contained a clause saying that it had 'not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the Landlord'. This clause was designed to exclude liability for misrepresentation in pre-contract negotiations. The usual carve-out to retain liability for replies to pre-contract enquiries was absent.

Liability for misrepresentation can be excluded by commonly found “non-reliance” clauses (often found within an entire agreement clause). These clauses are designed to set up a contractual estoppel; the parties agree that no representations have been made or relied on (even if they were and they are). The landlord tried to argue on appeal that such a clause did nothing more than define the terms upon which the parties were conducting their business. Accordingly, it was not a clause that sought to exclude or restrict liability, but rather a clause which established the tenant had not relied on any representations. However, the court found that such a clause cannot exclude liability which arises under statute. In such circumstances it cannot be said that the contract term is merely creating and defining the extent of the parties’ obligations. The term is seeking to exclude a liability which would otherwise be there.

Section 3 of the Misrepresentation Act 1967 states that any attempt to “exclude or restrict” liability for misrepresentation is subject to the test of “reasonableness” in the Unfair Contract Terms Act 1977.

The Court of Appeal found that the non-reliance clause in the lease was an attempt to re-write history to negate a liability that has arisen by statute. It was not simply defining the parties' primary obligations – so it was in substance an exclusion. The test is whether the clause has the effect of excluding liability for misrepresentation. It does not matter how that it is done.

So, the Court of Appeal went on to dismiss the landlord's appeal holding that the relevant clause was unreasonable. This was notwithstanding that it had been negotiated by equally matched commercial parties with the benefit of legal advice. In the context of conveyancing, where pre-contract enquiries are of particular importance and heavily relied on by conveyancers, a clause that agreed that such representations were not relied upon was not reasonable. A blanket non-reliance clause would make this whole process pointless, hence it was unreasonable.

The landlord had another exclusion-related problem. The landlord held the property as trustees and had limited their contractual liability to the trust assets. However, the liability for misrepresentation was a liability under statute. Nothing in the wording of the limitation clause covered pre-contract or non-contractual liability. The limitation of liability clause would not apply to the damages due in respect of the misrepresentation. The trustees were therefore personally liable out of their own assets. Therefore it is important to remember to cover non-contractual obligations in any trustee limitation of liability clause.

So the message is that even in commercial contracts, exclusion of liability clauses can be unreasonable and fail to protect the party for whom they are intended. Careful consideration has to be given to the wording of exclusion clauses. It is better to avoid drafting such a clause too widely and risk that the whole clause will be void as a result.

Electronic Communication Code rights will not always trump contractual obligations

The recent County Court decision in PG Lewins Limited v (1) Hutchison 3G UK Limited and (2) EE Limited [2018] has confirmed that operators cannot use their statutory rights under the Electronic Communications Code to undermine compliance with their contractual obligations. Whilst the decision relates to an agreement governed by the old Electronic Communications Code which existed before the Digital Economy Act 2017 introduced a new Code from 28th December 2017 it will still be relevant to code agreements which are subject to the new Electronic Communications Code as explained below.

When negotiating electronic communications agreements landowners will often include a "lift and shift" provision which requires the operator to relocate its apparatus in certain circumstances.

This case underlines the fact that operators cannot hide behind Code rights to prevent landowners from claiming damages if operators breach their contractual obligations.

As part of a development to convert an office building into residential apartments the developer landowner agreed with the operators that their equipment would be temporarily relocated onto scaffolding and then returned to a new permanent position on the roof. The contract recorded the detail of the "lift and shift" provisions. Initially all went well but the operators delayed moving their equipment back onto the roof and the developer was forced to apply for an injunction to force the operators to do the necessary works. As a result the operators expedited the works and the injunction application was settled amicably. However the operators alleged that they were not liable for damages for breach of contract because the landowner had failed to serve the correct notices under the Code to trigger the statutory relocation procedure. Furthermore as the Code provided the Operator with a statutory right of occupation the operators were therefore immune from an action for breach of contract.

The judge considered that this was not a case of the landowner seeking to remove the electronic communications apparatus which would be governed by paragraph 21 of the old Code. Instead it related to alterations to the apparatus which are permitted by paragraph 20 of the old Code. The phased relocation of the apparatus was an “alteration” so paragraph 21 did not apply. Removal did not mean mere detachment.

The developer could not have served a valid notice under paragraph 21 to require removal of the apparatus because it had no right at the material time to require removal of the apparatus. However, there was no need to adopt the paragraph 21 procedure because the landowner was not seeking removal of the apparatus. Neither was there a requirement for the landowner to serve a paragraph 20 notice to require the alteration of the apparatus because the landowner had contractual rights on which it could rely.

It is not possible to "contract out of" of Paragraph 21 but that does not apply to paragraph 20. The judge considered that an express contractual "lift and shift" provision can take precedence over paragraph 20 even if paragraph 20 has not been expressly excluded from the agreement. He was of the opinion that the prevalence of the terms of the agreement “seemed self- evident” to him.

In support, the judge pointed to paragraph 2(5) of the old Code which provides that a Code right "shall not be exercisable except in accordance with the terms subject to which it is conferred". In addition, paragraph 27(2) of the old Code provides that the provisions of the old Code "shall be without prejudice to any rights or liabilities arising under any agreement to which the operator is a party".

So the old Code did not provide any defence to the developer's claim that the operator had breached the terms of the "lift and shift" provision in the agreement. The message is clear: the terms of the "lift and shift" provisions in the agreement trumped Paragraph 20 of the old Code whether or not Paragraph 20 had been expressly excluded in the agreement.

Although this case is about the old Code the principles established by this decision will apply to code agreements under the new Code because Paragraph 27(2) of the old Code is replicated in Paragraph 100(1) of the new Code and paragraph 2(5) of the old Code is replicated by Paragraph 12(1) in the new Code.

So, in conclusion the terms of the agreement will take precedence on the issue of lift and shift. The decision confirms that operators cannot ignore their contractual obligations and must comply just like any other contracting party. As the new Code does not include any statutory lift and shift procedure it will be critical to include contractual "lift and shift" provisions when acting for a landowner who is entering into agreements with operators under the new Code.

Written variations only

Many written contracts provide that they can only be varied in writing (or with some other formality). Such clauses are commonly called "no oral modification" or "NOM clauses". There has long been doubt whether in English law such clauses are effective, i.e. whether in fact the parties can, using their freedom of contract, form a subsequent oral contract overriding the original written contract or whether their earlier contract limits that freedom to only being exercisable in writing.

The Supreme Court has now answered the question, in Rock Advertising Limited v MWB Business Exchange Centre Limited [2018]. The facts do not much matter other than that one party to a written contract (with a NOM clause) sought to rely on a subsequent oral variation contract (which the judge found had been validly made, i.e. there was certainty and consideration) and the other party argued that the oral contract was ineffective in light of the NOM clause.

There are three possible answers to the question:

1. the NOM clause is effective and can only be varied by a written contract;
2. the NOM clause can be varied by an oral contract if that oral contract expressly (or by necessary implication) varies the NOM clause; and 
3. the NOM clause is ineffective and the contract can, despite what the NOM clause says, be varied by an oral contract.

In a majority judgment the Supreme Court held that there were good reasons for including NOM clauses. These included:

• it prevents attempts to undermine written agreements by informal means, a possibility which is open to abuse, for example in raising defences to summary judgment;
• in circumstances where oral discussions can easily give rise to misunderstandings and crossed purposes, it avoids disputes not just about whether a variation was intended but also about its exact terms; and
• a measure of formality in recording variations makes it easier for corporations to police internal rules restricting the authority to agree them.

Furthermore there are no strong policy reasons for allowing an oral variation in the face of a NOM clause; both parties should be aware of what they originally agreed and can avoid the problem by insisting on a written variation. Where that leads to real injustice the safeguard lies in the various doctrines of estoppel.

In conclusion, NOM clauses mean what they say.

Invalid notice scuppers tenant's ability to terminate agreement for lease

In Ropemaker Properties Limited v (1) Bella Italia Restaurants [2018] a landlord had entered into a conditional agreement for lease with a prospective tenant and its guarantor. The agreement provided that either the landlord or the tenant could terminate the agreement if the conditions were not satisfied by the long stop date by "giving written notice to the other and the guarantor". The agreement provided that valid service did not include fax and email and further stated that any notice served on the tenant and its guarantor was to be sent "c/o of the property director" of the tenant company. 

The tenant decided to terminate the agreement and the tenant's lawyer served notice on the landlord and sent a copy of the notice to the property director of the tenant company by email for its records.

The landlord argues that the notice was invalid because the tenant's lawyer has failed to serve notice on the guarantor as required by the agreement.

The tenant and guarantor (group companies) sought to argue that on a “natural interpretation” of the relevant clause and “as a matter of commercial common sense”, only the landlord should have to serve notice on the tenant’s guarantor, not the tenant. On the facts, Fancourt J held that no express waiver or waiver by conduct could be made out and in any event, agreed formalities must be complied with precisely, whether or not that might mean the notice is considered invalid on a “very technical and unattractive basis”. Applying the Court of Appeal decision in Siemens Heating Instruments Ltd v friends Life Limited [2014] - a failure to comply with such formalities will invalidate the notice and “it makes no difference that the requirements were substantially complied with or had no apparent purpose or benefit”.

The tenant’s lawyer had, of course, sent a copy of the notice to the property director of the tenant company by e-mail. But the notice was addressed to the landlord – and not to the guarantor. And e-mail was not a valid form of service under the agreement. A written notice to the guarantor should have been prepared and served on the “property director” of the tenant company using one of the methods of service prescribed by the agreement. It should have made it clear on its face that it was a notice to the guarantor and should have been copied to the tenant’s lawyer.

The effect of this finding was that after the tenant's invalid notice to terminate (i) the landlord had successfully made the agreement for lease unconditional, requiring the tenant to complete, and (ii) that the tenant’s second attempt to serve a notice to terminate, whilst it otherwise complied with the relevant formalities in the agreement could not be effective as the agreement had already become unconditional.

This case reminds us of the need to comply with the formalities for service of notices to the letter, even though such requirements have no apparent purpose or benefit.

The lease/licence conundrum and a £1m claim for loss of quiet enjoyment

The recent case of London College of Business Ltd v Tareem Ltd [2018] involved an agreement which described itself as a licence. It granted permission to the college to occupy premises for the purposes of its teaching business. The licence was personal to the college and was inalienable. The college was liable to pay a fixed service charge in respect of services relating to the use and occupation of the premises. 

Street v Mountford [1985] is still the leading authority that the grant of exclusive possession creates a lease. It does not matter what label the parties use to describe the document or, indeed, whether rent is payable. If the substance and effect of the arrangement is to grant exclusive possession then it will be a lease.

The college had missed some service charge payments and on the basis of the terms of the licence the landowner sought to terminate the licence for unpaid service charge and excluded the college from the premises. As a result a dispute arose as regards the effective termination of the agreement and the exact nature of the agreement between the parties. The college argued that they had a lease and were therefore entitled to quiet enjoyment of the premises.

The landowner pointed to the express wording of the agreement. He indicated that the college had been moved around the building as a result of successive short term agreements (some of which overlapped). Therefore the college did not have exclusive possession of any particular premises. He argued that this flexibility was indicative of a licence.

Where an agreement has been negotiated between parties of equal bargaining power, with the benefit of legal advice, the court may be reluctant to disregard the parties’ express statements as to the nature of the relationship created: Clear Channel UK Ltd v Manchester City Council [2006]. But in this case the parties had not had equal bargaining power – and the college had not taken legal advice.

The payment of a service charge and the ability to terminate on 14 days’ notice in the event of breach of covenant or failure to keep up to date with payments were consistent with the creation of a lease. Furthermore, the fact that the land owner had expressly reserved rights to enter the premises to manage and control them suggested that the college was entitled to exclusive possession of those premises.

Therefore, the agreement took effect as a lease, which was protected by Part II of the Landlord and Tenant Act 1954.

When is a landlord reasonable in refusing a tenant's application for planning permission

The Court of Appeal has given its judgement in Hautford v Rotrust Nominees [2018]. 

In this case the tenant had a lease for 100 years, from 1985, of a building in Soho. It was mixed use, with retail, office and residential parts. Critically, the lease permitted residential use anywhere in the building. The tenant wanted to convert the whole of the building to residential and, ultimately, wanted to acquire the freehold by enfranchisement under the Leasehold Reform Act 1967 (the LRA). But only the top floors had planning permission for residential, so the tenant needed to apply to the local authority for planning permission for the change of use to residential for the remainder of the building. Under the lease, the tenant needed landlord's consent to make applications for planning permission, which was not to be unreasonably withheld.

The tenant refurbished the building and carried out the conversion – no planning permission or landlord consent was necessary for the works. It then applied to the landlord for consent to make the planning application for change of use. The landlord promptly refused because full residential use might facilitate a claim by the tenant to acquire the freehold.

In the past, court cases had held that refusals of consent, for this reason, were reasonable. The landlord might therefore have believed that it would win its case. But the leases in those old cases were granted before the enfranchisement legislation was introduced. The compensation for landlords at that time was also much less favourable. Courts therefore sympathised with landlords who felt ambushed by their tenants' new rights and wanted to retain the status quo.

When Hautford's lease of the building in Soho was granted, however, the enfranchisement laws were already in place. Knowing about the legislation, the original parties had nevertheless agreed a lease that expressly permitted residential use throughout. So the original landlord must have accepted the risk of a tenant converting to residential, and then potentially acquiring the freehold. Refusing on that basis was therefore unreasonable.

Master of the Rolls Sir Terrence Etherton said that the "starting point" for the court was "to ascertain the purpose of the covenant intended by the original parties to the lease". In this case, the user covenant expressly authorised the use of the entire property as residential, so the covenant was clearly not designed to "preclude the residential use of the first and second floors in order to prevent enfranchisement of the property pursuant to the LRA".

Policy and new developments 

Guidance on MEES exemptions

Guidance has been published by the Department for Business, Energy and Industrial Strategy. It outlines the exemptions available to landlords under the Minimum Energy Efficiency Standard. The MEES regulations prohibit landlords from letting sub-standard properties ( EPC rating below E) without a valid exemption. The guidance outlines the type of evidence required to claim a particular exemption. The landlord must enter the necessary details in the PRS Exemption Register. An exemption will last 5 years and a landlord will need to apply again for the same exemption or a new one at that point. 

The full guidance can be accessed here. 

Removing charges from the registered titles

HM Land Registry will carry out enhanced checks when an application is made to remove a charge from a registered title using a paper form DS1/2 to help identify and prevent fraudulent applications. Such checks will be initiated on a random basis and will mean, some applications may take longer to complete. 

This is aimed at encouraging lenders to use an electronic discharge which is sent to HM Land Registry directly from the lender.

Nuisance claims for Japanese Knotweed

The recent Court of Appeal case of Network Rail Infrastructure Limited v Williams has upheld the previous County Court decision, but for different reasons. 

The County Court originally held that for a nuisance claim to succeed, there did not need to be any physical damage to property. The respondents were awarded damages in excess of £30,000 for loss of amenity against Network Rail. This sum was based on the loss in the value of the respondents’ properties caused by the presence of the knotweed.

The Court of Appeal held that private nuisance claims relate to interference with the use and enjoyment of the property, rather than protection of the market value. As such, damages for nuisance should not be linked to the diminution in value but should compensate for loss of use and enjoyment. The presence of the knotweed would increase the costs of any future development of the property and this increase in cost should therefore be the basis of the damages claim.

The Court of Appeal firmly established that, physical damage isn’t necessary as a pre-requisite to a successful nuisance claim as long as there is some identifiable loss of amenity.

As a result a more proactive approach will be needed from landowners who have already identified knotweed on their land so that potential claims can be avoided.

The CRC Energy Efficiency Scheme is over

The CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 will come into force on 1 October 2018 and will abolish the CRC when its current phase ends. From 1 April 2019 onwards, there will be no further requirements to record energy consumption under CRC. The final CRC allowances must be purchased and surrendered by the last working day of October 2019. 

The Government has already legislated to increase the Climate Change Levy in 2019, but is pressing ahead with a new mandatory reporting regime that broadly follows the Energy Savings Opportunity Scheme (ESOS). Implementation will require draft legislation, but this will be in line with the Government's recommendations which can be found here.

Reform of the enfranchisement regime

The Law Commission has published its proposals for a complete overhaul of the enfranchisement regime which allows leasehold owners of flats and houses to acquire the freehold reversion.

Following hot on the heels of plans by the Government to ban the sale of houses on a leasehold basis, the Law Commission body is outlining a range of measures to help existing leasehold homeowners buy the freehold of their houses.

These include:

• options for changing the valuation formula, by examining how to reduce the price while providing sufficient compensation to landlords

• making it easier for homeowners to buy the freehold
• removing the requirement that leaseholders must have owned their house for two years before making a claim
• introducing an alternative right to purchase unlimited longer lease extensions without a ground rent – of (say) 125 or 250 years

A full consultation paper is likely to be issued in Autumn 2018.

The Law Commission position paper can be accessed here.

Retail CVAs

Trading conditions on the high street continues to be challenging and it is therefore no surprise that retailers and food outlets are using CVAs as a means of restructuring their businesses. Retail tenants often have a large portfolio of leasehold properties and a CVA can allow lease obligations to be restructured on a large scale with the closure of unprofitable stores.

A CVA involves a proposal by the company's directors to its unsecured creditors for a compromise in satisfaction of its debts. If 75% or more in value of the company's unsecured creditors vote in favour of the proposals they become binding upon all the company's unsecured creditors.

A CVA can only be challenged on the basis that the arrangements unfairly prejudice the interests of a creditor or there was a material procedural irregularity. The challenge application must be made within 28 days of the CVA approval or (if a creditor was not given notice of the creditors' meeting) within 28 days of becoming aware of the decision.

Unfair prejudice is a question of fact, determined on a case-by-case basis. A CVA which treats different unsecured creditors in different ways may be prejudicial to those creditors. In a retail CVA landlords are often treated differently from other unsecured creditors but the question of fairness depends on the overall effect of the CVA. Material irregularity is also a question of fact arising out of the conduct of the decision procedure used to consider the CVA proposal.