Recent developments in real estate

European Court of Justice provides guidance on when restrictions in leases may be anti-competitive

The Court of Justice of the European Union (CJEU) has recently provided guidance on when the provisions of a lease (which gave a supermarket "anchor tenant" the right to veto the grant of leases of other units in the shopping centre to competitors) may be anti- competitive.¹

The CJEU confirmed that the lease did not have an anti-competitive "object" and was therefore not automatically illegal. This is consistent with the UK Competition & Markets Authority (CMA) guidance on land agreements. Therefore, for an infringement of competition law to be established, it had to be shown that the agreement had sufficient adverse "effect" on competition.

Section 2 of the Competition Act (the 1998 Act) prohibits agreements between undertakings that prevent, restrict or distort competition (the Chapter 1 prohibition). If an agreement falls within the scope of the Chapter 1 prohibition, it may benefit from an exemption under s.9 of the 1998 Act where it:

• contributes to:
• improving production or distribution; or
• promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit; but
• does not:
• impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or
• afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.

The CJEU stated that commercial leases for units in shopping centres are not, by their nature, harmful to competition in the retail market. This is so even if they contain clauses that allow one retailer to prevent a competing retailer from leasing space in the same shopping centre. Accordingly, the leases did not have the "object" of restricting competition.

Therefore, the CJEU needed to go on to decide whether the leases had actual or potential negative effects on competition in the relevant retail markets (by excluding competing retailers from the local market for food retailing in each area), whether individually or cumulatively with other similar agreements. It emphasised that a thorough analysis of the relevant market and the agreement's effects on competition must be undertaken.

The CJEU provided useful guidance on this issue. Only where the terms of the lease and any similar agreements cumulatively foreclose the market (i.e. close off the market to new food retailers) so as to appreciably restrict competition will it be necessary to assess the lawfulness of an individual lease. Furthermore, for an individual lease to be unlawful, it must be shown that it makes an appreciable contribution to the market foreclosure. This will depend on the market positions of the parties and the agreement's duration. UK guidance indicates that it is unlikely to pursue enforcement action against exclusivity arrangements where none of the parties has a market share of less than 30 per cent.

An individual agreement will infringe competition law only if: (a) the relevant retail market is foreclosed because some or all rival retailers are unable to trade in the defined catchment area; and (b) that agreement makes an appreciable contribution to the foreclosure. If it does, it should be considered whether the agreement satisfies the criteria for an exemption.

Conclusion

While the provisions of some leases may have anti-competitive effects, many will not. This ruling appears to endorse current market practice that such lease provisions are often necessary to secure an anchor tenant to ensure the financial viability of the development. In order to identify which agreements will infringe competition law, the relevant markets must be defined and the effects of the agreement must then be analysed. These effects cannot be presumed. Even if an agreement does have the effect of appreciably restricting competition, it may still benefit from an exemption and be enforceable.

Apportionment of rent paid in advance on exercise of a break option

The Supreme Court has confirmed the reversal of an earlier High Court decision that would have allowed Marks & Spencer to recover over £1m in rent and other charges from its landlord through the exercise of a conditional break clause. For a detailed analysis of the Supreme Court decision in Marks & Spencer PLC -v- BNP Paribas Security Services Trust Company (Jersey) Limited, please click here.

Compensation for inaccurate highways search

Chesterton Commercial (Oxon) Ltd -v- Oxfordshire County Council ^2,3 concerned a family-run property development company that acquired three properties in Henley-on-Thames for £1.245m. The registered title included land fronting the properties comprising car parking spaces. Chesterton Commercial wanted to redevelop the property into mixed use commercial/residential accommodation, each with the benefit of their own valuable parking space.

The results of Chesterton's local search indicated that the land at the front of the properties did not form part of the public highway and was not maintainable at the public's expense. This was important because there was a shortage of car parking in the town and the inclusion of the parking spaces increased the price paid for the properties. Unfortunately, it subsequently emerged that the local search was incorrect. The County Council was seemingly unaware that the land in question had been the subject of correspondence between the Henley Society, a local conservation group, and officials at Henley-on-Thames Town Council, as to whether the land formed part of the public highway. The land in question had formed part of the main road from Oxford to Marlow for hundreds of years, but had fallen into disuse when the route of the highway was changed in the early 1900s.

However, "once a highway, always a highway". This legal principle still holds true, and it remains the case that public highways can only lose this status if a formal "stopping- up" order is applied for and approved by the relevant authority. It cannot come about by abandonment or lack of use.

At first, the County Council refused to accept that the land formed part of the public highway. However, the Court heard how the County Council had been carrying out investigations for over a year with the assistance of a local highways expert who had confirmed in writing that the land certainly did still form part of the highway; a position clarified by an independent local counsel.

The Court was unsympathetic to the County Council's defence that it was sufficient that the search result accurately showed what was currently designated as a "highway". The Court held that the County Council should have at least made a note that the matter was under investigation rather than state that the land was not a highway.

The Council was found to owe a duty of care to the claimant (under the principle established in the case of Hedley Byrne -v- Heller). In particular, councils should be well aware of the purpose of search results in conveyancing, and that a buyer places reliance on the contents of such results. As such, the County Council had acted negligently.

Chesterton recovered £240,000 in damages (which was the reduction in value of the property at the date of Chesterton's purchase, due to the loss of car parking spaces, had the Council's search result been correct). Significantly, Chesterton was prevented from claiming for loss of development profits. The Court decided that the Council could not reasonably be expected to know the claimant's intention on purchasing the property. In order to recover loss of development profits, it would have been necessary to make the Council aware that the property in question was being purchased for development purposes.

Right to rent

From 1 February 2016, landlords in England must comply with the "right-to-rent" rules imposed by the Immigration Act 2014. Failure to comply with the rules may result in possible fines of up to £1,000 for a first-time offence and up to £3,000 for further offences, if the property is rented to an individual who does not have the legal right to be in the UK. This fine will be payable for every illegal tenant and adult occupant found to be at the property.

Private landlords or their agents will be required to carry out checks on the prospective tenants and all other authorised adults living at the property provided it is their only or main home within 28 days before the grant of the tenancy, to confirm that they have the right to stay in the UK and this right will not lapse during the course of the tenancy.

Original documents, proving that the individual(s) concerned do have the right to stay in the UK, should be requested and landlords or their agents should keep copies of these as well as identity evidence.

It is also necessary to carry out further checks to ensure that tenant(s) and any authorised adult resident continue to have permission to stay in the UK, where initial checks reveal that the tenant only has a temporary right to remain.

In the event that the tenant does not pass the first check or further checks, then this must be reported to the Home Office. Failure to do so may result in the financial sanctions mentioned.

The following tenancy agreements are excluded from the "right-to-rent" rules:

• accommodation arranged by the local authority;
• social housing;
• care homes, hospitals and hospices, and continuing healthcare provision;
• hostels and refuges – this applies to hostels and refuges that are managed by social landlords, voluntary organisations or charities, and which are not operated on a commercial basis. Either the whole or part of the operating costs needs to derive from a government department, agency or a local authority;
• mobile homes – this applies to those mobiles homes which fall within the Mobile Homes Act 1983;
• tied accommodation – this applies to accommodation provided by an employer to an employee, or by a training provider to an individual in connection with the training provided;
• student accommodation; and
• long leases for a term of seven years or more but this exception does not include tenancies which contain a break clause exercisable before the end of the seven-year term.

Specific performance of future obligations

In the case of Airport Industrial GP Limited -v- Heathrow Airport Limited and AP16 Limited,⁴ the Court was asked to decide the proper approach to be taken by the Court when asked to make an order for specific performance in circumstances where the contract imposes building obligations that are not framed by reference to a specification and merely require the relevant party to achieve a particular result. Is it appropriate, when making an order for specific performance, to allow time beyond that needed for strict performance of the contractual obligation so as to enable the party in breach to both comply with its contractual obligations and to extract greater value from the land?

Judgement was given in this case by Mr Justice Morgan in January 2016. He held that the claimant was entitled to an order for specific performance compelling the defendant to build a car park in accordance with the defendant's contractual obligation to provide 280 car parking spaces from 23 October 2016. The defendant had wanted to construct a 2,000- space multi-storey car park but did not have planning permission for that development, which would take up to three years to design and construct. A simple surface car park for 280 could have been built within a year but would have provided no financial return for the defendant.

The judge held that the defendant should be ordered to build a car park within an extended period expiring on 22 October 2018, giving it the opportunity to carry out a more profitable development, but on the condition that it deposited funds to cover losses likely to be caused to the claimant by the delay, and on condition that it achieved planning and construction milestones over the extended period of time, failing which it would have to build the surface car park instead.

The judge held that, notwithstanding that the defendant would not be in breach of its obligation to provide parking spaces until 23 October 2016, the Court could order it to take steps before that date arrived with a view to achieving compliance with obligations set at a later date.

Environmental Impact Assessments (EIAs)

R (on the application of Roskilly) -v- Cornwall Council and others⁵ contains a cautionary tale relating to EIAs. Following a request from an objector, the local planning authority (LPA) issued a screening opinion to the effect that development proposals did not amount to EIA development and therefore an Environmental Statement (ES) was not required. The objector then asked the Secretary of State (SoS) to adopt a screening direction.

Before the SoS responded, the LPA granted planning permission. Two months after the date of grant, the SoS issued a screening direction to the effect that an ES was required.

The objector applied to the High Court to quash the permission, which the Court did, on the basis that the decision of the SoS was binding and determinative, therefore permission had been granted for EIA development without the requisite environmental information being submitted. Accordingly, the resultant permission was unlawful.

While the challenge was brought outside the six-week limitation period (11 weeks after the date of grant of permission), the Court was of the view that there were clear and sensible reasons for the delay and therefore it was appropriate to extend the time period.

This case will no doubt provide objectors with another tool to slow down the development process and, as such, should be considered when taking decisions relating to the implementation of permissions and where contracts are conditional on securing planning permission.

Housing and Planning Bill

On 13 October 2015, the Government published the Housing and Planning Bill and accompanying explanatory notes. The Bill's provisions include:

• the expansion of the NSIP Regime to allow applications for Development Consent Orders to include housing if linked to a major infrastructure project;
• the creation of registers of brownfield land;
• the ability of the Secretary of State to intervene if local plans are not effectively delivered;
• requirements relating to starter homes;
• changes to the CPO regime; and
• a mechanism for the resolution of disputes when negotiating planning obligations.

The Bill has had its third reading in the House of Commons and is now being considered in the House of Lords. The following hyperlinks are to the Bill as introduced into the House of Lords and the explanatory notes which accompany this latest version of the Bill.

Autumn Statement

Following the key themes in the Housing and Planning Bill, George Osborne, in hisAutumn Statement, announced five measures to "back families who aspire to buy their own home":

• Help to buy shared ownership: current limits will be lifted from 1 April so that anyone with an income of £80,000 (£90,000 for Londoners) will be able to buy a home through shared ownership;
• London help to buy: from early 2016, for those living in London with a five per cent deposit, a government loan of up to 40 per cent will be available to help purchase a property in London;
• Starter homes: £2.3bn will be spent on building 200,000 starter homes over the next five years, the money being given to house builders to provide a 20 per cent discount on new homes;
• Housing Association right to buy: as of 26 November 2015, five housing associations will be offering the right to buy to their tenants in a pilot scheme; and
• Tax on second homes: funding for the new measures will be raised by increasing stamp duty on second homes and buy-to-let properties by an additional three per cent.

Permitted development rights

On 13 October 2015, the Government announced that the temporary permitted development rights which enable offices to be converted into homes will be made permanent. The rights were set to expire on 30 May 2016.

The headline points are:

• where a scheme already benefits from the permitted development rights (as a result of the determination of a prior notification application), there will be a three-year period in which to complete the change of use;
• the rights will be extended to allow the demolition of office buildings and the construction of new buildings for residential use;
• they will also be extended to allow light industrial buildings and launderettes to be converted to new homes; and
• if local authorities wish to continue determining planning applications for such changes of use, they will have until May 2019 to make an Article 4 direction to exempt the permitted development rights in their administrative area (or part).

At present, 17 local authorities have used existing powers to exempt individual buildings, roads or zones, including the London Central Activities Zone and Manchester City Centre, from the rights. These exemptions will remain in place until May 2019, after which the rights will need to be removed by way of an Article 4 direction.

Substituting planning permissions

The Court of Appeal decision in R (on the application of Robert Hitchens Ltd) -v- Worcestershire County Council⁶ confirms that it is possible to substitute planning permissions during the course of development to reduce the burden of section 106 obligations.

In brief, planning permission was granted for a residential scheme subject to a section 106 agreement. This required a contribution to be made to the highway authority for transport infrastructure and services (along with other obligations). Following implementation of the permission (and payment of the first instalment of the transport contribution), a second identical permission was secured at appeal. The inspector concluded that the impact of the development was not severe enough to warrant a transport contribution, so it was excluded in the accompanying section 106 agreement.

The developer then gave a unilateral undertaking to the local planning authority and the highway authority which provided that the developer intended to implement the second permission and would dispense with the implementation of the first, and the High Court granted a declaration to the effect that no further instalments of the transport contribution could lawfully be sought. The highway authority appealed.

The Court of Appeal dismissed the appeal and held that the developer was entitled to "switch horses" and continue the development pursuant to the second planning permission. In doing so, the requirement to comply with the terms of the first planning permission (and the payment of the remaining instalments of the transport contribution) would be dispensed with. On a proper construction of the unilateral undertaking, there was a clear intention on the part of the developer to implement the second permission going forward and undertake no further works pursuant to the first.

It did not matter that it was not clear from the works being carried out which planning permission was being implemented. The unilateral undertaking clarified which was the relevant permission.

The case raises interesting questions about different strategies that developers may utilise to alter the planning obligations to which their development is subject, outside the traditional method of varying the terms of the section 106 agreement. It also highlights that in cases of uncertainty (and where it is in a developer's interests to resolve that uncertainty), a unilateral undertaking whereby the developer sets out its intentions may be a useful tool to clarify those intentions with a view to avoiding future disputes.

Affordable housing and viability SPDs

The London Boroughs of Southwark and Islington have published draft supplementary planning documents (SPDs) that, if adopted, will require financial viability assessments (FVAs) to be submitted and made fully public in certain cases: in Southwark, where the application does not comply with affordable housing policy requirements; and in Islington, for all major residential applications.

Hounslow already requires a fully public FVA for certain applications and Greenwich is proposing to do the same, while the London Assembly Planning Committee held a meeting on 17 November 2015 to seek views from consultants and academics about viability and to lay the groundwork for dedicated supplementary planning guidance on viability.

Additionally, Islington recently reported that it had received correspondence from the Government stating that the Government's "unambiguous policy position" is that land or site value should "reflect" affordable housing policy requirements. Accordingly, Islington will not accept viability issues as a reason for reducing the provision of affordable housing where land value has not taken their policy requirement into account.

Community Infrastructure Levy (CIL) Review Panel

Greg Clark, Secretary of State for the Department for Communities and Local Government, has appointed a seven-member panel to conduct a review of CIL. The panel's membership comprises Liz Peace (former chief executive of the BPF), Gilian Macinnes (PAS), Steve Dennington (Croydon Council), Tom Dobson (Quod), Andrew Whitaker (Home Builders Federation), John Fuller (leader, South Norfolk District Council) and Michael Gallimore (Hogan Lovells).

The panel's overarching remit is to:

• assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure; and
• recommend changes that would improve its operation in support of the Government's wider housing and growth objectives.

To inform the panel, DCLG launched a consultation which sought the views of those with experience of the current regime, which ran until 15 January 2016.

It is expected that oral evidence sessions and meetings will take place in January and February 2016, and the preparation of a report to Ministers will take place in March and April 2016.

The final report will help inform any recommended future changes to improve the CIL system, delivery of infrastructure and community engagement. The backdrop to the report will also be the Government's manifesto promise to ensure that when new homes are granted permission, communities will know that necessary infrastructure will be provided by the CIL system.

Tall buildings

Historic England has published an updated advice note on tall buildings and recommends that the following steps are taken when planning for tall buildings:

• Assess appropriate locations for tall buildings in the local plan.
• Use the local plan to take a managed approach to development.
• Identify the elements that create local character.
• Discuss proposals before making a planning application.
• Consider the cumulative effect of other concurrent tall building proposals.
• Set high standards of design.
• Give consideration to the building's public space and facilities.

Nationally Significant Infrastructure Projects (NSIPs) and Cumulative Effects Assessments (CEAs)

The Planning Inspectorate has produced a new guidance note which deals with the assessment of cumulative effects as part of the Environmental Impact Assessment process for Development Consent Orders (DCOs).

• a brief description of the legal context and obligations placed on an applicant, with respect to cumulative effects under national planning policy and regulation 3 of the EIA Regulations;
• an overview of the CEA process that applicants may wish to adopt for NSIPs; and
• advice regarding a staged approach and the use of consistent template formats for documenting the CEA within an applicant's Environmental Statement.

National Infrastructure Commission (NIC)

The Government has launched a consultation to seek views on the governance, structure and operation of the newly formed NIC. The consultation will run until 17 March 2016.

Chapter 7 of the consultation document deals with planning and sets out the Government's intention of ensuring that the planning system takes account of the NIC's recommendations by making them material considerations or by incorporation into National Policy Statements.

_Notes

_{¹ Case C-345/14, SIA "Maxima Latvija" Ltd -v- Konkurences pardone.
² [2015] UKSC 72.
³ [2015] EWHC 2020 (Ch).
⁴ [2015] EWHC 3753 (Ch).
⁵ [2015] EWHC 3711 (Admin).
⁶ [2015] EWCA Civ 1060.}