Welcome to the first issue of Property Matters, our new quarterly bulletin focusing on legal issues and key developments that affect your property interests.
With everyone trying to beat the market and make the most of their property, it is important to stay ahead of the game. Recent events can only enhance the importance of knowing exactly what is involved in owning and/or managing a property.
At Morrisons, we understand the value and importance of property, whether as a business asset or investment or as a place to call home. We hope you enjoy this update and if you have any suggestions or feedback, please do not hesitate to get in touch.
Unchartered waters – when a trespasser tries to claim ownership of the Thames
20 years after mooring his houseboat on a stretch of the Thames without permission, Mr Mendoza claimed ownership of the riverbed through the process of “adverse possession”. His claim was considered in the recent case of Port of London Authority v Mendoza .
What is adverse possession?
Adverse possession is the process by which a squatter acquires ownership of land through long term trespassing. It is a principle of law which some find difficult to accept because, in effect, it deprives the true of owner of his land and hands it over to someone who has been trespassing on it.
What amounts to adverse possession depends on the facts and circumstances of each case. However, it is usually characterised by a degree of physical control. In the case of open land for example, the erection of fencing is usually strong evidence of factual possession. Therefore, when it comes to adverse possession of a riverbed, the usual rules of physical possession are more difficult to satisfy.
This is what Mr Mendoza faced in this case when he tried to claim ownership of the riverbed and foreshore on a tidal stretch of the Thames. Mr Mendoza had lived on a houseboat on the same mooring since November 1997. The boat was moored to a post and concrete piers and Mr Mendoza had dropped anchor and used ropes and rocks to define his property; namely the rectangle area of the riverbed beneath his boat. It is this area that Mr Mendoza wished to claim ownership of through adverse possession.
Initially, the Court found in favour of Mr Mendoza. However, the decision was reversed on appeal.
A key factor in the decision was Mr Mendoza’s failure to prove an intention to possess. In these circumstances, intention is inferred from the trespasser’s actions.
In this case, the Court concluded that there was nowhere near enough evidence to conclude the requisite intention to possess. They said that the mere act of mooring a vessel in itself is insufficient to betray an intention to possess that mooring and the riverbed beneath it.
This case does not establish any new legal principles and it does not mean that you can never acquire a stretch of riverbed by adverse possession.
However, the case is interesting because it highlights an “intention” to possess as a distinct and equally important element to any claim for adverse possession. So often in these cases the facts surrounding the factual possession are enough to infer an intention to possess. It is rare to have one without the other. It is possibly due to the unusual circumstances of this case that the Court was able to make this distinction. Nevertheless, it highlights the importance of ticking all the boxes before satisfying the test for adverse possession.
How long is left to run on your lease? Beware of the long leasehold pitfalls – lease terms and ground rents
by Cathryn Pernstich
Owning a freehold subject to long leases or owning a long leasehold interest in a property is quite a common occurrence. It is important to keep track of the remaining term on a long lease as the value of the lease (as an asset) can reduce considerably if the remaining term is less than 80 years.
Once the remaining term is less than 80 years, the value of the lease (as an asset) starts to depreciate. This can make it hard to sell that lease as mortgage companies become reluctant to lend on it and its investment value also begins to decrease.
According to the Home Owners Alliance – a consumer body for property owners – when there is about 60 years left to run on the lease term, the cost of extending the lease term increases by about 1% of the value of the property each year. So, if the property is worth £250,000, the price for extending the lease term will go up about £2,500 a year.
Putting the extension of the lease term in place can be complicated and you will require specialist advice, so it is probably best to act sooner rather than later.
Have you factored in the cost of the ground rent over the term of the lease?
Ground rent is an annual payment made by a leasehold owner to a freehold owner. It is the rent for the ground the property sits on. In the past, this was little more than a “peppercorn” rent if it was collected. More recent times have seen these set at quite significant amounts that increase over the lifetime of the lease.
Many leases will reserve a ground rent of a specified figure, with that figure increasing at specific times in specific ways. Examples are a doubling of the rent every 25 years or an increase by the current rate of inflation at that point in time. It is essential to review the ground rent clause in a lease and to evaluate the liability, as it can result in the leasehold owner being liable for a rent, which could ultimately erode the value of the lease itself. This can then result in the value of the lease being reduced and can scare off potential buyers if mortgage lenders refuse to lend on such a lease.
As an example, a large house builder has recently put aside £130 million in order to review leases that stated the ground rent would double every ten years. The house builder has chosen to put this money aside amidst a scandal involving selling the freehold to specialist investors who have used this clause to their benefit. It is worth noting that this move has been made amidst media pressure and there is no court ruling telling the house builder to do that. There is little evidence that other house builders, or freeholder investors, would be willing to amend the leases which have such terms in them.
It is also worth mentioning the case of Arnold v Britton. This involved the service charge liability under leases. The leases were drafted in such a way that the leaseholders would, over the lifetime of the lease, end up with an annual service charge of £1 million. For a commentary on the case and the findings of the court, please click here:
The moral of the story – look carefully at a lease when purchasing and keep an eye on your lease over time to make sure its value does not depreciate.
A new Electronic Communications Code comes into force… well kind of
The first half of 2017 has been eventful to say the least and, for most people, the enactment of the Digital Economy Act 2017 (the “DEA”) does not stand out as the most important development. But for landowners with telecoms equipment on their property, this is an important development that they ought to be aware of.
The objectives of the DEA are ambitious and wide-ranging. Its provisions range from new rules regarding copyright and trademark protection to the regulation of pornographic websites. From broadband roll-out to the management of data-sharing in the public sector.
All very interesting.
But the most interesting feature of the DEA (from a property point view at least) is the introduction of a new Electronic Communications Code (the “Code”).
This will eventually replace the much maligned Code that was introduced by the Telecommunications Act 1984 and which, until now, had regulated the relationship between landowners and telecoms operators with very little success. For a background to the reform, please see my previous commentary on the subject: Please click here.
The new Code legislation has been limping its way through parliament for over 2 years now. After a number of botched attempts to squeeze it through, it finally passed into law before the dissolution of parliament ahead of the general election (i.e. when everyone was looking the other way…)
Whether it is because of this surreptitious introduction (or whether people have just lost interest), but the new Code has not attracted nearly the same kind of attention as it first did when proposals for reform were first published by the Law Commission in February 2013. It could also be because the new Code is still not effective. The Secretary of State needs to issue regulations to bring it into effect and we have no idea when that might be.
However, landowners need to be aware of how the new Code will affect them, when it comes into force. The key provisions are as follows:
1. Telecoms leases will not attract the security of tenure afforded by the Landlord & Tenant Act 1954. This change should be welcomed by landowners. It removes the uncertainty surrounding the previous arrangement whereby the operator would claim security of tenure under the Code and under the 1954 Act.
2. There will be an express right for operators to share their infrastructure and occupation with other operators. This removes the freedom of the landowner to regulate the use of his land. It is also not clear whether the landowner is entitled to claim a fee from the “sharer”. This is definitely a win for the operators.
3. There will also be restrictions on the landowner’s ability to regulate assignments of telecoms lease to another operator. More loss of control for the landowner.
4. Operators will have an express right to upgrade equipment, provided that the upgrade has “no more than a minimal impact”. This has been a particular source of tension in recent years as operators move to implement new technologies and deliver faster internet speeds. The new provisions of the Code offer landowners very little comfort in dealing with this issue going forward.
5. The Courts will be given the power to assess rents by reference to the open market value of the land, without the presence of the telecoms equipment. This will deprive the landowners from sharing the uplift in value resulting from the use of their land by an operator. It is difficult to see how this won’t depress market values.
6. There will also be a new mechanism for terminating telecoms leases. There will be a new notice period of 18 months and the grounds of termination will mirror those set out in the Landlord & Tenant Act 1954 when it comes to opposing a business tenancy.
7. The new Code will also apply to old agreements under the previous Code (subject to some exceptions and modifications).
The new Code will undoubtedly address some of the uncertainty that has beset the current regime for so long. However, it heavily favours the operator and landowners need to be braced for this.