Leading light

There are currently three areas of interest to property lawyers which have attracted the attention of the Law Commission. At the end of last year, the commission completed its rights to light project, in which key recommendations for reform were made for these important easements. The next area due for review is the operation of the Land Registration Act 2002. The final project will look at terms in residential leases that impose fees where title changes hands, or where there is a change of occupancy. In this article, we look at each area in greater depth.

There were features about transfer fee terms that made them potentially unfair, and that consumers could struggle to understand

Rights to light

We concluded our project on rights to light in December 2014, with the publication of our final report and accompanying draft bill. Our recommendations were informed by over 130 responses to a consultation paper published in February 2013.

For this project, we built upon previous work on easements and covenants, which resulted in the publication of the report Making Land Work: Easements, Covenants and Profits à Prendre.

Rights to light have a particular commercial significance and can have a dramatic effect upon development projects. Much of the controversy in the case law surrounding rights to light has focused on the choice between protecting them by injunction – so preventing development – and compensating infringement by the award of damages. In framing our recommendations, we have had in mind the need for an appropriate balance between the amenity value of light and the rights of homeowners on the one hand, and the need to facilitate socially useful development on the other.

We recommended five key reforms:

• a new statutory test for when damages should be awarded instead of an injunction (this gives the courts a structured discretion; one of the factors to be considered is the public interest, following the reasoning adopted by the Supreme Court in Coventry v Lawrence [2014] UKSC 13);
• a statutory notice procedure, enabling developers to require those who benefit from rights to light to indicate within a specified time if they intend to seek an injunction;
• the repeal of the Rights of Light Act 1959, and an updated procedure for landowners to prevent their neighbours from acquiring rights to light by prescription;   
• amendment of the law relating to the abandonment of rights to light; and
• power for the Lands Chamber of the Upper Tribunal to discharge or modify obsolete or unused rights to light.

Some of these recommendations presuppose the implementation of the recommendations in our 2011 report on easements – in particular, the introduction of a new and unified statutory test for the acquisition of rights to light, along with other easements, by prescription.

Under the commission’s protocol with the Lord Chancellor, we expect an interim response to our report from the Department for Communities and Local Government by June 2015, and a final response by December 2015.

Land registration

Work has now started on a review of the Land Registration Act 2002. The act implemented recommendations made in 2001 by a joint project conducted by Land Registry and the Law Commission. The purpose of the new project is not to reinvent the land registration wheel, but to review the operation of the act 11 years after it was brought into force, and to recommend amendments where experience has shown that improvements may be possible.

Some of the issues we intend to address are practical and relatively minor: for example, whether a discontinuous lease with a total term of less than three years should be registrable. Some are more central to the thinking behind the act, such as its provisions about adverse possession. At the most practical level, we expect to re-examine the act’s provisions about electronic conveyancing.

One crucial issue that will be addressed is the law of rectification and alteration in schedule 4, and the extent and nature of the register’s guarantee of title. Recent case law has revealed considerable uncertainty about the effect of the act’s provisions, and in a context where fraud has become more widespread than it seems to have been under the Land Registration Act 1925, it appears that there is a problem to be solved.

Registration confers legal title (section 58), but what is happening in equity? Was it a mistake not to define “mistake” in schedule 4 to the act? Is Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] EWCA Civ 151 good law under the 2002 act? And do the provisions for indemnity in schedule 8 require amendment to ensure that an indemnity is available wherever it is appropriate for one to be paid?

Part of the answer to the latter question may be given in the judgment of the Court of Appeal in 1st Swift Ltd v Chief Land Registrar (the appeal of an unreported decision of the High Court of 31 January 2014), which is eagerly awaited following the hearing on 13 January 2015. A related issue arises from the decision in Gold Harp Properties Ltd v MacLeod [2014] EWCA Civ 1084, which may have generated some uncertainty about the meaning of retrospective rectification.

The project, therefore, will tidy up some rather niche aspects of the legislation, and engage with some of the key issues underpinning the act and a system of title by registration more generally. We aim to publish a consultation paper in late 2015 – to which responses from across the profession will be most welcome – and our final report by late 2017.

Transfer of title and change of occupancy fees in leaseholds

In October 2014, we began work on a project which looks at terms in residential leases that require the lessee to pay a sum of money when they transfer the title to the lease, or where there is a change in occupancy. The fee is usually calculated as a percentage of the sale price or the open market value. We are considering whether these terms cause problems for lessees. If so, we will examine whether the current law provides an adequate remedy. Concerns about the use and enforcement of these terms have centred on the retirement home sector, so we will look at whether there are particular issues in that market that need addressing.

Different types of retirement homes offer lessees different levels of assistance. The independent living sector tends to have a minimum age requirement of 55, and is designed for those who require minimal help to live independently. For those with greater needs, there are assisted living developments, while retirement communities accommodate a wide range of ages and needs. Transfer fee terms can be included in leases for all types of retirement homes – but possibly for different reasons.

The UK’s changing demographic means that there is increasing demand for specialist housing for older people. Currently, only 1% of over-60s in the UK live in this kind of accommodation; however, this percentage is likely to increase. A YouGov poll conducted for Shelter in 2012 indicated that 33% of people over 55 are interested in retirement housing, or would be in the future. In countries where the market is more established, specialist housing is more prevalent: in the US, retirement developments house 17% of over-60s, while in Australia, the figure is 13%.

In 2009, the Office of Fair Trading (OFT) announced an investigation into transfer fee terms in retirement homes. In its 2013 report, it concluded that there were features about the terms that made them potentially unfair, and that consumers could struggle to understand the future implications of a transfer fee term. The problem was compounded by a lack of transparency, particularly in the sale process. In the light of this, some lessors voluntarily gave undertakings on the use of the terms. However, the OFT also recommended that the government should consider legislative reform.

One problem with the terms is that they can fall outside the current statutory regulatory framework, which is geared towards assessing whether a sum, usually a variable service charge for something done or provided by the lessor, is reasonable. Unlike service charge terms, transfer fee terms are triggered on the happening of an event, and the sum demanded does not relate to something the lessor must do in return. The terms also vary greatly in the way they are drafted. Some certainly have characteristics that suggest they may be a type of service charge term. For example, ‘use now, pay later’ terms roll up charges made for services provided, but impose a ‘deferred management charge’ payable when the property changes hands. We think that fees demanded under some of these terms could be classified as ‘fixed’ service charges. It was recently confirmed that fixed charges are not reviewable under current legislation in Arnold v Britton [2013] EWCA Civ 902. That decision, however, is now under appeal to the Supreme Court and we await the result with interest.

There may also be a gap in current consumer protection, as transfer fee terms could be construed as price terms. This means that they are not open to review under the Unfair Terms in Consumer Contracts Regulations 1999 (where these apply). Our recommendations in part 2 of the Consumer Rights Bill will permit enforcers to challenge any price term which is not both ‘prominent’ and in plain language. To be ‘prominent’, a term must be presented in such a way that a reasonably circumspect consumer would be aware of it. Some of the examples of terms we have seen might not pass that test. However, even well-drafted prominent terms are not necessarily fair, so this might not provide a complete solution.

We will look at unfair terms legislation in light of the changes that will result from the Consumer Rights Bill

Consumer behavioural biases also play a role. Consumers tend to concentrate on the upfront price and give little thought to future financial liabilities. Therefore, they may fail to appreciate the effect of a transfer fee term and feel aggrieved should a demand for payment later materialise.  

Finally, the terms can be triggered at a time when the lessee is particularly vulnerable, for example where a lease must be sold to pay for care home fees. A well-advised prospective purchaser is unlikely to complete on a purchase where any of the terms of the lease have not been complied with. This may place pressure on the vendor to pay up rather than dispute the demand.

Among the areas of law we will be considering are landlord and tenant laws, in particular the Landlord and Tenant Acts 1927, 1985 and 1987 and the Commonhold and Leasehold Reform Act 2002. We will look at unfair terms legislation in light of the changes that will result from the enactment of the Consumer Rights Bill. We will also look at conveyancing practice to see what part that might play in a solution.

We aim to open a three-month consultation later this year, and welcome responses from practitioners. We will make interim recommendations next year.