Commercial property update - September 2011

Welcome to the September edition of the Commercial Property update, from Julian Rowden. September is traditionally the stat of a busy period in commercial property, being the start of the run up to Christmas and the year end, but, with markets once more in turmoil it remains to be seen how the rest of the year and the lead up to 2012 will shape up.

As ever, we welcome your feedback and any questions that may arise from this month’s topics. This month, we look at a case dealing with whether the conditions attached to a conditional contract can be waived by the purchaser, the rules relating to registration of leases of terms of 7 years or less, and whether an Energy Performance Certificate is required on the renewal of a lease.

Can a Buyer waive the conditions in a Conditional Contract?

It is commonplace to prepare a contract which provides that certain conditions must be fulfilled before the contract becomes unconditional and binding on both parties.

That condition is invariably imposed at one party’s specific request, for example where a Buyer does not want to be bound to purchase the property until a particular planning permission is obtained.  Sometimes however intentions change, and a Buyer may want to be in a position to waive the condition and go ahead and buy the property even if the condition has not been strictly fulfilled.  Whether the buyer can do this depends on how the condition is drafted. If a condition is for the benefit of one party, then that party can waive the condition, but the other cannot. An example of how things can go wrong is provided by the 1974 case of Heron. In this case a contract was made conditional on planning permission.  Eventually it became clear that the planning permission was unlikely to be granted, but the Buyer still wanted to buy the property, and the Buyer notified the Seller of their wish to waive the planning permission condition.  However, because the condition had not been drafted in such a way as to make it solely for the Buyer’s benefit, the Buyer was not permitted to waive it. 

The principles have been highlighted again in the recent case of Irwin v Wilson (2011).  This case involved an agreement for lease where the parties exchanged contracts for the sale of a residential flat.  Unfortunately the wrong plan had been attached to the lease, it being transposed with the plan of a neighbouring flat with the result that both leases were registered at the Land Registry with the wrong plans.  The sale contract was therefore conditional on the following issues:-

• Completion was to be 14 days after the Seller’s Solicitors had provided the Buyer’s Solicitors with documentation showing that the plans had been amended at the Land Registry, and the Sellers solicitors were to use reasonable endeavours to have the plans amended; and
• If the Seller, having used all reasonable endeavours, was not able to provide the documentation referred to by 1 February 2010, then either side could give notice of 5 working days to terminate the contract.  The Buyer would then vacate the property and the Seller’s Solicitors would return the deposit.

There was no dispute that the Seller had used reasonable endeavours to provide the information but had been unable to do so by 1 February 2010.  The Seller therefore served a notice on the Buyer purporting to terminate the agreement.  That notice expired on 9 February 2010, and on that date the Buyer gave notice waiving the condition and requesting a completion statement. 

The question arose as to whether the condition was capable of being waived. In this case the High Court decided that the condition was for the Buyer’s exclusive benefit and therefore the Buyer would have been entitled to waive the condition and insist on completing the documents.  However, in this instance the Buyer was too late because the Seller had already exercised its right to terminate the contract by serving a notice. 

The important point here is that when negotiating a conditional contract, you should decide whether the party with the benefit of the conditions can subsequently waive them – and to waive it before the contract is terminated.

Easements in Short Terms Leases

It is a well known fact that leases for terms of more than 7 years must be registered at the Land Registry but it is often overlooked that easements in short term leases, granted for a term of 7 years or less, should be registered at the Land Registry even though the lease itself cannot be registered.  If the easements contained in the lease are not registered, they will only take effect in equity and may therefore be ineffective against a third party. 

If the landlord’s title is registered then it is possible for a tenant to protect the lease by entering a notice on the landlord’s title but there is an important distinction between noting the lease on the title and actually registering the easements contained in the lease. Once the lease itself is noted on the title then the easements contained in it cease to be what are called ‘overriding interests’ (which would give them some protection even if the land over which they are exercised passes into the hands of a third party), and it becomes essential that the easements are specifically registered to ensure that they are protected.

Is an Energy Performance Certificate necessary on a Lease Renewal?

The 2007 Regulations introducing the need for Energy Performance Certificates on the sale and letting of commercial premises have now been supplemented by guidance which says that ‘not all transactions will be considered to be a sale or let to which the duties apply. These will include lease for renewals or extensions’. The Regulations also describe an EPC as being required for “prospective” buyers or tenants, which would not seem to include an existing tenant simply seeking to stay on in the same premises. The tenant is assumed to be familiar already with the building’s energy performance, and thus no EPC is required in these circumstances.