Property in dispute - May 2011

Welcome to this month’s property litigation email update.  Thank you for taking the time to read this email update. 

This month I will be providing you with information regarding the acquisition of rights of way by use and also providing advice for landlords following the liquidation of their tenant. 

Prescription – Licensee?

The unauthorised use of a roadway for at least 20 years can result in the acquisition of a right of way (by prescription) by the user of the roadway.  Normally, the owner of the roadway granting the user a licence will prevent the user obtaining a right of way (since the use will then be with permission).

A key point when dealing with any claim in respect of a prescriptive right of way is that the use must have been “as of right”.  This means that it must have been:-

• Without force;
• Without secrecy;
• Without permission.

Needless to say, granting permission by means of a licence e.g. (with a nominal sum payable each year) will normally ensure that the use is not “as of right”.  However, recent case shows that it is dangerous for a land owner to simply grant a licence and then do nothing to enforce it.  This case involved a service road between two hotels.  The hotel that owned the service road granted a licence to the other hotel in 1973 but that licence was personal to the then owner of the second hotel.  The ownership of the second hotel changed several hands, but use of the service road continued without any objection by the owner of the first hotel.  Was there a prescriptive right of way or was the continuing use under the terms of the licence?  The Court took the view that the licence was personal to the original owner of the second hotel and thus was terminated when the hotel transferred ownership.  Thus, time began running when the hotel transferred ownership and more than 20 years use meant that there was now a prescriptive right of way.  The fact that the owner of the first hotel did not know that the second hotel had changed hands was not relevant. 

The lesson from the case is clear.  Simply granting a licence may not be sufficient to prevent the acquisition of an easement of a right of way by prescription.  The easy way to keep the licence alive (and to prevent time running) is to demand a nominal annual licence fee which acknowledges that the use of the right is not “as of right”. 

As a landlord, what are my options when my tenant is declared insolvent?

On the insolvency, a liquidator may “disclaim any onerous property”, which means a property that is un-sellable or not ready sellable or is such that it may give rise to a liability to pay money or perform any other onerous act”.  Most commercial leases let at full market rent will inevitably fall within that definition.

But what of sub-tenants?

The landlord should be aware that the liquidator’s disclaimer will not necessarily be the end of the affair.  Anyone who has an interest in the property (e.g. either a sub-tenant or a mortgagee) may apply to the Court for a vesting order, so the lease will then be reinstated and vested in the applicant.  Such an application can only be made within 3 months of the applicant becoming aware of the disclaimer (or receiving a disclaimer notice).  Obviously, this possibility must be borne in mind when considering the future of the property (in practice, when there is an intention to re-let, but there is a sub-tenant or a mortgagee in occupation). 

If the tenant in liquidation is not paying rent, but has a sub-tenant in occupation, then the landlord should consider serving notice under section 6 of the Law of Distress Amendment Act 1908, which will entitle the landlord to demand payment of the rent directly to the landlord by the sub-tenant.

One final point to remember is that if the tenant’s liquidator does disclaim the lease, then the landlord should be sure to obtain from the liquidator valid evidence of the liquidator’s appointment, and also sufficient certified copy documentation to satisfy the Land Registry over the closure of the redundant leasehold title (the presence of those entries might delay the grant of any new lease, and it is highly unlikely that the liquidator will bother to attend to this himself).