Breach of Covenants

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    Breach of Covenants

    Hi,
    I'm about to buy a flat (leasehold for 97 years) in London. It’s a ground floor flat with a cellar. The cellar can only be accessed via the flat and the current owner has been using it for the last 12 years.
    We were about to exchange when we received a letter from the freeholder/landlord stating that the cellar is not a part of the lease and never has been. Although very disappointed with the estate agents for misleading us, I decided to go ahead with the purchase without the cellar. We were then told that the landlord/freeholder believes that the current owner was in breach of covenants as he had occupied the cellar over the last few years and we cannot exchange till the matter is ‘resolved’. The current owner hasn't made any alterations to the cellar but has been using it as storage over the last few years. My solicitors are insisting we buy the cellar but, I can’t afford the extra costs.
    A couple of questions here:
    1. If I were to buy the property as it stands, would I then automatically take over any current breaches of covenants or would I be now held responsible for the previous occupier’s breach?
    2. Is there anything I can do in this situation to ensure I don’t end up with any legal issues after buying the leasehold?
    Many thanks!
    Chris

    #2
    If you do not get the matter sorted you do not want to buy into a problem - even if there is no problem you still have a problem if it is not sorted, if you see what I mean.

    It seems that the lease does not specifically include the cellar, whether by reference to the wording or a plan. If that is the case it is not necessarily fatal. There are two possible strings to your bow here:

    1.The Law of Property Act 1925

    Section 62(2) says, omitting words not relevant to this thread:

    A conveyance of land, having houses or other buildings thereon, shall be deemed to include and shall by virtue of this Act operate to convey, with the land, houses, or other buildings, all [...] cellars [...] appertaining or reputed to appertain to the land, houses, or other buildings conveyed, or any of them, or any part thereof, or, at the time of conveyance, demised, occupied, or enjoyed with, or reputed or known as part or parcel of or appurtenant to, the land, houses, or other buildings conveyed, or any of them, or any part thereof.

    Section 62(4) says:

    This section applies only if and as far as a contrary intention is not expressed in the conveyance, and has effect subject to the terms of the conveyance and to the provisions therein contained.

    Section 205(1)(ii) says:

    “Conveyance” includes a [...] lease [...]

    Considering section 62(2) we need to ask if the cellar appertained or reputed to appertain to the flat, or, at the time of the lease was granted, was occupied or enjoyed with, or reputed or known as part or parcel of or appurtenant to, the flat. Given that the cellar can only be accessed through the flat, I do not think there can be any doubt that it meets the requirements of section 62(2), subject only to section 62(4).

    Section 62(4) will come into play if the lease contains anything which indicates that the cellar was not intended to be included. Possible provisions excluding the cellar are:

    (a) an express exclusion, that is a clear statement that the cellar is excluded

    (b) the grant to the tenant of rights over the cellar

    (c) the imposition of a covenant prohibiting the tenant from going into the cellar

    It is a question of reading the lease carefully to see if there is anything preventing the operation of section 62(2).

    Section 205(1)(ii) just confirms that section 62 applies to leases as much as it does to conveyances.

    2. Adverse possession (sort of)

    A tenant cannot be in adverse possession of land belonging to his landlord if the land is occupied as appurtenant to other land leased from the landlord. However, if the possession would otherwise qualify to give the tenant title, the tenant is entitled to stay in occupation until the lease expires; see Smirke v Lyndale Developments. If the seller has been in occupation of the cellar for 12 years that would seem to cover it.

    *

    I think you need to mention all the above to your solicitor.

    Comment


      #3
      Thanks a ton! I'll let my solicitors know. Again, much appreciated!

      Comment


        #4
        I agree with lawcruncher’s post , however don’t rush off straight away.

        As indicated you do need to take a close look at the lease as the landlords counter argument to nullify the LPA 1925 arguments,above, might be
        - the description and plan makes it clear what you have
        - the lease makes it clear what you don’t have i.e. that the cellar is expressly excluded
        - that there are rights( that can be exercised*)granted over it to him and the other residents that preclude it being owned and used exclusively by you; or just make it jolly difficult.
        *e.g. if the right is to access meters but they are no longer located there

        It is interesting that he “says breach of covenant” as there has to be a covenant*(s) to breach, so
        -assuming that it is not an expert use of the term
        - if the leases says “ don’t go in there, not yours , no, not ever”
        then there is a covenant and a breach
        -if the argument can be made, either under LPA 1925 or under the wording of the lease, that the cellar is yours
        -that there is perhaps a breach of covenant in alterations to or enlarging or adding to the premises
        -otherwise it is a matter of either trespass or refuting a claim, as LC explains, of adverse possession

        As you can see it is important to get to the bottom of
        -is the cellar yours ( well the vendors for now)
        -which argument , LPA or terms of the lease apply, and their likelihood of success
        - if you would succeed, what breaches if any are there
        or on the other hand the cellar is not yours
        -is it trespass and therefore what damages or reinstatement does he want the vendor to do and how will they affect you as "upstairs"
        -Is he prepared to sell and how much for

        In turn this will affect the sale price and the deal that you do.
        -Is it worth less without the cellar?
        -Are the breaches that he alleges actual breaches of the lease, and therefore impacting your future ownership, or
        - was the work done, if any, properly done, and if remedied or reinstated, will it affect your new home

        The vendor is stuck whether he sells to you or someone else and based on the above he might do a deal to
        -do deal with the landlord
        -reduce the price and you do a deal with the landlord
        -reduce the price and assist you in sorting it out, in which case, you pay him a little more, conditional on success ( of arguing that its included or adverse possession) and any cost of works or reinstatement

        Quite a bit to think about- sorry
        Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

        Comment


          #5
          I also think that it should be your conveyancers who explain all this to you. This is their job after all

          Comment


            #6
            As indicated you do need to take a close look at the lease as the landlords counter argument to nullify the LPA 1925 arguments,above, might be
            - the description and plan makes it clear what you have


            Possibly. However, what section 62 effectively does is to include what is left out and would have been included if the parties had addressed the question specifically. It is not so much what the description say is included, but what it says is excluded which is going to be significant.

            - the lease makes it clear what you don’t have i.e. that the cellar is expressly excluded

            An express exclusion is almost always going to be definitive. I say "almost always" because the possibility that one part of an instrument excludes something whilst another includes it cannot be ruled out.

            - that there are rights( that can be exercised*)granted over it to him and the other residents that preclude it being owned and used exclusively by you; or just make it jolly difficult.

            If rights are reserved over the part in question that is going to be an indication that that part is included since there is no need to reserve rights over land not included.

            Comment


              #7
              Possibly. However, what section 62 effectively does is to include what is left out and would have been included if the parties had addressed the question specifically. It is not so much what the description say is included, but what it says is excluded which is going to be significant.


              An express exclusion is almost always going to be definitive. I say "almost always" because the possibility that one part of an instrument excludes something whilst another includes it cannot be ruled out.
              I agree, hence the "- if the leases says “ don’t go in there, not yours , no, not ever”" If only leases were so clear....

              If rights are reserved over the part in question that is going to be an indication that that part is included since there is no need to reserve rights over land not included.
              I had in mind as in my example the sort of rights you find in cellars for repairs accessing utilities especially meters and even the coal, especially where one part of lease might contradict, as you say, another and that alterations might have been made after grant that make them moot.

              What I am getting at is the OP is best read the Act and the lease, and read each in the light of the other, rather than, as I feared, ran away thinking that the Act answered my question, great- while it might it, also asks a few too.
              Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

              Comment


                #8
                Possibly. However, what section 62 effectively does is to include what is left out and would have been included if the parties had addressed the question specifically. It is not so much what the description say is included, but what it says is excluded which is going to be significant.


                An express exclusion is almost always going to be definitive. I say "almost always" because the possibility that one part of an instrument excludes something whilst another includes it cannot be ruled out.
                I agree, hence the "- if the leases says “ don’t go in there, not yours , no, not ever”" If only leases were so clear....

                If rights are reserved over the part in question that is going to be an indication that that part is included since there is no need to reserve rights over land not included.
                I had in mind as in my example the sort of rights you find in cellars for repairs accessing utilities especially meters and even the coal, especially where one part of lease might contradict, as you say, another and that alterations might have been made after grant that make them moot.

                What I am getting at is the OP is best read the Act and the lease, and read each in the light of the other, rather than, as I feared, ran away thinking that the Act answered my question, great- while it might it, also asks a few too.
                Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                Comment


                  #9
                  I had exactly the same issue when I bought a ground floor flat a few years ago. The agent's particulars stated it came with a cellar but the cellar was not mentioned anywhere in the lease. I told my solicitor to try and get the cellar signed over but the freeholder refused. So I negotiated a nice reduction in the purchase price with the seller.

                  Result? I have let the flat with the use of the cellar because nobody has right of access through the flat and so nobody else can use that cellar, however the cellar issue allowed me to get a nice discount in the purchase price, which paid for the refurb with some money to spare.

                  My advice to OP is, be pragmatic and turn an obstacle into an opportunity!

                  Of course, at the time I did not know about adverse possession, but the clock has been ticking and I could probably apply to the Land Registry now to have the cellar included in the lease, given the time accrued during the previous lessee's ownership. That would increase the value of the flat, of course, but I wonder how expensive the thing is going to be, especially as I would have to pay fees to my lenders in order to change the lease.

                  Or can I do just a unilateral deed of variation?

                  Comment


                    #10
                    Thank you all for your advice!
                    I've had a chat with my solicitors who've informed me that there is a clear exclusion with respect to the cellar and as the vendor has been using it to store his old sofa, bicycle and other pieces of old furniture, there has been a breach of covenant (I believe the landlord has proof of this). I’m also told by the estate agent that these items have now been removed and as this isn’t a ‘serious’ breach, it should be ‘fine’. We still haven’t heard from the landlord about their stand.
                    We’ve also tried to negotiate the price down but with no luck. The vendor is happy to walk away from the deal. We’re also unable to speak to the landlord directly as they don’t want to speak to us about the matter, given it’s an issue concerning the vendor and themselves.
                    My solicitor’s now trying to get this ‘resolved’ through the vendor’s solicitors (who haven’t been the most cooperative).
                    I’m happy with the flat without the cellar, to be honest, but the last thing I want is to get into legal issues after purchasing the property. Also, I don’t want the landlord to have unrestricted access to the cellar; given the only way to access it is through the flat.
                    Sorry to throw this back at you guys but any advice would be much appreciated!
                    Thanks,
                    Chris

                    Comment


                      #11
                      Originally posted by covenant_issue View Post
                      Thank you all for your advice!
                      I've had a chat with my solicitors who've informed me that there is a clear exclusion with respect to the cellar and as the vendor has been using it to store his old sofa, bicycle and other pieces of old furniture, there has been a breach of covenant (I believe the landlord has proof of this). I’m also told by the estate agent that these items have now been removed and as this isn’t a ‘serious’ breach, it should be ‘fine’. We still haven’t heard from the landlord about their stand.
                      We’ve also tried to negotiate the price down but with no luck. The vendor is happy to walk away from the deal. We’re also unable to speak to the landlord directly as they don’t want to speak to us about the matter, given it’s an issue concerning the vendor and themselves.
                      My solicitor’s now trying to get this ‘resolved’ through the vendor’s solicitors (who haven’t been the most cooperative).
                      I’m happy with the flat without the cellar, to be honest, but the last thing I want is to get into legal issues after purchasing the property. Also, I don’t want the landlord to have unrestricted access to the cellar; given the only way to access it is through the flat.
                      Sorry to throw this back at you guys but any advice would be much appreciated!
                      Thanks,
                      Chris
                      Yes, unfortunately the market has gone crazy so sellers can do as they please now as they know there's likely to be another buyer round the corner - but don't give up on a price reduction yet, as you don't know if the seller is in fact in a hurry to sell or fearing the market will turn - which at some point it will, only nobody knows for sure.

                      Re. any unrestricted access, ask your solicitor to give you a copy of the lease and existing title deeds - their office junior should be able to do that in 5 minutes and post/email the stuff to you. Unless it is clearly stated there that the landlord has unrestricted access, they don't - and frankly I'd be very surprised if there was a clause to that effect.

                      Once you've bought the flat you can STILL use adverse possession, provided enough time has passed.

                      Good luck, and let us know how it goes!

                      Comment


                        #12
                        Simple. Walk away unless you want to deal with a can of worms. If the vendor doesn't budge don't do it either.

                        Comment


                          #13
                          If the cellar is excluded then section 62 will not help. However, Smirke v Lyndale Developments may still apply. I would though be interested to see the wording.

                          If no rights were reserved to get to the cellar or otherwise to use it, then there is no way the landlord can get to it. If the landlord cannot use the cellar one has to wonder what the damages would be if you use it.

                          It is not clear precisely what the breach of covenant alleged is.

                          Comment


                            #14
                            To use Smirk, the existing leaseholder would have to establish factual possession of the cellar without the owners consent, and having stored a few surplus items, he might be able to establish that he intended to possess it. The landlord's letter must also be considered in that light.

                            I wonder if in fact the landlord is just being sensible, turning a blind eye during occupation and when a sale is likely, sending a blustering letter, protecting his long term interests. There is always the possibility of creating a new flat or buying the GFF and creating a duplex.

                            With these retained, and often extensive, spaces I am toying with the idea that where landlord is rather possessive, of asking that the leases be varied so that they make a small contribution toward service charges inc insurance etc…..
                            Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                            Comment


                              #15
                              Thanks again for your inputs – I’ll let you know how things develop from here.
                              On a side note, I met my solicitor earlier in the day and the look on his face when I threw this newly acquired legal jargon at him was priceless!

                              Comment

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