Changing Times – Time to act and time for changes?

Virtually all businesses have faced significant disruption to their normal operations because of the coronavirus pandemic, and the lockdown and social-distancing measures introduced in an attempt to combat it. Most businesses will also, in some way, use or have an interest in, commercial property and will have therefore entered into contracts for the sale and purchase of land, leases, licences to occupy, or other agreements concerning property interests prior to the current crisis.

Daniel Woodcock, a Partner in Butcher & Barlow’s Commercial Property Department, examines the issues to be borne in mind by parties to contracts for sale, leases or other agreements relating to property interests, entered into before the coronavirus pandemic that may contain obligations or conditions that need to be fulfilled by a specific date.

Several industry sectors have been particularly hard hit by the emergency measures taken by the Government to halt the spread of infection – such as the travel, leisure, hospitality and retail sectors. In these changing times, many in business – but in these sectors in particular – will be reviewing and re-appraising their obligations under such agreements, and in some instances, looking to re-structure or terminate them altogether.

As a result of the upheaval caused by the pandemic, many millions of workers having been furloughed, or forced to work from home. Amongst them are thousands of managers with responsibility for premises or property requirements. As a result, many businesses may now be at risk of the problems caused by key dates, deadlines or other time-limited obligations in such agreement having been left unrecorded, or, worse still overlooked, or missed altogether.

Which agreements may be relevant?

Most agreements relating to the acquisition, disposal or use of commercial property will contain some time-critical obligations, which, if not adhered to, could have serious adverse consequences for a party who thereafter seeks to rely upon them. These include:

• Contracts for the sale and purchase of land and buildings – particularly those where completion of the transaction is dependent upon the discharge or waiver of a condition precedent (e.g. the obtaining of satisfactory planning permission).
• Option agreements – where time is of the essence in relation to the exercise of the rights granted by them.
• Leases – which commonly contain rights to break or renew where such provisions will be strictly construed by the courts, and which, furthermore, may be subject to security of tenure under the Landlord and Tenant Act 1954, where strict time limits apply in respect of Section 25 and Section 26 notices served by landlords and tenants respectively.
• Agreements for lease – where completion of the grant of the lease may be conditional on obligations being performed within a particular timeframe (e.g. delivery of a newly constructed building by a landlord).
• Licences authorising alterations to let premises – where the authorised works need to be carried out within a specified time-period, failing which such consent automatically lapses.

Time to check?

With the current lockdown measures likely to remain in place for several weeks, or even months, particularly in relation to some industry sectors, businesses now need to take steps to review their property agreements. This is to check whether they contain time-critical obligations, key dates or deadlines – and to see whether prompt action may now need to be taken in order to enable the business to comply with them.

Even where deadlines may not be imminent, businesses should centrally record forthcoming key dates and take steps to ensure that non-furloughed staff in positions of responsibility are made responsible for centrally diarising and recording them.

Time to act?

Now is not the time to bury one’s head in the sand – positive action is required. Certain provisions in such agreements may be very adverse to a business’ future if they are overlooked. Equally, taking your eye off the ball can also see advantageous rights lapse because they were not exercised within a required time frame.

Firms must take steps to comply with specified time-periods and other conditions to exercise rights granted which they wish to take the benefit of – such as to renew a lease, exercise a call-option, exercise a break right, etc. Many such provisions will require service of notices many months in advance and require strict-compliance with exacting conditions – such matters cannot be left to the last minute and prior-planning is essential.

The changed business environment has also raised the stakes somewhat for parties concerned with such property agreements. Few landlords will wish to see good tenants exercise break rights in the forthcoming weeks and months, for example, and few sellers will relish buyers terminating contracts if, as a consequence, they then have to try to re-sell properties in a falling market.

As a consequence, it is likely that other parties to such agreements will ask their solicitors to carefully scrutinise the operation of rights to break leases, terminate contracts, etc., and there will be an increasing number of disputes which centre on the interpretation of such agreements and whether a party has in fact complied  with conditions governing the exercise of their rights pursuant to them.

Time to change?

Of course, in many instances it will be in neither party’s interest for an agreement to lapse, or for rights not to be exercised. A timely review of a previously exchanged contract, option, or agreement for lease may alert the parties to a mutual desire to renew an agreement, or to agree to vary its terms or timescales.

How to change?

In the case of property agreements, great care needs to be taken when parties seek to vary their terms – at least if they wish them to operate as they intended and to be legally effective. This is due to the operation of Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. This Section provides that a contract for the sale, or other disposition of an interest in land, can only be made in writing and only by incorporating all the terms which the parties have agreed in one document which must be signed by or on behalf of each party.

A disposition covered this Section has the same wide meaning as in the Law of Property Act 1925. This covers every assurance of property, or an interest in it, by an instrument except a will – and hence captures leases and mortgages, as well as contracts for the sale of land and option agreements.

If an agreement relating to an interest in property does not meet these requirements, a valid contract will not exist between the parties. Furthermore, if an earlier agreement to which the requirements of Section 2 applied is then subsequently amended, the revised agreement must also adhere to these requirements, as was confirmed in the case of McCausland v Lawrie [1997] 1 WLR 38.

It is therefore essential that these rules be borne in mind when property agreements are sought to be varied and the courts will not uphold variations when these legal formalities are not observed. In the case of Eyestorm Ltd v Hoptonacre Homes Ltd [2007] EWLA Civ 1366, for example, an attempt was made to vary an agreement for lease to delay the date on which the resulting lease was to be granted. However, instead of employing a written agreement that complied with the requirements of Section 2, the prospective landlord and tenant sought unsuccessfully to document this variation by letter.

There are also other traps for the unwary. If an agreement was originally made by deed, then, if it is not varied by a deed, the variation agreement will need to provide for consideration – in essence, this means that if one party is to derive a benefit under the varied agreement, such as an extension of time, then this must be balanced by the payment of a sum of money, or some other beneficial obligation, to the other party.

Furthermore, the law requires that where an earlier agreement specifies how it should be varied, then the parties must comply with these requirements – as recently confirmed by the Supreme Court in the case of Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24.

Care should also be taken to ensure that any variation operates as intended. Typically, property agreements can be quite complicated documents and one provision may link to another. Changing a date or a provision in one part of the agreement may necessitate a number of related changes throughout a document, so careful drafting is required.

All parties to the original agreement will also need to join into any variation agreement– and if a party’s obligations pursuant to an agreement was guaranteed by a third party, for example, then that guarantor will also need to be made a party to the variation agreement to confirm its consent to its terms – failing which, the variation may serve to inadvertently release such guarantor.

Time to seek advice?

A party seeking to interpret or vary an agreement concerning a property interest, or argue continuation or termination of it by virtue of the satisfaction or non-discharge of a condition, is strongly advised to seek legal advice – and to do so in a timely manner.

If you would like further advice about:

• The interpretation of a contract for sale or other agreement concerning a property interest;
• varying the terms of such an agreement;
• discharge or waiver of any conditions in such an agreement;
• exercise of a break right under a commercial lease; or
• advice on any other aspect of commercial property law,

please do not hesitate to contact Daniel for further advice on 07741 894705 or by email at dwoodcock@butcher-barlow.co.uk.  Every lease and situation is different and therefore specific advice on your own lease and the options available should be taken.

Following Government guidelines, are offices are closed but we remain fully operational via remote working and can make use of video conferencing and telephone conferences in order to provide the high quality legal service you have come to expect from Butcher & Barlow.

To view Butcher & Barlow’s own working practices, please visit www.butcher-barlow.co.uk/news.

 

 

Daniel is an approachable and knowledgeable commercial property solicitor who has been consistently included in The Legal 500 as a Recommended Lawyer for commercial property work being previously described as “extremely thorough in his work; very pro-active and quick to respond” (2017 Edition); “first rate” (2019 Edition); and “experienced” (2020 Edition).