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The Planning (Listed Buildings and Conservation Areas) Act 1990 plays a crucial role in protecting the country’s heritage, but it can be a hindrance to landowners by restricting development and potentially exposing them, sometimes unknowingly and without fault, to the risk of enforcement action being taken many years after a breach has occurred.

The legislation precludes works to a listed building being undertaken without authorisation if they would affect its character as a building of special architectural or historic interest. Unauthorised works may result in criminal proceedings and (unlike planning legislation) there is no immunity from listed building enforcement action through passage of time.

The oddities and hidden dangers of the system were exemplified in the recent Court of Appeal case of Dill v Secretary of State [2018] EWCA Civ 2619.

As well as providing a very useful potted summary of the evolution of listed building legislation and the current legal framework, the case clarifies the scope of what is meant by a “listed building”, who determines whether something is a listed building, and the options for challenging a listing. It is also a reminder of the strict liability for contravention of listed building laws.

There are three distinct routes by which something may qualify as a listed building under the legislation, namely by being:

listed as a building in the statutory list compiled by the Secretary of State; or
an object or structure fixed to the building; or
an object or structure that lies within the curtilage of a listed building and which has done so since before 1 July 1948.

The case centred on the first of these routes and had an unusual factual background, relating to two early 18th Century lead urns and their limestone piers created by Flemish sculptor John van Nost. The piers and urns were moved in 1973 to Idlicote House, a Grade II listed building on the edge of the Cotswolds, but had no historical connection to the house, having been moved from one property to another over the years. The piers and urns were then added to the statutory list in 1986 as listed buildings in their own right. When Mr Dill inherited Idlicote House in 1993 he was not aware that the items were separately listed, and he later sold them at auction to an unknown purchaser for £55,000. They were apparently exported, never to be seen again.

The removal of the piers and urns was discovered by the local planning authority five years later. Mr Dill applied for retrospective listed building consent to remove the items, which was refused, and the LPA took enforcement action against him requiring them to be returned; presenting a difficulty as Mr Dill no longer knew of their whereabouts. Mr Dill appealed those decisions, which ultimately came before the Court of Appeal.

It will seem odd to many that objects and structures can be classed as listed buildings even if they bear no resemblance to a building. Mr Dill was one such person and argued that the items were not “buildings”, so that no listed building consent was required to remove them and enforcement action could not therefore be taken.

The Court of Appeal disagreed and ruled that being included on the statutory list as a listed building is determinative of the status of a structure or object as a listed building. It is not open to a planning inspector or judge to ‘go behind the listing’ and consider whether or not something on the list is a building.

The case then considered the options for challenging the validity of a listing and the correct time for doing so.

An appeal against refusal of listed building consent can be made on a merits-based ground that the listed building is not of a special architectural or historic interest, and can result in the building being de-listed. However, the Dill case clarified that the actual validity of a listing cannot be challenged in that way as a planning inspector does not have the power to consider the validity of the listing in the first place and quash the listing. Affected owners can only object to the validity of a listing by challenging a decision at the time of the listing. Otherwise, a building can only be de-listed if the listing was made in error, which wasn’t applicable in the Dill case.

The case serves as a reminder of the complexities and risks of buying a listed building. The extent of any listing, including any separate objects or structures that may be of special architectural or historical interest, needs to be thoroughly checked (Historic England’s web site being a good first port of call).

Being unaware of a building’s listing is no defence and owners can face enforcement action at any time after a breach has occurred. This could extend to breaches committed by previous owners, so enquiries should always be made to confirm that no unauthorised works have taken place in the past.

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WHICH HAND IS YOUR POCKET IN?

WeWork are often in the news these days, along with their charismatic founder, Adam Neumann. Mr Neumann has reportedly made millions of dollars by renting many properties which he owns back to WeWork and this has attracted a slew of recent coverage. In response to questioning, a spokesman for WeWork stated that all such deals are approved by the board and disclosed to investors. However Neumann is WeWork’s largest individual shareholder with voting control over the company, so one could argue he could not be prohibited from going ahead with the transactions.

He is not alone in seeing the opportunities for personal investment as well as corporate investment. How can directors make sure they’re clear about personal investment and company investment? The starting point is that directors have a duty to declare to the board of their company any interest they might have in a transaction involving the company. Where that interest relates to an arrangement between the company and the director to buy or sell certain assets, shareholder approval might also be needed. These transactions are referred to as “substantial property transactions” and are governed by Section 90 of the Companies Act 2006.

When is shareholder approval needed?

Shareholder consent is needed when a director – or a person connected to a director – buys a substantial “non-cash asset” from the company. There’s a trap for the unwary here: if the individual buying land is a director of the company’s holding company, shareholder approval is still needed from the shareholders of the selling company and also from the shareholders of the holding company. Exactly the same terms apply on a purchase, where a company is buying a substantial non-cash asset from a director or someone connected with the director.

Normally at least 50% of the shareholders have to approve the transaction but it is important to check the company’s articles of association thoroughly. Sometimes the articles stipulate a higher percentage of approval is needed.

Shareholders’ approval can be given at a general meeting of shareholders or if the company’s articles do not prohibit it, by a written resolution which all shareholders can sign. The number of shareholders in a company and their geographical location often dictates which is the better route to follow in each case. If the shareholders’ approval cannot be obtained before contracts are exchanged for the substantial property transaction, the contract can be conditional on such approval being given. And beware of transactions where there is a holding company involved. In that case shareholder approval is needed from both the shareholders of the company and of the relevant holding company.

What is a substantial non-cash asset?

There is a definition in Section 1163 of the Companies Act 2006 which is “any property or interest in property other than cash”. These non-cash assets are “substantial” if the value is either (a) greater than £5,000 and more than 10% of the value of the company based on its statutory accounts or (if there are no statutory accounts) the amount of its called up share capital; or (b) more than £100,000.

It is quite clear that almost all property transactions will therefore be caught by this threshold. Even with lower value properties, if there are a number of assets or a series of transactions, those have to be added together to work out whether those thresholds are met.

What is a connected person?

The definition of connected persons is very wide. Directors need to be alert to their wider relationships to make sure they declare an interest where applicable. Connected persons include a spouse, civil partner, or family member (including step-children). A connected “person” can also be a company if the director has a 20% interest in that other company.

What happens if you don’t obtain approval?

If shareholder approval hasn’t been obtained the transaction can be voidable (reversed) at the company’s request unless it’s not possible for the asset to be returned to its original owner or the company has had an indemnity for any loss or damage it has suffered as a result of the transaction. If neither of these things has happened but the property has been acquired in good faith by an unconnected person who wasn’t aware the relevant approval was obtained and who would be affected by the avoidance, it will also be too late to unwind the transaction.

The relevant director, or the relevant connected person and any other person who authorised the transaction (for example, by signing the contract or the transfer deed) will be jointly and severally liable to pay the company for any gain they made in respect of the transaction or to indemnify them for any loss or damage as a result of that. Directors should be aware that this liability carries on whether or not the transaction is unwound.

Honest mistakes?

It is possible to obtain retrospective ratification from shareholders but this is clearly not an ideal situation for the company, the relevant director or connected person to find themselves in. Any shareholder who feels deceived might ask more questions than they would have done if the approval was sought at the correct time. In addition there is no guarantee that more than 50% of the shareholders will retrospectively ratify the transaction. One form of comfort for directors is that once the transaction has been ratified it can no longer be set aside.

Are there any exceptions?

The most important class of exception to this rule is for transactions between a company and a person in his character as a member of that company or a shareholder. This is intended to cover scenarios such as payment of a dividend in specie or the distribution of assets to a member on winding up of a company. There can be some tax advantages from payment of a dividend in specie so this is a key category of exemptions to be aware of.

Other duties

As well as the procedures of the Companies Act, before directors enter into any transaction, they should bear in mind their general duties to the company, notably their duties to promote the success of the company, to declare an interest in a proposed or existing transaction of the company and to avoid conflict of interest. The company’s articles of association may have an impact on a director’s ability to approve transactions which he or she is interested in so these do need to be checked in each case.

It can be difficult for directors of owner-managed businesses whose company has been successful as a result of that individual’s hard work to distinguish between their personal affairs and their company’s affairs. However if the protection of a limited liability company is to be preserved, it is important to keep that distinction in mind.

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SECURITY OF TENURE RESTORED, BUT AT THE EXPENSE OF LANDLORDS’ FREEDOM TO DEVELOP?

Background and the controversial High Court decision

Further to my 2017 QIA article on the then landmark High Court decision in S Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 QB, the Supreme Court has recently published its highly anticipated judgment S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62 after a ‘leapfrog’ appeal by the tenant.

By way of brief background, the case concerned a redevelopment scheme in the Cavendish Hotel, Westminster. The tenant ran a textile dealership at the ground floor and basement premises. Section 26 notices requesting new leases were served by the tenant, S. Franses, upon the landlord, The Cavendish Hotel Ltd, requesting new leases. The landlord served counter-notices opposing the tenant’s applications on the basis of s.30(1)(f) Landlord and Tenant Act 1954; that the landlord required possession for substantial internal development works, bringing their leases to an end.

The issue with the development scheme planned by the landlord was that, whilst stopping short of being entirely fictional, it was completely contrived by the landlord together with its solicitors with the sole aim of opposing the tenant’s applications for new leases under ground (f), rather than genuinely planning improvements. The purported works involved lowering the floor of part of the demised premises as well as repositioning an internal wall and smoke vents and provided no practical or economic benefit to the landlord, save for the fact it could use them as a tool to oppose the tenant’s renewal. The landlord even openly confirmed during cross examination that if the tenant left voluntarily, the works would not be carried out!

Nevertheless, the High Court found in the landlord’s favour, upholding their refusal for new leases.

Supreme Court Decision

The High Court decision was widely regarded as a controversial decision, particularly due to the reason that it was seen as defying the impetus behind the 1954 Act by eroding security of tenure for commercial tenants and shifting the balance of power towards landlords.

The Supreme Court examined two critical issues on the meaning of ground (f), which it labelled as “the acid test”, being:

Whether a landlord which intends to carry out works if, and only if, those works are necessary to satisfy ground (f), has the requisite intention for the purposes of ground (f); and
Whether a landlord whose sole or predominant commercial objective is to undertake works in order to fulfil ground (f) and avoid the grant of a new lease to the tenant has the requisite intention for the purpose of ground (f).

Lord Sumption delivered the leading judgment in the Supreme Court and held that the landlord’s proposed works were not of the nature or quality of the intention required to satisfy ground (f). This was due to the fact there was no benefit to the landlord to be derived from the works and chiefly, the landlord would not have carried out the same works if the tenant were to have left voluntarily.

Part of the Court’s reasoning was that “The right to obtain vacant possession on the expiry of the existing term is not in itself protected by section 30” but it is to enable the landlord to manage its own commercial interests by carrying out works and development for this benefit. Using works only for the basis of achieving vacant possession is the exact opposite of what was intended by the LTA 1954, eroding security of tenure.

In practice, it is unlikely the situation would be quite as clear cut as the Supreme Court envisages, but it would certainly be prudent to advise landlords to be not quite so brazen with their intentions as The Cavendish Hotel were in this case and strip out any ‘artificial’ elements from plans which would have no commercial benefit but would serve to obstruct a tenant’s lease renewal.

Impact upon Ground (f) and the difficulty with proving whether works are genuine

In terms of the practical impact of this decision, a court’s determination as to whether a landlord’s intention is conditional or not upon the tenant’s occupation and their right to a new lease will likely be subject to more careful scrutiny by the court rather than as it was before S Franses – simply the provision of an undertaking that the works would actually be carried out.

Therefore, before devising a cunning plan for works for the purpose of removing unfavourable tenants, landlords should remember that in light of this decision they are likely to be judged more strictly than ever before on the intention behind such works. Equally, at the other end of the spectrum, there is likely to be more onerous analysis of the intention behind works which are being carried out pursuant to the engagement of ground (f), even where the intention is genuine.

It would be advisable for landlords who are planning works to document their nature in respect of tenants’ lease renewals at the earliest stage possible. A bundle of evidence should be prepared well ahead of any hearings comprising of not only planning applications (if required), board minutes highlighting approval for such a decision, contractor quotes but perhaps most pertinently, a report showing the necessity for such works and/or a cost-benefit analysis to show that the works produce financial benefit to the landlord beyond simply achieving the removal of the tenant. This will all aid in demonstrating to the court that the intention to carry out the works exists independent of the tenant’s position in respect of a new lease.

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