Posts Tagged ‘Michael Lower’

Contractual intention and agreements between family members

September 26, 2020

Facts

In Ho Lai King v Kwok Fung Ying ([2020] HKCA 657) the plaintiff (‘P’) owned property in Guangzhou. Ownership was resumed by the mainland authorities. P was an elderly woman. She asked her daughter (D1) and son-in-law (D2) to help her negotiate the compensation payment.

D1 and D2 agreed on the understandings that:

(1) P would not accept an offer from the authorities without their consent; and

(2) They would receive 50% of the compensation received.

Contrary to this agreement, P accepted an offer of RMB 3 million as compensation and denied that any payment was due to D1 and D2.

Question

The question was whether P and D1 / D2 intended to create contractual relations when they reached their agreement. P contended that there was no such intention. She relied on the rebuttable presumption against the existence of a contractual intention in the case of domestic agreements (Balfour v Balfour [1919] 2 KB 571).

Court of Appeal’s analysis

The Court of Appeal said that the presumption is a rebuttable presumption of fact and the court had to consider the facts of each case ([47]):

‘What will satisfy the court in a particular case must depend on the circumstances, including (without being exhaustive) the relationship between the parties, whether they are in amity or estranged, the subject matter of the agreement, the manner in which the agreement has been made’ ([48])

Strong evidence would be needed to prove a contractual intention for ‘oral agreements on maintenance support or other daily arrangements’ ([48]).

The Court of Appeal decided that there was a contractual intention in this case. The relevant factors were:

  • P favoured her son over D1 (D1 and D2 were reluctant to get involved because they suspected that the son would receive the entire payment;
  • While D1 might not have been willing to bring proceedings against P during P’s life she might bring proceedings against P’s estate or the son;
  • The agreement was about a major capital asset
  • P and D1 and D2’s actions after the agreement (D2 spent time and money in pursuing the negotiations) pointed to a contractual intention).

Michael Lower

Father’s gift of property to son: Conditional on son’s caring for father?

August 15, 2020

In Yeung Hock Wai v Chan Wai Man ([2020] HKCFI 1693) a father gave his son a 25% interest in two properties owned by the father (‘the properties’). The son pre-deceased his father.

After the son’s death the father (the father’s estate after the father’s death) claimed that the gift to the son was conditional and that, as the son had failed to satisfy the conditions, the father was entitled to recover the son’s interest in the properties.

The father alleged that the son had accepted that the gift to him was conditional on: (i) the son caring for the father; and (ii) the son working in the father’s business.

Bebe Chu J held that:

  • the gift was unconditional ([135]);
  • even if the father had attempted to impose the conditions on the gift to the son, the conditions were ‘precatory words’ not intended to have legal effect ([150]);
  • if the conditions were intended to have legal effect, they were void for uncertainty (so that the gift would still be unconditional) ([162]);
  • if they had been intended to have legal effect and been sufficiently certain, the conditions would not need to satisfy the formalities requirements in CPO s. 3(1) ([166]);
  • it was accepted on behalf of the son’s estate that if the conditions had been legally effective then, since they had not been complied with, the son’s interest in the properties would be held on ‘constructive or resulting’ trust for the father ([166]);
  • the trust would be a ‘type 2’ constructive trust under the Paragon Finance classification so that the Limitation Ordinance would apply and the father’s claim was brought outside the six year limitation period ([174]);
  • in any event the claim would be barred by the doctrine of laches (the son’s widow was prejudiced by the delay in bringing the claim ([176]).

Michael Lower

Commentary on Toms v Ruberry

July 24, 2020

Just published this commentary on Toms v Ruberry in the CUHK Law Issues in Property Law blog.

Michael Lower

Can landlord of block of flats authorise a tenant to make structural alterations in breach of absolute covenant?

May 9, 2020

Introduction

In England, the usual arrangement for blocks of flats is for a landlord to retain ownership and control of common parts such as the structure and exterior of the building. Owners are granted long leases of their flats.

This use of leases allows the burden of positive covenants (such as the covenant to contribute to the costs of maintaining, insuring and renewing the building) to be transmitted to the owners of the flats from time to time.

Hong Kong does not need to resort to this device because of section 41 of the Conveyancing and Property Ordinance.

The landlord of the block is then expected to manage the building on behalf of all the tenants and to recover the costs of doing so through a service charge.  The landlord (or its agent) will be entitled by the leases to impose a service charge for this management service.

The leases may contain tenants’ covenants not to do certain things either (a) without the landlord’s consent (a qualified covenant) or (b) not to do them at all (an absolute covenant).

There may be qualified and / or absolute covenants, for example, against carrying out certain types of work.

Qualified covenants envisage that tenants wishing to do work covered by the covenant will apply to the landlord for consent. This allows the landlord to exercise oversight and control in the interests of the proper management of the building.

Absolute covenants envisage that there are certain types of work that tenants will never have any right to carry out.

The lease covenants allow the landlord to manage the building for the benefit of all the tenants. The lease might go further and, for example, require the landlord to enforce the lease covenants at the request of a tenant.

Duval v 11 – 13 Randolph Crescent

The facts in Duval

In Duval v 11 – 13 Randolph Crescent ([2020] UKSC 18) the leases of all flats in the building required the landlord: (a) to impose similar covenants in all leases; and (b) (in clause 3.19) to enforce any breach of covenant by one tenant if asked to do so by another (at the cost of the tenant making the request).

A tenant (‘W’) wanted to carry out works which would involve the removal of part of a load-bearing wall. This would be in breach of an absolute covenant (‘clause 2.7’) not to do work of this nature.

The landlord was, nevertheless, willing to grant the tenant a licence to carry out these works. Another tenant (‘D’) objected and sought a declaration that the landlord did not have the power to waive the absolute covenant in clause 2.7.

The question in Duval

Lord Kitchin (with whom the other members of the UK Supreme Court agreed) framed the question thus:

‘whether the landlord of a block of flats is entitled, without breach of covenant, to grant a licence to a lessee to carry out work which, but for the licence, would breach a covenant in the lease of his or her flat, where the leases of the other flats require the landlord to enforce such covenants at the request and cost of any one of the other lessees.’ ([1]).

Accepted that the landlord could do so in the absence of an obligation owed to other tenants to enforce the covenant

The parties, and the court, agreed that, in the absence of a covenant to enforce clause 2.7 the landlord could grant a licence to carry out works in what would otherwise be a breach of it. This was so even though clause 2.7 was an absolute covenant ([11]).

The crucial additional facts were that the landlord covenanted to impose a restriction similar to clause 2.7 in all leases and, in clause 3.19, to enforce them at the request and cost of any tenant. These facts made all the difference.

Implied covenant

The court set out its interpretation of the express terms of clause 2.7. It then decided that there was an implied term that the landlord promised ‘not to put it out of its power to enforce clause 2.7 in the leases of other lessees by licensing what would otherwise be a breach of it’ ([52]).

The decision: the landlord could not grant a licence to carry out the work

The UK Supreme Court upheld the Court of Appeal’s decision to grant the declaration sought by D. The landlord could not grant a licence to carry out these works:

‘In my view it necessarily follows that the landlord will not put it out of its power to enforce clause 2.7 in the lease of the offending lessee by licensing the activity that would otherwise be a breach of that clause. The clause is an absolute covenant and, under clause 3.19, the complainant lessee is entitled, on provision of security, to require the landlord to enforce it as an absolute covenant. As Lewison LJ said at para 27 of his judgment, it would not give practical content to the obligation if the landlord had the right to vary or modify the absolute covenant or to authorise what would otherwise be a breach of it.’ ([55]).

Michael Lower

 

Right of way: with vehicles or only pedestrian?

April 8, 2020

In The Dairy Farm Company Limited v Secretary for Justice ([2020] HKCFI 306), a 75 year Government lease of land in Pokfulam (‘the Lot’) to Dairy Farm contained a clause (‘SC20’) stating that: ‘“A right-of-way from Pokfulam Road to the new lot on a line to be approved by the Director of Public Works will be given.’ 

The question was whether the right of way was to be for vehicles or whether only pedestrian access was contemplated. Dairy Farm successfully sought an order requiring the Government to grant it a vehicular right of way.

This required the court (Hon. Wilson Chan J.) to apply the normal principles of contractual interpretation and to look at the words used in their documentary context and in the light of the relevant facts known to both parties at the time of the Grant (1958).

A number of contextual features combined to support Dairy Farm’s contention that the parties must be taken to have contemplated vehicular access:

  • the right of way was for access to domestic premises and so the grant was of a right of way for all purposes required for that use;
  •  SC20 entitled Dairy Farm to construct a ‘road or path’, suggesting both pedestrian and vehicular access was contemplated;
  •  SC20 required Dairy Farm to contribute to the cost of maintaining the road suggesting a type of use that might damage it; ([33])
  •  the right of way was intended to connect to the vehicular access on Pokfulam Road;
  •  pre- Grant correspondence between the parties suggested that the background was a plan to develop a network of roads in the area capable of accommodating vehicular access;
  •  the 75 year term militated against a restrictive interpetation;
  •  especially since vehicular access would be needed for the repair or rebuilding of any buildings on the Lot;
  •  the Lot was intended to be used to house senior staff of Dairy Farm (who were likely to have cars) ([35] – [36]).

Hon Wilson Chan J. decided that the Government’s refusal to grant a vehicular right of way was a breach of SC20 ([72]) and, since it rendered the land practically unusable, a derogation from grant ([73]). The Government was ordered to grant the right of way.

Michael Lower

Relief from forfeiture of a contractual licence

March 10, 2020

In The Manchester Ship Canal Company Limited v Vauxhall Motors Limited  ([2019] UKSC 46) the UK Supreme Court considered whether contractual licensees were entitled to apply for relief from forfeiture of a contractual licence. Lord Briggs gave the judgment with which the other members of the Supreme Court agreed. Lady Arden gave a separate judgment reflecting on whether the judgment introduced unacceptable uncertainty into the law.

Facts

In 1962 The Manchester Ship Canal Company Limited (‘MSCC’) granted Vauxhall Motors Limited (‘Vauxhall’) a perpetual licence (‘the licence’) relating to land owned by MSCC next to the Manchester Ship Canal (‘the Canal’).

The licence entitled Vauxhall to install pipes between Vauxhall’s land and the Canal under land owned by MSCC and to discharge surface water and treated effluent through the pipes into the Canal.

Vauxhall had to pay a ‘rent or annual sum’ of GBP 50. If it failed to make this payment on the due date then MSCC had a right to serve a notice requiring payment within 28 days. If payment was not made within this 28 day period then MSCC had the right to serve notice on MSCC to terminate the licence.

Vauxhall failed to pay the sum due in 2013. MSCC gave 28 days notice but Vauxhall did not pay the sum due within the notice period. MSCC served notice to terminate the licence. Vauxhall claimed relief from forfeiture.

When is relief from forfeiture available?

MSCC argued that relief from forfeiture was only available in respect of proprietary interests. The UK Supreme Court rejected this and held that the court could grant relief from forfeiture where:

  •  the primary object is the securing of a stated result for which the forfeiture provision is added by way of security ([18]); and
  •  ‘where what is in question is forfeiture of proprietary or possessory rights as opposed to merely contractual rights, regardless of the type of property concerned’ ([94])

Lady Arden may be expressing the first requirement in other words where, in her judgment, she says that there will be no relief where:

‘it was inconsistent with the terms of the parties’ bargain that there should be any relief from strict performance of the contract if the other party chose to enforce his rights’ ([87]).

The Supreme Court did not accept Vauxhall’s contention that the right to relief applies to all forms of right to use property ([49]). The Supreme Court did not commit itself to the idea that the right to possession had to be of indefinite duration ([51]).

‘Possessory rights in relation to land’

In the Court of Appeal, Lewison LJ explained possessory rights as involving factual possession and an intention to possess:

‘There are two elements to the concept of possession: (1) a sufficient degree of physical custody and control (‘factual possession’); (2) an intention to exercise such custody and control on one’s own behalf and for one’s own benefit (‘intention to possess’). What amounts to a sufficient degree of physical custody and control will depend on the nature of the relevant subject matter and the manner in which that subject matter is commonly enjoyed. The existence of the intention to possess is to be objectively ascertained and will usually be deduced from the acts carried out by the putative possessor ..’ ([2018] EWCA Civ 1100 at [59])

and the Supreme Court accepted this understanding ([42]).

Outcome

The rights in this case were possessory ([55] – [58]). There was no reason to disturb the decision of HHJ Behrens to grant relief from forfeiture.

Michael Lower

 

 

 

 

 

Online Property Law seminar – 18 March 2020

March 9, 2020

Blog readers might be interested in this upcoming online seminar.

Exclusive possession and property guardians

February 21, 2020

In Camelot Guardian Management Ltd v Khoo ([2018] EWHC 2296) the court had to consider whether an agreement with a ‘property guardian’ created a lease or a licence.

Facts

Westminster City Council (‘the council’) appointed Camelot Guardian Management Ltd (‘CGML’) to provide security services in respect of a temporarily empty office building (‘the property’). This agreement envisaged that CGML would grant licences to suitable guardians and carry out regular inspections of the property until the council wanted it back.

CGML entered into an agreement (‘the agreement’) with Mr Khoo giving him the right to occupy a room in the property.

The agreement had a number of features designed to emphasise that it created a licence and was not a tenancy:

  1.  it was headed ‘licence agreement’;
  2.  it included an ‘important note’ emphasising that Mr Khoo would share the property with others;
  3.  it recorded CGML’s agreement with the council concerning the property;
  4.  Mr Khoo could choose a room but could be required to move to another room by CGML;
  5.  Mr Khoo could change the room he used but had to notify CGML of the change;
  6.  Mr. Khoo could not have visitors stay overnight.

In August 2017 the council gave notice to CGML that it would shortly require the property back. CGML served notice to determine Mr. Khoo’s licence. Mr. Khoo refused to move out and claimed to be an assured shorthold tenant. It was agreed that if Mr Khoo was a tenant then he was an assured shorthold tenant and the claim for possession should be dismissed.

Legal analysis

Butcher J. explained that after  Street v Mountford ([1985] 1 AC 809) the court had to consider whether, properly interpreted, the agreement conferred exclusive possession on the occupier.

Construction of the agreement involves looking at the words used in the light of the relevant background. The court should be astute to detect a sham: it should be alert to the possibility that the words used were a dishonest attempt to mislead as to the true substance of the agreement between the parties. When considering the question of a sham the court was entitled to look at how the parties behaved after the agreement was reached.

Butcher J concluded that Mr Khoo did not have exclusive possession and was not a tenant.

The terms described above all pointed in this direction. CGML’s agreement with the council and its underlying purpose were part of the relevant background ([28] – [29]). The circumstances surrounding the agreement (the language used in the website and the fact that Mr Khoo was shown a particular room) were part of the background but did not detract from the conclusion that this was a licence.

On the idea of a sham, Butcher J. observed that:

it has to be borne in mind that not every departure from the terms of a contract and how it is operated indicates that the relevant agreement was a pretence when entered into. Furthermore, the fact that a contractual right is not exercised does not of itself mean that it ceases to exist. The relevant party may be entitled subsequently to insist on its performance nevertheless’ ([33]).

There was no sham, no ‘element of dishonesty’ here ([34] – [36]).

Michael Lower

 

 

‘Exclusive possession’ and property operated by charities

February 19, 2020

In Watts v Stewart ([2016] EWCA Civ 1247) Ashtead United Charity (‘Ashstead’) owned almshouses. Its governing instrument provided that the persons selected to occupy an almshouse had to be chosen from among ‘poor single women of not less than 50 years of age who are inhabitants of the ancient parish of Ashstead’. Mrs. Watts was given the right to occupy one of the almshouses.

Ashstead’s governing instrument empowered Ashtead to ‘set aside the appointment of any resident who in their opinion –

(a) persistently or without reasonable excuse either disregards the regulations for the residents or disturbs the quiet occupation of the almshouses or otherwise behaves vexatiously or offensively’.

Ashtead’s agreement with Mrs Watts provided that she could be removed for ‘serious misconduct’.

Ashstead sought to evict Mrs Watts because of her admitted misconduct. The English Court of Appeal heard Mrs Watts’ appeal against the order for eviction made at first instance. Sir Terence Etherton MR delivered the Court of Appeal’s judgment.

Exclusive possession

Mrs. Watts argued that she was not a licensee but was at first a tenant at will and, once she began to make rent payments, a periodic tenant. The question was whether she had exclusive possession.

The Court of Appeal distinguished between the ‘legal exclusive possession’ of the tenant and the ‘personal right of exclusive occupation’ of licensees such as lodgers ([31]).

The court pointed to a number of provisions in Ashtead’s governing instrument which pointed away from an intention to grant legal exclusive possession. This provided that residents would not be tenants, could be required to leave, could only have visitors stay with them with Ashstead’s consent, could not leave the almshouse empty for more than 28 days in any year without consent and could be required to leave on the grounds of serious misconduct ([39]).

There was no hint that these terms could be regarded as ‘sham’ ([40]). Rather:

‘the Trustees could only properly discharge the trusts of the Charity, which limited its objects to those in need, hardship or distress, if a personal revocable licence was granted (which could be revoked if, for example, the occupier no longer became qualified under the Scheme because they became wealthy). ([40]).

A little later the court said:

‘The status of a beneficiary occupying trust property will depend upon the terms and conditions on which the occupation was permitted.’ ([45])

The terms of the governing instrument are an important part of the context for the purposes of the interpretation of the agreement.

Mrs. Watts had a personal licence to occupy the property. She did not have ‘legal exclusive possession’ and was not a tenant ([46]).

Michael Lower