Publications Spring 2015 Quarterly Housing Update · PDF fileessays published in March by the IPPR. This describes what London councils might achieve by demolishing and redeveloping

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Publications � Spring 2015

Quarterly Housing Update


Contents

1 ———— Foreword2 ———— Councils as Housing Delivery Enablers – the Elphicke-House report4 ———— Regulatory change – what now?6 ———— Potential loss of VAT zero rating on phased development7 ———— Election pledges and reforms to employment law8 ———— Tighter reins on the use of VTNs – the Fastweb judgement9 ———— Increasing the borrowing capacity of stock transfer housing associations?10 ———— The Defective Premises Act – a last resort against contractors11 ———— Being commercial: tips on granting non-residential leases12 ———— Rushing evictions and disposing of a tenant's property can be more trouble than it's worth14 ———— CDM 2015: What's new? 16 ———— The consequences of refusing to mediate18 ———— Gold taps or chrome taps – precedence of documents in a contract19 ———— Implementation of the EU Mortgage Credit Directive 20 ———— Our Think Tank sessions at the CIH Annual Housing Conference

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ForewordIn my foreword to the last edition I commented on the Conservative party's proposal to extend the right to buy to housing association tenants. At the time I said it wasn't a confirmed policy. We now know it is and the press has been full of comment about the idea, most of it negative. Like all the manifesto promises there is no guarantee that it will become a reality. The Conservatives are the only mainstream party taking this line. So will it survive in a bunfight over a coalition agreement? We'll have to wait and see.

One thing that the furore over the right to buy has done, is ensure that housing gets a lot of air time on radio and television as well as many column inches in the broadsheets. The level of buy in to the fact that we have a housing crisis in this country is striking. All the main political parties are promising to increase housing supply. Not surprisingly there are differences as to their focus.

The Conservatives are majoring on home ownership and the private rented sector. They propose a new "Starter Home" initiative under which first time buyers would purchase at a 20% discount to market value. The discount would be funded by a reduction in Section 106 and CIL liabilities. Quite what that would mean for affordable housing provision is not clear but it does not sound promising.

Labour too pledge to increase the number of first time buyers although not by offering a discounted purchase scheme. They support Help To Buy but would restrict its availability to properties with a value of up to £400,000 rather than the current £600,000. Their promises in relation to the private rented sector are largely consumer focussed with a proposal to legislate for longer term tenancies. Both Conservative and Liberal Democrat manifestoes talk about encouraging the use of longer term tenancies rather than making them mandatory.

The Liberal Democrats' manifesto is a lengthy document and contains more specifics than either Labour or the Conservatives. There is much about garden cities and local authority powers to facilitate development. There is also an interesting statement to the effect that they would allow planning conditions to be imposed to require properties to be occupied, as a counter to "buy to leave" owners. Quite how that would work in practice is hard to say.

In amongst all the hullabaloo around policy announcements I was surprised there was not more said about "City Villages: More Homes Better Communities", a series of essays published in March by the IPPR. This describes what London councils might achieve by demolishing and redeveloping estates and was edited by Lord Adonis. The idea that estates can be remodelled to provide more and better housing has not proved universally popular as many local authorities and housing associations are only too well aware.

Ian GrahamPartner � Head of Housing and Regeneration

t +44 (0)20 7423 8284e [email protected]

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Councils as Housing Delivery Enablers – the Elphicke-House reportIn the last QHU we commented on the Lyons Commission's report on increasing housing supply. That was sponsored by the Labour Party. The report by Natalie Elphicke and Keith House - From statutory provider to Housing Delivery Enabler: Review into the local authority role in housing supply – was commissioned by the Coalition Government. The reports will inevitably be seen as "competing" in the run-up to the General Election; but they are really quite different.

Lyons looked at housing delivery across the sector while Elphicke-House focuses on the role of councils. As the authors put it in their foreword they were concerned to "look at what councils do and what councils can do". The remit was therefore narrower and, in addition, the authors were charged in particular with avoiding any recommendations that breach current fiscal plans or accounting rules. Comparison therefore between Elphicke-House and Lyons must take this into account and in particular recognise that the Elphicke-House report was always going to be long on information-sharing and encouragement and short on Government-led change.

The report acknowledges our contribution of know-how on housing delivery structures and it cites our Coalescence survey (see the Autumn edition of QHU): the conclusions of that survey are echoed in many of the report's recommendations.

Certain recommendations stand out as addressing the issues we face in our own work for and with local housing authorities:

● Building outside the housing revenue account (HRA) – the report recommends that the Government publicises the freedoms available to Councils. We regularly wrestle with the HRA/General Fund rules and we still encounter many misconceptions about use of the General Fund. The use of statutory powers for housing purposes is not straightforward and needs careful legal consideration, but it is certainly wrong to assume that any sub-market housing must be delivered within the HRA.

● Simplifying the Government directions and consent process – this too resonates with us. The consents are obscurely worded and both clarity and confidence are certainly needed; and, to the extent that a specific consent is required, then an efficient and positive process for dealing with applications is vital.

● Updating and re-issuing guidance about land disposals – the application of the disposals rules for HRA or General Fund land (including the "under-value" consents regime) is not easy, particularly in relation to those factors which need to be taken into account (which are frustratingly different for the three sets of statutory provisions). Again, greater clarity will lead to more confidence.

● Establishing an independent Housing and Finance Institute – we certainly see the need for technical (including legal) support for Councils in playing their part in delivering more housing and while we often engage with the current "networks" (for example, the Local Government Association) we see merit in a new body or other such arrangements.

● Setting up Council-sponsored local housing delivery organisations - many Councils have already come to us to establish wholly-owned local housing companies and other such vehicles, so to an extent this is preaching to the converted; but if it provides confidence to those who remain uncertain then we welcome this recommendation too.

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● Councils developing "off balance sheet" models – most of our Council clients are at the stage where they favour a controlled housing vehicle but many anticipate the possibility that, to attract further investment or funding, an off balance sheet model might be desirable and we always endeavour to introduce flexibility into the structures we propose. Accordingly this recommendation too resonates with us.

Aside from the recommendations, the report includes 29 case studies covering a wide range of initiatives and scenarios. These case studies in fact could prove to be as powerful as the recommendations. Local authorities are rightly cautious and the reassurance they gain from seeing what counterparts have been doing will be a significant factor in Councils rising to the Elphicke-House challenge.

The Government's initial response has been positive. They are "fully behind" the main recommendation that Councils become Housing Delivery Enablers. They also regard the proposals to make proactive use of existing powers, levers and opportunities as "promising". The Government is concerned that the proposed Institute might be costly and bureaucratic, but that is the only recommendation which presents obvious difficulty. The response however is opaque

and it will be necessary to wait until after May to see whether the next Government implements the report's recommendations.

In the meantime we believe that the report will have a real impact. There have already been signs that Councils are taking confidence from it, in particular the encouragement to "do more", whether within the HRA or the General Fund. There is general recognition that local authorities have a key role to play and, though we are sure that the different "players" in the sector will have strong views on precisely what that role should be, all agree that positive, proactive leadership from Councils is critical. Partnership is key and, notwithstanding the political differences that inform Lyons on the one hand and Elphicke-House on the other, we have clearly now moved beyond an "either/or" approach. Thanks to Lyons and Elphicke-House the next Government will not be short of sensible ideas for increasing housing supply.

Ian DoolittlePartner � Housing and Regeneration


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Regulatory change – what now?Over the last year or so the proposed changes to the regulatory standards have been much discussed and debated across the sector. The standards have finally been published and came into effect on 1 April 2015. The most significant changes have been to the Governance and Financial Viability Standard. Given the extensive coverage of the impending changes, together with the comprehensive consultation that took place, the new Standard does not present anything significant that the sector wasn't already expecting.

One of the most common questions asked is "at what stage are we required to demonstrate compliance with the new Standard?" Our understanding is that the HCA will be monitoring compliance shortly after the Standard is introduced, meaning that all RPs should be focusing now on getting all necessary arrangements in place as soon as possible. Yes the Standard also introduces an annual compliance statement for boards (the first of which won't be due for over a year), but this does not mean that RPs can wait until the last minute to meet the Standard.

What's in it?

New Code of Practice

The Governance and Financial Viability Standard is now supported by a Code of Practice. As the Code states, its purpose is to amplify the requirements of the Standard and help RPs better understand what is required of them. The Code also clarifies the Standard by elaborating on context and by providing illustrative examples in places. Whilst the HCA can only regulate RPs against the Standard itself, in doing so they will have regard to the contents of the Code. It will, therefore, form a very important part of the

regulatory framework and a vital tool for boards understanding what the HCA expects of them and their organisations.

Adherence to all law

The Standard now requires RPs to comply with "all law". In the previous governance standard the reference was to "all legislation", and so this is an extension to the previous requirement. As the Code explains, "all law" captures all legislation and common law, and in ensuring compliance, RPs should also have regard to all relevant statutory guidance. The Code makes clear that to meet the HCA's required outcome, boards should take "reasonable measures" to assure themselves of their compliance.

So what does this mean in practice? It is key to note that this isn't just about strict compliance with all law - a breach of the law won't automatically mean a breach of the Standard if reasonable measures to comply with the law have been taken. If you haven't dusted off your policy and documentary framework recently then now would be the time to do it. Having a framework which is up to date and fit for purpose should go some way in helping to demonstrate that you are taking all reasonable measures to ensure compliance. It is surprising how many organisations continue to operate under policies which are years old, something which had led to a number of RPs receiving downgrades in the last 18 months. Also, consider your training programme for boards and staff as this can help to demonstrate that reasonable measures are being taken to ensure that the organisation is able to comply with all law.

Asset and liability records

The requirement to maintain an accurate and up to date record of all assets and liabilities has sparked debate within RPs. It is clear that people are coming at this in slightly different ways, and some are finding the exercise easier than others. Regardless of the approach taken, it is important to remember

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the HCA's rationale for requiring RPs to have such records in place, as that should help to inform the exercise. This is about ensuring that every RP has records easily to hand which identify their assets together with any liabilities which have an impact on the business as a whole. This means it isn't about how many paperclips and post-it notes there are in the store cupboard and so it's important to take a balanced approach. Keep in mind that its purpose is to ensure that RPs have all relevant information to be able to deal with the business in a distress situation and to be able to manage the business on a fully informed basis, including managing risks.

Stress testing

There has already been much commentary in the sector on the stress testing requirement, and so we will not repeat that here. However, a key point to make is that as with the asset and liability records it is clear that some people are more comfortable than others about what exactly stress testing means. There is no "one size fits all". Yes there are some common triggers that will impact on every business, but the variables that one organisation needs to throw into the mix in order to answer that killer question "what will bring this organisation down?" will not always be the same as the next. And it isn't just

about crunching every single number under the sun, which is simply too time consuming, it's about taking the time to think about what variables are relevant to your organisation, identifying the "break" scenario, and planning a mitigation strategy around that.

The above are just some of the areas covered by the new Standard and Code, both of which are more extensive than this. We haven't even touched upon the issue of board member skills and governance effectiveness, which warrants its own article. One final point we will make is that boards have to know what this Standard (and the Code) requires of them. What helps to focus the mind in that respect is the certificate of compliance which boards are now required to give each year. Boards can only do that if they know what is actually required of them and of their organisations, and knowing exactly what the Standard and the Code says is a very good starting point.

Sharron WebsterPartner � Housing and Regeneration


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Potential loss of VAT zero rating on phased developmentIn a recent case the Tribunal held that VAT zero rating on the cost of constructing new buildings was lost due to the way the development was carried out in phases.

Whilst the case concerned charitable educational facilities, it is also relevant to all zero rated projects such as dwellings, care homes and student accommodation.

Central Sussex College redeveloped its campus in three phases, including the eventual demolition of the existing buildings dependent on funding. The question was whether each phase should be considered separately for the purposes of VAT zero rating for the construction of new charity buildings, or whether it was a single project.

The Tribunal held that each phase should be considered separately. It was noted that from an early stage the College was aware that the redevelopment was to be "phased as stand alone projects". Additionally, the final phase was delayed for some time due to funding difficulties. Analysed like that, and taking into account the design and use of the project during and after the works (see below), the Tribunal held that zero rating did not apply because the result was to enlarge and/or extend existing buildings, which is subject to VAT.

The Tribunal took the view that phases 1 and 2 could be regarded as one project because they were carried out consecutively; however, phase 3 was regarded as a separate project because at the time of phases 1 and 2 it could not be said with certainty that phase 3 would go ahead; and neither the functioning of the original main College building, nor the function of the new buildings constructed in

phases 1 and 2 was contingent on the phase 3 works being carried out.

The Tribunal also noted that in relation to phases 1 and 2, the new buildings were to be used in conjunction with existing college buildings (with a walkway linking the buildings) and the demolition of the existing buildings in phase 3 was not guaranteed to occur because further funding was required.

In relation to phase 3, the new buildings were to be used in conjunction with the buildings constructed in phases 1 and 2.

Therefore, the Tribunal decided that this was not a zero rated new build development, but rather the enlargement or extension of existing buildings.

In the case of what is, in commercial terms, a single project carried out in phases, it cannot be assumed that it is a single project for VAT purposes. This may impact on the availability of zero rating, because subsequent phases can be vulnerable to being regarded as extensions and/or enlargements of previous phases, thus denying zero rating.

Neil CohenProfessional Support Lawyer � Corporate


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Election pledges and reforms to employment lawWith the general election fast approaching, the main political parties and UKIP have indicated what reforms to employment law we should expect if they win.

Conservatives' proposals

Pledges include repealing the Human Rights Act 1998 (the HRA), introducing a British Bill of Rights and bolstering the rules on strike actions for disputes in the health, transport, fire and education sectors, consequently making it more difficult for unions to strike. Proposed changes include a 40% turnout threshold as an addition to the backing of a simple majority before strike action is permitted, requiring unions to give 14 days’ notice before taking action and imposing a three month time limit on the duration of mandates.

Other initiatives include reaffirming its commitment to end the use of exclusivity clauses in zero hours’ contracts, preventing the trafficking of workers through the Modern Slavery Bill and imposing a limit of £95,000 on enhanced redundancy payments in the public sector.

Labour's proposals

Labour is promising to promote equal pay and family friendly initiatives. Companies with more than 250 employees will be required to publish the average pay of men and women and there are plans to increase free childcare for working parents to 25 hours per week, to double paid paternity leave, consult on flexible working for family carers and remove barriers for parents returning to work.

Reforming the employment law tribunal system is on the agenda and, although Labour’s plans are not yet clear, it has been reported they will not go as far as abolishing

the tribunal fees introduced by the coalition but rather introduce better means testing.

Other proposals include promoting equal rights for self-employed individuals, restricting the use of zero hours' contracts and increasing the national minimum wage (NMW) to £8 an hour by the end of the next Parliament in 2020.

Liberal Democrat proposals

Suggested reforms also include family and equal pay initiatives, with the introduction of an additional four weeks’ paternity leave and 15 hours of free childcare to all children of working parents aged between nine months and two years old. A policy of blind recruitment in the public sector to combat discrimination, establishing a new workers' rights agency and increasing the NMW for apprentices by £1 an hour also feature on the agenda.

UKIP proposals

Reforms include leaving the European Union, withdrawing from the jurisdiction of the European Court of Human Rights, repealing the HRA, introducing a British Bill of Rights and giving businesses the right to discriminate in favour of young British workers by offering them a job ahead of a more qualified or more experienced foreign applicant. At present, this would be race discrimination.

We will watch with interest as parties confirm their plans in their manifestos and, ultimately, voters decide on 7 May.

Emma BurrowsPartner � Employment


Philippa RaysonSolicitor � Commercial Property


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Tighter reins on the use of VTNs – the Fastweb judgementA 2014 decision by the European Court has whipped away the fig leaf that Voluntary Transparency Notices (VTNs) potentially provided to contracting authorities worried about their directly awarded contracts being declared ineffective.

One of the most serious breaches of the public procurement rules is the direct award of a contract by a contracting authority without advertisement. In such circumstances, the Court may set aside a contract and declare it "ineffective".

The Public Contracts Regulations 2006 (as amended) (the Regulations) provide a "safe-harbour" defence to the remedy of ineffectiveness, whereby a contracting authority may publish a VTN in the Official Journal of the European Union (OJEU) and wait for 10 days before entering the contract. In order to rely on this defence, the contracting authority must have believed that it was able to rely on an exception under the Regulations allowing them to directly award a contract without first publishing a contract notice.

Given the potential defence to ineffectiveness a VTN may provide, some contracting authorities have systematically published VTNs to mitigate the risk of a court subsequently declaring a contract ineffective.

The recent European Union case Ministero dell'Interno v Fastweb concerned a contract for telecommunications services granted by the Italian Interior Ministry.

In this case the Ministry agreed that it did not believe it had to publish a contract notice because of a provision in Italy's domestic legislation which stated there was no need to where there was only one economic operator able to perform the contract. However, on

the facts of the case the Ministry simply did not want the hassle of having to change contractor, and so had not justified the use of the exception.

Despite this, the Italian courts were unsure as to whether they could declare the contract ineffective as the Ministry had followed the correct procedure and published a VTN.

The European Court held that when reviewing the reasons for not publishing a contract notice, it will consider whether the contracting authority acted diligently, and whether it had legitimately decided that a direct award was justified.

Following this decision, it is clear that a VTN will not provide any protection to a contracting authority that knows it needs to advertise a contract in the OJEU, but instead publishes a VTN as a risk mitigation strategy. Further, a contracting authority will also need to demonstrate that it properly considered whether the exception to publication properly applied to it, and can demonstrate this with an audit trail of documented considerations and decisions.

Rebecca ReesPartner � Projects and Construction


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Increasing the borrowing capacity of stock transfer housing associations?When charging properties, every borrower would seek to draw the maximum funds it could against that security. A current concern is the borrowing capacity of stock transfer housing associations, and the potential to increase this and allow them to provide more homes.

Tenanted stock of a housing association is generally valued on two different bases: Existing Use Value – Social Housing (EUV) or Market Value Subject to Tenancies (MVT). This valuation, along with the asset cover required by funders, determines the drawdown possible. Depending on the part of the UK, EUV could be up to 40% less than MVT and so significantly affects the funds available.

The titles to land transferred by a local authority as part of a large scale voluntary transfer (LSVT) will include restrictions, requiring consent of the Secretary of State to any disposal under Section 133 Housing Act 1988. In the current market, this restriction means that any properties would be valued on EUV basis, for reasons including the following. This would apply to the housing stock included in the LSVT itself, and any properties acquired after transfer and even any newbuilds on that land.

● Should a funder wish to dispose of these properties, it too would need to obtain s133 Consent. This contrasts with other statutory regimes where only the housing association itself needs to obtain consent to dispose of the property.

● There is the potential delay to obtaining this additional s133 Consent, and the

possible imposition of more onerous conditions to secure the property for use as affordable housing and to protect the tenants. It has been assumed that such consent may not be forthcoming for the disposal by a mortgagee of a portfolio to a purchaser outside the regulated sector. Funders do generally obtain a general consent under s133, but this only allows the sale of voids, so would not permit the funder to sell all the tenanted stock freely to realise its full security quickly.

● If an LSVT association were to default and its funder sought to dispose of the properties, this would mean the sale of a large number of properties in a concentrated area, thus deflating values. The likely purchaser of large scale ex-local authority stock is another housing association or similar body.

● Some borrowers choose to enter into loan agreements only permitting borrowing on an EUV basis, and most older loans for LSVT stock will similarly restrict valuation to EUV only. Any change in valuation basis is likely to result in a re-pricing, even if a lender were willing to entertain this.

● Funders will consider the level of debt an organisation can afford and the likely income generated by the properties, whatever the valuation basis.

Following lobbying, the Government announced in the National Infrastructure Plan a commitment to consult on ways to increase borrowing capacity and the DCLG Consultation "Increasing the Borrowing Capacity of Stock Transfer Housing Associations" was launched in March 2015 with a closing date of 31 May 2015.

Melanie ComerManaging Associate � Housing and Regeneration


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proper materials and so the dwelling is fit for habitation when completed.

The court found Barr liable to the Owners under the DPA for the costs of repair of the common and structural parts. The court looked at what constitutes a dwelling, what is meant by "in connection with the provision of a dwelling" and what constitutes fitness for habitation. The court held that the common parts were not a dwelling, but the work done to the structure and common parts was done in connection with the provision of a dwelling because the Owners had financial responsibility for, and a right of access, to the common parts.

The court was therefore willing to impose liability on Barr without there being a contractual relationship with the Owners. Although very fact specific, the case highlights that it is possible to rely on the statutory duty under the DPA where there is no contractual right to a claim. This should not be presumed though and you should seek to secure other forms of security for defective workmanship where possible.

Jennifer Dalby Solicitor � Projects and Construction


The Defective Premises Act – a last resort against contractorsCollateral warranties can sometimes be difficult to extract from consultants, contractors and sub-contractors, especially if you are purchasing a small number of properties from a developer as part of a wider development. Ideally you should secure collateral warranties where you can. Latent defects insurance can also provide protection. But what if you have neither? All may not be lost as the owners of some apartments in Leeds discovered when they were successful in bringing a claim under the Defective Premises Act 1972 (DPA) for failure by the developer to see that the work which it took on in connection with the provision of a dwelling was done in a workmanlike, professional manner, with proper materials and so the dwelling would be fit for habitation when completed.

In Rendlesham Estates plc and other v Barr Ltd a developer engaged Barr Ltd (Barr) (a building contractor) to construct two apartment blocks in Leeds. The developer sold individual apartments to various purchasers (the Owners). Defects in the apartment blocks became apparent shortly after construction was completed and more emerged over time. Some of the defects were within individual apartments, while others were in common parts. The Owners did not have the benefit of new home warranties for the apartments, the developer was insolvent and they had no direct contractual link with the building contractor (i.e. they did not have a collateral warranty or third party rights). The owners brought a claim against Barr for the cost of the repairs under the DPA which imposes a duty on those taking on work in the provision of a dwelling that it is done in a workmanlike, professional manner, with

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Being commercial: tips on granting non-residential leasesAlthough tenants of commercial premises traditionally enjoy fewer rights than residential tenants, there are industry codes which well-advised tenants increasingly require be adopted in whole or at least in part. What should a landlord consider before drafting?

1. Should the lease attract security of tenure under the Landlord and Tenant Act 1954 (the 1954 Act)? This depends on proposals for the building. If the 1954 Act is not excluded, the tenant can request a new lease from the court (which can order a term of up to 15 years) and it would be for the landlord to prove a 1954 Act ground of objection-commonly demolition or re-construction.

2. How long should the term be? Where you have re-development proposals, consider a landlord break. Where tenants require break rights, the Code for Leasing Business Premises 2007 (the Code) is a starting point. The Code provides the only pre-conditions to tenants exercising break rights are:

• Being up to date with the main rent (excluding service charge or insurance rent); and

• Giving up occupation and leaving behind no continuing sub-leases.

A mutual break right may be an acceptable compromise.

3. What is the tenant's repairing obligation? The Code states this should "be appropriate to the length of term and the condition of the premises."

4. How is the rent to be reviewed? The Code recommends landlords offer alternatives to the upwards-only review. Whilst annual indexation might be acceptable, an upwards/downwards review is more controversial.

5. Should there be restrictions on user reflecting the principles of your organisation or its letting policy? The Code provides that controls should be no more restrictive than is necessary to protect the value of the building.

6. If there is a rent deposit, how will the funds be held? Traditionally landlords prefer these to pass to them with a promise to repay the balance (less any deductions) allowing greater control in the event of tenant insolvency. Increasingly tenants require funds are held by them raising issues about effective security on tenant insovency.

7. Should the outgoing tenant have to provide an authorised guarantee agreement (AGA) as a pre-condition for consent to assign? The Code states the requirement for an AGA should be limited to where the incoming tenant (and any guarantor) is of a lower financial standing than the outgoing tenant (and any guarantor) or is registered overseas.

8. Should tenant alterations be removed at the end of the term? The Code provision that removal should not be required unless reasonable to do so and then on at least six months' notification, requires carefully diarising.

9. In a multi-let building with common facilities, a landlord wants to recover the costs of providing services but not to be responsible for voids. In mixed use developments, statute limits amounts recoverable from residential tenants and imposes a consultation obligation on landlords. The Code recommends adoption of the RICS' service charge code with its principle of provision of services on a 'value for money' basis.

Sangita Unadkat Partner � Commercial Property


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Rushing evictions and disposing of a tenant's property can be more trouble than it's worthThe Courts are taking a hard line in unlawful eviction cases and where a tenant's belongings are disposed of incorrectly, even when it's a social landlord in question. Social landlords who change the locks on properties, and do not follow the correct process for gaining possession as well as disposing of items left within the same, may face significant financial penalties as well as the Courts potentially finding deliberate acts of wrongdoing and even "conspiracies" against tenants. This is not a place that you want to be! The cases of Loveridge v London Borough of Lambeth [2014] and AA v Southwark London Borough Council [2014] illustrate the point.

Loveridge v London Borough of Lambeth [2014]

Loveridge travelled to Ghana for five months. Whilst he was in breach of his tenancy agreement, as he did not tell Lambeth that he was going to be absent from the property for more than eight weeks, he continued to pay his rent and gave no other indication that he did not intend to return to the property.

During Loveridge's absence, Lambeth forcibly entered the property under the mistaken, but genuine, belief that he had died. They took possession by changing the locks, left a Notice to Quit and subsequently disposed of Loveridge's personal belongings. The property was then re let to another tenant. Loveridge claimed for unlawful eviction.

At first instance, Loveridge was awarded damages of £90,500 for the unlawful eviction

and £9,000 in respect of his personal belongings. The Court of Appeal overturned the sum of damages awarded but the Supreme Court (SC) reinstated the amount.

Sections 27 and 28 of the Housing Act 1988 (the Act) deal with the calculation of damages for unlawful eviction. Very simplistically, the calculation is based on the market value of the property with both a tenant in situ and with vacant possession.

The SC did suggest that Parliament should revisit the application of sections 27 and 28 of the Act, against social landlords, as they only tend to evict tenants unlawfully because of misjudgement or mistaken belief rather than malice or seeking some capital gain. However, the wording of the Act means that until Parliament distinguishes its application between different categories of landlord, social landlords are still on the hook for paying substantial damages if they unlawfully evict an individual, regardless of their "belief" at the time. Social landlords must, therefore, follow their policies and procedures closely when seeking to recover possession of a property and obtain a Possession Order as this is the only guaranteed protection to claims for unlawful eviction.

Following Loveridge, the situation got worse for social landlords with the High Court finding that a Local Authority had not only unlawfully evicted a tenant but had unlawfully disposed of their belongings, had interfered with their right to quiet enjoyment, had conspired to evict them and had tried to cover up their failures.

AA v Southwark London Borough Council [2014]

AA had been a tenant of Southwark for 23 years. In 2006 Southwark obtained a Suspended Possession Order against him which was subsequently varied. In 2013 Southwark applied for the execution of a Warrant for Possession but did not get leave of the Court to do so even though the Possession Order was over six years

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was subsequently stayed, suspended etc;

2. Southwark's eviction policy had been infringed;

3. The Bailiff had surrendered possession to a carpenter, who had no authority to sign the eviction paperwork, and the absence of any of Southwark's officers, at the eviction, was another deliberate and negligent act;

4. AA's application to suspend the Warrant had been defended abusively by Southwark;

5. Southwark had interfered with AA's right to quiet enjoyment;

6. Southwark's officers had breached their duties of fair dealing and non-discriminatory conduct;

7. Southwark's actions had been an abuse of process and its conduct failed to show due respect to the tenant's private life under Article 8 of the European Convention on Human Rights.

I am sure most social landlords have had claims of conspiracy and abuse of process laid at their door. Most of these are rejected by the Courts. Whilst we might like to think that social landlords are immune to such claims, this case shows that they can actually succeed. Do not be surprised if more claims of this nature are brought. In order to defend them and any unlawful eviction claims successfully, make sure that all of your dealings with your tenants, and their belongings, are done "by the book".

Elizabeth HargreavesSenior Associate � Property Litigation


old. AA was unsuccessful in his application to stay the Warrant and the property was repossessed. Southwark arranged for the contents of the property to be removed, two days after the eviction, and destroyed.

AA contended that the issue, and execution, of the Warrant had been unlawful. He argued that a conspiracy by Southwark's officers was meant to cause him harm and to remove him and his possessions from the property, without due process. Southwark argued that the Warrant of Possession had been lawfully executed. It admitted liability for the destruction of AA's possessions, saying it was an "unintentional mistake", but said that any liability owed under the Tort (Interference with Goods) Act 1977 should be set off against the tenant's liability for his rent arrears and the subsequent court costs incurred.

In addition to the question of whether the need for leave of a Judge, before applying for a Warrant, runs from the original Possession Order or the last suspension, the trial highlighted:

1. Southwark had breached its policies requiring it to retain and store AA's possession following eviction;

2. Southwark's officers had agreed between themselves positive actions to take such as reducing the warning time given to AA of the intended eviction, and not making an inventory of his goods;

3. Southwark did not disclose, until the second day of the Trial, the results of an internal investigation which showed a series of negligent, and grossly negligent, acts by Southwark as well as deliberate concealment of these.

In addition to the above, the Judge made the following findings:

1. The Warrant was unlawful as it was issued without obtaining permission of a Judge. The six year period starts to run from the date of the original Possession Order regardless of whether or not it

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CDM 2015: What's new? The Construction (Design and Management) Regulations 2015 (CDM 2015) came into force on 6 April 2015, replacing the Construction (Design and Management) Regulations 2007 (CDM 2007). Although CDM 2015 is not a complete overhaul of CDM 2007, there are a number of significant changes which those involved in the construction industry will need to familiarise themselves with and adhere to. The significant differences between the positions under CDM 2015 and CDM 2007 are explained below.

Increased obligations on the client

In addition to the obligations to provide welfare facilities and to ensure pre-construction information is communicated to designers and contractors, the client now has specific obligations to ensure that the construction phase plan and the health and safety file are produced by others. The client also takes responsibility for notification of a project to the Health & Safety Executive (HSE), for which there is a slight tweak of the threshold. Notification is now required where there are 20 workers working simultaneously at any point in the project and the project has a duration of longer than 30 working days, or where the project has a duration in excess of 500 person days. Whilst in practice the client may still engage someone to carry out its responsibilities, it is worth noting that the penalties and prosecutions that have been handed out for offences under CDM 2007 cannot be passed on through a contract.

Domestic clients

CDM 2015 applies to domestic clients as well as those carrying out works in the course or furtherance of business. However, the obligations of a domestic client, including to notify a project and to provide minimum welfare facilities and pre-construction

information, must be carried out by the contractor where there is only one contractor, the principal contractor where there is more than one contractor and the principal designer where there is a written agreement to that effect.

CDM Co-ordinators, Principal Designers and Principal Contractors

The role of the CDM co-ordinator will now cease to exist. Existing CDM co-ordinators will retain certain responsibilities during the transitional phase (as to which see below).

Whilst previously the appointments of the CDM co-ordinator and principal contractor depended on whether a project was notifiable, those of the principal designer and principal contractor are now triggered on projects where there is more than one contractor, arguably a lower threshold (given the broad definition of a contractor under CDM 2015). If a principal designer or principal contractor is not appointed in writing before the construction phase begins, the client must fulfil their duties.

The newly conceived principal designer must by definition be a designer i.e. someone who prepares or modifies a design (or arranges for or instructs a person under their control to do so) relating to a structure, or to a product or mechanical or electrical system intended for a particular structure. This requirement may rule out current CDM co-ordinators being appointed as principal designer and would also possibly rule out an employer's agent or project manager. The change may represent an opportunity for architects and engineers to expand their capabilities into this area, but clients may be reluctant to lose the team member upon which they rely for health and safety advice and so may wish to retain their CDM co-ordinators in some capacity.

Formerly the responsibility of the CDM co-ordinator, the health and safety file is now to be prepared by the principal designer, who picks up other aspects of the CDM co-

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ordinator should comply with the transitional duties set out in CDM 2015.

Application

The Approved Code of Practice (ACoP) which provided practical advice for those involved in construction projects (for example it explained the legal duties placed on clients, designers, etc, which projects needed to be notified to the HSE, and so on) has been withdrawn. The ACoP has been replaced by targeted guidance which is available via the HSE's website, but that guidance does not have the special legal status which ACoP had.

The changes brought about by CDM 2015 are therefore significant. The CDM co-ordinator has been shown the door, its vacancy filled by the principal designer, domestic work is now caught, and the client bears increased responsibility. The full practical implications of CDM 2015 are however hard to predict at this stage as clients and others seek to find their own solutions to accommodate the reallocation of responsibilities, particularly during the transitional period.

James HuckstepAssociate � Projects and Construction


ordinator's role during the pre-construction phase. Meanwhile the principal contractor remains responsible for the construction phase plan and for health and safety during the construction phase.

The new provisions around passing over of the health and safety file from the principal designer to the principal contractor have caused some concern due to a lack of clarity over the point at which the principal designer's appointment comes to an end. If the principal designer's appointment concludes before the end of the project (for example on a design and build project where an architect principal designer is novated to the principal contractor, the client may wish the contractor to take on the principal designer role), the principal designer must pass the health and safety file to the principal contractor.

Transitional provisions

Transitional provisions will apply between 6 April and 6 October 2015. For a project involving more than one contractor starting its pre-construction phase before 6 April where the client has not yet appointed a CDM co-ordinator, from 6 April the client must appoint a principal designer as soon as possible. If the CDM co-ordinator has already been appointed and the construction phase begins, a principal designer must be appointed to replace him by 6 October 2015, unless the project comes to an end before then. In the period it takes to appoint a principal designer, the existing CDM co-

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The consequences of refusing to mediateMediation is an alternative dispute resolution (ADR) process in which parties to a dispute appoint a neutral mediator to assist them to reach a settlement. The process is confidential and without prejudice to their respective positions before the courts. Most cases are not by their nature unsuitable for mediation and a significant majority of those cases which do mediate result in a resolution. It is for this reason that the courts strongly encourage parties to agree to mediation or other forms of ADR.

Assuming a dispute does not settle and proceeds to a final determination at a hearing, the usual rule in English proceedings is that costs follow the event. In other words, the successful party will generally recover most of its costs from the losing party, usually in the region of 60% to 70% when assessed on the standard basis. However, either party - whether successful or unsuccessful in the case - can challenge the "usual rule" by showing that the other party acted unreasonably in refusing to mediate. If this can be established, then a successful party could be deprived of all or some of the costs that it would usually expect to be awarded. Likewise an unsuccessful party that also had unwisely refused to mediate could face paying a higher percentage (i.e. 85%) of its opponent's costs.

Halsey principles

Since the case of Halsey v Milton Keynes General NHS Trust1 in 2004, the courts have applied a list of considerations when determining whether a party acted unreasonably in refusing to mediate, known as the Halsey principles. These principles include: (1) the nature of the dispute i.e. whether the case is an ordinary dispute

or a matter requiring an important binding precedent, (2) the merits of the case i.e. whether one party has a very strong case, (3) whether other settlement attempts (other than mediation) have failed, (4) the potential costs of a mediation, (5) delay, (6) prospects of success of a mediation, (7) other factors, such as judicial encouragement to mediate at an earlier stage in the proceedings.

Subsequent case law provides illustrations of how the courts are applying the Halsey principles and penalising otherwise successful parties in costs. There are some cases where the courts have found that a party did reasonably refuse to mediate, but these appear to be fewer in number.

In a recent 2015 case, Laporte v Commissioner of Met Police2, the claimants claimed damages for assault, battery, false imprisonment and malicious prosecution from the defendant commissioner, and sought a declaration that he had violated their human rights. The claimants were protestors at a public council meeting, who were charged with assaulting a police officer, but the prosecutions collapsed. The claimants' claims for damages were dismissed. On the question of costs, the claimants contended that the commissioner's refusal to mediate should result in the commissioner not being awarded any of his legal costs in successfully defending the damages proceedings.

During the course of the litigation, the claimants had made numerous proposals for a mediation, which the commissioner ultimately refused. The Court applied the Halsey principles as follows:

1. The nature of the dispute: the court was not persuaded that the importance of assessing the scope of police powers made the case unsuitable for mediation.

2. The merits of the case: the commissioner was found to have conceded that the merits of his defence were not so strong in themselves to justify a refusal to mediate.

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found that the case was one which a skilled mediator could have assisted the parties to resolve the dispute. Further, the costs of a mediation were not disproportionate, there was no risk of delay and in relation to the prospects of success, the court found that it was "a classic case where a mediator could have brought the parties together". The defendant's refusal to mediate was held unreasonable. However, the defendant was saved from adverse costs penalties in this case because it had made an admissible offer to settle the case, which the claimant did not better at trial.

The English courts have no jurisdiction to force a party to mediate a dispute. To do so would be a constraint on a party's right to access of the court. However, it takes a very specific set of circumstances for a party to be able reasonably to refuse to mediate, without later being penalised

1[2004] EWCA Civ 576 2[2015] EWHC 371 (QB)

James LancasterSenior Associate � Commercial Litigation


3. Cost of a mediation: the court found that the costs of a mediation (as is the case in most disputes) would not be disproportionately high.

4. Delay: there was no reason to suggest that a mediation would have delayed a trial of the action.

5. Prospects of success: the court found that there was a reasonable chance that ADR would have been successful.

Other factors also counted against the defendant, for example, the defendant had made no settlement offers at all and he had not substantively responded to pre-action correspondence. In conclusion, the court exercised its discretion to reduce the costs that the defendant could otherwise recover by a third.

Northrop Grumman Mission Systems v BAE Systems is another case where the court applied the Halsey principles. This case concerned an allegation by the claimant that the defendant had unlawfully terminated a software licence agreement. The defendant had confidence in its position and refused to mediate unless the claimant first provided some evidence, which the claimant knew that the defendant could not provide. This case turned on a single point of contractual interpretation and the defendant won comprehensively.

The defendant's belief in the strength of its case was reasonable. However, the court

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Gold taps or chrome taps – precedence of documents in a contractThe purpose of this article is to highlight the need to make sure that all the documents which form a contract are consistent with each other. In a building contract or a development agreement it is usual for a number of separate documents to be included which together, form the contract. Often these documents are produced by different authors who may have not seen the other documents. In fact, in some cases, it is only when the contract is put together for signature, that all the documents are brought together.

In this situation it is likely that the documents will contain provisions which conflict with one another. In order to deal with this potential issue, it is relatively common for a clause to be included in the contract which states a hierarchy of documents to deal with the situation where the documents have conflicting provisions. This type of clause is also often relied upon by the parties who focus on the main parts of the contract knowing that what is agreed in those documents will, in accordance with the 'priority clause', override any provisions in the lower ordered documents.

The effectiveness of a priority clause has been considered by the Court of Appeal in the case of RWE Npower Renewables Ltd v J N Bentley Ltd [2014] EWCA. In this case, the NEC contract was for the construction of a hydro-electric generating plant in Scotland. The Works Information contained a description of section 2 and a completion date. Option X5 (Sectional Completion) contained a slightly different description of section 2 and had a different date for completion. Therefore, on the face of it, section 2 had two different dates for

completion. The contactor argued that under the priority clause, the date in the Works Information should be disregarded and the date in Option X5 should prevail. This had the effect of reducing the liquidated damages. Npower, in contrast, said that they were not inconsistent but merely described differently.

The Judge started from the position that all the contract documents should be read as far as possible as complementing each other and expressing the parties' intentions in a consistent and coherent manner. The Judge looked at the other contract documents, such as the programme, and considered that even though the two provisions were different, they could be reconciled in that the description in the Works Information provided more detail than in Option X5. Further, the Judge said that only in the situation where there is a clear and irreconcilable discrepancy would the priority clause be used and even then, only to the extent of that particular point. In other words, a priority clause will not jettison a whole clause or document but merely deal with the specific point.

This case underlines the need for all the contract documents to be read and reviewed before a contract is finalised. The priority clause will only be able to be relied upon in exceptional circumstances where there is a clear irreconcilable discrepancy e.g. gold or chrome taps. It will not prevent less important documents from being used to establish the parties' intentions. A focus on agreeing only the 'important documents' will not be saved by a priority clause.

Alan TatePartner � Projects and Construction

t +44 (0)1392 221927e [email protected]

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Implementation of the EU Mortgage Credit Directive At the end of January, the Treasury published the summary of responses to a consultation on the implementation of the EU Mortgage Credit Directive. The consultation covered two key points; namely the scope of credit broking and the new rules for the regulation of second charges (including shared equity).

Credit broking

The transfer of consumer credit regulation to the FCA had an unexpected impact which meant that any party wishing to provide potential buyers with lists of FCA regulated mortgage lenders or financial advisors would have required FCA authorisation. We raised this point in response to the consultation and are pleased to report that the draft legislation (which comes into force in April) has now been amended and no consumer credit authorisation will be needed in that situation. Introductions for other forms of borrowing or credit will continue to be classed as regulated credit broking.

Secured lending (including shared equity)

The consultation response also resolved the on-going question over whether shared equity lending would be included as part of the wider transfer of second charges into the existing FCA regime for first charge lending. This has now been confirmed by the new regulations. Whilst many RPs and house builders have stopped offering their own shared equity schemes due to the impact of the Help to Buy scheme, they still hold legacy portfolios which can be caught by the new rules. House builders are most likely to be caught and will need to assess the impact of the new rules on their regulatory

requirements, To allow time for this, house builders have been given a new window of January to March 2016 to apply to the FCA in anticipation of the new mortgage regime coming into effect from 21 March 2016.

RPs are in a slightly different position as they currently have the benefit of an exemption for secured lending in relation to dwellings (which includes shared equity products). Existing RP secured loans will continue to be exempt, however, new secured loans from 21 March next year will need to be assessed against the new rules. Although exemptions will still be available to RPs (and their subsidiaries) they will be much more restrictive going forward.

FCA regulation of second charge mortgages from March 2016

The FCA issued the feedback to their separate consultation, on the new regulatory regime for second charge lending, in late March 2015 together with a final version of the accompanying rules. We are currently reviewing the FCA's framework for regulation of both shared equity lending and regulated secured lending. The application of the new rules will differ as between RPs (and their subsidiaries) and non-RPs. Compliance with the new regulatory regime from next spring is likely to present a significant challenge for many as it will fall within the remit of the Regulated Mortgage regime. We will issue further updates shortly on the potential scope and requirements of the new mortgage regime.

Suzanne BensonPartner � Housing and Regeneration


Louise TownsendSolicitor � Housing and Regeneration


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into the structures available and what the key components are to successful delivery.

In this session Sara Bailey and Tonia Secker of Trowers & Hamlins will look at:

● What opportunities are offered by joint ventures to prospective housing association, local authority and developer partners?

● What are the options/benefits?

Panel members include Ben Denton, Executive Director Growth, Planning and Housing, Westminster City Council; Richard Fagg, Deputy Managing Director, Bouygues Development; and Simon Vevers, Director of Strategic and Commercial Projects, The Hyde Group

Institutional investment and affordable housing – natural partners?Thursday 25 June 9.00 – 9.45am

Housing associations have been well served by institutional investors in the bond markets and through private placements, but institutional investors currently have very little equity ownership of housing. Investors are keen to expand their investment in social housing provision by both housing associations and local authorities and this session will explore the opportunities institutional investment can bring to the social housing sector as well as exploring barriers to investment.

In this session Ian Graham and Rob Beiley of Trowers & Hamlins will look at:

● The emergence of genuine equity investment in housing

● Barriers to sale and leaseback – a matter of perception or reality?

● What appetite is there for institutional investment from housing associations and local authorities

● How to align the interests of investors and housing providers.

Panel members include Phil Jenkins, Partner, Centrus Advisors; Andrew Smith, Executive Director, Mill Group; and Martin Zdravkov, Assistant Fund Manager, Aviva.

Our Think Tank sessions at the CIH Annual Housing ConferenceLocal housing delivery vehicles – local authorities in the driving seatTuesday 23 June 2.30 - 3.30pm

The delivery of significant volumes of new housing supply of all tenures is universally acknowledged as a national priority. Recent reports by the Lyon's Commission, the Elphicke-House review and Trowers and Hamlin's own Coalescence survey have highlighted the many, varied and changing roles that local authorities are playing in both facilitating and delivering new supply.

In this session Scott Dorling and Ian Doolittle of Trowers & Hamlins will look at:

● The post HRA reform landscape and its impact on the role of local authorities as housing delivery agents

● The options (and constraints) for local authorities wishing to expand their housing 'offering'

● A particular focus on the growth in local authority property companies – the opportunities, risks and the pitfalls

Natalie Elphicke, co-author of the Elphicke-House report on the role of local authorities in housing supply will be a guest speaker

How to get the most out of your JV partnerWednesday 24 June 10.00 – 11.00am

Whatever the outcome of the election, the Lyons Review and the Elphicke-House report all recommend that cross sector partnership working will be necessary to the delivery of new housing supply. This session will explore the challenges that these models bring, how you can maximise the benefits of the joint venture for all parties and the pitfalls to avoid. There will be opportunities to put questions to a panel who will offer practical insights

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For futher information please contact our offices or visit our website at www.trowers.com

Contact ———— London

Ian Graham

3 Bunhill RowLondon EC1Y 8YZ

t +44 (0)20 7423 8000f +44 (0)20 7423 8001e [email protected]

———— Exeter

Joseph Acton

The SenateSouthernhay GardensExeterEX1 1UG

t +44 (0)1392 217466f +44 (0)1392 221047e [email protected]

———— Birmingham

Jeremy Hunt

10 Colmore RowBirminghamB3 2QD


———— Manchester

Mike Gaskell

Heron HouseAlbert SquareManchesterM2 5HD


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© Trowers & Hamlins LLP 2015

Produced by Trowers & Hamlins LLP, 3 Bunhill Row, London, EC1Y 8YZ.

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Trowers & Hamlins LLP is a limited liability partnership registered in England and Wales with registered number OC337852 whose registered office is at 3 Bunhill Row, London, EC1Y 8YZ. Trowers & Hamlins LLP is authorised and regulated by the Solicitors Regulation Authority. The word "partner" is used to refer to a member of Trowers & Hamlins LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Trowers & Hamlins LLP’s affiliated undertakings. A list of the members of Trowers & Hamlins LLP together with those non-members who are designated as partners is open to inspection at the registered office.

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Documents

Publications Spring 2015 Quarterly Housing Update · PDF fileessays published in March by the IPPR. This describes what London councils might achieve by demolishing and redeveloping