6 July 2023
Real Estate Disputes Alert - Summer 2023 – 2 of 5 Insights
The Court of Appeal has ruled in relation to a 999 year lease of a flat in Bermondsey (the Flat).The dispute concerned the proper interpretation of its user covenant which restricted its use as a "live/work" unit. Having reviewed the lease, the planning permission and the surrounding circumstances, the Court Appeal held that, in this case, the phrase meant "live and/or work".
The Flat was part of a new development in Bermondsey Street, London. It was subject to a lease date 20 August 2002, granted for 999 years. The original planning permission granted on 23 February 2001 was for 13x business units, 14x residential units and 1x live/work unit (the latter being the subject Flat). Had the development comprised 15 purely residential units, the Affordable Housing requirement would have been triggered.
The Flat was originally occupied by a company which suggested some form of business lease. However, the lease was transferred to one of the lessees in 2009. From that point and up to October 2013, the Flat was used as exclusively as a single dwelling house. Thereafter, it appears that both lessees carried out some work activities in the Flat but there was a dispute as to whether that constituted "work" for the purposes of the lease covenant.
The papers leading to the planning permission showed that the original floorplan for the Flat showed separate areas clearly delineated for the "work" area (defined as B1 use) and the "live" area. A subsequent floorplan was submitted which formed part of the planning permission which showed the entire area shaded and marked as "live/work" area.
Interestingly, the planning officer's report criticised the updated floorplan and suggested it was not a genuine "live/work" unit but was a "clear and blatant attempt to bypass the Affordable Housing requirement."
The freeholder first argued that the lessees were in breach of the user covenant as they were required to "live and work" in the Flat in accordance with the planning permission. They also argued that the types of work the lessees carried out from 2014 did not constitute "work" as that required the carrying on of a business.
The freeholder relied in particular on the Supplementary Planning Guidance (SPG) issued by the London Borough of Southwark where the Flat was situated which, it argued, supported the argument that "live/work" meant "live and work". The SPG stated:
"Live/work development is the provision of associated living and working accommodation within a single self-contained unit. This type of accommodation is attractive to people either setting up their first business or seeking to expand a business which they are operating from their current dwelling."
But it also stated:
“each live/work unit should have a minimum of 40 square metres of definable, functional workspace in addition to the residential element………..the workspace should be identified on submitted drawings and physically delineated from the residential element”.
Both the County Court and the High Court on appeal decided in favour of the lessees and held that the user covenant actually meant they could "live and/or work" at the Flat. The Court of Appeal agreed for the following reasons:
An unusual case to reach court as it is difficult to see the impact on the freeholder of the lessees' use of the Flat. The freeholder was, however, claiming damages and so that might explain the motivation. It is, however, a good example of the court construing ambiguous covenants in favour of tenants.
Bucknell v Alchemy Estates (Holywell) Ltd  EWHC 683 (Ch)
6 July 2023
6 July 2023
by Luke Newman