Azam v Violet Developments: Delay It and Pay It, the Million Pound Lesson

In this Newsflash episode, Lizzie Collin sits down with Richard Snape, Head of Legal Training at Davitt Jones Bould to discuss a recent County Court decision handed down in November concerning Azam v Violet Developments LLP & Ors.

Richard explains the complex background behind the dispute, involving the delayed completion of a major residential and commercial redevelopment in East London, the financial difficulties faced by the developer, and the subsequent forfeiture proceedings brought by the landlord, Mr Azam.

Richard and Lizzie explore:

•How the court approached relief from forfeiture under Section 146 of the Law of Property Act 1925 and the wide discretion available to judges.
•Why delays in practical completion had significant financial consequences, particularly due to the introduction of the Leasehold Reform (Ground Rent) Act 2022.
•The key issue of whether compensation could extend to losses not expressly mentioned in the s146 notice.
•How earlier authorities such as Hyman v Rose, Southern Depot v British Railways Board, and others shaped the court’s conclusion.
•Lessons for landlords, tenants, developers and lenders in managing development obligations, delayed projects, and forfeiture risk.

The judgment, resulting in an award of approximately £1.4 million in compensation, illustrates the scope of the court’s discretion and highlights the importance of drafting, timing and strategic decision-making in property development arrangements.

Other cases mentioned: 

- Hyman v Rose [1912]

- Southern Depot v British Railways Board [1990]

Training & Free Webinars for Property Professionals:

Would you like to keep up to date with the latest in real estate law? Davitt Jones Bould offers legal training tailored to your organisation’s needs, delivered in person across the UK or remotely. We also run free monthly webinars through for surveyors, solicitors, and property professionals across sectors. To sign up or learn more, visit our events page here or email djb.events@djblaw.co.uk for information and booking.This podcast is for informational purposes only and is not intended to provide legal or professional advice. No liability is accepted by Davitt Jones Bould for any reliance placed on its content.

Training & Free Webinars for Property Professionals:

Would you like to keep up to date with the latest in real estate law? Davitt Jones Bould offers legal training tailored to your organisation’s needs, delivered in person across the UK or remotely. We also run free monthly webinars through for surveyors, solicitors, and property professionals across sectors. To sign up or learn more, visit our events page here or email djb.events@djblaw.co.uk for information and booking. 

This podcast is for informational purposes only and is not intended to provide legal or professional advice. No liability is accepted by Davitt Jones Bould for any reliance placed on its content.

Transcript

00:00:00
Hello Richard.
00:00:01
Hello.
00:00:02
Lizzie, you're not looking very Christmassy today, unlike me.
00:00:04
I was going. I was going to say what the listeners can't see is all your tinsel and Christmas trees and fairy lights in the background, which make for a very festive.
00:00:13
The fairy lights at the front actually.
00:00:16
Very nice indeed.
00:00:18
So we're here to talk about a county court judgement from the 14th of November. The case is called as arm and Violet developments. So do you want to tell us the background facts of this case? Yeah.
00:00:31
Well, it's it all took place in Violet St, 100 Violet St in Tower Hamlets in east London.
00:00:39
And I mean the background is, it's Mr Islam who were in 1997, he purchased a a clothing manufacturing factory on this particular site. But years later he saw that nearby Barclay homes had got planning permission for a housing development in 2007.
00:01:00
And seems to have thought to himself one why have I got this rundown factory when I could try and get planning permission for houses and make a fortune? And he originally tried to get planning permission between we wanted to 80 to 100 houses and some better commercial properties. So it's sort of being mixed-use premises.
00:01:21
We had problems getting it financing together in the joint venture together, but eventually he did get planning permission for 73 houses flats, I should say not houses, but for 73 flats, 23 of which would have to be social housing, that was a.
00:01:40
The planning obligations and also commercial premises on the floor and basement.
00:01:47
And what he did is he was going to grant a lease to.
00:01:53
Pilot developments. They had the expertise or thought they had the expertise and and sort of doing the developed work. He'd give them a long lease and he'd then they could get the profits. And for the for the residential development and he would get the ground rents from.
00:02:13
Not from the from the social housing, but from the the private sector housing.
00:02:18
And it also get a lease back of the sub lease I should say of the of the commercial elements, who would still be running the business from that?
00:02:28
And the lease was finally granted and executed on December the 14th of 2015 and 9/9.
00:02:34
Nine year lease as I said.
00:02:37
And they.
00:02:40
Various stipulations which we've gone into in very great detail in the case, but they, amongst other things, had to complete the development as soon as reasonably practicable.
00:02:52
And they basically didn't. Violence seemed to have gone into quite serious financial difficulties. It's examined Violet and secure Trust Bank. We're also involved. We were really the ones behind it, you know, during the proceedings, violent developments went into.
00:03:12
Insolvent administration but secure Trust Bank and loan them a secure loan of £25.55 million, which was more than the, you know, the so the sale price of all these.
00:03:26
Units would be.
00:03:27
At least they had a secure loan. There were sort of about £6,000,000 of unsecured loans, and that looks very much like those people are going to lose.
00:03:36
All their money.
00:03:37
And also the the directors have have violent developments at guaranteed £3,000,000 it looks like they're gonna become bankrupt, so.
00:03:47
Little bit of a disaster, but it was finally completed. The whole thing on June the 25th, 2024.
00:03:54
In the.
00:03:55
Meantime, Mr Azam had commenced forfeited proceedings.
00:04:01
If you're bringing.
00:04:01
Forfeited proceedings for non paying other than for non payment of rent. It comes within Section 146 of the Lower Property Act. You can actually piece of re enter but under section 146.
00:04:15
You know you you can affect forfeiture, you have to specify the breach requirement. If remedy is possible and require compensation if you know you wish it. But section 146, subsection 2 allows the person you're who's you know have the premises.
00:04:34
Forfeited to claim the relief against forfeiture.
00:04:38
Basically be reinstated and section 1462 goes on to say also paraphrase it a little bit, but the relief from 4, which you can.
00:04:47
Be awarded on.
00:04:48
Such terms as the court and the circumstances of each case thinks fit, so there's a large discretion.
00:04:55
And that was the sort of background to it, they claimed relief from forfeiture and, and Mr Azam wants his compensation.
00:05:06
That what happened next?
00:05:07
Well, you wanted compensation for not just the stated purpose for, you know, the reason for the 4th which of the section 146th notice not being stated. You wanted compensation for other things. Besides, I say in the Section 146 notice there were various breaches specified, there was a bit of a debate about.
00:05:26
Whether some of the breaches had been waived so you couldn't affect it, but I'll leave that to another day. But you wanted compensation for other things as well.
00:05:37
Various other things, most notably the thing that was really an issue in the case was he wanted compensation for lost ground rents and various other things. Also lost commercial rent because the property had been so late in completing and that was actually the major claim.
00:05:56
But should I tell you why he wanted the claim for lost ground events, which was the?
00:06:02
Sort of big issue.
00:06:03
Yes, go for it.
00:06:05
It's because the property could have reasonably been completed, or the reasonable expectation was was that it would be completed by 2021 at the latest if not a lot earlier, whereas it wasn't and completed as I mentioned, practical completion was on June the 25th, 2024, and in the meantime, as you'll remember.
00:06:28
On June the 30th, 2022, the Leasehold Reform Ground Rent Act had come into force. Other women for retirement homes when it was April 2023, they weren't retirement.
00:06:41
Yeah. And the lease order from ground rent tax says that you.
00:06:46
You can't claim the ground and save an exceptional circumstances like a shared ownership other than the permitted ground rent for new leases out of that date, the grant of new leases of as of that date, and the permitted grant grant as a peppercorn. So because they weren't completed on time and sold on the.
00:07:04
Assam doesn't have the benefit of anything, but you know peppercorn and meaningless weekend. And so we wanted compensation for that and and.
00:07:15
Well, that's what a lot of it was dependent. A lot of the 54 pages was all about sort of experts, evidence and things went could have been completed. And what's the loss. And that's very much on its facts, but.
00:07:28
There are a.
00:07:28
Couple of cases, so there were several cases mentioned.
00:07:32
There in fact many.
00:07:32
Yes, it's it's accepted that.
00:07:38
That compensation under section 1462 doesn't. You know, there's a large discretion if you like, and there was a case from 1912 on Section 146's predecessor, House of Lords case called Hymen, and Roe was where the court said that, you know, you shouldn't place fetters.
00:07:58
On your discretion and basically you could still claim compensation.
00:08:02
Even if it was for losses that weren't sort of mentioned in the Section 146 notice. So when Flamingo was, they had a, they were able to claim the condition of relief from forfeiture was that the tenant provides security for restoration of alterations at the end of.
00:08:20
The lease and.
00:08:22
There not recent, but more recently been several cases over the years on this. Actually in many cases going back many years and there's another one called Southern Depot and British Railways Board.
00:08:33
In 1998, Court of Appeal case, which the 2nd 146 notice, for instance, said that the the reason for the breaches the the reason for the forfeiture would be they had 10 breach of the terms. At least they'd allowed the premises to be used for car parking and storage.
00:08:53
But at a later stage, the landlords were British Railways Board and the later stage after forfeiture. Then they found that Southern Deco the tenants had been committing other breaches. They've been using the premises as marshalling yard for lorries.
00:09:10
And also storage and packing newspapers into these lorries for presume for the purpose of business and nothing else but so that was the another example where, you know, you could claim that in compensation for that, even though it wasn't mentioned the Section 146 notice.
00:09:29
And also they dealt with the fact that, well, the argument from from violent developments and secure Trust Bank was that you can only claim compensation if it's passed based on normal contractual damages.
00:09:46
And as nothing required violent developments to, you know, sort of sell, even if they completed on time, they didn't. There was nothing that required them to sell these various flats until after the leasehold reform ground rented act to come into force. So there was no loss there.
00:10:05
But the court decided that these things are based on normal contractual principles.
00:10:11
Which don't apply for the compensation, and it was important that secure lending trust and violets didn't get a benefit from being late, and so all those kind of things were discussed and decided. Shall I tell you the answer as to what the judge finally said?
00:10:30
Yes, please. Although I've not had to say that anymore, so I'm not sure what.
00:10:33
I'm supposed to say instead.
00:10:34
Now you can say yes. Please, that's.
00:10:35
Your first please.
00:10:38
So they decided that compensation there is a wide discretion. You shouldn't fetter your discretion as it says in Section 146, subsection 2, it's whatever the tribunals.
00:10:48
Fit in the circumstances, they got various levels of compensation and amounting to around £1.4 million, and they got the compensation, including for the lost ground rents, which was 286.
00:11:05
875 lbs approximately. It's a bit of an established opinion, but it's and a lot of the decision is sort of dependent on the individual facts. A lot of these cases are.
00:11:17
And it is quite.
00:11:18
A long case, but at the end the judge, her honour, Judge Evans Gordon apologised for the length of the decision.
00:11:31
She was asked to discuss huge numbers of things, but there you go on your county court case. But it's a it's a reminder as much as anything and quite unusual to have a contested relief from forfeiture case as well. And that's there it is.
00:11:48
Thank you very much, Richard.
00:11:49
My pleasure as always, Lizzie.