Being "threatened" with legal action if I occupy a sub let property. (pre legal advice)

[K17LBS]

Good evening everyone,

Thank you for your attention.

I'm currently facing a situation that I plan to seek legal advice on, but I also want to open it up for discussion and debate.

Here's the scenario:

We've agreed to rent a portion of an existing property to establish a small family entertainment center (play cafe) in our village. However, a neighboring property has approached me, indicating their intention to pursue legal action against us and our landlord. They claim there's a conflict of interest outlined in a clause from when the land was sold over 20 years ago.

Their business is a supermarket/DIY/everything shop, and they recently opened a "Cafe" in the loft space of their building. They argue that our "play cafe" directly conflicts with their business due to the following clause (with names redacted):

(21)

It is agreed that in the Transfer of the Red Land ************ shall covenant with ********* for the benefit of the Blue Land and the Retained Land that neither ********* nor any other tenant or occupier of the Red Land shall carry on any trade or business which shall be in competition with the business (as at the date hereof) of ******** or its tenants on the Blue Land and the Retained Land

(22)

It is agreed that in the Transfer of the Blue Land ******** shall covenant that neither ********* nor its tenants shall carry on any trade or business which shall be in competition with the business (as at the date hereof) of ****** carried on on the Red Land

Moreover, their "Cafe" caters primarily to an older demographic and lacks appropriate selection and safety measures for children. It's situated in the loft alongside furniture for sale and lacks an extraction system.

While the conflict of interest seems minor beyond the offering of hot drinks and sandwiches, the wording of the document is crucial. It appears open to interpretation, especially considering it was drafted 20 years ago when they didn't even have a cafe. Does the phrase "as at the date hereof" refer to the businesses' status at that time?

As indicated in the title, I'll be seeking legal advice before making any significant investments in expanding our business. Nonetheless, I'm interested to hear if anyone has faced a similar situation. Regardless of its nuances, I'd like to avoid years of potential legal headaches.

Thanks once again.

 

[eteb3]

First question is whether those are personal covenants or whether they “run with the land”

If they run with the land, then everyone coming to the land is bound

If personal, then only the parties named are bound - though possibly they’re still in possession so makes no difference

That’s the quick theory. In practice they’d have to show you were in fact in competition. But it does sound like it on your quick sketch.

EDIT on a reread I see your ref to “as at the date hereof”. Yes I read it as you do: the “here” refers to the deed of conveyance/demise and if they had no cafe then, they can’t complain

 

[K17LBS]

First question is whether those are personal covenants or whether they “run with the land”

If they run with the land, then everyone coming to the land is bound

If personal, then only the parties named are bound - though possibly they’re still in possession so makes no difference

That’s the quick theory. In practice they’d have to show you were in fact in competition. But it does sound like it on your quick sketch.

EDIT on a reread I see your ref to “as at the date hereof”. Yes I read it as you do: the “here” refers to the deed of conveyance/demise and if they had no cafe then, they can’t complain

Thank you for your input.

From my understanding, they are covenants of the land, hence why they would persue it.

I have re-read the document multiple times and every time I see it somewhat differently.
It seems so very grey that it could end up being a table tennis match. One of which the only winner would be the solicitor pockets!

Also, what would you define as "competition" their Cafe is free to enter and use. Ours is a pay to enter facility with the offering of refreshments (cafe)

EDIT: This is the official category of their business on companies house.

Nature of business (SIC)​

• 46900 - Non-specialised wholesale trade
• 47110 - Retail sale in non-specialised stores with food, beverages or tobacco predominating

 

[Gyumri]

There was obviously one freeholder at the time who first leased or sold the land to your neighbour and then the other part with a mirror clause to prevent competition.

I read "at the time" as referring to the position when the leases were granted to avoid conflict so what was the trade then 20 years ago?

It would normally state the trade which is restricted and would be odd if it didn't.

 

[K17LBS]

There was obviously one freeholder at the time who first leased or sold the land to your neighbour and then the other part with a mirror clause to prevent competition.

I read "at the time" as referring to the position when the leases were granted to avoid conflict so what was the trade then 20 years ago?

It would normally state the trade which is restricted and would be odd if it didn't.

Cut a long story short.

The land was always sub divided. The freeholder of the majority downsized to the smaller unit.
When the smaller unit because the majority land owner they put their "i now have leverage" pants on and put the above clause in.

It's word for word and as you see it is very "generic" it doesn't specify any specifics.

When the clause was originally signed the business were the same (minus the cafe in the loft)

 

[Gyumri]

When the clause was originally signed the business were the same (minus the cafe in the loft)

In that case you need to negotiate with your neighbour who bought his land with the assurance that the your land could not also be used in the future as a cafe to compete with him.

If you offer him a sweetener you might succeed in working something out but at present from what you say your neighbour is somewhat annoyed.

 

[IanSuth]

In that case you need to negotiate with your neighbour who bought his land with the assurance that the your land could not also be used in the future as a cafe to compete with him.

If you offer him a sweetener you might succeed in working something out but at present from what you say your neighbour is somewhat annoyed.

I think you misunderstand - i read it that the freeholder/neighbour is and always has been a hardware shop, it has recently started a cafe for old codgers sat between "for sale" pieces of furniture in it's attic.

They are trying to rely upon a non compete clause in a land transfer 20 years ago (when they had no cafe on site) to stop the OP from having a childrens playroom which incidentally has a cafe for it's paying patrons next door as a sublet.

Nobody who would go to the attic cafe can just walk into the playarea to buy a coffee (as it is pay to enter) and no patron of the play area can be enticed to go nextdoor for an attic coffee as they either couldnt leave their children alone in the play area of if before/after take a small child to that unsafe (for children) environment. So there isn't actually any competition anyway

 

[K17LBS]

I think you misunderstand - i read it that the freeholder/neighbour is and always has been a hardware shop, it has recently started a cafe for old codgers sat between "for sale" pieces of furniture in it's attic.

They are trying to rely upon a non compete clause in a land transfer 20 years ago (when they had no cafe on site) to stop the OP from having a childrens playroom which incidentally has a cafe for it's paying patrons next door as a sublet.

Nobody who would go to the attic cafe can just walk into the playarea to buy a coffee (as it is pay to enter) and no patron of the play area can be enticed to go nextdoor for an attic coffee as they either couldnt leave their children alone in the play area of if before/after take a small child to that unsafe (for children) environment. So there isn't actually any competition anyway

Thanks for understanding.

This is exactly my argument/predicament. I do not see how it can be classed as a "conflict" other than the offering of Tea, Coffee, Paninis etc. Yes on paper a Cafe is a Cafe but one is a pay to enter the other is an afterthought in the attic which doesn't have a form of extraction may I add.

However the buck stops with this "clause" they may try to enforce so it is really helpful getting all of your opinions on it.

 

[eteb3]

You’ve used that phrase “conflict of interest” a few times now.

If it’s them suggesting it then that’s evidence to me they haven’t got a lawyer on it: they’d be warning you off a “breach of covenant” if they had.

I don’t know the worst they could do, but seems to me the cards are stacked in your favour: it’s on them to show that your biz competes with theirs, so I’d be inclined to politely tell therm you don’t think you do, and that you plan to make no changes

 

[K17LBS]

You’ve used that phrase “conflict of interest” a few times now.

If it’s them suggesting it then that’s evidence to me they haven’t got a lawyer on it: they’d be warning you off a “breach of covenant” if they had.

I don’t know the worst they could do, but seems to me the cards are stacked in your favour: it’s on them to show that your biz competes with theirs, so I’d be inclined to politely tell therm you don’t think you do, and that you plan to make no changes

Thank you for this response.

Completely agree.

And yes I have been using it as it's the received terminology.
Therefore your post seems highly likely. Taking this knowledge forward I will seek guidance from a solicitor and continue to progress.

I will keep those who are interested updated with progress.

Regards

 

[Gyumri]

Their business is a supermarket/DIY/everything shop, and they recently opened a "Cafe" in the loft space of their building.

I missed the word "recently" - if they've recently opened a cafe which wasn't there when the user covenant affecting your land was agreed then I can't see how you can be in conflict :

shall covenant that neither ********* nor its tenants shall carry on any trade or business which shall be in competition with the business (as at the date hereof)

what was "the business" as at the date the covenant was agreed? If it wasn't a cafe then, you can't now be doing any wrong in opening and running your cafe, wherever it is situated in the building.

Am I missing something?

 

[K17LBS]

UPDATE:

For those who wanted to follow along.

After more than 2+ hours with a solicitor regarding the issue we have some clarity but still in the same situation.

Ultimately this is the outcome:

Is there a 21 year old covenant on the land that they "could" enforce - YES
If they did then they would need to prove it
We would then need to prove via the comments previous that the business are fundamentally different. (which they are)
This would then be a continuous tennis match of letters for 6-12 months until it may reach court.

So in summary... it is incredibly "petty" and very grey. We would have a very strong case AGAINST them saying we are competing.

We could even go down the Competition Law route which would make the covenant null and void based on their request being unreasonable. (Does anyone here have any experience or knowledge with Competition Law in the UK?)

My situation is this... with the neighbouring property being the way they are is it really worth my time and effort? I am more than likely to receive resistance and constant headaches.

For me the location is perfect, the price is more than reasonable and the works to get it started is affordable.

Any comments welcome if anyone has any opinions please share.

Thanks as always.

 

[Newchodge]

UPDATE:

For those who wanted to follow along.

After more than 2+ hours with a solicitor regarding the issue we have some clarity but still in the same situation.

Ultimately this is the outcome:

Is there a 21 year old covenant on the land that they "could" enforce - YES
If they did then they would need to prove it
We would then need to prove via the comments previous that the business are fundamentally different. (which they are)
This would then be a continuous tennis match of letters for 6-12 months until it may reach court.

So in summary... it is incredibly "petty" and very grey. We would have a very strong case AGAINST them saying we are competing.

We could even go down the Competition Law route which would make the covenant null and void based on their request being unreasonable. (Does anyone here have any experience or knowledge with Competition Law in the UK?)

My situation is this... with the neighbouring property being the way they are is it really worth my time and effort? I am more than likely to receive resistance and constant headaches.

For me the location is perfect, the price is more than reasonable and the works to get it started is affordable.

Any comments welcome if anyone has any opinions please share.

Thanks as always.

You need to talk to them. Discuss exactly what you plan and how it may or may not affect them. You will probably find they are not concerned about competition but have used that claim as it MAY have legs, when their actual concern is noise, or parking, or something else, none of which they can control. Then find a solution between you.

 

[Mark T Jones]

You need to talk to them. Discuss exactly what you plan and how it may or may not affect them. You will probably find they are not concerned about competition but have used that claim as it MAY have legs, when their actual concern is noise, or parking, or something else, none of which they can control. Then find a solution between you.

This

It always amazes me how happy people are to throw money at lawyers before doing the obvious. (You may of course have done the obvious already).

 

[K17LBS]

This

It always amazes me how happy people are to throw money at lawyers before doing the obvious. (You may of course have done the obvious already).

This is exactly what we did first.

The meeting was very hostile and aggressive from them accusing my plans of making them go bankrupt.

It was during this meeting that they said go ahead and we will seek legal action against you under the existing covenant.

This is why I ten seeked legal advice based on the 21 year old covenant to see what "legs" it had. Ultimately it's very vague.

And to answer the above question: the issue they had was over the "Cafe" as mentioned in my 1st post. The fact that I would also be selling tea and coffee and cake was their reason to threat a "non compete"

However as mentioned, our customer pay to enter through a gated system. Their offering is open and free for the general public.

Hope this provides clarity.

 

[Mark T Jones]

This is exactly what we did first.

The meeting was very hostile and aggressive from them accusing my plans of making them go bankrupt.

It was during this meeting that they said go ahead and we will seek legal action against you under the existing covenant.

This is why I ten seeked legal advice based on the 21 year old covenant to see what "legs" it had. Ultimately it's very vague.

And to answer the above question: the issue they had was over the "Cafe" as mentioned in my 1st post. The fact that I would also be selling tea and coffee and cake was their reason to threat a "non compete"

However as mentioned, our customer pay to enter through a gated system. Their offering is open and free for the general public.

Hope this provides clarity.

Good process.

In the (unlikely) event it goes to court, they always look for evidence that you have sought a remedy beforehand.

My thoughts are to send another polite note, underlining why you won't be in competition and offering to further discuss direct areas of concern (with the unwritten sub-text that you will be going ahead).

 

[Chris Ashdown]

This is exactly what we did first.

The meeting was very hostile and aggressive from them accusing my plans of making them go bankrupt.

It was during this meeting that they said go ahead and we will seek legal action against you under the existing covenant.

This is why I ten seeked legal advice based on the 21 year old covenant to see what "legs" it had. Ultimately it's very vague.

And to answer the above question: the issue they had was over the "Cafe" as mentioned in my 1st post. The fact that I would also be selling tea and coffee and cake was their reason to threat a "non compete"

However as mentioned, our customer pay to enter through a gated system. Their offering is open and free for the general public.

Hope this provides clarity.

Would a vending machine solve half your problem you can get some reasonable nice quality drink versions that I doubt could be classified as a cafe and once sorted out after time bring in tour cakes etc

 

[Gyumri]

this is an old posting which has already been well covered

 

[MikeJ]

It was updated earlier today by the OP, who asked for further advice.

 

[DontAsk]

this is an old posting which has already been well covered

And?

It's always nice when an OP takes the trouble to come back with an update, even if it's "no change yet".

 

[K17LBS]

And?

It's always nice when an OP takes the trouble to come back with an update, even if it's "no change yet".

Exactly.
You never know how my "process" may help others in the future.

Thank you for defending

 

[Gyumri]

My apologies - but what is the update referred to ? It's always useful if an OP comes back with one.

 

[Newchodge]

My apologies - but what is the update referred to ? It's always useful if an OP comes back with one.

Post #12

 

[Gyumri]

Thanks - my post # 11 still applies.

The covenant says the OP cannot engage in a business "in competition" to the other in operation at the date "hereof".

So what was the trade of the OP's neighbour when the covenant was agreed? It was apparently a supermarket.

If there wasn't a cafe but simply a supermarket then the OP would not be breaching the covenant if he now ran a cafe simply because the other has "recently" opened one.

 

[K17LBS]

Thanks - my post # 11 still applies.

The covenant says the OP cannot engage in a business "in competition" to the other in operation at the date "hereof".

So what was the trade of the OP's neighbour when the covenant was agreed? It was apparently a supermarket.

If there wasn't a cafe but simply a supermarket then the OP would not be breaching the covenant if he now ran a cafe simply because the other has "recently" opened one.

Good afternoon,

Yes this is what we had implied also.

However since meeting the solicitor the Legal Document they have from the title deeds doesn't specify the wording "as of the date herof"

The document I had been produced was more of a "request" rather than any legal clout.

Therefore the Solicitor advised that the grounds of the covenant specify there shall be no trade or business that directly competes with them. However, because they sell everything something it would be deemed as "unreasonable" if they tried to pursue it because of the vast offering they have. It's not direct competition.

This is also why I asked if anyone has any experience or knowledge around "Competition Law" as in 2011 the exemption of Land Covenants was abolished meaning that Land owners now need to comply with Competition act 1998 in the UK.

From my research I found this:
""In the context of commercial leases, the Competition Act 1998 can affect the enforceability of restrictive covenants. Prior to the Act, commercial leases often contained restrictive covenants that prohibited tenants from engaging in certain activities, such as competing with the landlord or using the property for a different purpose. However, the Act has made it more difficult for landlords to enforce these covenants, as they are now considered to be anti-competitive and are therefore void and unenforceable.""

 

[K17LBS]

Thanks - my post # 11 still applies.

The covenant says the OP cannot engage in a business "in competition" to the other in operation at the date "hereof".

So what was the trade of the OP's neighbour when the covenant was agreed? It was apparently a supermarket.

If there wasn't a cafe but simply a supermarket then the OP would not be breaching the covenant if he now ran a cafe simply because the other has "recently" opened one.

This is the EXACT wording on the legal document within the title deeds:

"The transferee hereby covenants and so as to bind the land hereby transfereed and for the benefit of the red land on the plan annexed hereto neither the Transferee nor its successors in title tenants or occupiers for the time being shall carry on any trade or business which shall be in competition with the business of the Transferor on the land edged red on the plan annexed hereto"

 

[K17LBS]

Would a vending machine solve half your problem you can get some reasonable nice quality drink versions that I doubt could be classified as a cafe and once sorted out after time bring in tour cakes etc

Unfortunately not.

As the other business owner sees coffee as competition, so even a vending machine would still be challenged by them.

My solicitor has advised me again today on the best "marketing" strategy to strengthen our position IF they were to come at us.

So to further this post along, we are continuing to go ahead and have drafted the "Heads of Terms" and will take the chance that their bark is worse than their bite.

Ultimately if they want to seek legal action over a few coffees, cake or paninis the loss of earnings would be far less than their legal fees. So highly unlikely to pursue.

 

[Gyumri]

"for the time being"

That expression suggests that it was inserted to have effect for a limited period of time.

 

[eteb3]

That expression ["for the time being"] suggests that it was inserted to have effect for a limited period of time.

Tosh. It means “at the relevant time / at the time when this clause is invoked ”

In other words, not “its tenants and occupiers at the time of signature ” but, “its tenants and occupiers at any given time in the future”

 

[Gyumri]

If the OP wants to run a cafe then the Competition Act seems to be a good place to start reading the law.

As the OP has noted, there is a lot of info on the internet and if he has a neighbour who has bought his lease thinking that there will be no cafe nearby in the future then that's something he will need to consider.

I don't think he can simply say "let them eat cake" on this occasion.

 

[K17LBS]

If the OP wants to run a cafe then the Competition Act seems to be a good place to start reading the law.

As the OP has noted, there is a lot of info on the internet and if he has a neighbour who has bought his lease thinking that there will be no cafe nearby in the future then that's something he will need to consider.

I don't think he can simply say "let them eat cake" on this occasion.

Morning,
Yes exactly. Hence all the processes I have followed with regards to my own research, this public forum and a solicitor.

The risk is on us for sure, however as the primary business of the neighbour is a garden centre/supermarket with offering of a free to enter cafe/cooked food. We feel that a family entertainment centre with pay to enter access with the offering of refreshments(not cooked) is fundamentally a different business. Therefore worth the risk of proceeding.

Our Heads of Terms are in the process of being validated.

Completely up to you all and the mods of the post, either way happy to leave it open and provide updates to continue discussion or close the thread.

Thank you all so far for input and wisdom.

 

[DontAsk]

Do let us know how it goes.

 

[Gyumri]

This is the EXACT wording on the legal document within the title deeds:

"The transferee hereby covenants and so as to bind the land hereby transfereed and for the benefit of the red land on the plan annexed hereto neither the Transferee nor its successors in title tenants or occupiers for the time being shall carry on any trade or business which shall be in competition with the business of the Transferor on the land edged red on the plan annexed hereto"

The risk is on us for sure, however as the primary business of the neighbour is a garden centre/supermarket with offering of a free to enter cafe/cooked food. We feel that a family entertainment centre with pay to enter access with the offering of refreshments(not cooked) is fundamentally a different business. Therefore worth the risk of proceeding.

If you put in some suitable search terms at the link below you will be able to turn up cases in order to grasp the law as it stands in relation to the meaning of "competition" - it's changed from the 'prior freedom to act test' to the 'society test' although that's still balanced by the scope of the clause which you accepted.

I would agree with you that the dominant purpose of your business is to provide an indoor play center whereas the neighbour is a garden center/supermarket. The planning uses are rather different although you both provide ancillary "cafe" facilities.

Keep us posted!

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