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News and Trends in UK Real Estate, Disputes and Planning Law

Posted in Real Estate News

Residential lettings: Ten things that landlords should know about “right to rent”

1. New obligation to check tenants’ residential status

New checks are being phased in which require landlords to verify the immigration status of prospective occupiers before granting a residential tenancy or risk a penalty of up to £3,000 for each breach.

2. Pilot scheme started 1 December 2014 in the West Midlands

On 1 December 2014 a pilot scheme began in Birmingham, Walsall, Sandwell, Dudley and Wolverhampton.  The new rules are expected to apply more widely from sometime in 2015 after the Home Office has evaluated the pilot.

3.  Will the scheme apply to all residential tenancies?

The scheme will apply to all residential tenancy and other agreements where a rent is payable and the premises are occupied as a person’s main or only home unless the letting is excluded (see below).  The scheme will capture assured shorthold tenancies, leases, licences and sub-leases.

4. What are the exclusions?

A range of property types are excluded from the provisions including: social housing, care homes, hospitals, hospices and other healthcare accommodation, hostels and refuges, local authority and asylum-seekers’ accommodation, mobile homes and accommodation tied to employment.

Institutional student accommodation (i.e. owned or managed by an educational establishment) is exempt. All halls of residence are also exempt whether or not they are owned by an institution or a private investor.  This is to avoid duplication of checks which are done for students by the educational establishments.  Other privately-owned accommodation is not exempt.

5. Are there any exceptions for long leases?

Yes.  Leases for a term of seven years or more which do not have a right of termination before seven years have expired are excepted from the new rules.  All other residential leases (including assured shorthold tenancies) will be caught.

6. Who carries out the checks?

It is expected that most landlords will delegate the checks to letting agents as agents can be liable instead of the landlord if the agent has accepted responsibility for complying with the scheme on behalf of the landlord.

7. What do the checks reveal?

Checking a tenant’s immigration status will reveal whether they have a “right to rent”.  People will fall into three broad categories:

  • those with an unlimited right to rent;
  • those with a time-limited right to rent; and
  • those with no right to rent at all.

Where tenants have a time-limited right to rent, a landlord has to conduct follow-up checks every 12 months or on expiry of the person’s permission to be in the UK, whichever is the later.  Tenants do not have a right to rent if either: (a) they do not have permission to enter or remain in the UK or (b) the terms of any permission prohibit occupation of the premises.

8. How to carry out the checks

The Home Office has provided an online checking tool which indicates whether a property is affected by the scheme and provides information on how to carry out a check. Where tenants do not have their documents, landlords can request a check through the Home Office by using an online form. The checking service will then provide a yes/no answer within 2 working days.  In most cases, the Home Office considers that submitting a request will only take a matter of minutes.

9. What happens on repeat lettings?

As a repeat letting to the same tenant will still be a new letting, landlords or their agents should check the immigration status at the beginning of each new lease.  This appears to apply even where the tenant has an unlimited right to rent on the first letting; there is nothing in the Home Office guidance to suggest that the initial check will suffice for subsequent lettings.  It is to be hoped that practical issues such as these will be flushed out in the pilot scheme and addressed in the final guidance.

10. Where can I find out more?

 

Posted in Real Estate News

How do your offices measure up?

You may be surprised that measurement variations across different world markets can be as high as 24%, according to JLL http://ipmsc.org/. Standards for measuring buildings vary enormously, with some jurisdictions including common space such as lifts and hallways in floor area measurements and others even including swimming pools and car parks. All this inconsistency and uncertainty could soon be a thing of the past however, with the recent publication of the International Property Measurement Standards: Office Buildings. The IPMS is the product of 18 months of work by a coalition of over 50 organisations across the globe, with the aim of standardising measurement practice internationally.

RICS’s Ken Creighton, who chaired the coalition, hopes that IPMS will address the marked inconsistencies in the way offices are measured around the world. IPMS notes that phrases to describe office floor area such as rentable, usable, leasable, net internal, net lettable and carpet area, mean different things in different markets, which leads to confusion.

IPMS: Office Buildings sets out three standards of measurement to be used for different purposes:

  • IPMS 1 – a measurement of the external area of a building.  The IPMS coalition considers this is likely to be used for planning purposes or the costing of development proposals.  IPMS 1 is to apply to all types of building (not just offices) and comprises the sum of the areas of each floor level of a building measured to the outer perimeter of external construction features, and will be reported on a floor-by-floor basis.
  • IPMS 2 – Offices – a measurement of the interior area and reported on a component by component basis for each floor of a building.  “Components” are the main elements into which the floor area of a building can be divided (for example circulation areas, amenities, workspace and structural elements).
  • IPMS 3 – Offices – a measurement of occupation of floor areas in exclusive use, and comprises the floor area available on an exclusive basis to an occupier but excluding standard facilities and shared circulation areas, and calculated either on an occupier-by-occupier or floor-by-floor basis.  “Standard facilities” are the shared or common parts of the building that typically do not change over time (such as stairs, lifts, plant rooms and toilets).

RICS has committed to using the new standard and it is expected to publish its IPMS-compliant guidance in March 2015. The IPMS are freely available on the website.  And rather than resting on its laurels, the same committee has already begun work on an IPMS for residential.

Posted in Real Estate News

A slice of good fortune for student and PRS investors? Impact of SDLT changes

The changes announced on 3 December to the calculation of Stamp Duty Land Tax on residential property (see Chancellor slices up SDLT) will similarly modify the way in which the tax is calculated when claiming Multiple Dwellings Relief.

Before 4 December 2014, the rate of SDLT applicable to a qualifying transaction in ‘multiple dwellings’ was determined by computing the mean price per dwelling and applying to the whole transaction the single SDLT rate applicable to a dwelling of that value.  For example, the purchase of a block of 5 flats for £1.5m on which MDR was claimed gave rise to SDLT of £45,000, since the mean price per dwelling of £300,000 was in the 3% SDLT band.  Had MDR not been claimed, the SDLT payable would have been £75,000 (since £1.5m was in the old 5% band for residential property).

Since there is no longer a ‘slab-rate’ of SDLT on residential property, MDR is adjusted in these circumstances so that it operates by computing the SDLT payable under the new rules on a single dwelling contained in the transaction, and then multiplying that by the number of dwellings involved.  In the example above, the SDLT payable with MDR would now be £25,000.  Of the £300,000 mean price per dwelling, the first £125,000 is free of SDLT, the next £125,000 is charged at 2%, and the remaining £50,000 is charged at 5%, resulting in a charge per dwelling of £5,000.

It was already the case that purchases of 6 or more dwellings in a single transaction are treated as ‘commercial’ rather than residential property and therefore subject to SDLT up to 4% on the whole consideration.  This rule is not affected by the changes mentioned above. So, although the purchaser of a house for £1.5m would now pay SDLT of £93,750, a block of 6 flats bought for £1.5m would still only be charged at £60,000 (subject to any claim for MDR).

Because of the ’6 or more dwellings’ rule it will not always be beneficial to claim MDR despite the effects of the new rate regime.   That is a reflection of the fact that once the price of a dwelling goes over £937,500 (which was in the old 4% band both for residential and commercial property), the new effective rate of SDLT under the residential rules will exceed 4%.  A purchase of 6 flats for £6,000,000 in a single transaction would attract SDLT of £240,000 in the absence of MDR.  Claiming MDR, it would now cost £262,500 in SDLT (6 x £43,750).

The changes in residential SDLT therefore mean it is even more important to analyse the SDLT position early on in a transaction when buying properties containing multiple residential units to ensure that the SDLT payment is correctly calculated, which may affect the commercial deal. This will have direct effect on the acquisition of blocks of student accommodation and PRS schemes, but should be considered whenever a residential element is involved.

Posted in Real Estate News

Rights to Light – Law Commission’s proposals finally see the light of day

Today, the Law Commission released its long-awaited report on the reform of the archaic law on rights to light, following consultation with the real estate industry last year.

The Law Commission’s aim has been to strike a balance between the competing interests of those with the benefit of rights to light and those wishing to undertake developments and to provide “clarity and efficiency” in a way that “facilitates settlement” of disputes.

In summary, the main recommendations are:

1. A new test for whether an injunction should be granted to prevent interference with rights to light or merely damages

The 2010 case of Heaney shocked the development industry when an injunction required the demolition of two floors of a new building almost a year after it had been built.   This year’s Supreme Court case on the law of nuisance, Coventry v Lawrence, has redressed the balance to a certain extent by taking into account public interest.  However, the Law Commission has concluded that further guidance is required where the overriding principle is proportionality.  In addition, they recommend the courts should consider:

  • loss of amenity to a claimant, taking into account the extent to which they rely on artificial light;
  • conduct of the claimant, in particular any delay in seeking an injunction;
  • impact of an injunction on the developer; and
  • public interest.

2. A procedure requiring a claimant to elect whether to seek an injunction within eight months of the developer serving notice

The Law Commission hopes that this procedure will help prevent claimants holding developers to ransom, make negotiations more effective and provide developers with a degree of certainty. If a claimant chooses not to seek an injunction, the amount of damages it can recover will be unaffected. 

3. Abandonment of rights to light after five years

This would apply, for example, where windows have been bricked up or a building demolished for over five years.

4. Simplified procedure for preventing acquisition of rights to light   

The Rights of Light Act 1959 should be repealed and replaced with a much simpler and cheaper procedure. The 1959 Act prevents the acquisition of rights to light by prescription (20 years’ continuous use) through a cumbersome, administrative process involving the service and registration of “light obstruction notices”.

The Law Commission has scrapped the idea of abolishing the acquisition of future rights to light by prescription.  This idea caused a significant outcry from the national press and in the event won little support from the development industry.

The Law Commission has scrapped the idea of abolishing the acquisition of future rights to light by prescription.  This idea caused a significant outcry from the national press and in the event won little support from the development industry.

These recommendations are a sensible and welcome update for this ancient area of law.  Even so, some of them depend on the Government adopting the recommendations in the Law Commission’s 2011 report on the overhaul of the law of easements (“Making Land Work”).  Three years on, the Government has yet to comment.  Hopefully, with the presentation of these new proposals, the Government will take both forward without further delay.

Posted in Real Estate News

Chancellor slices up SDLT

The final measure announced in the Chancellor’s Autumn Statement was the one that took listeners by surprise: a major reform of Stamp Duty Land Tax on residential property transactions.  Not only that, but the changes take effect from midnight tonight (3 December).

Crucially, the system has changed from a “slab” system to a “slice” system so that the new SDLT rates apply to the portion of the price that falls within each particular band rather than one rate for the entire price.

Where contracts are exchanged today (3 December) but the transaction completes at any time on or after tomorrow (4 December), buyers will be able to choose whether to pay SDLT under the old rules or the new rules, whichever is more beneficial.

The Chancellor claims that SDLT will be cut for 98% of people who pay it and that everyone buying a house for up to £937,500 will pay less or the same SDLT as under the current system.

Although the reforms only affect residential property transactions, there is no clue as to whether the Government might consider a similar overhaul for commercial property at a later stage.

For corporates, the 15% SDLT rate charged on residential purchases through a corporate envelope is unaffected. For these transactions the slab system for calculating SDLT remains and the table below does not apply.

Also of interest to corporate buyers is the Annual Tax on Enveloped Dwellings (ATED) which is payable by companies on residential properties valued at over £2 million on 1 April 2012 or on acquisition (if later). Apparently, ATED raised 5 times the amount forecast for 2013-14, with significantly more properties above £2 million in envelopes than expected.  The Government announced an increase to the rates of ATED by 50% above inflation. From 1 April 2015, the charge on residential properties owned through a company and worth more than £2 million but less than £5 million will be £23,350; for properties worth more than £5 million but less than £10 million the charge will be £54,450; for properties worth more than £10 million but less than £20 million the charge will be £109,050, and for properties worth more than £20 million the charge will be £218,200.

NEW RATES OF SDLT FOR RESIDENTIAL PROPERTIES (applicable to each slice of the consideration)

  •  0% on any amount up to £125,000
  • 2% on any amount over £125,000 up to £250,000
  • 5% on any amount over £250,000 up to £925,000
  • 10% on any amount over £925,000 up to £1,500,000
  • 12% on any amount over £1,500,000

Resources

Factsheet setting out the changes is available at https://www.gov.uk/government/publications/stamp-duty-reforms-factsheet

An online stamp duty calculator is available at: http://www.hmrc.gov.uk/tools/sdlt/land-and-property.htm

Further details are available on the HMRC website: https://www.gov.uk/government/collections/autumn-statement-2014-hm-revenue-and-customs

and on HM Treasury’s website: https://www.gov.uk/government/topical-events/autumn-statement-2014

Posted in Real Estate News

Do Skyscrapers Have a Future in London?

Hogan Lovells hosted the Reading Real Estate Foundation Breakfast Forum (RREF) on 18 November. RREF is a registered charity and has been set up to provide support for real estate and planning education at the University of Reading.

The event featured presentations by:

  • Irvine Sellar, Founder and Chairman of Sellar Property;
  • Peter Rees, former City Planning Officer for City of London Corporation; and
  • Steve McGuckin, Global Managing Director of Turner and Townsend.

The presenters discussed why “building tall” is necessary in certain areas, for example where space is in short supply or in areas where it is hoped that a new skyscraper development can regenerate an area and have a positive economic effect.  Irvine Sellar and Steve McGuckin discussed The Shard and the impact that it is having and is expected to have on London Bridge Quarter, such as generating 12,500 jobs in the area.

Peter Rees commented on a number of examples of skyscrapers that had not had the desired effect on the areas in which they are based.  Peter expressed his concern that many new residential skyscrapers could become “ghost towns” as, rather than being owner-occupied, flats are bought for investment purposes as safe havens for capital.  Peter advocated that more office skyscrapers would have been preferable in many cases.

Irvine Sellar and Peter Rees both discussed the importance of public access, with the two presenters exchanging jokes at the other’s expense about which of The Shard and The Walkie-Talkie did this best: The Shard with 1million visitors per year and access for the public to the viewing gallery throughout the day, or the Walkie-Talkie which only allows the public to access its rooftop winter garden twice a week, albeit for free. All agreed that the signs of a job well done are the creation of a space that attracts the public and improves the surrounding area.

The presenters all agreed that the answer to the question: “Do Skyscrapers Have a Future in London?” is “yes…if done well”.

Posted in Real Estate News

Sale and Rent-Back Schemes – lenders’ rights take priority over promises of occupation

Assurances made by a purchaser to a homeowner that they could remain in occupation after completion of a sale and rent-back scheme did not amount to the grant of ownership rights taking priority over the purchaser’s mortgagee.

This was the judgment of the Supreme Court in the test case of Scott v Southern Pacific Mortgages Ltd and others [2014] UKSC 5, which formed part of what has become known as the North East Property Buyers Litigation, involving a number of sale and rent-back transactions. The case has received wide-spread publicity given its implications for the users of this type of equity release scheme, which became highly popular in the residential sector before it became a regulated activity in 2009.

The defendant home-owner, Mrs Scott, sold her property to Ms Wilkinson, a purchaser nominated by an entity called North East Property Buyers. NEPB promised Mrs Scott that after the sale, she would be able to stay in her home indefinitely as a tenant paying a discounted rent. To finance the purchase, Ms Wilkinson took out a “buy to let” mortgage which proceeded on the basis that the purchase was at full value with vacant possession.  The purchase and the mortgage completed on the same day and the tenancy agreement was completed shortly afterwards.  Ms Wilkinson subsequently defaulted on her mortgage payments and the lenders sought possession of the home.

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Posted in Real Estate News

Break-ing News: Supreme Court to review M&S Break clause case

In May this year, the Court of Appeal overturned a High Court decision that Marks & Spencer could recover from its former landlord excess rent relating to the period between a break date in its lease and the end of the rental quarter in which it fell.  M&S had been required to pay the full quarter’s rent in advance in order validly to exercise the break clause.  There was no express clause in the lease entitling M&S to a reimbursement.

The High Court took into account that the break conditions also included the payment of a penalty by the tenant (which had been satisfied). Therefore, it was concluded that the parties could not have intended that the landlord should keep the excess rent as well.  It followed that there should be an implied term that the excess rent should be repaid.

The Court of Appeal disagreed, saying that any such intention should have manifested itself in an express term and no such term could be implied.

M&S applied for permission to appeal to the Supreme Court.   In a move which may take some by surprise, the Supreme Court has granted permission. The highest court in England & Wales only concerns itself with cases which “raise an arguable point of law of general public importance which ought to be considered by the Supreme Court at that time, bearing in mind that the matter will already have been the subject of judicial decision and may have already been reviewed on appeal.”

As break clause cases are very much based on their own facts, it might seem unlikely that a simple interpretation point (based on whether the landlord was already adequately compensated by the penalty payment) would attract the Supreme Court’s interest. The fact that permission has been given raises the possibility that the Supreme Court wishes to look at break conditions more generally or even the wider issue of implying unwritten terms into leases to achieve a commercially “fair” result. In that case, there is the potential for this area of law to change fundamentally.  Watch this space!

Case: Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anr [2014]EWCA Civ 603

Posted in Case Updates

Is a landlord responsible for a tenant’s nuisance?

The Coventry v Lawrence litigation attracted a lot of attention earlier this year on the subject of when an injunction would be granted to restrain a nuisance (such as interfering with rights to light).  A further decision by the Supreme Court in the same case has now provided some welcome guidance on the different topic of when a landlord may be found liable for nuisance caused by a tenant.

By way of reminder, in Coventry, Mrs Lawrence was the owner of a bungalow near to a stadium that had been let to a tenant who ran motor racing events.  She brought a claim against the tenant and the landlord, claiming that the noise from the motor races interfered with the reasonable use and enjoyment of her home.

Case law has established that a landlord can only be found liable in nuisance in two circumstances: one, where the landlord authorised it by letting the property in circumstances where nuisance was an inevitable result; and two, where the landlord has participated directly in the commission of the nuisance. In the Supreme Court, Lord Neuberger found that the landlord had neither authorised nor participated in the commission of the nuisance.

Authorisation

Lord Neuberger dismissed any argument that the landlord had authorised the nuisance because it was an inevitable consequence of letting the stadium. Even though the intended use of the stadium was known to the landlord at the time of the letting and nuisance did in fact result from the letting, this was not in itself sufficient to render the landlord liable in nuisance.

Participation

Although there is little authority on the issue, the Court found that the question of whether a landlord has directly participated in a nuisance must largely be one of fact. This should be based principally on what happens subsequent to the grant of a lease, although that may take colour from the facts surrounding the grant. If a claim in nuisance is to succeed then it must be based on “active” or “direct” participation. By extension, the Court found that a landlord failing to stop or discourage a tenant from causing a nuisance cannot amount to “participating” in the nuisance. Other than in very unusual circumstances, attempts by a landlord to mitigate a nuisance should not imply that the landlord has authorised such nuisance.

Lease covenants

Where the lease contains covenants against the tenant causing a nuisance, Lord Neuberger did not consider that a landlord’s position would be weaker simply because it had failed to enforce such covenants. At the same time, landlords cannot avoid liability simply by including covenants against nuisance in their leases.

Conclusion

This decision should provide some comfort to landlords facing claims for nuisance caused by their tenants. However, the very fact that Lords Carnwath and Mance found that the landlord actively encouraged the tenant’s nuisance (and should therefore have been liable for it) indicates that Coventry is no panacea for landlords. Nuisance cases will continue to turn on their facts and landlords should continue to act with care when confronted by potential nuisance claims against their tenants.

Coventry and others v Lawrence and another (No. 2) [2014] UKSC 46

Posted in Real Estate News

The Annual Strategic Land Debate: Are Garden Cities the Answer to the Housing Crisis?

On 4 November 2014 Hogan Lovells, in partnership with International Building Press, hosted its popular Annual Strategic Land Debate. Peter Bill of the London Evening Standard chaired an animated discussion on topics focusing on the chronic housing shortage in Britain.

On the panel were: Bill Hughes, Managing Director at Legal & General Property; Emma Cariaga, Head of Residential Development at British Land; Nick Taylor, UK Head of Planning at Carter Jonas LLP; and Waheed Nazir, Director of Regeneration at Birmingham City Council.

One of the main issues raised during the debate was whether garden cities are the answer to the housing shortage. The panel displayed the full spectrum of views on the merits of garden cities as a method of addressing the housing crisis. Nick Taylor advocated a return to regional planning, while Bill Hughes suggested that investors may be reluctant to focus their funds on a comparatively high-risk, ‘new settlement’, garden city project with little existing infrastructure.  Investors may well prefer urban extensions – the ‘safer’ option. Emma Cariaga took a stand for garden cities but made the point that garden cities alone will not solve the housing crisis. Our panellists all agreed on one point – for the first time the lack of housing in Britain is high on the political agenda and has at last become a cross-party issue.

The debate was followed by a lively networking evening and Hogan Lovells looks forward to the fifth Annual Strategic Land Debate in 2015.