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Keeping It Real Estate

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

Posted in Real Estate News

Setting the boundaries: a new protocol for resolving disputes

When you hear the term “boundary dispute”, you probably imagine the following familiar set of circumstances:

  • Two parties at loggerheads over a small strip of land.
  • Entrenched positions holding sway over the legal and surveying considerations actually needed to resolve the dispute.
  • A complex, chaotic and protracted dispute, even though there should be a well-worn path for resolving such arguments.
  • Legal and other costs quickly getting out of all proportion to what is at stake.
  • A dispute which is ripe for mediation or some other form of alternative dispute resolution (ADR) but with parties unwilling or unable to take that step.

Surely there must be a better way? Now there is.  As part of the Property Protocols initiative, Hogan Lovells, together with barristers from Falcon Chambers, have devised a Protocol for Disputes between Neighbours about the Location of their Boundary (The Boundary Disputes Protocol) .  It is a free resource available to all and applies to any commercial or residential property situated in England and Wales.

How does it work? The protocol sets out a timeframe and process for neighbours to exchange information, minimise the scope for disputes, and enable disputes to be resolved as efficiently as possible.

First it details a series of steps for the parties to follow as soon as a boundary dispute arises, including identifying the first conveyance by which their properties fell into separate ownership (very often the key for unlocking the entire dispute).  Evidence should then be sought and exchanged about the physical features on the land at the time of the first conveyance.

The protocol then lays down ground rules for the use of expert surveyors.  A single expert should be jointly instructed where appropriate. Where the value of the land justifies separate experts, they should produce reports, meet, identify and narrow the issues between them in accordance with a set timetable.

Once those steps are taken, there should be a meeting  on site with the parties and their surveyors in order to agree exactly what the issues are and see if any accommodation can be reached.  If so, the protocol outlines the importance of properly documenting and registering any agreement to prevent further disputes in the future.

Significantly, the protocol encourages the use of mediation and other forms of ADR at key stages throughout the process and directs the parties and their lawyers to keep further negotiation and mediation under review at all times.  The protocol rightly warns that parties who fail to do this will do so at their peril should it come to costs being awarded at court, whatever the outcome.

In our view, this structured but consensual way of resolving boundary disputes, which does not always have to involve professionals, but recognises that sometimes there are legal and surveying issues to be considered, is preferable to the draft Property Boundaries (Resolution of Disputes) Bill  currently in Parliament.  The Property Litigation Association  agrees with the approach taken in the protocol and has given it their backing.

The authors of the Boundary Disputes Protocol are:

Guy Fetherstonhaugh QC of Falcon Chambers

Jonathan Karas QC of Falcon Chambers

Stephanie Tozer of Falcon Chambers

Nicholas Cheffings of Hogan Lovells

Mathew Ditchburn of Hogan Lovells

David J Powell FRICS of PSL Chartered Land Surveyors has contributed a Supplementary Guidance Note on what to expect from surveyors

Posted in Real Estate News

Time for a Reminder

Timing is everything, they say, and nowhere is that more true than in the law of contract, where a failure to meet a deadline can have serious commercial and practical ramifications for the parties. In this blog Tim Reid has pulled together a reminder of some of the most common rules affecting commercial contracts connected with UK real estate.

Missing the boat – Where time is of the essence

Where time is of the essence in relation to the exercise of a contractual right, that right can be lost if not exercised within the time limit.

It is sensible to make it clear in the contract itself whether time is of the essence in relation to the deadlines it contains.

If a contract is silent on whether time is of the essence (or on a party’s ability to make time of the essence by serving notice on the other), then  a strict time limit may be implied by the operation of the surrounding provisions of the contract, or by an established legal presumption.  Bear in mind that:

  • time may be implied to be of the essence, if missing the deadline would lead to the other party losing out on the benefit of the contract (United Scientific Holdings v Burnley Borough Council [1978])
  • where one party serves notice on the other, stating that time is of the essence, and failure by the other party to comply with the notice would deprive the first party of the benefit of the contract, then the notice may validly take effect to make time of the essence (Re Olympia & York Canary Wharf Limited (No.2) [1993])
  • time is usually of the essence as regards a tenant’s deadline for service of a break notices under a lease (Orchard (Developments) Holdings Plc v Reuters Ltd [2009])
  • There is a general presumption in relation to rent review clauses that time is not of the essence in respect of the time limits they contain.  However, this presumption can be rebutted, either by implication or express provision.  Time will be of the essence for service of the tenant’s counter-notice if the lease contains a clause stating that if the tenant has not served a counter-notice in time, the rent will be that set out in the landlord’s rent review notice.

When is “close of business”?

A contract may require steps to be taken on or before “close of business” on a particular day, without defining what that term means.

In the recent case of Lehman Brothers International (Europe) v Exxonmobil Financial Services BV [2016], a contract provided for notice to be received before “close of business” for it to be deemed to have been received on that day. The notice in question was served at 6.02pm.

The court held that the burden is on the party who alleged that the deadline had been missed, to establish when the close of business occurred.  In the present case, the receiving party had failed to produce sufficient evidence to support its contention that – in the circumstances – close of business should mean 5pm.  On the facts of the case, it was the evidence of the sender that the court preferred.  The judge made it clear that “close of business” has no fixed meaning in English law, and would have a different meaning in different contexts.

Calculating time

Finally, where a contract refers to a period measured in days or months, remember that for the purposes of your calculation:

From” is typically exclusive, so one should start counting from the day after the date specified. For example, where a lease term is expressed to commence “from” 1 January (rather than “on” 1 January), that date is not included in the term.

From and including” (and “to and including”), and “starting with” are inclusive of the dates specified.

A period of “clear days” excludes the day on which the notice is sent (and the day on which it arrives, or takes effect).  For example, 14 clear days’ notice of a shareholder meeting must allow for the day of service, then 14 days, and then the date of the meeting.

Whilst “clear days” typically include weekends and public holidays (unless the contrary is specified), “business days” will not include non-working days.

Remember to bear in mind the date on which the notice will actually be received or will be deemed to be received under the terms of the contract, in order to start the clock ticking.

Posted in Real Estate, Real Estate News, Uncategorised

What is the “Staircase Tax”?

There has been a lot of comment in recent weeks about the so-called “staircase tax” and its impact on small businesses, especially focussing on its retroactive effect and the fact that business occupiers are having to pay tax for previous years that wasn’t demanded from them.  At first blush, this all sounds very unlike the way in which a modern Western democracy operates its tax system, so what’s going on?

Many of you may remember that back in July 2015 the Supreme Court handed down its judgment in Woolway v Mazars[1], a case concerning the liability of Mazars for business rates and held (to the shock of business tenants across the country) that a tenant who occupies separate floors in a building is only entitled to treat the floors as part of the same rateable occupation (known as a hereditament) if it is possible for him to move between those floors without leaving space that is exclusively his.  If there are two hereditaments the tenant is less likely to be able to claim an allowance for size (“quantum relief”) to reduce his liability for business rates. So, a tenant who has to use the common parts of the building, such as common lifts or staircases, to pass between floors will have to treat them as separate hereditaments, whereas the tenant who has a private lift or staircase connecting its floors will be able to treat them as one and so could claim quantum relief.

The Supreme Court did not change the law with this decision; they simply explained what it already was.  The Valuation Office Agency (the government agency responsible for overseeing business rates) has therefore instructed its officers to apply the decision retrospectively, so that the rates collected for previous years where quantum relief was incorrectly applied are “topped up” by the rates payers to what they should have been without the incorrect quantum relief.  It is this loss of quantum relief that has been dubbed “the staircase tax”.

Two years on from Mazars, the Supreme Court’s decision is still good law, but it is perhaps inevitable that the VOA’s decision to apply it to rates bills that were settled before the judgment came out will cause difficulties for businesses of all sizes, especially SMEs who operate on tight yearly budgets and might not be able to fund unbudgeted payments for previous years’ tax without finding savings elsewhere.  They will also have to budget for rates that are higher in future years not just because of the increase in the rating multiplier but also because of the loss of quantum relief.

Is there anything that business occupiers can do to avoid the staircase tax?  In some situations, it may be possible to find ways of designating parts of the building as exclusive to one tenant in order to create a direct connection between floors.  However, this sort of strategy will need careful analysis and advice from both lawyers and specialist business rates consultants or surveyors as this sort of arrangement has yet to be tested. Alternatively, whilst it may not help with the rates liability for previous years, occupiers could also consider installing new communication routes between floors, for instance connecting staircases between contiguous floors although this may be an uneconomic solution.

On new lettings, if tenants need to take multiple floors in a building, they should certainly seek to take contiguous floors and consider ensuring that they have a way of moving between them without entering common parts of the building.

For landlords, if the values are substantial enough, which they can be in London especially, tenants may want to negotiate deals to ensure they can pass between floors without leaving their exclusive space.  This may present bargaining opportunities for the landlord.

As the government is unlikely for the foreseeable future to change the law, both landlords and tenants should start thinking creatively about strategies that could achieve value for each other.

[1] Woolway (VO) v Mazars LLP [2015] UKSC 53 [2015] PLSCS 240

Posted in Real Estate

RPI and SDLT – the silver lining of a flawed measure of inflation

With the Retail Prices Index back in the news again after rail commuters were hit by the biggest annual increase in fares for five years, the debate has resurfaced about whether it is time for the RPI to “RIP”.  The Office for National Statistics has reiterated its assertion that the index is a “flawed” measure of inflation, but has observed that its use remains prevalent in both commercial and public sector contracts.  Legislation compels the ONS to continue producing the RPI while at the same time also publishing its preferred Consumer Prices Index and the new CPIH Index which covers consumer price inflation including owner-occupiers’ housing costs.

Within the commercial real estate arena, index-linked rents remain prevalent in a number of sectors and predominantly the RPI remains the chosen benchmark.  Whilst this has tended to result in higher uplifts having to be borne by tenants, there is at least one small advantage for the tenant: adjusting rent “in line with” RPI can be ignored for SDLT purposes.

The usual rule (subject to an exception for uplifts in the final quarter of the fifth year) is that any increases in rent during the first five years of a lease have to be taken into account when calculating SDLT.  When the increases aren’t known at the time the lease is granted, they have to be estimated, and subsequent returns filed once the actual increases have crystallised.  However, rent adjustments in line with the RPI do not have to be taken into account, and the tenant does not have to pay any additional SDLT in respect of those adjustments.

Points to Note:

(a)  The exception in the legislation refers only to the Retail Prices Index.  If rents are to be adjusted in line with any other index or measure of inflation (for example the CPI), then the exception does not apply.

(b)  The exception only applies where the rent adjustments are “in line with” the RPI. Guidance from HMRC states that the exception will not apply to “RPI plus” or “RPI minus” adjustments.  For example, a rent review mechanism which varies the rent by “RPI plus 1%” would have to be taken into account in the SDLT calculation.

(c)  The guidance does suggest that capped RPI-based adjustments “which are subject to a minimum or maximum restriction” would fall within the exception.  We would exercise caution, however, in seeking to take advantage of this exception – particularly if the adjustment is subject to a collar – given the ambiguous phrasing of the guidance.

(d)  If the RPI-based review is worded so as to be upwards only, the guidance clearly states that this remains allowable within the exception.

(e)  Care should be taken when choosing the months by reference to which the adjustment is made.  The guidance states that, where rent is to be adjusted by reference to the RPI figure for the month up to three months earlier, this is allowable.  By implication, if your reference month is more than three months before the rent review date, then your review clause is no longer “in line with” RPI.

 

Posted in Real Estate News

Smart Solutions for Smart Cities

 

Smart cities will fundamentally change the way we live in, move around and use the space within our urban environment.  They will also change the way in which real estate deals are transacted with creative solutions being required for the changing face of building design and demand.

On a macro level, new real estate trends will emerge, radically affecting building design, planning and occupiers’ requirements.  Demand for traditional office space will reduce as remote and flexible working become more prevalent and shared workspaces become the new norm.  Artificial intelligence will also change the requirements for space in many sectors.

New types of retail floorspace will be required as more sales are concluded online, with retail becoming more about the experience and the interaction between brands and customers.  In addition, there will be a shift to more click and collect points.

At the same time the need for dedicated parking infrastructure is likely to decline in prime urban locations.  With greater use of driverless cars and car sharing reducing both the requirement for parking in urban centres and out of town shopping centres, this will free up space that can be put to alternative uses.

On a micro level, the traditional transaction process associated with the property industry will also see changes – from the way participants make commercial decisions, to the nature of the deals and how they are executed.  Smart cities will put a wealth of information into the hands of buyers, tenants and investors.  Property “consumers” will be able to compare real-time information on a wide range of variables affecting property assets – for example, energy efficiency, connectivity and traffic noise.  Banks will no longer be the only source of funds, with fast availability of internet peer-to-peer lending speeding up the time taken to put a deal together.

Blockchain or distributed ledger technology raises a number of opportunities in this field, from mortgage valuations, to rental and service charge payment systems. Smart contracts will replace the traditional approach to conveyancing – the main incentives being that the technology will expedite the process, reduce fraud and offer total transparency.

Blockchain technology is an idea that is gaining traction in the public sector as well as with start-ups, with the Land Registry recently announcing its intention to test a so-called “Digital Street” to enable ownership to be transferred almost instantly using blockchain technology.

Whilst legislation is evolving to meet the changing needs of urban dwellers we expect that smarter cities will require legal solutions that are as smart as the smart cities of the 21st Century.

Posted in Planning

Healthy Buildings – Planning and Wellbeing

The link between good planning and good health is unequivocal. The quality of the built and natural environment has a significant impact on health and wellbeing. Occupiers and developers are becoming more aware of how happy and healthy employees (and customers) drive profitability and there is now industry recognition that a building can affect how well we feel. The launch of the WELL Building Standard is further proof of this and aims to advance health, happiness and productivity.

New innovations are being devised at a rapid rate. Healthy buildings can now include: biophilic planting; highly sensitive temperature, light, clean air and noise control systems which allow individuals to modify their own working or living environment; rooftop cinemas and relaxation rooms.

Considering the health implications of a particular development is not new to the planning world. National guidance, the London Plan and a number of local plans already encourage the submission of “health impact assessments” as part of the planning process. However, there has been a noticeable shift in attitude recently as climate change and wellbeing are taken seriously at a national and global level.

Improvements to air quality are high on the political agenda, particularly following the controversial legal battle resulting in the publication of the Government’s draft air quality plan.

EU Directive 2014/52/EU obliged the UK to address health in environmental impact assessments, which may be required as part of a planning application. The new legislation, which came into effect on 16 May 2017, adds human health to the list of environmental factors to be considered as part of the assessment.

Some buildings are already leading the way in air quality, visual acuity, acoustics and psychology within the working environment. There is also a focus on the connection of facilities and services to the internet. This not only revolutionises the building management system, but also provides invaluable data on what users want and where future investment can be focused.

The introduction of cutting edge sustainability and well-being measures into developments should ensure that our minds, bodies and buildings are all in better shape.

An earlier version of this article appeared in the summer 2017 EG London Investor Guide

Posted in Real Estate News

There and back again: boundary disputes bill restarts its journey in House of Lords

Boundary disputes are a messy business.  Once neighbours become embroiled in a dispute over the position of a boundary or the extent of a right of way, it seems that nothing short of a court order will put the matter to rest.

In order to prevent boundary disputes going through the courts, the House of Lords had been considering a private members’ bill which proposed that expert determination of such disputes should be mandatory.  Back in July 2015, we blogged about the first reading of the Property Boundaries (Resolution of Disputes) Bill which signalled the start of the bill’s journey through the House of Lords.  You can read our original blog here.

The bill seemed to be making good progress through the House of Lords, surviving a second reading in December 2016 with a date for the Committee stage expected in mid-2017.  However, the general election then intervened.

On 13 July 2017, the bill was reintroduced in the House of Lords.  The second reading to debate all aspects of the bill has yet to be scheduled.
The main amendment to the bill is the introduction of a set procedure for the Royal Institution of Chartered Surveyors (RICS) to issue a Code of Practice which specifies best practice in the preparation of plans and documents under the bill.  The draft Code must be approved by the Secretary of State and Parliament before coming into force.

Otherwise, the bill appears to be largely the same.  It seems that a prescriptive procedure in the form of the Code of Practice was sufficiently vital to warrant introducing it into the bill, yet the potential problems which we discussed in our previous blog have not been addressed.  Despite the Ministry of Justice’s concession that “mediation seems to be quite successful where it is used and may be capable of wider use“, the bill still doesn’t permit any other forms of ADR, nor does it take into account the possibility that a complex boundary dispute may require a detailed review of documents which are outside the remit of a surveyor.  It remains to be seen whether these issues will be resolved as the bill progresses to the second reading and Committee stages, or whether the bill as currently drafted can, or should, last the distance.

Posted in Real Estate News

Government proposes to abolish residential ground rents

Following a number of recent reports of scandals involving leasehold properties, the Rt Hon Sajid Javid MP, Secretary of State for Communities and Local Government, yesterday issued a consultation paper entitled “Tackling unfair practices in the leasehold market” with the aim of addressing particular issues.  You can read the full paper here.

We highlighted some of these issues back in February 2016, when we described the doubling ground rent issue at a flat in Solihull (see our blog post “Beware the hidden costs of ground rents“) and in May we blogged about Nationwide’s announcement that it would no longer provide mortgages on leasehold properties with similar doubling ground rents (see our blog post here).

The consultation paper confirms the government is minded to limit ground rents in new leases to a peppercorn (i.e. nothing), subject to certain exceptions.  However, they are seeking views on whether that is appropriate, or whether a more “reasonable” ground rent regime could be introduced.  This question covers the initial ground rent payable, but also the basis for any increases during the term of the lease.  For example, they refer to Nationwide’s suggestion that ground rent increases could be linked to RPI increases.

The paper also covers a number of other leasehold issues, and in particular seeks views on whether the government should limit the sale of new leasehold houses (as opposed to flats).  We’ll be covering some of these issues shortly, so watch this blog!

The consultation period runs for 8 weeks from 25 July.  The proposals are potentially very radical, so if you have views – whether you are a landlord, leaseholder or developer – follow this link and share your views with the Rt Hon Sajid Javid MP.

Posted in Real Estate News

Killing two birds with one brick: one dispute yields two useful Party Wall Act decisions

Party wall disputes may be common, but it is uncommon for them to reach the High Court. Despite the lack of clarity for which the Party Wall etc. Act 1996 (PWA 1996) has often been criticised (as alluded to in my previous blog on this Act here), it is quite rare that a case emerges under the Act which helps to clarify things.

Two decisions in the Technology and Construction Court arising from the dispute between Lea Valley Developments Ltd and Mr Thomas Derbyshire, which concerned neighbouring properties in Muswell Hill in North London, have provided clarification on not one, but two separate points.

The PWA 1996 provides an entire regime for the resolution of any dispute that falls within the ambit of the statute, which typically culminates in the party wall surveyors making a binding award which governs: conduct of the works; any compensation payable to the adjoining owner; allocation the costs of the statutory process; and any other matter arising out of or incidental to the dispute.

The dispute between Lea Valley and Mr Derbyshire related to the basis for calculating the amount of compensation payable to Mr Derbyshire in circumstances where the works carried out by Lea Valley caused so much damage to his property that the proper economic solution was for it to be demolished and rebuilt, rather than just repaired.

The first question for the court was whether it had the necessary jurisdiction to make that decision.  O’Farrell J held that the court has an inherent jurisdiction to make a declaration about a matter covered by the PWA 1996 regime, and it would take very clear wording in a statute for it to oust the inherent jurisdiction of the courts.  Unlike section 1 of the Arbitration Act 1996 (a statute passed in the same year), the PWA 1996 contains no such wording.

So, as well as the ability to deal with an appeal under section 10 of the Act, or to grant an injunction when a neighbour has failed to comply with the Act, the court has inherent jurisdiction to grant declaratory relief too.

As to what the correct measure of damages should be in the present case, Mr Adrian Williamson QC decided in the second case that the common law basis should apply. That is, the injured party should be restored to the position they would have been in had the damage not been caused. The value attributable to that was the cost of reinstating the building to its original condition, which in this case involved demolishing the existing building and rebuilding it.

In arriving at that conclusion, Mr Williamson QC drew parallels with the law of nuisance, reasoning that the cause of the damage was an action which (but for the operation of PWA 1996) would have constituted a legal nuisance, but emphasised that there is no hard and fast rule which can be applied in all cases.  The comparison might have been apt to the facts in this case, but I am not sure that the court would necessarily come to the same conclusion in every case. A different set of facts, especially about the type of property that was damaged (and the condition it was in), might have yielded a different decision.

A full copy of the case report can be found here.

This blog is based on a blog first prepared by Tim Reid for practicallaw.com.

Posted in Real Estate News

Money Laundering Regulations 2017: government rush threatens a teething period for property auctioneers

New money laundering regulations could prove to be a headache for property auctioneers until those affected get to grips with the changes, according to leading figures in the industry.

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “Regulations”), as laid in Parliament on 22 June 2017 and coming into force just four days later on 26 June 2017, replace the previous regulations (the Money Laundering Regulations 2007 (MLR 2007) and the Transfer of Funds (Information on the Payer) Regulations 2007) and are intended to improve upon and plug certain gaps in the MLR 2007. The Regulations transpose the EU’s 4th Anti Money Laundering Directive into UK law and impose (amongst other changes) more rigorous due diligence demands on all those affected, including property auctioneers, requiring them to conduct more thorough due diligence to verify the identity of buyers and sellers, and to check the source of buyer’s funds.

There should normally be a minimum of 21 days between such statutory instruments being laid and coming into effect but, due to the general election, the government was forced to rush through the Regulations in order to meet the EU deadline of 26 June and avoid incurring fines if that deadline was not met.

As a result, auctioneers are having to get to grips with the new demands over a short period of time. The auction market is likely to be impacted particularly by the more stringent client due diligence (CDD) checks as, to date, auction houses have often only asked for a person’s ID once a bid has been accepted. Guidance just published by HMRC indicates that the new minimum CDD requirements include: completing customer due diligence on all customers and beneficial owners before entering into a business relationship or occasional transaction; and identifying and verifying a person acting on behalf of a customer, such as a person bidding at an auction on another’s behalf (including verifying that they have authority to act).

Despite the frustrations that auctioneers and their customers could face in the short-term, the RICS Real Estate Auction Group (RREAG) has commented[1] that transparency and a commitment to anti-money laundering is essential in the industry, and RREAG is consulting with HMRC on how the Regulations will be implemented and complied with going forward.

It is also hoped that HMRC will take into account the short amount of time businesses have had to acclimatise when assessing compliance whilst the Regulations are in their infancy.

In addition, as noted in HMRC’s consultation document, elements of the 4th Anti Money Laundering Directive were reopened following terrorist attacks in Europe and the leak of the “Panama papers” and those negotiations are still ongoing. The government intends to separately consult on the amended directive once it has been published in the Official Journal of the European Union and has come into force. Further changes may therefore be on their way.

As for Brexit, until exit negotiations are concluded, the UK remains a full member of the European Union. During this period, HMRC has confirmed that the government will continue to negotiate, implement and apply EU legislation.

[1]               See “Letter to the Editor”, EGi, 04/07/2017