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Keeping It Real Estate

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

Posted in Real Estate News

SDLT to LBTT – am I bothered?

Tomorrow, Stamp Duty Land Tax will be no more – but only in Scotland.  On 1 April the new Land and Buildings Transaction Tax (LBTT) comes into force, an example of one of the revenue-raising powers devolved to Holyrood following the passage of the Scotland Act 2012.  LBTT will be administered and collected in Scotland through the newly established “Revenue Scotland” rather than by HMRC.

The rates and bands for LBTT have finally been approved by the Scottish Parliament and for many commercial transactions LBTT will be higher than SDLT.  The top rate of 4.5% will apply to any consideration above £350,000 and this may result in a significant increase compared to the 4% charged on purchase prices over £500,000 elsewhere in the UK.

So, for any land transaction in Scotland with an effective date on or after 1 April 2015, it’s goodbye SDLT, hello LBTT.  So far, so good but how does this impact on portfolio deals where some properties are in Scotland and others are elsewhere in the UK?

First, transactions which relate to land in Scotland will no longer be “linked” (for SDLT purposes) either with:

  • land transactions elsewhere in the UK; or with
  • Scottish land transactions which were subject to SDLT.

This means that where a transaction involves land in both Scotland and elsewhere in the UK, only the non-Scottish interests will be included in the SDLT return and if the price isn’t specified  for each property, it has to be apportioned on a just and reasonable basis to work out the non-Scottish amount.

Second, transitional provisions will apply to contracts entered into on or before 1 May 2012 to ensure that transactions are not taxed twice (by both SDLT and LBTT) and to ensure that tax is payable under LBTT if it is no longer payable under SDLT.

Finally, watch out for land swaps involving the exchange of land in Scotland for land elsewhere in the UK.  The usual SDLT “exchange” rules (which say that the chargeable consideration is the market value of the interest acquired) won’t necessarily apply.

So where does that leave us?

It’s clear that, just as the triggers for SDLT can be complicated and unexpected, LBTT will have similar complexities and – if you are entering into a transaction which will relate to an interest in land in Scotland – you will need Scottish law advice in relation to LBTT.  As Scottish land law is already entirely different to the law elsewhere in the UK, you should already have Scottish legal input in any case.

So this year, if you have entered into or are about to enter into a transaction involving interests in land north of the border, April Fools’ Day is no laughing matter – it’s time to get bothered.

Posted in Real Estate News

MIPIM 2015: 750 ducks, 700 party guests, 100 balloons, 32 lawyers from 13 offices, 4 HL band members, 1 location…

Between 10th and 13th March 2015, 32 lawyers from 13 offices of Hogan Lovells attended MIPIM in Cannes, the world’s largest property conference and networking platform for all real estate professionals.


Our annual after dinner MIPIM party – this year entitled ‘Rock of Ages’ – was held on the evening of Wednesday 11th March, on the quayside by the Motor Yacht, Fairbird. Our legendary Hogan Lovells rock band performed a two hour set covering classic anthems spanning the history of rock ‘n’ roll. This year’s party attracted 700 attendees and lasted until the early hours of the morning.

MIPIM band cropped

Our yacht was a focal point for many meetings with clients and contacts, as was our stand in the Palais des Festivals which proved an attraction in itself thanks to the reappearance of the famous Hogan Lovells’ ducks.


Also launched at MIPIM were our Global Investor Guide and London Investor Guide, new publications recently produced in partnership with Estates Gazette. Digital versions can be found here:

At the launch of the London Investor Guide a panel debate was organised by Estates Gazette in which our global head of real estate, Jackie Newstead, participated alongside architect Sir Terry Farrell and representatives from Capco, City of London Corporation and Cushman and Wakefield.

The Global Investor Guide was launched at Cushman & Wakefield’s lunch party at MIPIM. Click here to watch an interview with Jackie Newstead and our New York partner, Lee Samuelson.

MIPIM 2015 may have drawn to a close but preparations will soon be underway for MIPIM 2016!

Posted in Planning

Expedited approval procedure for planning conditions

For developers, the stage of the planning process at which conditions are discharged before the development gets underway can often be the most frustrating.  Delays by LPAs responding to the submission of details which require approval can upset project timetables and hinder delivery.  New measures introduced by the Infrastructure Act 2015 will provide some comfort in this respect.

The focus of the new arrangements is the concept of ‘deemed discharge’.  This will apply to conditions requiring LPA approval of specified matters before commencement.  Its effect will be to treat such a requirement as having been met where the LPA fails within a certain period – to be set by future legislation – to respond to a request for approval.

Certain categories of condition will be exempted, probably including those concerning development for which an environmental impact assessment is required and development likely to have a significant effect on designated sites such as SSSIs (Sites of Special Scientific Interest).  Conditions relating to flood risk, highway safety, contaminated land and archaeological investigations are also likely to be excluded, as are those requiring reserved matters approval, or a section 106 or section 278 agreement.

There will be a right for LPAs and applicants to contract out of the new procedure, allowing for slower determination where agreed, and the new rules will apply where planning permission has been granted after the new rules come into force – on a date to be determined in due course.

These measures reflect, for the most part, consultation proposals published by the government last summer.  They should be welcomed.  Discharging conditions is a phase of development that ought to be dealt with swiftly given that the principle of development has, by that stage, already been established.  In practice, however, it often leads to delays that can be commercially damaging and frustrate the delivery of much-needed development.  This can impact on the availability of finance and the sequencing of development and, at the very least, can lead to expensive down time whilst construction is delayed.  And yet it is easy to see why such results are common – there is little incentive for under-resourced LPAs to deal expeditiously with requests for approval and other matters are often prioritised.

In the circumstances the measures proposed should assist.  LPAs will be encouraged to allocate sufficient resources to this critical stage of the process and, for the first time, there will exist a real incentive to deal with applications promptly.  On the other hand, there must be a risk that some LPAs will resort to refusing applications simply in order to avoid running out of time.  Whilst the new legislation appears to offer no disincentive to such an approach, overall the picture is positive and the changes will offer a significant and much needed procedural improvement.

Posted in Real Estate News

…And justice for all (who can afford it)

A revolution is taking place in the way that litigants are charged for using the court system and it is shaping up to be a noisy one.

Historically, government’s aim has to been to charge court fees on a “cost” basis, designed to cover the cost to the Ministry of Justice of providing the court service.  From today, in a radical departure from that practice, fees for starting proceedings at court to recover a sum of money will be charged on an “enhanced fee” basis.  This means that fees will not just be calculated to reflect the cost to the public purse, but also the value of the proceedings to court users. Continue Reading

Posted in Real Estate News

The Future of Fund Management: David v Goliath

Hogan Lovells hosted the Reading Real Estate Foundation Breakfast Forum (RREF) on 4 March. RREF is a registered charity that provides support for real estate and planning education at the University of Reading.

The event featured presentations by:

  • Andrew Creighton, Head of Segregated Property Mandates, Aberdeen Asset Management;
  • David Paine, Head of Real Estate, Standard Life; and
  • Jos Short, Founding Partner and Executive Chairman, Internos Global Investors.

The question to be debated was, with the continuing M&A activity in the fund management sector, is bigger always better or will there continue to be room for the small players to make their mark?

Perhaps predictably Andrew Creighton (from Aberdeen who have £324.4bn assets under management) and David Paine (from Standard Life who have £266.2bn assets under management) were of the opinion that bigger is better, whilst Jos Short (from Internos who have just 110 staff) made his case for the small guys.

Andrew Creighton supported his view with his STRIPE theory: that bigger fund managers benefit from Scale, Teamwork, Research, Investment process, Performance and Expertise.

Key themes to emerge in favour of the larger companies were the broad range of expertise and specialist skills, economies of scale and sophisticated investment processes.  The attraction of brand often attracts clients and opens doors to emerging markets.

Jos Short countered these arguments with the view that smaller fund management firms are more innovative and entrepreneurial in their approach to fund management, can make decisions more efficiently and are therefore more responsive to the needs of clients.  Jos also noted that he believes senior personnel in smaller firms are highly involved with funds on a day to day basis.

The presenters all agreed that there is always a place for the players who spearhead creativity and entrepreneurialism regardless of size.

Posted in Real Estate News

Turning over a New Leaf – the impact of multichanneling on turnover rents

We all know that multichannelling is having a major impact on the retail industry and the negotiation of leases is not immune from this.

One of the main areas affected is the capture of turnover rent and, increasingly, tailored drafting is required to reflect the differences in tenants’ businesses. For those who weren’t able to make our Retail Property Disputes Seminar last week, here are some of the key questions to bear in mind when agreeing turnover rent provisions at heads of terms stage:

  1. How does the tenant allocate its online orders – to the nearest store or to a separate online company?
  2. Which channels does the tenant use at the moment and how might its business evolve during the life of the lease?
  3. How will online returns to the store be dealt with and how can this be policed?
  4. How will the turnover provisions deal with click and collect orders that are picked up from the store?
  5. What about group companies which comprise a number of separate retail brands operating from their own stores, who allow customers to collect items ordered online from a designated store regardless of the brand? Convenience is key to the customer but if retailers are charged turnover rent on these items, they might be tempted to only allow collection from a store with no turnover rent provisions even if it is not as convenient or, in the worst case, not allow collection at all.
  6. How will the lease deal with orders placed on devices within a shopping centre but outside a tenant’s premises?
  7. How will the landlord audit information provided by the tenant and does it know enough about the tenant’s business to do this effectively?

The key to effective turnover rent is greater understanding and communication between landlords and tenants, a trend which started during the recent downturn and which is of growing importance.

It is also worth landlords and tenants bearing in mind the rent review provisions. Over time, it is likely that retailers will carry less stock in their stores as sales continue to migrate online. The upshot of this trend is that the optimum demise size is likely to decrease as less back of house space is required.

There is also an increasing trend towards shops becoming showrooms, where customers come to inspect and learn about goods that are then purchased online using a variety of devices. Over time, it will be interesting to see how this change of use affects rental levels, particularly in places such as shopping centres, where conventional retailers are mixed with multichannel operators.

Posted in Planning

TVG hopes left on the beach

The Supreme Court ruled on Wednesday that a beach in Newhaven could not be registered as a town or village green (TVG).

Opponents to development have long been using the TVG route to thwart unwelcome works, as once land is registered as a TVG it is effectively sterilised for redevelopment.  In order to register land as a TVG, members of the public must be able to demonstrate that a significant number of local inhabitants have used the area “as of right” for lawful sports and pastimes for at least 20 years.  However, over recent years, case law interpreting this test has tended to lessen the burden on applicants, making it easier for land to be registered as a TVG.  This recent decision takes a welcome step in the other direction.

The application related to a beach which was part of the operational port (and had indeed only been formed as a result of the construction of a breakwater).  There were many controls on the operation of the port, including various statutory provisions and byelaws regulating its use by members of the public.

Although the principle that a beach could be registered as a TVG was not argued at Supreme Court level, the operators of the port argued that the relevant byelaws granted an implied licence for members of the public to use the beach, provided they did so in accordance with certain conditions.  This position was accepted and it was further held that the byelaws did not need to be brought to the public’s attention for an implied licence to exist.

As it was held that there was an implied licence for use by members of the public, this use became “by right” and not “as of right”, and the beach was not registered as a TVG.

According to the Court, where a landowner can show that land used by members of the public is regulated by statutory provisions or byelaws, even if members of the public are not aware of them, there will be an implied licence in place. This means that any such use is not “as of right” and will ultimately defeat any application to register the land as a TVG. Therefore this decision will be welcomed by the development industry.

Case: R (on the application of Newhaven Port & Properties Limited) (Appellant) v East Sussex County Council and another (Respondents) [2015] UKSC 7

Posted in Real Estate News

Taxing Variations? Part Two- VAT on Lease Variations

In the second of this two part blog we look at the VAT consequences of lease variations.

If either party has opted to tax the property for VAT purposes then VAT will need to be charged on any supplies treated as made by that party, but often the parties do not appreciate that there has in fact been a supply.

For example, it is not uncommon for the parties to vary a lease to remove a tenant’s break option in consideration of an additional rent free period. If the landlord has opted to tax the property, it should charge VAT on the value of the consideration (from the landlord’s perspective) given by the tenant (i.e. the value of the tenant’s break option). If the variation is an even commercial deal, then the value of the tenant’s variations will be the same as the value of the landlord’s variations. So in this example the value of the tenant’s break option will be the same as the rent the landlord is forgoing.

If the tenant has opted to tax the property it would also have to charge VAT on the variation. In that case, the parties can agree to swap VAT invoices on completion marked “paid” rather than paying an equal amount of cash to each other: the net effect on their VAT accounts should be neutral assuming both can recover the input VAT in full. This will clearly have a cash flow advantage and for this reason a tenant may want to opt to tax its interest in the property ahead of the variation.

The position is more complex where a variation causes a deemed surrender and re-grant. As discussed in the first part of this blog, this may be an unintentional consequence of a lease variation (for example if there is an increase in the duration of the lease or in the extent of the demise). HMRC issued a statement of practice on this topic in the 1990s suggesting that the deemed surrender and re-grant will sometimes be accepted as a non-event for VAT purposes, probably reflecting the fact that they often represent the functioning of land law rather than transfers of commercial value.

However, the treatment of the deemed surrender and re-grant needs to be considered in the context of the transaction as a whole: VAT may well be chargeable on other elements of the transaction. The statement of practice does envisage that VAT will be charged on the surrender if a landlord pays cash, or if the demise or term is reduced (subject to an option to tax). Likewise, if the tenant pays cash for the variation VAT is usually charged on the deemed re-grant, or alternatively the landlord may be seen as making a taxable supply of accepting the surrender of the old lease if, for example, it is onerous. Advice should be taken on a case by case basis.

Posted in Real Estate News

Taxing Variations? Part One- SDLT on Lease Variations

The reach of the tax man is long and in the context of lease variations it may also result in unexpected consequences for unwary landlords and tenants.  In the first of this two part blog we outline the various SDLT implications which may arise from common lease variations.

  • A variation to increase the rent in the first five years of the term is treated as if it were the grant of a new lease in consideration of the additional rent.  SDLT is payable by reference to the increase in rent.
  • Some variations will result in a deemed surrender and re-grant of the lease, which may be an unintentional consequence of the variation. This will happen, for example, where the variation is an increase in the duration of the lease or in the extent of the demise. For SDLT purposes this will also be treated as if it is the grant of a new lease and (as for any other lease) SDLT is payable in respect of the deemed new lease subject to the availability of “overlap” relief.  For this reason (as well as other property law reasons), tenants may want to mitigate the SDLT implications by taking a reversionary lease for the additional term or a supplementary lease of the additional demise, particularly if the original lease was subject to stamp duty.
  • Where the tenant gives money or money’s worth for a variation (other than an increase in the rent or a variation to the term), the variation is treated as an acquisition of a chargeable interest by the tenant and SDLT must be paid on the consideration.  Consideration given by the tenant for a reduction in rent is also chargeable to SDLT, although HMRC state that they ignore a party relinquishing a right under a lease (such as a tenant’s break option) for these purposes.

The relevant notification and charging thresholds, and the rules for linked transactions, should be taken into account in each case.

Watch out for Part Two of Taxing Variations in tomorrow’s blog.

Posted in Real Estate News

MCL gathers pace

The Model Commercial Lease steering committee (of which I am part) met yesterday.  The MCL is quietly gathering momentum with major real estate firms steadily reviewing and committing to support it regularly.  The MCL team have had lots of feedback with many really useful suggestions. Most of those will find their way into an updated version around Easter time.

Thorny issues remain.  There is no real consensus on how you address uninsured risks. Everyone easily agrees the tenant shouldn’t end up as “default insurer”. Getting a one size fits all solution to that is less easy.

Watch out for the article in The Law Society Gazette in the next couple of weeks for more on the MCL.