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Keeping It Real Estate

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

Posted in Real Estate News

Not in service: new Electronic Communications Code put on hold

Last week we blogged on the reforms to the Electronic Communications Code, which were added as a last minute amendment to the Infrastructure Bill.  These have now been spectacularly withdrawn by the government.

Although the revised Code did seek to resolve some of the flaws of the existing Code there was concern about whether the addition of a 59 page amendment to the Bill at such a late stage in the parliamentary process allowed sufficient time for scrutiny and evaluation of the detail.  There was also some objection in the industry to the provisions for compensation to landowners and third parties and the ability for telecoms providers to sub-let sites.

The Department of Culture, Media and Sport is proposing further industry consultation with a view to passing a revised Code in March.  While the opportunity to comment on the proposals and draft new Code is to be praised, there may be insufficient parliamentary time or political will to enact a new Code before the general election in May.  If this window is missed it may be some years before a new government finds room in its legislative agenda to revisit reform of the Code.

It seems that we will have to live with the old Code for a little while longer.

Posted in Real Estate News

Tenancy Deposit Schemes: surprise decision on pre-2007 deposits!

Another court decision equals another headache for landlords of residential property.

Landlords have to do two things within 30 days of receiving a deposit paid in connection with an assured shorthold tenancy: first, pay the deposit into a registered scheme and second, give the tenant certain prescribed information about how the deposit is held. Unless both of these steps have been taken, a landlord cannot serve a section 21 notice under the Housing Act 1988 to obtain possession of the property once the tenancy expires.

The position is straightforward on a new letting. It is also clear that on an express renewal of the tenancy, the landlord has to make sure that the deposit is or remains protected and provide the tenant with the prescribed information afresh within 30 days of the renewal date.

Previously, we blogged about the Court of Appeal’s decision in Superstrike Ltd v Rodrigues. In that case, the Court decided that where a tenancy was granted before the tenancy deposit scheme came into force on 6 April 2007 and expired after that date but the tenant stayed in the property, there was an implied statutory periodic tenancy which has arisen after the scheme had come into force. Continuing to hold the deposit in relation to this new tenancy triggered the obligation for the landlord to protect the deposit and give the tenant the prescribed information. Unfortunate though this was for the landlord, it does make sense, as the deposit was not previously protected but the new implied tenancy fell within the tenancy deposit scheme. This is now being codified in the draft Deregulation Bill that is making its way through Parliament.

However, the recent Court of Appeal decision of Charalambous v Ng will come as a nasty surprise to landlords. In 2002, nearly five years before the tenancy deposit scheme came into force, the landlord granted a tenancy and took a deposit from the tenants. The tenancy was renewed twice, before finally expiring in 2005, some 18 months before the scheme came into force. The tenants remained in occupation and so an implied statutory periodic tenancy arose.

In 2012, the landlord served a section 21 notice to recover possession of the property. The tenants argued, and the court agreed, that the notice was invalid as the deposit was not protected.

The legislation prevents a landlord from serving a section 21 notice where a deposit “is not being held in accordance with an authorised scheme”. The Court decided that this applied whether or not the landlord had received the deposit before the scheme came into force as it was drafted in the present tense. They thought that this interpretation did not cause any real hardship to landlords as they can clear the path for service of a notice in one of two ways: put the deposit into an authorised scheme; or repay it to the tenant.

Landlords should now take another look at their portfolios and consider protecting any deposits which have not yet been protected, whether or not received before April 2007. Otherwise, they should return any deposit to the tenant in full before serving a section 21 notice to regain possession.

Case: Charalambous and another v Ng and another [2014] EWCA Civ 1604

Posted in Real Estate News

Long awaited reform of Telecoms Code rushed into Infrastructure Bill

The Law Commission’s report on reform of the Electronic Communications Code was published in February 2013, following a consultation that ended in October 2012.  Although the government announced last December that it would bring forward reforms to the Electronic Communications Code, it has come as a surprise to many that a new Code has been inserted into the Infrastructure Bill, which is currently before the Public Bill Committee in the House of Commons.

Property professionals, land owners and telecoms operators alike will be scrutinising the fine detail of the new Code, which (if approved by Parliament) will be included as a new Schedule in the Communications Act 2003.  In keeping with the Law Commission’s recommendations, the Code has been completely rewritten in modern language and style, to make its effect clear and to remove various uncertainties that the previous Code created.  This is an encouraging sign but only time will tell whether the new Code is sufficiently unambiguous to avoid potential bear traps for unwary landowners.

Read more here.

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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