This week saw the publication of the UK Government’s response to their public consultation on flood insurance.
Back in June we reported the announcement of “Flood Re”, the proposal to secure the availability of insurance for the thousands of UK homes facing a high flood risk. Flood Re is set to be a dedicated fund (or reinsurance pool) to cover the cost of flood claims from high-risk properties. The source of the fund will be a levy imposed upon member insurance companies, with the ultimate cost trickling down to households through an increase in their insurance premiums. The Statement of Principles, which is the voluntary agreement between the Government and the Association of British Insurers committing insurers to provide affordable flood cover for both domestic and small business premises, is to remain in place until Flood Re is implemented.
The Government received nearly 150 consultation responses in total, with over a third from individuals and groups at risk of flooding. The next largest numbers came from Local Authorities and (unsurprisingly) the insurance industry. This deluge of responses revealed overall support for Flood Re as a solution to ensure the future of affordable flood insurance. The Government’s intention to legislate for Flood Re through the Water Bill, due to be debated in the House of Commons soon, remains strong.
The responses also showed general support for the introduction of a Flood Insurance Obligation, effectively a back-up plan if Flood Re proves unworkable or ineffective. In contrast, responses from the insurance industry to this proposal tended not to support it and highlighted concern over the practical implementation of such an Obligation. In spite of these industry concerns, the Government is pressing ahead to seek powers to implement both Flood Re and the Obligation. Whether the insurance industry will act as a barrier to the successful implementation of the latter, should it ever be needed, remains to be seen.
Whilst the Government’s plan looks set to ensure affordable cover for residential properties, hopes that the cover would extend to small business premises appear to have been washed away. The Government remains of the view that there is insufficient evidence to justify intervention in insurance cover for small businesses, which at present is priced according to risk.
Town and Village Greens (“TVG“) have long been a thorn in the side of developers, and in recent years have increasingly been used by locals to thwart development. However, the Growth and Infrastructure Act 2013 made a number of changes to the TVG regime, seeking to redress this balance. Many, though, would say that the shift has gone too far.
Registration of land as a TVG is a serious concern for a landowner as it effectively sterilises that land, preventing all future development. To be successful an applicant must show that the land has been used for lawful sports and pastimes, as of right, for at least 20 years. Even where an application for registration fails it can cause serious problems by stalling development and exposing the landowner to significant costs.
The 2013 Act made some crucial changes to the TVG regime, including:
- a right to make a “Landowner Statement”;
- the reduction of the period during which a TVG application can be made; and
- suspension of the right to apply for registration of a TVG in certain circumstances.
Landowners can now bring all potentially qualifying use of the land as a TVG to an end by lodging a formal statement with the local authority. This statement does not prevent registration of the land as a TVG, but hypothetically erects a giant, impenetrable fence around the whole site, ending all qualifying use. This statement will be of particular use where a landowner cannot in practice hoard off its site completely. It will also be useful when selling land as the statement could be provided to purchasers as evidence that any TVG rights will have ceased on the date of the statement.
Reduction in application period
Previously applicants had two years from the date use as a TVG ceased in which to submit an application for registration of the land as a TVG. This meant that landowners could prevent all public access, but still be at risk of a TVG application for a further two years. This period has now been reduced to one year, giving landowners a little more comfort.
Suspension of Right to Register
Finally, the Act has introduced the new concept of periods during which an application to register land as a TVG cannot be made, even if qualifying TVG use is continuing. If a specified “trigger event” occurs, no application can be made until the corresponding “termination event” also occurs. These trigger events are broad ranging and include advertising a planning application and the publication of a draft development plan identifying the land for development. It is hoped that this will prevent local residents using the regime to thwart otherwise acceptable development. There is a risk, though, that these measures will mean land which should be protected as a TVG is developed.
Following these changes, although registration of land as a TVG is still a risk, a landowner now has tools with which to manage, or even avoid, this risk.
On 16 October 2013 the Local Data Company (LDC) launched its first ‘Openings and Closures Summit’ at an event hosted by Hogan Lovells. The LDC presented its findings on property occupancy rates by multiple and independent retail and leisure businesses divided by type, geography and location.
This was followed by a panel discussion chaired by Damian Wild, editor of Estates Gazette. Panellists included Simon Danczuk MP, BBC correspondent Samantha Fenwick, Calum Ewing of Metro Bank, Michael Weedon of the British Independent Retailers Association, property researcher Dr Karen Sieracki and Mathew Ditchburn of Hogan Lovells.
For the uninitiated, a pre-packaged sale (or prepack) is one that is negotiated in advance of administration and completed by the administrators when they are appointed. It would be wrong to suggest prepack administrations are universally a bad thing. They can be the quickest means of salvaging a distressed business, while avoiding an often protracted open-market sale process.
It is the perceived lack of transparency that some observers find discomfiting. Creditors in particular may think a better deal could have been achieved through open marketing.
This is especially so where the business is sold back to the owners of the insolvent company, minus debts and liabilities that creditors have to write off – as in the recent case of DCM Optical Clinic. Some even ask whether insolvency was the true driver behind that sale, as opposed to a strategic restructuring of the business.
Despite an improving economy, the issue of prepacks remains a live one. Today, the Insolvency Service brings into force a beefed-up version of the Statement of Insolvency Practice 16 regulations, setting out standards to be followed and information to be disclosed by insolvency practitioners appointed to any prepack. It has also launched a review into whether prepacks are in the interests of creditors and the wider economy.
Against this backdrop, landlords – often the largest unsecured creditor group – are right to examine the circumstances and outcome of any prepack. Creditor engagement and insolvency practitioner openness are crucial to demystifying the process, balancing competing interests and stamping out any perception of abuse.
An earlier version of this article was published in Property Week on 1 November 2013.
You may remember that, in an unexpected decision back in May, the High Court ruled that a tenant, M&S, was entitled to a repayment from its former landlord of approximately £1.1m of rent and other charges paid in advance, following the exercise of a break option part way through the quarter. In an unsurprising twist to the story, M&S’s landlord has been granted leave to appeal and a date has been set for the showdown in the Court of Appeal in March 2014.
By way of reminder, the facts of the case revolved around M&S’s leases of four floors in ‘The Point’, a high-end office building overlooking the Paddington Basin. M&S wished to bring the leases to an end in January 2012 and exercised break options in order to do so. The breaks were conditional on payment of the full December quarter’s rent along with a “break fee” equivalent to one year’s rent. At the break date M&S had met these conditions and the leases were determined. M&S then sought to recover a refund of the rent and other charges relating to the period of the December quarter which fell after the break date. The Court held that although the leases did not provide for such a refund, it was “eminently reasonable” that this should be implied into the lease particularly given that the landlord had been compensated by a “break fee”.
The decision has meant that landlords must be alert to the possibility that, where a break has been exercised in the middle of a quarter, tenants may seek to recover the “overpaid” rent and other charges, even where no such recovery is expressly provided for by the terms of the lease.
Will tenants’ hopes of a break on break clauses be dashed on appeal? Watch this space ….
Marks and Spencer PLC v BNP Paribas Securities Services Trust Company (Jersey) Limited and BNP Paribas Securities Services Trust Company Limited  EWHC 1279 (Ch)
On Sunday 13 October 2013, a little piece of history will finally have come to an end when chancel repair liability ceases to automatically bind purchasers of affected land as an ‘overriding interest’ under the Land Registration Act 2002.
Chancel repair liability dates back to the times of Henry VIII. Prior to the reformation, a rector was responsible for the upkeep of the chancel whilst the rest of the church was the responsibility of the parish. When Henry VIII dissolved the monasteries and sold the land, the liability for the repair of the chancel passed with that land, no matter how that land was subsequently sold or divided. In recent years, most property purchasers have done a search with a commercial provider and then take out relatively cheap insurance to protect against any liability discovered.
The changes that will come into force on 13 October mean that liability for chancel repairs will only bind future owners if the liability is registered against a property. This puts the onus on PCC to establish whether there is any liability and whether to register such liability or run the risk of losing the benefit (and cash). What the changes do not mean is that after 12 October 2013, chancel repair liability will fall away. It will only fall away after a property is sold for valuable consideration and the liability has not been registered. Until that sale, PCC can still protect their right to collect chancel repair costs.
You may ask what happens if a chancel repair liability is recorded on the title? Initial indicators from some insurers are that they may still be willing to offer insurance against any potential liability although premiums are expected to be higher as a result of the apparent level of awareness of the right to recover.
It is not often, in modern times, that property law forms part of a moral maze in which the interests of private ownership are pitted against historic rights and cash calls to preserve the fabric of expensive, historical buildings. In general it seems that the Church has not readily sought to protect its rights. Perhaps it recognises that the problem of funding church repairs stems not from the practicalities of modern land law but from the prevailing attitudes of modern society.
The firm’s auditorium was filled to capacity on Thursday 3 October, primed to hear from this year’s keynote speaker, Alison Nimmo, CBE, Chief Executive of The Crown Estate. Following on from her success as Director of Design and Regeneration at the Olympic Delivery Authority, Alison now manages a portfolio of land and property worth over £8 billion.
Alison described The Crown Estate’s successful business model which includes strategic partnerships with international investment partners such as Oxford Properties, HOOPP and Norges Bank Investment Management. These partnerships help The Crown Estate to maintain adequate working capital for re-investment into its portfolio as it cannot borrow. Alison’s presentation was accompanied by striking images of some of the most prestigious addresses in London including the iconic Regent Street, Piccadilly, Jermyn Street and The Crown Estate’s newest, and perhaps most ambitious development to date, St James’s Market, on which Hogan Lovells have been advising.
Without doubt, The Crown Estate has an expert team and is a financial juggernaut; if listed, it would be in the top 50 of the FTSE 100. However, what Alison importantly emphasised was that it is far more than simply a profit-generating machine. Central to the organisation and the way it does business are its values – commercialism, integrity and stewardship – along with a drive to be sustainable. The balance demonstrated in many of its successful developments, between heritage and delivering modern space for its customers, has been expertly delivered through its considered and collaborative approach, with a resulting net gain for UK plc.
Alison, herself, works on the basis of the Ephebic Oath which states (in part):
“I shall not leave this city any less, but rather greater, than I found it.”
It is also evident that this oath accurately encapsulates the strategy of The Crown Estate as a whole as sustainability, conservation and place making are at the heart of its work.
Most ably chaired by our Global Chair Nicholas Cheffings, the remaining speakers at the seminar included Nicholas Roberts who set out a discrete list of key issues affecting development: changes to chancel repair liability; the Telecoms Code; reform of judicial review; and the issue of enlargement – a potential pitfall for those investing in student accommodation. Dellah Gilbert then spoke about rights to light, development obligations in leases and litigation pitfalls. Finally, Mathew Ditchburn wrapped up a lively and informative evening with an entertaining overview of ten of the year’s most important real estate cases.
Ed Miliband’s proposals for housing at the Labour Party’s 2013 annual conference provided a topical backdrop for the third Annual Strategic Land Debate hosted by Hogan Lovells last week in association with IBP (International Building Press). The subject of the debate “Is British house building striking the right balance?” was resoundingly answered in the negative by the panel. However, what this balance is and how it can be struck resulted in lively discussion.
The influence of political elections on long-term, strategic planning was a key theme throughout the debate, highlighted by both David Orr (Chief Executive, National Housing Federation) and Julia Thrift (Senior Project Manager, Town and Country Planning Association). They felt that councillors can find themselves in conflicted positions when making planning decisions; even refusing development applications which would benefit the community in the long-term when re-election is approaching as they are conscious of the fact that small numbers of voters can be decisive in local elections. David’s proposal was to enhance the role of councillors so that they were engaged in strategic planning decisions and remove them from the day-to-day task of considering individual planning applications. He argued that this would encourage rational planning decisions rather than short-term thinking based on electoral cycles.
Mr Miliband’s statement that land is being “land banked” by developers waiting for prices to go up was disputed by Mark Clare (Group Chief Executive, Barratt Developments PLC). He asserted that Barratt was not and has never done this. One solution he believed would improve the housing shortage was for there to be more consented land available (i.e. land with the benefit of planning permission). Pete Redman (Director, Centre for London) disagreed with such a solution on the basis that the majority of land that is not consented is categorised as such because it is not suitable for residential use.
A final theme in the debate was the need for more social housing, with Julia stating that currently 1.7 million households required such subsidised accommodation. For David the reduction in social housing can be attributed to few politicians having the appetite to champion this cause as their constituents do not want new social housing in their neighbourhood. However, Julia advocated that this would not necessarily be the case if social housing was well-designed and properly planned housing in areas where people wanted to live which would not only be attractive to occupants but would also be popular with locals in that area.
On 6 September the Government invited views on potential measures for the further reform of judicial review. As part of this, Justice Secretary Chris Grayling plans to introduce a specialist ‘planning court’ to reduce delays on major developments and drive out the meritless cases which slow down the entire system, leading to substantial delays and costs.
Dealing with a case load that has nearly tripled from 4,500 in 1998 to 12,400 in 2012, the judicial review system is under strain. In 2011, of the 400 planning cases which reached the Administrative Court, nearly 200 were for judicial review. The average time period from lodging an application to a full hearing was 470 days, well over an entire year. Meanwhile developers face mounting costs whilst sitting on stagnant sites.
The new proposals would introduce a specialist planning chamber in the Upper Tribunal. This would see a panel of expert judges deal with planning judicial review. This new streamlined process would hopefully speed up the processing of planning judicial review and would also help in developing planning as a specialised jurisdiction with consistent decision making and practices. This has been lauded as taking a “huge step forwards for the development community”.
Grayling said, “Britain is winning the global race and we must do everything we can to keep pushing forwards – these proposals will ensure legal challenges are heard swiftly, so crucial new building projects no longer fall by the wayside because of needless delays.”
Should the proposals come to fruition, it is yet to be seen whether such a solution would be able to deal with the huge backlog of cases that are currently slowing down the entire system. Transferring cases to the new chamber should allow planning cases to be better prioritised, but if it finds itself swamped by old applications, it may be some time before the benefits become apparent. The court would only work if it is properly resourced. It is vital that the Government put its money where its mouth is if its objectives are to be achieved.
RICS has just published its draft updated Guidance Note on Surveyors Acting as Independent Experts in Commercial Property Rent Reviews for public consultation. If you are interested, click here.
The guidance sets out the duties and procedures to be followed and applies both to experts appointed by the President of RICS and to those appointed directly by the parties. It is a complete rewrite of the existing edition. There are no radical changes but it is updated, improved and easier to read and understand. RICS is inviting comments. If you wish to make any, please follow the link. Alternatively, feel free to share your thoughts with us and we will pass them on. The document is intended to be a practical guide for those surveyors who are acting as independent experts but the views of consumers are fundamentally important as the process only works if it has “buy-in”.
The consultation closes on 1 October and the intention is that the new edition should go live in late January 2014.
The draft helpfully clarifies some situations which have caused confusion or disagreement. One of those is the date on which the appointment takes effect which, in the case of an appointment by the President, is when he signs the appointment letter creating a tripartite agreement between the parties to the dispute and the independent expert. Another problematic area is where surveyors appear before an independent expert as expert witnesses (nearly always by way of written submissions). It is noted that the specific roles of the two “combatant surveyors” are less critical than when they appear before an arbitrator. However, RICS guidance to date has been based upon the practice that surveyors may adopt either the role of expert witness or advocate. The key is to be clear as to which it is and not to confuse the two. Ultimately, the only opinion that matters is that of the independent expert. In practice, nearly all rent review cases tend to proceed on the basis that the surveyors will give their evidence as expert witnesses. Quite why is not altogether clear.
The draft also contains useful guidance on establishing the facts and is a reminder that, even if the parties have produced a statement of agreed facts and agreed that the independent expert may rely upon it, the expert remains under a duty to acquire any additional information that is necessary to reach a conclusion based upon his or her own opinions and calculations.
The document recognises that, contrary to what may be seen as the leading strengths of independent expert determination (namely, a quick, simple and cost effective means of dispute resolution), it has become established practice to invite the parties to provide material to the independent expert in much the same way as if the matter were proceeding by way of arbitration. This seems to reflect the parties’ understandable desire to “have their say” rather than simply relying upon the independent expert as being truly “independent” as well as “expert”. Perhaps the parties should give more consideration to going back to basics, dispensing with expert evidence and simply asking the independent third party for an answer to what is, more often than not, a straightforward valuation question.
The guidance ends with a very useful table comparing arbitration with determination by independent experts. Those of you who are involved in rent review work might find this table useful even if you do not feel the need to read the entire guidance note.