As the effects of COVID-19 continue to be felt, luxury homes are increasingly being adapted to accommodate our new lives but the need for relevant planning permissions must not be overlooked.
The luxury home has always needed to cater for its residents’ lifestyles but with the pandemic in mind this has never been so relevant. It is clear to see that the ongoing effects of COVID-19 are turning people’s thoughts as to how best to maximise their living space. The ability to live and work is at the forefront of everyone’s minds and how space is utilised is key. As a result, we are not only seeing a shift in where people want to live but also in how they are configuring their current living space to fit in with the ideals of “good living”.
Whilst the old style loft conversions are commonplace, we are now seeing innovative uses for sheds, storage units, garages, boathouses, roof terraces and basements, with these spaces being kitted out as luxury home offices with kitchenettes and gym/sauna facilities, additional bedrooms for household members, and swimming pools.
Although it is clear that there is a trend for luxury homes to maximise their living potential, it is equally important to ensure that the correct approvals (planning and otherwise) are put in place to ensure that these new areas are safe, habitable and cause no issues for lenders or potential buyers in the future. In the excitement of creating the conversion, this can sometimes be overlooked and we would always suggest that professional advice is sought at the outset.
It can be concluded that, although the shift in people’s working patterns is due to the current crisis, the desire for more living and working space at home is likely to be the main driving force in peoples’ decisions to buy for a long time.
COVID-19 and SDLT – it may not all be doom and gloom
30 December 2020
News
Just how much SDLT might you pay on your dream house in the country from which to shelter from COVID-lockdown 3, 4 or n-squared?
Well, if you buy quickly (i.e. before 31 March 2021) then assuming your dream home costs £500,000 or more, you will be making a saving of £15,000. In our opinion, this SDLT fillip, together with the “race for space”, has resulted in the market being quite frothy and this is likely to remain the case during COVID-lockdown Mk II. The Office for National Statistics noted in August 2020 that the average price of property in England had increased by 2.8% although of course, this belies regional variations and price differentials.
Chris Druce, a Senior Research Analyst at Knight Frank, comments, “Worcester is an example of somewhere that offers both greenery and space that hasn’t traditionally been considered an easy location to commute full-time from. Following lockdown and the adoption of WFH [working from home] widely, this perception and indeed people’s requirements have changed.”
Similarly, we have seen many people wanting to buy in that £3 million to £4 million price range where it may be possible to have room for the swimming pool, tennis court or paddock. Extra space may also allow for commercial use of part of the land or have the advantage of subsidiary dwellings already established on the land. Either of these could have a significant bearing on your actual SDLT liability as you might, for example, access the favourable 5% SDLT rate for a mixed-use purchase or use multiple dwelling relief to pay SDLT by reference to the average price of the dwellings.
That said, any purchaser needs to consider carefully whether they are paying SDLT at the normal SDLT rates that currently reach 12% for purchases over £1.5 million or at the higher rates for additional dwellings, which add a 3% surcharge on to each SDLT band, resulting in a top rate of 15%. Many factors play a part in determining which SDLT rate regime you are in, but not least whether your purchase is your forever dream home in the country (accompanied by a sale of your city apartment) or simply a weekend bolt-hole with your centre of life remaining elsewhere.
Also, there are many reasons why you might not be able to purchase by 31 March 2021. A buyer should therefore be mindful that it is currently anticipated that from 1 April 2021, both the COVID temporary SDLT rules will be removed and non-resident SDLT (NRSDLT) will be as follows:
Purchase Price
Ordinary SDLT
Ordinary SDLT + 3% Higher Rates
COVID SDLT
COVID SDLT + 3% Higher Rates
Ordinary SDLT + Non Resident Surcharge
Ordinary SDLT + 3% Higher Rates + Non Resident Surcharge
This article reflects the law as of 30 December 2020. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Breaking Good: Love Nuptially – a definitive guide to pre-nups and post-nups
18 December 2020
Podcasts and videos
Co-hosts Marcus Brigstocke and Head of Family, Jo Edwards are re-joined by family lawyer Rosie Schumm to talk all things nuptial agreement-related. From debunking some common myths, to sharing tips on how to broach the subject with your other half, and discussing why they aren’t as unromantic or as new a concept as you might think – it’s all here.
Leading divorce and family law experts – How can we help?
Known for the highest quality service and achieving the best results for our clients, our focus is always on the needs of each individual. Our top ranked Family team will take the time to understand each client’s unique personal situations – and we work with them to develop the course of action which best suits them.
We cover the full range of family law matters including pre and post nuptial agreements, separation arrangements, matters involving children, financial issues and divorce for clients both in the UK and overseas. In addition, we are experts in mediation and collaborative law.
Is a nuptial agreement right for you and your family? The Forsters Family team want to open up the conversation about nuptial agreements, to dispel myths and to inform people about the benefits of having one and the practical process.
As more people escape to the country, will there be an increase in the purchase of luxury aparthotel rooms?
15 December 2020
News
If escaping to the country by the relocation of a family home or main residence is taken as a given during these turbulent times, will we see a rise in demand for serviced apartments and specifically, luxury aparthotel rooms in London and the UK’s other principal cities, in the immediate to short-term?
During the pandemic there has been an increase in people moving out of their homes in the cities to the country in order to acquire more space. They seek a better work/life balance as a result of the widespread change in working patterns but most will still have work ties in cities, which require them to return occasionally.
An aparthotel combines the comforts of an apartment with the services traditionally provided by a hotel. Using an amalgamation of contemporary ideas they offer more space, cooking facilities and separate living/work areas, than a typical hotel room. They also tend to offer a broader range of hotel-style services than would usually be available in a more limited, traditional serviced apartment building. As a result, for those requiring regular short stays in cities, aparthotels offer a cheaper alternative to a pied-a-terre but with all the home comforts of one combined with a hotel-style service.
Could this universal change in the way people are working and living mean that there is an increased demand on the aparthotel industry? According to property consultancy Lambert Smith Hampton’s second annual review of the hotel market, published in October 2019, even before the pandemic the aparthotel industry was driving growth in the hotel sector. The industry already comprises approximately 25,000 units in the UK and Ireland (3% market share) and an additional 6,000 new units are scheduled to be open by 2021.
With growing investment in the UK outside of London, there are development opportunities for global brands operating in, what may be perceived as, a comparatively underdeveloped sector in the UK as more people seek a home from home in the city without the price tag that comes with it.
The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.
Breaking Good – Episode Three: Children & separation – all you need to know
11 December 2020
Podcasts and videos
Co-hosts Marcus Brigstocke and Head of Family, Jo Edwards are joined by preeminent family lawyer Simon Blain to talk about how to prioritise children’s needs during separation and divorce. They explore how parents can best work together to protect children from any fall-out, the different and creative child arrangements they have seen, how to take account of a child’s wishes and the kindness of surrogate mothers.
You can listen to more episodes of Breaking Good and the More Than Law podcast here on our website, as well as subscribe on your favourite podcast services, including:
To continue the conversation on social media, use #ForstersBreakingGood.
Leading divorce and family law experts – How can we help?
Known for the highest quality service and achieving the best results for our clients, our focus is always on the needs of each individual. Our top ranked Family team will take the time to understand each client’s unique personal situations – and we work with them to develop the course of action which best suits them.
We cover the full range of family law matters including pre and post nuptial agreements, separation arrangements, matters involving children, financial issues and divorce for clients both in the UK and overseas. In addition, we are experts in mediation and collaborative law.
Coming to a decision to separate or divorce is difficult and often distressing. For many, the process that lies ahead is a mystery and it is assumed that it will be confrontational and drawn-out. However, there is in fact a wide range of forward-thinking, constructive approaches to resolving the issues flowing from your divorce or separation.
Share registers are vital for title – but what if you find a mistake?
8 December 2020
News
If you’ve just completed a stellar transaction your attention is probably turning to the rewards – new business, growth and returns. But first make sure you have properly dealt with those dry if all-important post-completion matters, including updating your share registers.
Share registers are truly vital for title – and are used and scrutinised at key points in your business’ life cycle.
Basic mistakes may have an easy fix – but serious mistakes can be expensive to correct and require court action, as was seen in a case earlier this year (Boston Trust Company Ltd v Szerelmey Ltd [2020] EWHC 1352 (Ch)).
Here we set out examples of some common mistakes and how to correct them. We have focused on the registers of private limited companies but advise on all entity types.
Why should you care about your share register?
Share registers provide definitive proof of ownership. However you acquired your shares, until your name is in the register you do not have full title to them.
At key strategic points – if you’re looking for lenders, for co-invest cash or to make a sale, for example – you will need to provide a copy of the share register to interested third parties as part of their due diligence.
If there is any doubt about a person’s share registration, another party might be able to challenge that person’s rights in relation to the company and the validity of the company’s actions to date (for example, where that person has received company information, accepted distributions or voted on shareholder matters).
More generally, each company has an obligation to keep its share registers updated (as soon as practicable and in any event within two months of any allotment / transfer being lodged). If it doesn’t comply with this obligation, an offence is committed by the company and every defaulting company officer (each of whom could be fined) and any affected party may be entitled to bring a claim.
What information should share registers contain?
There are fairly basic requirements on content. Share registers must contain the:
Shareholder’s name and address.
Date on which that person was registered as a shareholder.
Date on which that person ceased to be a shareholder.
There are more detailed rules where the company has share capital (including stating the number and class of shares held), and if it has joint shareholders, treasury shares or share warrants.
Note that shareholders have a right to inspect the share register without charge upon request to the company.
If you find an error in the share register, you should obtain legal advice to confirm the best course of action to take – this will depend on whether the error appears basic or more serious. The law does not prescribe for all instances, so a pragmatic approach may be required.
How to fix a basic mistake
Basic mistakes may include a simple typo to a party’s name or address. It is common practice to adopt a relatively easy fix to such errors. Typically, the affected shareholder will deliver a request to the company to rectify the mistake, setting out details of the error and any supporting information. The board of directors will review the mistake and, if it approves rectification, will update the register (and any Companies House filings as required).
The process may also be subject to other formalities required by the company’s constitutional documents and any third-party consents needed (for example, lender consent).
Proceed carefully – if correcting a seemingly basic mistake could affect another shareholder’s rights then you should instead assume it is a serious mistake.
How to fix a serious mistake
Serious mistakes can include a delay in updating the registers, incorrectly noting someone as being a shareholder or giving an inaccurate description of a shareholder. The latter can arise from a misunderstanding of more technical legal issues, particularly when dealing with different shareholder types (companies, partnerships and so on).
For example, there is the issue of whether someone is a “legal person” (i.e. capable of holding full title under English law). Only someone holding full title can be named in a straightforward manner as the shareholder in the register. This is the case where the shareholder is itself a company or limited liability partnership, for example.
It is more complicated if someone is not a “legal person” – they cannot hold full title to the shares (even if they can hold beneficial title) and cannot be named as a shareholder in their own name. For example, in the case of a:
Partnership, the shares could be registered in the joint names of the individual partners (or some of them on trust for all the partners).
Limited partnership, the shares could be registered in the name of the limited partnership’s general partner or a nominee company on the limited partners’ behalf.
Trust, the shares could be registered in the name of the trustee(s) or nominee(s). The latter was a problem in the Boston Trust case, where a trust was incorrectly described (in its own name) as holding shares in a company – something it is incapable of doing.
To fix any serious mistake, the affected person (including the company or a shareholder) may apply to the court to rectify the share register – typically using a Part 8 claim form. The court may refuse the application or order rectification of the register as well as payment by the company of any damages sustained by any affected party. The court may also more widely decide any question relating to the title of a person who is a party to the application to have their name entered in or omitted from the register. Much easier to get it right the first time!
Lucy MacArthur is a Senior Associate in the Corporate team.
Disclaimer
This note reflects our opinion and views as of 8 December 2020 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Family governance – enforceability and sustainability in private wealth structures
7 December 2020
News
Any legal structure incorporating family governance principles will be a hybrid of elements from corporate governance but with flexibility that is not possible in a truly commercial context; rigid structures and families rarely go together. The most successful governance structures have a level of transparency and include the wider family members within a framework of tried and tested corporate governance mechanisms.
What is family governance?
Essentially, family governance is an attempt to regularise family interaction within a framework, to allow for intergenerational participation in the family’s wealth in a harmonious way. The underlying purpose is often a mixture of the following:
To imprint the wealth founder’s principles on any structure.
On-boarding the next generation – educating them about the structure and instilling in them the founder’s principles.
To facilitate an orderly succession of control and wealth between generations.
To prevent or contain family disputes.
To preserve the family’s wealth beyond the third generation.
The ways in which this can be achieved are diverse and the documents and vehicles used vary from family to family. The choice will depend on the nature of the family, for example, the number of family branches that exist and the generation in which the structuring is taking place.
The nuts and bolts
A family governance structure usually contains a combination of legally enforceable and non-enforceable elements, for instance:
Family constitution: this incorporates references to the family’s “purposes” and its mission statement. Although not usually legally binding, it is a formal document, which is morally persuasive, setting out the founder’s and family’s intentions. It is intended to govern the way that family members can participate in the family’s wealth.
Family council: this is often where the decisions are made. The council could be informally created in the family constitution or formally established as a separate legal entity.
Legal documents creating the enforceable structure: a family might choose to use combinations of trusts, foundations, private trust companies, shareholders’ agreements, etc. It is the corporate structures and ancillary legal documents that give the family constitution legal teeth.
Enforceable elements
Usually the rules relating to value, power and governance are made legally enforceable:
Value: the rules that determine which family members can benefit and in what shares, distribution policies and how members who wish to do so may take their share and exit the structure.
Power: the rules governing those who are to control the structure, how they can be appointed or removed, what qualification criteria will apply to their appointment and how they are to be remunerated for their role.
Governance: the inclusion of enforceable principles of governance that are best practice for public and private companies. The level of corporate governance required for AIM companies often provides the best analogy of the standards that should be required in a private wealth structure, as it is light touch regulation compared to a full listing.
Limits of enforceability in the family context
Family governance can never fully achieve a corporate governance model at every level because you cannot bind absent parties (minors, unborn children, future spouses) to a contract.
However, you can try to bind these parties in the future – for instance, by making it mandatory for every new shareholder to sign a deed of adherence in a shareholders’ agreement or providing in trust deeds that beneficiaries getting married must sign pre-nuptial agreements or risk exclusion.
That said, none of these methods guarantee enforceability because you cannot exclude the inherent jurisdiction of the court in relation to trusts and family law.
Sustainability
ESG now factors into most investment planning in the commercial and private wealth spheres. It has the potential to be a minefield in the latter with intermediaries (trustees, directors, family office managers and investment advisers) getting caught in the crossfire. ESG can be factored into a private wealth structure as follows:
By making commitments to ESG integration in the family charter or a letter of wishes.
The distribution or dividend policy might dictate that a certain percentage of profits is re-invested into sustainable projects or ‘impact’ investing each year.
Protections for trustees may be built into a trust deed, by including bespoke exoneration and indemnity clauses protecting them against losses resulting from ESG investment.
Using a reserved powers trust, the settlor may be empowered to determine investment strategy or to appoint an investment committee to do so, thereby ring-fencing investment liability away from the trustees.
The future
Both family governance structuring and a focus on sustainability are constantly developing areas within private wealth planning. The latter is still a relatively new factor for families, trustees and family offices to take into consideration.
There is a worldwide determination to achieve a “green recovery” following the pandemic and many wealthy families feel a personal obligation to contribute towards this. However, it is still vital for them to ensure that the needs and views of all members of the family are fairly represented. Accordingly, family governance structuring will need to become ever more sophisticated over the coming years to provide the required balance of flexibility and control.
Catharine Bell is a Partner and Charlotte Evans-Tipping is a Senior Associate in the Private Client team.
Disclaimer
This note reflects our opinion and views as of 4 December 2020 and is a general summary of the legal position as we understand it. It does not constitute legal advice and local law advice should be obtained before proceeding.
Breaking Good – Episode Two: No Fault Divorce – ending the blame game
4 December 2020
Podcasts and videos
Co-hosts Marcus Brigstocke and Head of Family, Jo Edwards are joined by up-and-coming family lawyer Jamie Gaw to talk all things no fault divorce, set to take effect in 2021. They dissect all that’s wrong with the current divorce system, the arguments that led to change, how the new law will operate in practice and some rather unusual behaviour particulars (one spouse cooking another spouse tuna casserole every night being one)…
You can listen to more episodes of Breaking Good and the More Than Law podcast here on our website, as well as subscribe on your favourite podcast services, including:
To continue the conversation on social media, use #ForstersBreakingGood.
Leading divorce and family law experts – How can we help?
Known for the highest quality service and achieving the best results for our clients, our focus is always on the needs of each individual. Our top ranked Family team will take the time to understand each client’s unique personal situations – and we work with them to develop the course of action which best suits them.
We cover the full range of family law matters including pre and post nuptial agreements, separation arrangements, matters involving children, financial issues and divorce for clients both in the UK and overseas. In addition, we are experts in mediation and collaborative law.
Coming to a decision to separate or divorce is difficult and often distressing. For many, the process that lies ahead is a mystery and it is assumed that it will be confrontational and drawn-out. However, there is in fact a wide range of forward-thinking, constructive approaches to resolving the issues flowing from your divorce or separation.
Lockdown and Tears: A Landlord’s Guide to Tenant Administrations
1 December 2020
News
The devastating impact of UK lockdown on the high street has been put into sharp focus, as the Arcadia Group (which owns brands including Topshop, Burton and Dorothy Perkins) has confirmed that it has filed notice to appoint administrators. Arcadia follows Debenhams, Cath Kidston, Jaeger, TM Lewin and a long list of other household names who have taken similar action since March this year.
First reports are that Arcadia’s 444 stores will continue to trade over the Christmas period, with unprofitable or unsold shops being closed in the New Year. Arcadia Group was the biggest concession operator within Debenhams stores, and the decision is reported to have prompted the withdrawal of JD Sports from its bid to buy Debenhams. Debenhams is now likely to move from administration into liquidation, unless a new buyer can be found.
The Arcadia Group administration has taken place, despite the fact that a raft of emergency legislation and guidelines introduced over the course of the year has afforded them (and other tenants) significant protections from landlords looking to recover unpaid rents. Many more retailers and restaurant chains can be expected to follow suit in the months to come, especially once the emergency measures are lifted.
What is the impact of a tenant’s administration on a landlord, and what impact do the Coronavirus Act 2020 and the Code of Practice have on the position? We answer some frequently asked questions below.
What is administration?
Administration is a “rescue” procedure, where the primary statutory objective is to allow a company to carry on trading as a going concern. In practice, most administrations do not achieve this objective and result in a sale of certain assets and the liquidation of the remainder – the original company rarely survives.
Administration works by imposing a moratorium on legal action against the company by creditors: thus allowing the company breathing space to reorganise its affairs. Once appointed, administrators will have the power to deal with the company’s property and assets. They will often sell off parts of the business to third parties, and may grant third parties the right to occupy the premises.
Will rent be paid?
If the administrators continue to use the premises for the purposes of the administration- for example, by trading from it or allowing others to trade from it – then they will be liable to pay the rent and other sums due under the lease in respect of that period as an expense of the administration. This means the sums are payable as a priority, before sums owing to the majority of creditors. They will be payable at a daily rate, for the period that the administrators use the property.
Administrators may try to argue that they have not been using premises for the purposes of the administration (and therefore should not have to pay rent) for the period(s) in which business are or have been shut during lockdown or as a result of the restrictions of the “Tier” in which the premises are based. They may also seek to use the guidelines set out in the recently introduced Code of Practice for the Commercial Property Sector in order to seek rental concessions. Landlords are likely to have grounds to resist arguments along these lines, and should insist on full disclosure of documentation governing the occupation of the premises (particularly where a third party has been granted a licence to occupy) before reaching a decision.
Rent and other sums which have fallen due for payment in respect of a period either before the administrators are appointed, or once they have stopped using the premises, are unlikely to be paid immediately or in full.
What is the effect on any guarantee or other security?
The administration of a tenant will not have any impact on a guarantee given by a third party company or individual, unless there are specific provisions governing this in the guarantee agreement. We recommend that you check the terms of any guarantee as soon as you can, and ensure that you understand what steps need to be taken in order to make a claim from the guarantor. If the guarantee is in the form of an authorised guarantee agreement (“AGA”) given by a former tenant, or the guarantor of a former tenant, you will need to serve notice (under s17 of the Landlord and Tenant (Covenants) Act 1995) on the guarantor within 6 months of the sums falling due. This time limit is strict, and the right to recovery will be lost if it is not met.
The impact of the administration on any rent deposit will depend on how the rent deposit deed has been drafted, and how the deposit is held. Again, we recommend that you check the terms of the rent deposit deed as soon as possible, and ensure you understand what needs to be done in order to withdraw sums. It is usually possible to withdraw sums to settle any outstanding liabilities of the tenant under the lease. The administrators’ prior consent for this is often required, and is usually given.
Can the administrators bring the lease to an end without my consent?
No. Unlike some other insolvency procedures such as liquidation, administrators do not have the power to disclaim leases.
If the administrators do not want to use the premises you may find you are offered a surrender early on. You should consider any such offer very carefully, since accepting it may bring forward your liability for business rates or limit your ability to recover unpaid arrears or claim for dilapidations.
Can I terminate the lease and re-let the premises?
Any surrender of the lease requires the agreement of both parties, in the usual way.
Whilst a tenant is in administration, the usual position is that a landlord may not forfeit the lease without either the consent of the administrators or the permission of the Court. The Coronavirus Act 2020 adds a further layer to this and means that, even with consent, forfeiture for non-payment of rent is impossible until 30 December 2020 at the earliest. It appears likely that this deadline will be extended further.
Once the restrictions imposed by the emergency legislation have been lifted, or where there are breaches of the lease which do not relate to unpaid rents, a landlord may request the administrators’ consent to forfeit. If the administrators refuse, their reasoning should be examined carefully- the Court may take a different view.
There is a third party in occupation: what are my rights?
Administrators often let third parties into occupation of premises- often in breach of the terms of the lease! This is usually done as part of a sale of the company’s assets, by which the administrators permit the purchaser to occupy pursuant to a licence pending a formal application for landlord’s consent to assign. While the moratorium makes it harder to take action against the administrators, such action will usually be a breach of the tenant’s covenant not to assign without consent and the usual rules and the provisions of lease will apply to any subsequent application for consent that is made. You should check your rights under the lease carefully as this may be an opportunity to insist on the provision of additional security for the new tenant’s covenants and/or payment of any arrears as a condition of the assignment – most modern leases will contain provisions that entitle the landlord invoke such conditions.
When dealing with such applications, it is worth remembering that the landlord’s duties under the lease and statute are owed to the tenant, not the proposed assignee.
If your preferred course is to recover the premises, it may be possible to pursue a forfeiture strategy based on the breach of the tenant’s covenants but this will require the court’s permission if the administrators will not consent to it. It may not be possible to convince the Court to grant consent to forfeit where the occupation of the premises by the third party is helping to achieve the aims of the administration, and rent is being paid.
How do I get the Court’s permission to forfeit or enforce the administrators’ duty to pay rent?
The administration will be listed in the High Court and, like most creditors, landlords can make applications in the administration for the Court to determine. These applications are governed by the insolvency legislation, so the Court will consider your application in the context of the whole administration process and, if successful, its impact on other creditors. These additional considerations can sometimes see one creditor’s rights not enforced even though there appear to be clear grounds for doing so on a purely contractual level. That said, many applications can and do succeed, so it is important to take stock early and execute any strategy with the benefit of expert advice.
A PDF copy of the article above is also available to download here.
The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.
