Green Lease / Sustainability Playbook – Quick Guide

30 April 2021
News

Landlord and tenant obligations as to sustainability can take a number of different forms. In this briefing we set out an overview of the documents you may come across and when they are most likely to be used.

Head of terms template wording

What does it do?

Gives clarity at the pre-contract stage that a green lease/sustainability commitment is agreed in principle between the parties. Offers an early focal point for discussion around what that commitment is going to look like.

Who is it for?

New tenants.

Green lease clauses

What does it do?

Provides enforceable contractual commitments to ensure that the premises are occupied and serviced in a manner which fosters sustainability. Clauses can be graduated from a less stringent “light green” commitment to more ambitious “dark green” obligations, depending on the circumstances.

Who is it for?

New tenants. Existing tenants seeking renewal (subject to being a “reasonable modernisation” any 1954 Act protected renewal).

Memorandum of understanding

What does it do?

A non-binding document which sets out a statement of intent between the parties, providing a clear framework to operate within. This will often be based on the model form MOU drafted by the Better Buildings Partnership as part of their Green Lease toolkit. Particular attention will be required to the Appendix where best practice recommendations are set out, which the parties agree to consider and, where appropriate, implement.

Who is it for?

Both new and existing tenants who are prepared to engage with the concept of working together with their landlord to reduce the environmental impact of their premises but are not prepared to enter into contractually binding commitments.

Data sharing letter of consent

What does it do?

Typically provides that the tenant will collect and share environmental performance data for the premises and/or allows the landlord to collect that data directly itself. May include optionality as to who is to undertake (and bear the cost) of the installation of any additional metering or other smart technology required to collect such data. Arrangement will usually be terminable on notice.

Who is it for?

All tenants who are only prepared to agree to data collection and the installation of metering for that purpose.

Tips for maximising engagement

Be Collaborative

Identify which tenants/properties are going to be the “easier wins” and start with them. Does the tenant have their own ESG strategy which you can refer to for discussion purposes? If dealing with an existing tenant, is a lease event due at which you can initiate a discussion?

Strategise

Consider your data collection/sharing strategy – are you happy to rely on data collected and shared by the tenant or would you prefer to control the whole collection process yourself? On multi-let properties, it may be administratively easier to try and adopt the same approach for all lettings.

Be Clear on the Mutual Benefits

Have an open dialogue with your tenants from the start – we recommend ensuring you are clear from the outset as to the parameters of your ESG strategy and its potential benefits for them – both in terms of direct cost reduction and the creation of cultural value.

Adopt a Systemic Approach

Agreeing the general principle early on will cut down on negotiation of the wording at a later stage in the transaction. You may want to consider your internal policies in respect of signing off any proposed amendments to your standard sustainability clauses. Are you adopting a grading system for how “green” your leases are?

Future-Proof

Keep ESG under review – schedule regular catch-ups with your professional advisors to ensure that the strategy and drafting remains fit for purpose. Make sure you stay well-informed of developments within the market to help you anticipate future areas of focus.

A PDF copy of the article above will be available to download here.

Victoria Towers is a Partner, Miri Stickland is a Knowledge Development Lawyer and Edward Glass is a Senior Associate. All authors sit in our Commercial Real Estate team.

Our Sustainability Hub

Our sustainability hub brings together the team’s insights and legal expertise on a broad range of environmental matters that affect our clients’ business and personal affairs. This is a rapidly evolving and wide-ranging area of law and we will continue to share our insights about related legal developments on this hub.

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Edward Glass

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Electric Vehicle Charging Points – Quick Guide

29 April 2021
News

The roll-out of Electric Vehicle Charging Points (EVCPs) across the UK is only going to continue to gather speed, with the government’s announcement last year of a ban on the sale of new petrol and diesel cars, to take effect from 2030. Changes to the building regulations regime are anticipated later this year, imposing requirements on the provision of EVCPs in new buildings going forward, with further regulation expected for 2025 in relation to existing commercial buildings with car parking.

In this briefing we set out an overview of the key issues and questions for property owners to consider in relation to EVCPs.

What is it proposed to install?

Not all chargers work at the same speed. It is important to understand the different capacities of the charging units and their suitability for the anticipated use. Note also that cars will have different connectors, meaning that not all EVCPs can be used by all electric vehicles.

This being the case, landowners may want to consider including obligations in their contractual arrangements with operators to ensure that any EVCPs are compatible with a specified percentage of electric vehicles on the road in the UK from time to time.

How is the arrangement going to be structured?

Is the agreement between landowner and EVCP operator a purely commercial arrangement or is it, in fact, a lease? If the operator has exclusive possession of the site, care will need to be taken to ensure that rights of security of tenure under the 1954 Act are not inadvertently being given. The risk here, of course, lies with the landowner and a careful analysis will be required.

Landlords may also be approached by tenants to grant rights either to use existing EVCPs or to install new EVCPs. Thought should be given to whether any such rights are being granted on an exclusive or non-exclusive basis – which will be of particular importance on a multi-let property where the premises demised to tenants include external areas and may allow for the installation of EVCPs. Where a landlord is to agree to give an operator exclusivity over a particular site, consideration will also need to be given to the impact of the Competition Act.

Landlords will also want to ensure that, if tenants are engaging directly with operators, arrangements can be unwound and control handed back to the landlord at the end of the term.

Financials

Covenant strength

Operator companies may be of limited covenant strength, so consider whether a parent company guarantee is required. Is operator experience more important than financial strength?

CapEx

CapEx on EVCPs can be significant. With fast-evolving technology, equipment will require upgrading regularly to avoid obsolescence. Who is going to bear both the initial outlay and ongoing system maintenance and upgrade costs? Who will own the equipment at the end of the agreement? Operators may seek longer term arrangements in order to recoup their initial CapEx, but this means less flexibility for landowners, who will not want to be tied into systems which may become obsolete.

There are specific capital allowances available for business incurred CapEx on EVCPs so specialist input is advisable.

Rent

Rental models will often be turnover/revenue linked, usually with a base rent payable. Consider whether such base rent should be subject to review – for example, subject to annual RPI linked increases and/or OMV reviews. There will currently be few comparables in the market for OMV rent review purposes.

Charging Costs/Income

Who are going to be the end-users of the EVCPs? Are they intended for public use or is it to be restricted to occupational tenants? If the latter, how will the charging and maintenance costs be recovered? Consider whether the operator should be required to price competitively relative to other operators in the EVCP market.

Outgoings and Service Charge

All electricity charges/other outgoings relating to the operation of the EVCPs will need to wash through to the operator and/or the end user. Consider on what basis (if any) the operator should be contributing to any existing service charge regime. If the installation means an increased traffic flow to the site, should the operator bear the associated repair and maintenance costs?

What type of site is it?

Existing tenanted scheme

While the installation of EVCPs will provide a long term benefit, it will be advisable to carry out a review exercise of existing leases to establish whether the installation may interfere with rights that have already been granted, such as rights to use/demise of specific parking spaces and capacity issues in respect of electricity supply. There may also be potential disruption if extensive construction works are required and an impact on the service charge regime, for example where the EVCPs are not run off a separate electricity supply.

New development

Thought should be given to future-proofing the offering, so that there is flexibility to allow for changes in technology/ regulatory requirements. For example, will the infrastructure being installed now be sufficient to accommodate further connections and/or an upgrade in software in the future?

What additional infrastructure/works are needed?

Consider who is going to carry out any works and the extent of the rights being granted for the installation and then operation of the EVCPs. Are any third party consents required? Issues may include dedicated parking spaces/minimum parking space requirements, access rights, whether a new electricity substation will be needed to provide the necessary capacity, the need for a storage compound during construction and any required environmental remediation works.

From a construction point of view, it will be important to establish who is responsible for design and installation. Consider also the interface with repair and maintenance obligations and the liability for potential losses which may arise as a consequence of defective design and/or workmanship.

Is planning permission required?

The installation of charging points is ‘development’ for the purposes of the Town and Country Planning Act 1990, which needs planning permission to be lawful. EVCPs can be authorised under planning control by permitted development rights, but this is subject to numerous conditions and restrictions.

Where PD rights do not apply, an application for planning permission will be needed.

Operation of the site

Agreed Service Levels

Are there agreed KPIs/service levels? For example, operator response times in the event of a fault developing and scheduled maintenance programmes.

Consequences of Non-Operation

If the electricity supply is interrupted due to an act or default of the landowner, is rent to be suspended until the supply is reinstated? Where there are turnover rent provisions, should there be a notional amount allocated in the accounting process for any period during which the EVCPs are non-operational due to the act or default of the operator? If the EVCPs are unavailable for an extended period, consider the inclusion of termination rights for the landowner.

Data Sharing

Landowners may want to have access to the data system for the EVCPs – consider who owns the data system for the chargers and what ability there is to share that data with third parties.

System Compatibility

Whilst most operators are working towards using a common system so that anyone can charge at their sites, as referred to above, at present the various systems (plugs and data) are not universally compatible. Landowners will be keen to ensure that the system installed is (and remains) appropriate for the required usage.

Context

Public EVCP

The UK has around 35,000 public EV charge points.*
Charge Point Operators are installing around 7,000 new charge points each year.*
By 2030, the UK is likely to need around 400,000 public charge points, including around 6,000 high powered charge points.*

Private EVCP

Detailed data on current private EVCPs in the UK is not available but, to contextualise the commercial private demand for companies with fleets of vehicles, in a survey of 200 (million+ turnover) UK businesses**, the average planned spend on EV adoption was cited as 4.5% of annual turnover between 2020-2022 which equates to £12 billion in investment. Over a quarter, (27%) of respondents, expected at least a fifth of the vehicles within their fleet to be electric by 2022.

*Source: 2021 Charging Up Policies to deliver a comprehensive network of public EV chargepoints, Policy Exchange. Read the full report here. **Source: Centrica Business Solutions UK firm EV Investment Intentions 2020 survey – the full upshots of that research can be found here.

A PDF copy of the article above is also available to download here.

Victoria Towers is a Partner, Miri Stickland is a Knowledge Development Lawyer, Peter Selwyn is Counsel and Andrew McEwan is a Senior Associate. All authors sit in our Commercial Real Estate team.

Our Sustainability Hub

Our sustainability hub brings together the team’s insights and legal expertise on a broad range of environmental matters that affect our clients’ business and personal affairs. This is a rapidly evolving and wide-ranging area of law and we will continue to share our insights about related legal developments on this hub.

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Guy Abrahams and Zahava Lever write for FT Adviser on digital assets

22 April 2021

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Private Client Partner, Guy Abrahams, and Associate, Zahava Lever, have co-authored an article for FT Adviser entitled ‘How to protect your digital assets after death’.

In their article, Guy and Zahava explore what happens to one’s digital assets after death and the steps one should take to safeguard against any misdirection of assets. They also consider the distinction between assets and information, and why it’s an important factor in any estate planning strategy.

This article was first published in FT Adviser on 20 April 2021 and can be accessed here.

What happens to your digital assets after your death, and what steps should you take to safeguard against misdirection of assets, or loss of sentimentally or financially valuable materials?

The first thing to consider is: are your digital assets actually assets? The problem with any discussion of ‘digital assets’ is that often one is not referring to ‘assets’ in the strictest sense of the word, but rather to ‘information’. Assets and information are treated very differently on death, and it is important to bear this distinction in mind when considering your estate planning.

Why are traditional assets easier to manage?

When you die, your personal representatives are entitled to deal with your assets under long-established legal principles. They prove their entitlement by obtaining a grant of representation, which can be provided to the custodian (for example, a bank) of the relevant asset. The custodian will then transfer the assets to your PRs who distribute them in accordance with your will. Information held by those custodians tends to be readily provided along with the assets; banks, for example, are usually willing to provide historic statements that will enable the PRs to determine the extent of the estate and to file the last self-assessment tax return.

We have never encountered a situation in which such information has been refused by a bank or asset manager. However, that is in contrast to ‘pure’ information. For example, the General Medical Council will not freely disclose a deceased patient’s files to his PRs on the grounds that the “duty of confidentiality persists after a patient has died”. They will provide disclosure only in a limited number of circumstances, which include “when disclosure is required by law”. If there is a legitimate reason for the disclosure – for example, because the PRs are bringing a medical negligence claim – the law has mechanisms for rendering the information available.

Why is cryptocurrency not dealt with in the same way?

The traditional approach to assets evolves from 20th century law, before the conception of the internet and certainly before the cryptocurrency boom. Cryptocurrencies blur the distinction between information and assets, because the asset can only be accessed through the information of the pass key. The risks of losing a pass key are poignantly illustrated by the example of James Howells who, by throwing away an old computer, unwittingly lost millions.

Leaving cryptocurrency to a beneficiary in your will is a helpful indication of your wishes, but there is no custodian the PRs can wave a grant to in order to access the underlying assets. If you have bitcoin, your PRs will only be able to access it with a pass key. It is therefore vital that the pass key is made available to them, either in a sealed letter to be opened on your death, or during your lifetime.

Sentimental assets

In 2004, 20-year-old marine Justin Ellsworth was killed in combat. His father sought access to his email account, which in effect amounted to a diary. Yahoo declared that it was contrary to the terms of service to release emails. It was not until Ellsworth’s father obtained a court ruling in his favour that Yahoo provided copies of all the emails.

In recent years, Rachel Thompson and Nicholas Scandalios made well-publicised endeavours to obtain photos of their late spouses from Apple. A court order was again required before Apple would release the photographs.

These cases show that cloud-stored photographs are, in the eyes of the relevant service providers, information rather than assets. They do not accept that PRs have any relevant legal rights and rely on their terms and conditions.

When you sign up to Apple you agree that “unless otherwise required by law… your account is non-transferable and that any rights to your Apple ID or content within your account terminate upon your death. Upon receipt of a copy of a death certificate your account may be terminated and all content within your account deleted”. Similarly, Microsoft’s service agreement prevents a user from “[transferring] your Microsoft account credentials to another user or entity”.

We therefore strongly recommend considering the fate of cloud-stored photographs (and other information) when performing a health-check of your estate planning.

Any solution can only be a work-around. You can write down your passwords and give them to your PRs before you die so that they can download photographs, but of course that is a security risk (and invariably a breach of terms and conditions). A password manager may be marginally safer, but it does not deal with the contractual breach issue. But as a slight sweetener, many asset managers provide in-service options, for example Google’s Inactive Account Manager, where the account holder nominates an individual who will have limited access to data after the holder’s death.

It is vital that you keep these up to date and if you change your will you should consider whether you need to change your nominees in any of these in-service options.

What do you need to do?

You cannot assume that non-traditional assets will be treated the same way as bank accounts, shares or jewellery. The inchoate nature of our digital lives has not allowed for the same development in process that makes claiming most traditional assets so simple. A grant to prove your PRs’ entitlement is only useful if there is someone to whom they can furnish the proof, which is not the case with cryptocurrencies. Even when there is a Cerberus, a will may not suffice to obtain access because fundamentally the information is considered by the asset manager to be non-transferrable.

You should by no means disregard your digital information when making plans for the inheritance of your assets. It is vital to consider them in your estate planning and even to include them in your will, albeit with the knowledge that it may not be enough to achieve the desired result. If you have recorded a clear expression of your wishes concerning your digital information, that may prove to carry the day if there is any dispute about who is entitled.

The distinction between information and assets gets more blurred by the year, and so as time passes, the problem will only increase. However, it does not seem to be a current priority for the government.

As more of our daily lives move online, we lose a level of control, often without realising. Until the government introduces legislation to regulate the procedures for claiming information assets after death, it is for the individual and their legal advisers to ensure that suitable planning is undertaken.

We recommend that you review your will regularly and when you do so conduct a health-check of all your assets, both tangible and intangible, and seek advice if you are not sure. If you do not do this, your PRs’ job may prove to be significantly more challenging.

Guy is a Partner and Zahava an Associate, both in our Private Client team.

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Freeports – the good, the bad or the ugly?

14 April 2021

News

There has been much discussion over recent months about the advantages and disadvantages of freeports and the Chancellor’s Spring Budget which announced the creation of eight freeports in the UK has only increased such speculation. Tax reliefs, enhanced trade and infrastructure development vie with claims of money laundering and tax evasion. In this article, we consider the pros and cons of freeports and what the proposed tax reliefs actually comprise.

The concept of freeports isn’t new and over the past 12 months or so, since the UK government launched its consultation about proposals to establish freeports across the UK, speculation and discussion about their advantages and disadvantages have been rife.

Background

In his Spring 2021 Budget, the Chancellor announced that freeports would be created at East Midlands Airport, Felixstowe and Harwich ports, the Humber region, the Liverpool City region, Plymouth, the Solent, the Thames and Teesside.

It was also announced that within each freeport, there will be one or more designated freeport tax sites. Businesses operating within these tax sites will benefit from a range of tax reliefs, but businesses operating outside of the designated tax sites, albeit within the freeport area, will not.

The Good?

Freeport advocates, including the UK government, have emphasised that freeports stimulate business because goods arriving into them from abroad will not be subject to the normal import/export tariffs. Goods may be broken into smaller amounts, amalgamated with other goods or otherwise modified and then exported outside the UK with no UK tariffs being paid. Manufacturers can thus access cheaper components for their finished product. As a result, the UK will be a force to be reckoned with in the international market and a much-needed boost will be given to the domestic economy.

On top of this, the areas in question will receive investment resulting in improved infrastructure, more manufacturing and better employment opportunities, while businesses operating within certain areas of the freeport site will also benefit from a number of tax breaks.

What tax reliefs will apply?

Full SDLT relief on the purchase of land and buildings

When: from the time the tax site has been designated until 30 September 2026.

Subject to: a ‘control period’ of three years and the land being acquired and used in a ‘qualifying manner’.

Further details: it should be noted that the government’s policy paper “Stamp Duty Land Tax relief for Freeports” does not set out the rates which will apply in respect of land and buildings which fall partly within and partly outside a tax site.

Full Business Rates relief

Who: all new businesses and certain existing businesses within the designated tax site.
When: five years from first claiming relief until 30 September 2026.

Full employer National Insurance contributions relief in respect of ‘eligible’ employees

When: from April 2022 (or when a tax site is designated, if later than April 2022) until at least April 2026. The government has announced its intention to extend this by up to five years, subject to review.

Enhanced 10% rate of Structures and Buildings Allowance for the construction or renovation of non-residential structures and buildings

When: available for qualifying assets brought into use on or before 30 September 2026 and in any case after the date the tax site is designated.

Further details: the legislation will allow for ‘just and reasonable’ apportionment of qualifying expenditure for structures and buildings which are located partly within and partly outside a tax site.

Enhanced capital allowance of 100%

When: available for qualifying expenditure incurred on or after the date the tax site is designated until 30 September 2026.

Further details: The Freeports Bidding Prospectus, published by the government in November 2020 (the “Prospectus“) suggests that in order to qualify for this relief, the assets must be for use primarily within the defined tax sites.

How will a freeport tax site be determined?

As part of their bid to win freeport status, each bidder had to define their proposed tax sites within the freeport area, with each defined tax site:

Comprising one single tax site within the outer boundary of the freeport area – although bidders could propose up to three single individual tax site areas, including tax sites outside the freeport outer boundary, if there was a ‘strong economic and geographic rationale’.

Being no greater than 600 hectares – although where a bidder defined more than one tax site, a maximum of three individual tax sites between 20-200 hectares each had to be defined. Individual sites exceeding 600 hectares automatically failed the bidding process.

Able to have uneven boundaries – for example, a bidder could have proposed a tax site with an uneven boundary in order to ‘cut out’ more developed areas.

Not needing to be one single piece of land – for example, a tax site could comprise two pieces of land, separated by a road.

Having clearly identifiable boundaries – boundaries need to be clear for enforcement purposes but are not required to be fenced.

Being located within areas with:

below national average GDP per capita now or over the last five years

above national average unemployment rates now or over the last five years.

Being ‘underdeveloped’ – which comprised three main criteria:

Underutilised land, i.e. ‘viable but unoccupied’ space

Potential investment growth, i.e. an area which would benefit from significant investment by virtue of its freeport status

Job creation, i.e. an area which does not contain significant existing employment in relation to the local region.

The government will make the final assessment as to the boundary of the tax sites for each of the freeport areas although it is expected that, in most cases, the confirmed sites will be of equal size to those proposed in the relevant bid.

When will freeport tax sites be designated?

Now that the freeport areas have been designated, the successful bidders will work with HM Treasury and HMRC to ‘review and confirm’ the boundaries of their proposed tax sites with the passing of legislation relating to the associated tax benefits anticipated during 2021-2022.

Indeed, the Budget paper itself indicated that it may take over a year for the freeport tax sites to be designated, noting that NI relief can be claimed by employers operating within a designated tax site ‘from April 2022 or when a tax site is designated if after this date’.

The Bad?

Those against the use of UK freeports argue that with UK tariffs being fairly low compared to many other countries, the benefits that freeports provide for import/export businesses are not great enough to make any difference to the use of UK ports.

In addition, there’s a train of thought that designating freeports simply moves economic activity from one part of the country to another, thereby resulting in net-zero benefit to the domestic economy as a whole and potentially improving one area while simultaneously depriving another. The problems in these underdeveloped areas could possibly be solved by investment in infrastructure, education and accommodation, without any need for them to also be designated as freeports.

The Ugly?

Perhaps the most damning criticism of freeports is that they become a haven for money launderers and tax evaders, who make the most of the lack of tariffs and reduced regulation offered by these areas.

While there is a risk of these illicit activities being undertaken in freeport areas, the Prospectus sets out means which are intended to prevent such criminal activities, including requiring bidders to explain how they will secure their respective freeport area and making clear that governmental bodies will retain records and some regulation over the businesses operating in the freeport areas and their beneficial owners.

Freeports – The “Wild West” brought to England?

What with less red tape and less taxation, some are concerned that freeports provide operators “with a safe and widely disregarded storage space, where trade can be conducted untaxed and ownership can be concealed” (European Parliament Report on tax evasion and money laundering which called for their abolition across the EU in April 2019) and they have, on occasion, been likened to the Wild West but advocates believe that they can rejuvenate deprived areas and showcase the UK’s free trade potential.

It will be interesting to see the uptake of these areas and how they develop. Will they merely divert economic activity from elsewhere in the UK or actually have an impact on our position in the international market? Or will they essentially be of little consequence to anyone other than HMRC?

Elizabeth Small is a Partner in the Tax team. Lianne Baker is a Knowledge Development Lawyer and Ellen Jones is a Trainee Solicitor currently sat in our Corporate team.

Disclaimer

This note reflects our opinion and views as of 14 April 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.

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Sam Delahay
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Acquisition and Disposal of Trust Companies

12 April 2021

News

Forsters is uniquely placed to advise clients on the acquisition and disposal of trust companies both inside and outside the UK.

Working closely together, our Corporate and Trusts teams advise on all aspects of these transactions, whether structured as a share sale or an asset sale, and whether a private deal or an auction. We also have an excellent network of lawyers with whom we work in other jurisdictions.

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Alastair Laing
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The art of estate planning

8 April 2021

News

Very few people, if any, enjoy paying tax – and inheritance tax is famously unpopular. One arrangement which can leave everybody happier involves paying your tax bill with special “things”, i.e. works of art, or anything that is exceptional enough to be accepted by the government in lieu of folding money. Many owners of great houses and their long-held collections take advantage of this arrangement, but the fact that others can also benefit from it is not as well-publicised as it should be. Here we give a brief overview of how those with special assets, or executors dealing with estates that include them, can benefit from the tax incentives available.

What are national heritage assets?

As this is an article written by lawyers, it’s inevitable that we begin by defining our terms, the key one being a “national heritage asset”. That can include a picture, land, buildings, a book or manuscript, work of art or scientific object (or a collection), or anything else that is considered pre-eminent for its national, scientific, historic or artistic interest. An asset is pre-eminent if it falls under any of the following:

It has an “especially” close association with our history and national life

It is of special artistic or art-historical interest

It is of special importance for the study of a particular form of art, learning or history

It has an especially close association with a particular historical setting.

A national heritage asset can be as large as a stately home and its surrounding park, or as small as a letter. We will now explain the tax incentives available to those fortunate enough to own what is, or could qualify as, a national heritage asset.

Acceptance in lieu

This scheme allows taxpayers (typically executors or trustees) to transfer national heritage assets to museums, galleries or other public institutions in payment of inheritance tax.

To encourage people to take advantage of the scheme (instead of selling assets and paying the tax with the proceeds) the government gives taxpayers a financial inducement, called a “douceur.” The douceur is 25% of the tax payable (or 10% in the case of land). It works as follows:

Mr Smith dies owning a David Hockney painting worth £1 million, which therefore attracts £400,000 of inheritance tax. The late Mr Smith was asset rich but cash poor, meaning his executors will struggle to pay the tax on his estate unless they sell the Hockney. If they sell it on the open market then, after paying the £400,000 tax on the painting itself, they will be left with £600,000. But if the painting were accepted by the Arts Council in lieu of tax, the douceur means that the executors would have a tax credit of £700,000 to set against the inheritance tax on Mr Smith’s estate. So, in short, by making use of the acceptance in lieu scheme, Mr Smith’s executors would secure an extra £100,000 for the Smith family.

Offers in lieu of inheritance tax must be made within two years of the relevant taxable event (typically a death). So the first step is, with the help of relevant experts, to identify a suitable asset (or more than one), to determine its value, and to make an application to Arts Council England. The panel at the Arts Council decides if it agrees that the asset is indeed pre-eminent, and whether the valuation that has been presented as part of the application is accurate. The Arts Council is independent of HMRC, ensuring fairness between the taxpayer and HMRC. Following the panel’s recommendation, the final decision is made by the Secretary of State for Digital, Culture, Media and Sport. If accepted, the asset is allocated to a public institution.

2019-20 was a record year for acceptances in lieu – £64.5 million of assets, including an extraordinary Gauguin manuscript never seen before by the public, and a Manet portrait, with recipient institutions ranging from the Bowes Museum to the National Gallery.

Private treaty sale

A private treaty sale is similar to an acceptance in lieu, except that the asset is sold to a qualifying public institution that pays the taxpayer an amount calculated on the same basis. The price is negotiated between the taxpayer and the institution. In the case of Mr Smith, this means the executors would receive cash proceeds of £700,000.

This approach is useful when the tax credit deriving from an acceptance in lieu would exceed the total tax bill, because you do not get “change” from an offer in lieu. A private treaty sale ensures that any excess remains with the taxpayer as cash proceeds.

Conditional exemption

If inheritance tax becomes due on, for instance, a collection of paintings, the owners can defer that tax indefinitely in return for agreeing with HMRC that they will keep the collection in the UK, preserve it properly, and allow the public access to it. That is very often the reason that a grand house is open to the public: at some point in the family’s past there will have been a taxable event, and rather than paying that tax at the time, the house or its collection (or both) were put on public display, and have remained so.

What is “reasonable public access” in this context has to be agreed with HMRC, and will depend on the type of asset. It could involve lending an object to a museum, gallery or other public institution.

As a general guide, for smaller buildings HMRC will require public access to the interior for a day a week, in addition to public holidays in the spring and summer. For larger buildings that are able to accommodate a large number of visitors, anything up to 156 days’ internal access might be deemed appropriate. In many cases, one can arrange for a collection or building to be accessible to members of the public only by appointment.

The exemption is “conditional” because a breach of the undertakings – a sale, typically – will mean the withdrawal of the exemption and the deferred tax charge falling due. If the asset passes on death, or as a gift, the new owner can renew the undertakings to avoid loss of the exemption.

Cultural Gifts Scheme

Introduced in 2013, this scheme encourages taxpayers (who are in philanthropic mood) to give national heritage objects to public institutions during their lifetimes.

The incentive is that a proportion of the value of the object donated to the nation is given as a tax credit. For instance, if you were to give away a £100,000 asset under the scheme, £30,000 could be deducted from your income tax or capital gains tax bill.

2019-20 was a record year for the scheme, with public institutions acquiring various objects, from the relatively modest – a letter from Churchill used to settle £3,000 of tax – to the more substantial – a collection of drawings and prints that will settle just short of £600,000.

There is not time here to mention the charities that owners of collections can create, or the added complications that arise if a collection is still within the scope of estate duty (which was the precursor to inheritance tax).

For as long as it remains government policy to acquire special assets – and there are no indications that that policy is going to change – those fortunate enough to have them will have interesting and favourable options available.

The article was first published in Cazenove Capital on 8 April 2021.

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Rebecca Bion
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Break Clauses

6 April 2021

News

Since the onset of the COVID pandemic, many businesses have been considering their space requirements. In some cases, tenants will have leases that include break clauses which will let them terminate their leases before the contractual expiry date.

We expect to see a lot of parties exercising their break rights with a view to either leaving or seeking to negotiate more favourable terms for the same space. Despite the fact that break clauses have existed for many years, they still give rise to widespread confusion and costly disputes between landlords and tenants.

Problems arise because break clauses are treated by the Courts as options, which means strict rules apply. Most break clauses contain pre-conditions which must be met. If they are not met, the lease will continue unless the landlord (or tenant) waives compliance with the unfulfilled pre-conditions.

Typical pre-conditions include:

Service of a break notice

Service of a notice in the form required by the lease:

In the right manner.

To the right person.

At the right time.

At the right place.

Classic mistakes – delivering the notice to the landlord’s managing agents; sending it to the landlord but at the wrong address; miscalculating the break date; sending it by email to the wrong party.

Making payments

Paying all sums falling due before the break date including:

Annual rent.

Service charges.

Insurance.

Interest.

Other sums.

Classic mistakes – apportioning rent up to the break date; failing to pay interest which has become due on historic late payments of rent even if not demanded.

Complying with covenants

Complying with the tenant’s covenants such as:

Repair.

Redecoration.

Reinstatement.

Other covenants.

Classic mistakes – misunderstanding pre-conditions requiring “material” or “substantial” or “reasonable” compliance, failing to follow the absolute requirements for external decoration; leaving it too late to reinstate alterations.

Vacant possession

Delivering vacant possession on the break date involving:

Vacating other occupier including sub-tenants.

Handing back the keys and secure entry equipment.

Classic mistakes – sub-contractors completing last minute works beyond the break date; leaving office furniture behind.

A PDF copy of the article above is also available to download here.

Jonathan Ross and Ben Barrison are Partners in our Property Litigation team.

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Ben Barrison
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Forsters promotes three to Counsel

1 April 2021

News

Forsters, the leading specialist Private Wealth and Real Estate law firm, will be promoting Joe Beeston (Employment), Emma Gosling (Property Litigation) and Anna Marie Short (Residential Developments) to Counsel with effect from 1 April 2021.

Joe Beeston joined Forsters’ Employment team in December 2018 from Clifford Chance LLP and has previously completed secondments at two global banks. Joe now leads the firm’s employment offering and advises senior executives and businesses across all of our sector groups. His expertise is broad and covers immigration and data protection matters, whistle blowing, redundancies, disciplinaries and investigations, as well as advising on all employment aspects arising on corporate transactions. He is an expert client manager and works closely with our Corporate, Dispute Resolution and Private Client teams. Joe commented: “I am delighted to be promoted to Counsel and excited about the prospect of building upon our current employment practice. We already do some great work – much with an international dimension – and this promotion gives me a stronger platform on which to develop this, meeting the ever-growing needs and demands of our corporate, private wealth and real estate clients.”

Emma Gosling trained at Forsters, qualifying into the Property Litigation team in September 2009. She covers all areas of commercial and residential property litigation with a particular focus on residential disputes and leasehold enfranchisement. Emma manages several high-profile client relationships and is adept at running complex enfranchisement and block disputes. She comments: “Having trained at Forsters I am delighted to be moving to this next phase of my career with such an excellent team around me in our Property Litigation practice. This promotion reflects the reputation we have built and continue to build in residential property litigation and in my particular case, in complex enfranchisement and service charge disputes.”

Anna Marie Short trained at Forsters, qualifying into the Residential team in September 2007. She has a wide breadth of experience across all practice areas of residential property, including acting for private individuals, companies and investors, and acting for landed estates in dealing with their property interests. Anna Marie commented: “During my time in the Residential team I have had the opportunity to work in all areas of our broad practice and have specialised in high-value developments. With the experience I have built up over the last five years managing our 18-strong Residential Developments team, I am excited about using the platform of Counsel to help further grow our practice while ensuring that the team continues to deliver best-in-class service to our diverse client base.”

Joe, Emma and Anna Marie all have exceptional technical ability in their chosen practice areas and share a commitment to the highest standards of client service. Forsters’ Counsel Appointment Criteria is based on personal qualities, standards of performance, and long-term value to the firm’s clients and wider business objectives. Forsters is committed to offering all lawyers the opportunity to develop their careers in ways that best equip them to achieve their full potential.

Emily Exton, Managing Partner commented: “I am really pleased to be announcing the promotion of three highly skilled Forsters lawyers to Counsel. We believe in investing in our people and these promotions are evidence of our ongoing work to create and support the next generation of leading lawyers. Joe, Emma and Anna Marie are all experts in their respective areas of law and are highly valued by our clients for the practical and commercial advice that they give.”

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Forsters’ top ranked Private Wealth practice promotes three to Partner

Forsters’ top ranked Private Wealth practice promotes three to Partner

1 April 2021

News

Forsters, the leading Private Wealth firm, is delighted to announce the promotion of three Senior Associates to Partner on 1 April 2021. Patricia Boon, George Mitchell and Jeremy Robertson will take the number of Partners in the firm’s Private Client group to 18.

Forsters’ Private Wealth practice is central to the firm’s offering and its quality has been recognised by its consistent top rankings in the Chambers High Net Worth Guide and The Legal 500. The Private Client group has won Law Firm of the Year at the prestigious STEP awards for three years running and is led by partner, Xavier Nicholas.

Patricia Boon trained at Lawrence Graham LLP (Gowling WLG), where she qualified into the Private Client group in 2013. She was part of the 16-strong team that moved to Forsters in May 2017. Patricia advises on tax, trusts, cross-border estate planning and family governance. Her practice is focussed on Asia, where her clients include the next generation within Asia-based families.

Having trained at Forsters and qualified into the Private Client practice in 2013, Jeremy Robertson advises on a broad range of personal tax, trust and estate planning matters for UK and international clients. He looks after several significant existing client relationships for the group, as well as developing new relationships in other jurisdictions, with a focus on Switzerland.

George Mitchell trained and qualified at Slaughter and May before joining Forsters in 2015 to transition to private client work. He draws on his knowledge of corporate tax and his understanding of corporate structures in advising UK-based entrepreneurs and families in relation to their ownership of family businesses.

The addition of three new Partners is a reflection of the team’s long-term commitment to the development of the next generation of its lawyers through organic growth. The practice, which is one of the largest in London, is cited by commentators as a leader in the market that is seen as a go to for complex work with an international dimension.

Xavier Nicholas, Partner and Head of Private Client commented: “It is a real pleasure to welcome Patricia, Jeremy and George to the partnership. Their promotion in the same year reflects the strength of talent that we are fortunate to have in the next generation of our lawyers. It also highlights the breadth of the group’s practice, with each of the three new partners bringing something different in terms of geographical focus or areas of expertise. They are an outstanding addition to the partnership.”

Patricia Boon, Partner, Private Client commented: “I am delighted to have been promoted to Partner in our award-winning Private Client team. I am looking forward to working with my colleagues to enhance our international network in the areas of tax, trusts, cross-border estate planning, and family governance, and to continue to develop our Asia client base.”

Jeremy Robertson, Partner, Private Client commented: “I feel lucky to work alongside a fantastic group of lawyers in Forsters’ award-winning Private Client team. I am delighted to have been promoted to partner, having trained and qualified at Forsters in 2013, and I am excited to be embarking on the next stage of my legal career at the firm.”

George Mitchell, Partner, Private Client commented: “It is an exciting time to be joining the partnership team in Forsters’ top ranked Private Client group. Using my experience of advising on corporate transactions, I will focus on expanding the firm’s services for UK based owners of family businesses and senior executives. I look forward to continuing to work with our Corporate team to advise entrepreneurs on the ownership structure of their business interests and their succession plans.”

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Forsters promotes three to Counsel

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Patricia Boon
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