What exactly are you buying? – learnings from Dargamo Holdings Ltd v Avonwick Holdings Ltd
30 September 2021
News
A recent Court of Appeal case (Dargamo Holdings Ltd and another v Avonwick Holdings Ltd and others [2021] EWCA Civ 1149) which examined the laws of restitution and unjust enrichment has reinforced the need for contracts to include a clear description of what is being acquired and the apportionment of the purchase price.
Restitution and unjust enrichment
The law of restitution addresses the reclaiming by the claimant of a benefit or enrichment unjustly received by the defendant at the claimant’s expense. Unlike claims in contract or tort, which focus on the damage suffered by the claimant rather than the enrichment of the defendant, restitution is a remedy rather than a course of action.
A claimant seeking restitution for unjust enrichment must be able to satisfy the following criteria:
the defendant must have been enriched or have received a benefit;
the enrichment or receipt of the benefit must have been unjust; and
the enrichment or receipt of the benefit must have been at the claimant’s expense.
Facts
These complex proceedings arose from the termination of a partnership between three Ukrainian businessmen, Mr Gaiduk, Mr Taruta and Mr Mkrtchan.
As part of the termination process, Mr Gaiduk’s company, Avonwick Holdings Ltd (“Avonwick“) entered into a share purchase agreement to sell its shareholding in Castlerose Ltd (“Castlerose“) to Mr Taruta’s and Mr Mkrtchan’s companies, Dargamo Holdings Ltd (“Dargamo“) and Azitio Holdings Ltd (“Azitio“) respectively. The purchase price for the shares was stated to be US$950 million although it had been agreed between the parties that a part of this sum would form the consideration for additional assets to be sold by Avonwick to Dargamo and Azitio. These assets were never transferred to Dargamo and as a result, Mr Taruta and Dargamo (the “Taruta Parties“) brought proceedings against Mr Gaiduk, his wife and Avonwick (the “Gaiduk Parties“) for the restitution of US$82.5 million.
Although the parties were in agreement that the US$950 million included the purchase price for the additional assets and that the intention was to sell these assets to Dargamo and Azitio, there was no mention of the additional assets or the apportionment of the purchase price in the share purchase agreement and although there were other documents referring to the sale of these assets, these had never been agreed or signed.
The Taruta Parties alleged that the Gaiduk Parties had been unjustly enriched at the expense of the Taruta Parties, as the events contemplated by the US$82.5 million payment – the transfer of the additional assets – did not materialise.
The judge rejected the proceedings at first instance, finding that there was no unjust factor on which the unjust enrichment claim could succeed.
Court of Appeal findings
The Court of Appeal dismissed the appeal made by the Taruta Parties. Although the parties were not in dispute about the intention to transfer the additional assets or that the purchase price for such transfer was included in the US$950 million, the share purchase agreement specifically stated that the sum of US$950 million was consideration for the sale of the shares in Castlerose and made no mention of the additional assets at all. The Court of Appeal held that a claim for unjust enrichment cannot override the express contractual terms:
“where the basis of the consideration is expressly and unconditionally spelt out on the face of a valid and subsisting contract, as here, there is no proper scope for inquiring into an alternative basis that is plainly contrary to the express basis freely agreed between the parties.”
According to the share purchase agreement, the parties had simply agreed that Avonwick was obliged to transfer the shares in Castlerose in exchange for the payment of $950 million, and the parties had fulfilled their respective contractual obligations.
Practical lesson
This case serves as a salutary reminder that the parties to a purchase agreement of any kind should not only carefully agree upon the consideration to be paid for each interest where several are to be transferred but should also ensure that such agreement is expressly set out in writing and that the contract is validly executed. In addition, where interests are to be transferred at a later date, i.e. post-completion, due thought should be given to the parties’ respective positions if the transfer does not go ahead and these too, should be documented.
Parties should take legal advice and work closely with their legal advisors to ensure that the full arrangement is expressly set out in writing and that the various possible eventualities are considered in order to reduce the risk of potential subsequent disputes.
Disclaimer
This note reflects our opinion and views as of 29 September 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Location, Location, Location – Why location matters in nuisance claims
30 September 2021
News
Jones v Ministry of Defence
A landowner has failed in a claim against the Ministry of Defence (“MOD”) that the use of an RAF base was a nuisance or breach of Article 1/8 of the First Protocol to the European Convention on Human Rights.
To succeed in the claim in nuisance, the claimants had to show the MOD’s activities caused an interference with the claimants’ reasonable enjoyment of their land.
Crucially, what is “reasonable” is looked at objectively and depends on the circumstances including the neighbourhood/locality of the property and whether the defendant’s use of its land was necessary for common and ordinary use of the land and carried out in a way that is reasonable having regard to a neighbouring property owner’s interests.
The key facts/findings of the Court were:
The claimants had acquired its land, previously owned by a water board and used as a depot in connection with a nearby reservoir, in 2003. It wanted to change the use of the site to provide guest accommodation with premises for commercial lettings and a children’s nursery.
The MOD had used its land since the 1950s for training pilots and since 1976 by using jet planes (with replacement jets brought in since 2009).
The Court accepted that the noise of planes flying close to and over the claimants’ land was very loud, annoying and disruptive. Since 2003 there had been a decrease in flights over the claimants’ land, albeit the flights were now louder than before due to new jet planes but the overall impact of the noise was no greater than before.
The use of planes on the MOD’s land was ordinary use of its land in 2003 and in 2021 given the longstanding use of the land for pilot training.
The MOD had sought to keep noise to a reasonable minimum for their operations and specifically sought to address the claimants’ concerns about planes flying over the nursery and an activity centre on the claimant’s land.
The tranquillity of the area had for many years been disrupted by the sound of planes from the MOD’s land since the 1950s and since 1976 by jet planes. The noise had been part of the environment for generations. The pre-existing activity was part of the character of the locality and so would be taken into account when considering whether the existing use was a nuisance.
The claimants were using the land in a way that was more sensitive to noise than before. A landowner could not introduce a more sensitive use to land and complain about another landowner’s activity which was not previously a nuisance and had been carried out in a reasonable manner over a number of years.
There was a significant public interest in the use of the MOD’s land continuing to train pilots.
The Court dismissed the claims under Article 1 and Article 8. Regarding Article 8, the MOD’s use of land was lawful and in the interests of national security. A balance had been struck between the MOD’s use and those in the vicinity since the MOD operates a noise amelioration scheme for householders affected by noise (the claimants did not quality for this as the noise was not sufficiently loud) and the MOD had taken steps to minimise the noise. Regarding Article 1, the claimants bought the land as it was (subject to the pre-existing use of the MOD) and had not been deprived of what they bought, it only impeded the claimants from developing something new on their land. Article 1 does not create a right to acquire property and further income.
Key takeaway points
The facts of the case are key to understanding the Court’s decision but the following points should be kept in mind by landowners and those facing potential nuisance claims:
What is a nuisance in one neighbourhood will not be a nuisance in another. An activity can be noisy and disturb a neighbouring property owner without constituting a nuisance.
Use of land in a reasonable manner for a long period of time can change the nature/character of the neighbourhood. The Court will consider the characteristics of the neighbourhood/locality when considering if use of land constitutes a nuisance. Objecting to a longstanding use of land may be difficult if the defendant is not putting its land to a new or varied use.
Landowners should take into account neighbouring properties and seek to carry out activities in a reasonable manner, where possible taking steps following a neighbour’s complaint to mitigate the disturbance to the neighbour where reasonably possible. As ever, seeking to act in a reasonable and neighbourly manner will assist.
Where a claimant has changed the use of its land, making it more sensitive to a pre-existing use of a defendant’s land that was not previously a nuisance, the Court is unlikely to take into account the more sensitive use the claimant wishes to put its land to.
Clarification on ‘vacant possession’ break conditions
30 September 2021
News
Capitol Park Leeds PLC (1) Capitol Park Barnsley Limited (2) v Global Radio Services Limited
The Court of Appeal has clarified that removing landlord’s fixtures will not prevent a tenant meeting a break condition of providing “vacant possession”.
The tenant, Global Radio Services Limited, sought to exercise its break option in a lease of a broadcasting studio in Leeds. As is often the case, the break option was subject to a number of conditions precedent. One of the conditions was that the tenant provided “vacant possession” on the break date.
The tenant carried out an extensive strip out process removing numerous items which were part of the original base build and belonged to the landlord (ceiling grids, ceiling tiles, fire barriers, boxing to columns, floor finished, window sills, fan coil units, ventilation duct work, pipework connections, office lighting, smoke detection system, emergency lighting, radiators, heating pipework, floor boxed, ceiling void small power and sub mains cabled). Those items were not reinstated, the tenant hoped to reach a financial settlement before the break date and did not have time to reinstate the items which had been removed.
Crucially for the tenant, the break condition only referred to providing “vacant possession” and did not refer to compliance with other tenant obligations in the lease.
The Court followed the traditional test of vacant possession meaning returning a property (as it stood on the break date) without:
people;
chattels; and
legal interests (such as sub-leases).
The Court stated that the physical condition of a property was not part of the test of vacant possession because it would present a number of unintended consequences. For example, a tenant would be unable to satisfy a vacant possession condition if the property was damaged by an insured risk and not reinstated by the landlord in time.
While the landlord could not frustrate the break option, it could pursue a dilapidations claim regarding the missing items (the lease contained typical wording in a separate clause to the break option that the tenant was to return the property with vacant possession and to have complied with the tenant’s obligations in the lease).
Vacant possession conditions are becoming less prevalent in new leases, however occupiers should keep the following in mind:
Interrogate any conditions precedent to a break option at the earliest possible time to ensure there is a clear understanding as to what is required. Where necessary/possible, seek amendments to heads of terms and draft documents.
Leaving behind chattels/tenant fixtures in the property can result in vacant possession not being given. If in doubt, clearing items from the property is likely to be the best option to ensure the condition is complied with.
When agreeing to take space subject to a landlord obtaining vacant possession, consider including a clear definition of what is expected by the parties.
In light of the decision landlords should consider:
Early advice from a dilapidations surveyor to put the tenant on notice of its obligations when returning the property;
Ensuring any new break clauses include set parameters of what must be left in the property at lease end (avoiding void periods while landlord’s fixtures are reinstated).
Trusts in Litigation 2021: Hannah Mantle to speak on Quirks and Curiosities in 1975 Act claims
29 September 2021
News
Contentious Trusts and Estates Senior Associate, Hannah Mantle, has been invited to present a workshop at the upcoming Trusts in Litigation 2021 conference hosted by Informa Connect and ConTrA.
The three day event will focus on the world of trusts in litigation and includes informative panel discussions, interactive workshops and quickfire debates hosted by industry experts.
How should conduct falling within the forfeiture rule be taken into account?
What “other matters” may be particularly relevant in determining whether reasonable financial provision has been made?
Could matrimonial considerations inform the appropriate remedy, e.g. the terms of a pre- or post-nuptial agreement? Would a claim as a dependant circumvent such an agreement?
What are some of the basic tax implications to bear in mind when crafting a remedy?
Ashleigh Carr, Contentious Trusts and Estates Senior Associate, will also be attending the conference; and Forsters is delighted to be sponsoring the event which brings together private client advisors and trust practitioners.
You can register for the conference here. Hannah and Ashleigh look forward to seeing you there.
Should I establish a non-UK resident company to acquire UK property?
29 September 2021
News
It used to be clear that non-UK residents planning to invest in UK property would generally choose to do this through a non-UK tax resident company rather than a UK tax resident company. However, this is no longer necessarily the case. This article seeks to explain the current position.
(Unless a company is UK incorporated its tax residence will generally depend on where it is centrally managed and controlled. This is normally where its directors meet and make strategic decisions. Please see my recent article for further discussion about this.)
Capital gains
For commercial real estate, the position began to change in 2019 when non-resident capital gains tax (“NRCGT“) was imposed on non-residents disposing directly or indirectly of UK commercial properties. The new rules applied from 6 April 2019 (and they followed on from the introduction of NRCGT in relation to residential property from 6 April 2015).
As a result of the introduction of NRCGT there is now, from a capital gains perspective, no significant difference between holding property and disposing of it out of a UK or non-UK resident company (although purchasers of existing property-owning vehicles should be aware that there could still be significant differences between the base cost at which property is held within such companies since rebasing to 2019 values for commercial property (and 2015 for residential property) only applies if the company was non-UK resident at the relevant date).
Tax on rent
Since 6 April 2020, there has also been an alignment of the tax treatment of income (other than in relation to withholding tax described below). UK corporation tax now applies to rental income of UK property investment businesses whether or not the company holding the property is UK resident or non-UK resident. The same rules also apply for interest deductions under the UK’s loan relationship/corporate debt rules.
If rent is to be paid to a non-UK resident company it will be necessary to make an application for rent to be paid gross; otherwise the tenants (or agent collecting the rent) will need to deduct 20% tax from the rent and account for this to HMRC before paying it over to the non-UK resident company. However, if a UK resident company is used, the tenants or agent will be able to pay gross and the rent will then be subject to corporation tax self-assessed in the usual way. The contrasting position between non-UK resident companies and UK resident companies continues to apply in relation to withholding tax on rent even though both types of company are now within the corporation tax regime.
Withholding tax on interest
The main reason therefore, to now choose to establish a property-owning vehicle as a non-UK resident company relates to withholding tax on interest, particularly if interest bearing shareholder (or connected party) debt is to be introduced into the structure. This is because, unless an exemption or relief applies, a UK withholding tax of 20% is incurred if UK source interest is paid by a company. One such exemption is where interest is paid to a UK bank or to a lender which is resident in a country which has a double tax treaty between the UK and that country that exempts interest from withholding tax. Care still needs to be taken however, because in some cases, double tax treaties only reduce the rate of withholding tax rather than providing a complete exemption and some double tax treaties do not exempt or relieve interest from withholding tax at all.
Where there is a double tax treaty which can be relied upon, compliance with various procedural requirements will be needed before the interest can be paid gross; these will vary depending on whether the lender is a “passport treaty lender” or not. As such, specialist advice should be taken.
The withholding tax only applies to UK source interest. If interest is paid by a UK resident company it is highly likely to have a UK source. But, if interest is paid by a non-UK resident company then, depending on the exact circumstances (such as whether or not the debt is secured on a UK property), it may be possible to take the view that the interest does not have a UK source. Whether interest has a UK source or not involves an analysis of relevant case law and HMRC guidance and a multi factorial approach has to be taken. Specialist advice should be sought in this situation.
Debt borrowed from third parties will almost invariably be secured on UK property and will therefore have a UK source. If double tax treaty relief does not apply to exempt the interest from withholding tax then it is likely that tax will have to be withheld on payment of interest to such an offshore lender, whether the borrower is UK resident or not.
If there is a concern that the interest may have a UK source, it may be possible to structure the debt as a deep discount bond or to issue a quoted Eurobond as withholding tax should not apply to such bonds, although it is unlikely to be worth the cost of issuing a quoted Eurobond unless the amount of debt is at least £10 to £12 million.
Notwithstanding the above, our understanding is that, from a commercial perspective, bank lending can be more expensive for a non-UK resident borrower than if the borrower is a UK resident company. We would suggest checking this in advance with any potential lender.
Stamp duty
A non-UK incorporated (note, “incorporated” rather than “resident”) company is sometimes chosen because UK stamp duty at the rate of 0.5% applies to consideration paid on a transfer of shares in a UK incorporated company. However, this is only likely to be a relevant consideration if it is thought that the shares in the company (rather than the actual property) might be sold at a future date.
NRSDLT
Non-resident SDLT (“NRSDLT“) has also recently been introduced which imposes a 2% surcharge for non-UK resident buyers of dwellings. Even if the buyer company is established as a UK resident company, it could still be treated as non-resident for the purposes of this surcharge if, broadly, it is a close company which is under what is known as “non-UK control”. These rules are complex and if residential property is being purchased, specific advice should be sought.
There are a variety of other structures which can be used where UK property is to be held as an investment, including offshore unit trusts and partnerships. Establishing a real estate investment trust (“REIT“) to which special favourable tax treatment applies may also be an option where property of significant value is being acquired. Again, specialist advice should be taken.
UK inheritance tax and privacy issues
This article does not consider UK inheritance tax. If you are non-UK domiciled and investing in UK property you should take specific advice and note that the rules are different for residential and commercial property.
Some non-UK residents also prefer to establish non-UK incorporated companies as the amount of information about the company available to the public may be lower than if it was established in the UK. Again, this is a complex area in relation to which specific advice should be sought.
This note reflects our opinion and views as of 29 September 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
When acquiring UK property, US purchasers should seek advice on the broader tax and legal implications. In this report, Forstersâ partners along with specialists in the industry, share their insights on the current UK market for US buyers and how best to navigate the specific risks for US-connected clients.
Forsters ranked as a Tier 1 firm in eprivateclient’s Top Law Firms 2021
28 September 2021
News
Forsters’ Private Client team have been recognised once again by eprivateclient in their Top Law Firms 2021 listing, where the firm maintains their Tier 1 ranking.
The rankings showcase the best private client legal practices in the UK and is based on a range of factors including reputation, quality of service, how they are viewed by other bodies and publications and the extent of their UK offering.
The accolade follows a double award win in the STEP Private Client Awards last week, where Forsters won in the categories of International Team of the Year and Contentious Trusts and Estates Team of the Year.
Michael Armstrong and Robert Linden Laird Craig join Constance McDonnell QC to examine predatory marriage at ThoughtLeaders4 HNW Divorce panel
28 September 2021
News
Private Client Senior Associate, Michael Armstrong, and Knowledge Development Lawyer, Robert Linden Laird Craig, have been invited to join Constance McDonnell QC of Serle Court at ThoughtLeaders4 HNW Divorces’ upcoming panel discussion entitled ‘Predatory Marriage: Protecting Vulnerable Clients, and Hopes for Reform’.
A predatory marriage occurs where a vulnerable person is induced to marry by someone seeking to inherit his or her estate or otherwise gain some financial advantage. A marriage by a person lacking capacity is not void from the outset, so can wreak havoc with his or her estate planning.
The ThoughtLeaders4 panel will address:
The current legal position and its impact on vulnerable clients.
The steps advisors should take when a vulnerable client is identified as being at risk of a predatory marriage.
The options available to the families of vulnerable individuals, both before and after a predatory marriage occurs.
How the Family Division’s inherent jurisdiction to protect vulnerable persons can be of assistance.
The nature of the reforms proposed by Fabien Hamilton MP in light of his constituent Joan Blass’s case.
The need for both reform of the law and for better processes and procedures when registering marriages.
The discussion will take place on 1 October at 12pm. You can register to attend here.
Simon Blain to speak at the International Trusts and Private Client conference in Jersey and Guernsey
27 September 2021
Uncategorized
Family Partner, Simon Blain, has been invited to speak at this year’s International Trusts and Private Client conference in Jersey and Guernsey, hosted by Informa Connect.
The conference is an indispensable resource for the private client advisor, offering expert insight from industry-renowned speakers and sessions tailored to tackle the estate and tax planning issues facing the Channel Islands.
Simon will be speaking at a panel discussion entitled ‘Trustees in the face of divorce’ alongside Jessica Henson of Payne Hicks Beach, Gilead Cooper QC of Wilberforce Chambers and Mark Harper of Hughes Fowler Carruthers.
The full agenda and guidance on how to sign up, can be found here.
Merricks v Mastercard: Benedict Walton and Caroline Harbord write for FT Adviser on funded group litigation
27 September 2021
Views
Head of Commercial Dispute Resolution, Benedict Walton, and Dispute Resolution Senior Associate, Caroline Harbord, have written for FT Adviser on funded group litigation.
Forsters’ Head of Art and Cultural Property and Private Client Partner, Catherine Hill, co-launches Artistate, an innovative professional services platform for artists to plan and protect their artistic legacy and estate.
Catherine has cofounded Artistate with a group of specialist professional advisors in the art industry, with the aim of providing artists and their estates with integrated legal, tax and financial advice that addresses their wide range of needs.
Through the team’s panel of professional experts, Artistate provide a range of services for artists in order to maximise the value of their art and, in the long-term, build an enduring legacy. Services include:
Writing a Will
Documenting relationships with galleries and museums
Employing studio assistants and managers
Tax advice and support
Creating a corporate structure around a body of works
Creating and managing an artist’s archive
Managing intellectual property rights
Collecting royalties
How does Artistate work?
The service offers an initial consultation to artists and their representative(s) to review the artist or estate’s circumstances; the Artistate experts then provide their recommended action points for the artist or the estate to consider. Once the artist or estate has selected the advice they require, the relevant Artistate advisor will provide a fee estimate and provide the services directly to the client.
Who are the Artistate experts?
Catherine Hill: Forsters’ Private Client partner, Catherine has many years’ experience acting for living artists and their families, including several leading contemporary figures, on legacy, succession and taxation issues. Catherine also advises collectors, galleries and museums. She has lectured at the Royal Academy on Legacy Planning and on art law matters generally and is a member of PAIAM (Professional Advisers to the International Arts Market) and the Heritage Lawyers Group. She acts as trustee and executor for many of her artist clients.
Keith Graham: an experienced Chartered Accountant, advises individuals and businesses on Tax (both UK and International) and general financial matters, as well as providing accounting and audit services.
John Martin: the gallery director of John Martin Gallery which he opened in 1992. He was the founder of Cromwell Place in South Kensington and co-founder and fair director of Art Dubai (2007-9).
Pierre Valentin: founding partner of Constantine Cannon LLP (London) where he heads their art and cultural property law team. Prior to joining Constantine Cannon, he was a Senior Director and Associate General Counsel at Sotheby’s.
Catherine Hill comments: “Our research shows that many artists never get round to writing a Will. To die leaving a studio full of art and archives without proper planning will not do any good to an artist’s legacy. Thankfully, artists and studio managers increasingly realize how important it is to define and establish an artistic estate whilst the artist is alive. That’s when ARTISTATE comes into its own.”
Whether you’re buying a property directly or buying the shares in a company which owns a property, there is a process of disclosure and due diligence which must be undertaken. However, there are key differences in how these are dealt with, depending on which transaction type is chosen. This article will focus on the key transactional differences rather than the tax implications which, whilst obviously crucial, are a topic in themselves.
Warranties and Representations
In a share purchase, there are no implied representations or warranties. Instead all warranties must be incorporated into the share purchase agreement (the “SPA“). The seller will provide a series of confirmatory statements (for example, if the seller is providing replies to enquiries, it will need to warrant that these are accurate), which it then discloses against in a disclosure letter. This is similar to the disclosures made against a Certificate of Title in a commercial real estate financing.
The extent of the warranties provided by the seller will vary depending on how important the property is in the context of the overall transaction and the bargaining position of the parties. If, for example, the property is low value, or the buyer has been involved with the property in the past, then the warranties may be fairly brief.
If a warranty turns out to be untrue and as a result, the value of the company is reduced, the buyer can make a claim for damages for breach of contract. Damages for breach of warranty are based on the difference between what the shares are actually worth compared to what they would have been worth had the warranty been true (which is likely to be the price paid for them by the buyer). A breach of warranty would not normally allow the SPA to be terminated unless exchange and completion of the SPA was occurring on different days and the breach was absolutely crucial to the contract.
By contrast, on an asset purchase the seller will provides replies to standard enquiries (CPSEs) plus any additional enquiries which the buyer may raise as part of its due diligence. The principle of caveat emptor (which applies equally to share and asset purchases), means that the buyer must make its own enquiries to pick up on any issues with the property.
If the seller gives an untrue or inaccurate response to any of the enquiries, which the buyer has relied on when entering into the sale agreement, the buyer has the right to make a claim for misrepresentation. This is a tortious claim, which may entitle the buyer to rescind the contract and/or to claim damages.
Due Diligence
This is broadly similar for both a share and asset sale, with a suite of searches in relation to the property being carried out. Index Map, Local Authority, Drainage & Water, Gas, Electricity and Highways are the main searches typically ordered. A survey of the property may be undertaken, and if relevant an environmental report obtained. If the property isn’t key to the company’s business, the searches carried out will be less extensive than on an asset purchase. In a share sale the searches are typically listed out in, and appended to, the disclosure letter.
There’s often a “catch-all” disclosure in the share sale disclosure letter which states that the buyer is deemed to know everything that its solicitor knows and that it could reasonably be expected to know about (although this may well be resisted by the buyer). It’s therefore important for a buyer’s solicitor to ensure that all reports and surveys are forwarded to the buyer, and that anything else which might be disclosed in a data room by the seller is sent across for the buyer’s review.
Asset Management Considerations
A key difference between a share and asset purchase is how monies held by the seller in connection with the lettings at the property are dealt with.
Service Charge
For example, if there’s a service charge in connection with the management of the property, there may be shortfalls where there are service charge caps or tenants in arrears with their payments.
On an asset purchase the service charge will be addressed in the sale contract, with final accounts being provided by the seller within a fixed period after completion, and the buyer either collecting in arrears to make up any shortfall to be paid across to the seller, or if the accounts show a surplus, the excess being paid by the seller to the buyer.
With a share sale, it’s important to remember that service charge monies in a landlord’s account are not part of the assets of the company because they are held for specific expenditure in accordance with the terms of the leases, which will contain mechanisms for repaying the money or crediting it against tenants’ accounts. This therefore must be taken into account when the company is valued. If there are service charge arrears or shortfalls, this is a liability for the company. This may either decrease the company price, or the service charge accounts can be entirely removed from the completion accounts and dealt with by way of a later adjustment between the seller and buyer.
Rent Arrears
There may also be rent arrears, which on an asset sale will again be addressed in the sale contract. Differing approaches to dealing with arrears can be taken – the buyer may take responsibility for collecting the arrears from the tenant(s) and accounting to the seller for their share, or the buyer may pay the amount of arrears to the seller on completion and then assume responsibility to collect in and keep the monies.
On a share sale, the arrears may lead to a price reduction if it seems unlikely that they will ever be paid. Alternatively, they will not be dealt with as part of a purchase price adjustment but instead will be paid across to the seller if and when received by the buyer.
Rent Deposits
Landlords will often collect rent deposits from tenants as security for any breach of the tenant’s lease obligations. These monies will be held in accordance with a rent deposit deed, and will either be charged to, or held in trust by, the landlord to use in the event of the tenant defaulting.
On an asset purchase, the rent deposits will need to be specifically dealt with in the sale agreement. Depending on the date of the lease, the rent deposit deed will state that any buyer is automatically bound by its terms, or alternatively the deposit deed may need to be assigned to the buyer on completion.
The amount of the deposits held by the landlord will also be dealt with in the completion statement and deducted from the overall purchase price being paid by the buyer.
On a share sale, the rent deposits held by the landlord can’t be included as part of the company’s assets and valuation, because the monies remain the property of the tenants in accordance with the rent deposit deed. The landlord entity will remain the same after the share sale has completed, because, although the shares have transferred, the landlord, from a tenant’s perspective, remains the same. This means that no further action usually needs to be taken in relation to the deposits.
Indemnity Insurance
On an asset purchase, if there’s an issue with the title to the property (for example, there’s a restriction as to use or a restrictive covenant within a missing deed) then it’s usually possible to obtain title defects’ indemnity insurance. These policies will cover either the property value or its development value and need to be reviewed and negotiated to ensure that there aren’t any excessive caveats which will restrict the buyer’s potential to make a claim. Title indemnity insurance is typically in perpetuity, meaning that it will last for the life of the property. Sellers will often pay the premium on behalf of the buyer if a policy isn’t already in place.
On a share sale, the buyer may consider obtaining warranty and indemnity insurance (W&I Insurance) if it isn’t satisfied about the financial strength of the seller or is concerned about enforcement for breach of warranty in a different jurisdiction. This type of insurance has grown in popularity. The seller can cap its liability with the buyer then making an insurance claim for any breach of warranty. The insurers will do their own due diligence to evaluate the level of potential risk and will typically carve out any particular areas of concern. This type of insurance policy can be taken out by either the seller or the buyer, but the premium can be costly. In contrast to title indemnity insurance, the policy’s term typically runs for the duration of the warranties as set out in the SPA.
For more information about indemnity insurance, please click here.
Conclusion
The amount of due diligence to be carried out on a share purchase will depend on how essential the property is to the company’s business. The buyer will want to make sure that there are no issues relating to the title or any occupational tenants. These will be flushed out via the searches, title review, in replies to enquiries and, on a share purchase, the disclosure letter. Even if the property is of lesser importance to the purchase of the company, on a share purchase the seller’s accounts need to be checked carefully to ensure that any costs relating to leases and service charge are properly dealt with and to ensure a fair valuation.
Disclaimer
This note reflects our opinion and views as of 27 September 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Charles shares his thoughts on the outlook for the residential market in the UK, as well as recent changes to the property tax regime, Emma explains some of the key cross-border issues at play and the estate planning options available, and Rosie gives her insights on what to consider in terms of protecting assets for the future in light of the changing shape of relationships.
When acquiring UK property, US purchasers should seek advice on the broader tax and legal implications. In this report, Forsters’ partners along with specialists in the industry, share their insights on the current UK market for US buyers and how best to navigate the specific risks for US-connected clients.
The purchase or sale of a high value home requires expert legal advice to manage the complexities involved. Our lawyers are dedicated to sharing their knowledge to enable you to navigate the legal practicalities of buying and selling high value assets. We will support you through every stage of the process, and with the largest dedicated Residential Property team in London, we have the strength to do this. Visit our Hub to learn more.
Forsters’ double award win at the prestigious STEP Private Client Awards 2021/22
24 September 2021
News
Forsters’ Private Wealth practice has been named International Legal Team of the Year (midsize firm) and Contentious Trusts and Estates Team of the Year (midsize firm) at this year’s STEP Private Client Awards.
International Legal Team of the Year (midsize firm)
Judges praised Forsters for its “innovative use of IT in client facing applications, strong and tested collaborations with international partners and network of intermediaries”. They also applauded the team’s “open minded approach to professional development”, which combines an emphasis on technical excellence with the other skills that make for first class lawyers.
Head of Private Client, Xavier Nicholas, commented:“We are very proud to have won the award for International Legal Team of the Year for a second year running. It is a particularly meaningful achievement after a year in which, despite a prolonged period of travel restrictions, we have continued successfully to develop our already well established client base in key jurisdictions – including the US, South America, Asia and the Middle East. To be recognised by STEP for the expertise of our international practice is a fantastic reward for a team that has shown exceptional commitment to its clients in very challenging circumstances.”
Contentious Trusts and Estates Team of the Year (midsize firm)
The judges noted the team’s “excellent range of skills” and their work on “multi-jurisdictional, high value and complex cases”. They were commended for their cross-departmental approach to providing a holistic service for clients.
Head of Contentious Trusts and Estates, Roberta Harvey commented:“We are thrilled to be awarded Contentious Trusts and Estate Team of the Year. I feel very proud to work with such a talented group of lawyers who continuously deliver excellent client service.”
Forsters were announced as double award winners at the virtual ceremony on 23 September. The firm was also shortlisted for Family Business Advisory Practice of the Year.
James Brockhurst to speak at Mourant’s Trusts Forum in Guernsey and Jersey
23 September 2021
News
Private Client Senior Associate, James Brockhurst, has been invited to speak at Mourant’s Trusts Forum this October. The Forum, held physically in both Jersey and Guernsey, will unite industry experts to deliver insights on key topics and trends in the Private Client sector.
James will be speaking at a session entitled ‘What the future holds’, where he will be discussing the NextGen trends, challenges and opportunities expected to arise in the coming years. He will be joined by Yindi Gesinde of Baker & McKenzie and Benjamin Lister of Taylor Wessing. The session, moderated by Mourant’s Will Burnell and Sandra Duerden, will take place from 2:50pm – 3:35pm.
Forsters advise on a quartet of new F&B lettings at St Christopher’s Place
23 September 2021
News
Forsters has advised BMO Real Estate Partners on four exciting new restaurant lettings at St Christopher’s Place, W1. Located behind Oxford Street, the St Christopher’s Place estate comprises 43 buildings and 169 lettable units made up of high end retail and restaurants, office suites and apartments.
The San Carlo Restaurant Group has agreed to take the former Carluccio’s unit on Barrett Street for a new 220-cover Italian brasserie and bar concept, named “Isola.” Isola will also include a 50-cover alfresco terrace and will open in October 2021.
From the team behind Patty & Bun, a new restaurant focusing on roast chicken, “Sidechick”, has signed up to a 10 year lease of 1,125 sq ft of space on James Street for a 50-cover site with an outdoor seating area. The existing Patty & Bun unit, which came to St Christopher’s Place back in 2012, will continue to operate next door.
“Papa-dum”, an Indian street food concept which first opened in Fetter Lane, has taken a 10 year lease on James Street of 1,147 sq ft space. Their offering will include “grab and go” curries, chais and chaats.
Finally, Crome, a café and patisserie focussing on French toast and speciality coffees, has recently opened on James Street.
These new lettings will further boost the restaurant offering at the estate and will contribute to the status of St Christopher’s Place as one of the west end’s most desirable and diverse dining destinations.
Forsters has worked on the St Christopher’s Place estate for more than 20 years, led by Commercial Real Estate partner, Glenn Dunn.
Triple listing for Forsters’ Next Gen lawyers in ePrivateClient’s Top 35 under 35 2021
21 September 2021
News
We are thrilled that three of our Private Client Senior Associates have been listed in ePrivateClient’s Top 35 under 35 2021.
Recognised this year are:
John FitzGerald, for his work advising UK resident and non-UK resident high-net-worth individuals and trustees on matters including the UK’s statutory residence test, domicile and the UK tax treatment of offshore trust structures.
Laura Neal, for her key role in the firm’s Art Practice, acting for galleries and auction houses, as well as UK-based and international estates, trusts, foundations and collectors.
Victoria Salter-Galbraith, for her specialism in advising on landed estates and rural property matters relating to listed and historic buildings.
It is a testament to the talent and strength of our next generation of lawyers, as well as Forsters’ commitment to nurturing and promoting the talent of our associates who play a key role in the continued growth of the firm.
Eprivateclient’s definitive annual list of young private client practitioners is designed to identify, recognise, introduce and promote the rising stars of the private wealth professions.
The unintended consequences of family disputes and family trusts
21 September 2021
News
Family wealth planning is frequently undertaken against a background of positive planning, often when the second generation is younger, and the family small and without complications. Over time this can change and lead to unintended adverse consequences for Trust structures if the family enters into a major dispute. Families and practitioners can learn from some of these issues, as Highvern’s Richard Joynt and Forsters’ Alex Tamosius outline.
Family members in a dispute position
Case study 1 demonstrates how having family members on a PTC Board can put them into direct conflict with one another, worsening any dispute and encouraging litigation. If the Articles of the PTC had built in flexibility around Board composition, conflicts of interests could be avoided. For instance, the family could have rights to appoint Directors but not actually take these up unless there was a material issue that they needed to vote on.
Case study 1
The patriarch settles his trading business into Trust for the family’s collective benefit after his passing. A PTC structure is chosen with the family having a majority on the Board to retain control. Son C, a beneficiary and a Director of the family business, objects to the way the business was being managed and enters into dispute with the family, complaining to the Trustees. The other family members are in a very difficult position as they sit on the Trustee Board and Enforcer Committee. The professional Trustee is also in a predicament as they are a minority on the Board and cannot resign as they are needed for quorum reasons.
Manage wide beneficial classes
From the vast body of trust case law, it is clear that beneficiaries have significant rights and can hold the Trustee to account for their actions. Establishing the Trust with a narrow class of beneficiaries at the outset allows the Settlor to see how family dynamics evolve over time, and beneficiaries can be added later. Managing the named beneficial class in this way can heavily reduce litigation risk.
Exit mechanisms
Any family dispute is unpleasant, but when significant wealth is involved, the accompanying litigation risk is high. Structures which include very illiquid assets and require family members to work together risk becoming the focus of family dispute litigation. Building dispute resolution mechanisms into the structure provides resilience and shows fairness if a dispute occurs since the mechanism applies to all family members. Case Study 2 shows that this can be as simple as the Settlor drafting a clear letter of wishes to the trustee, setting out how they intend the trust to function and how disputes should be resolved.
Case study 2
A trust owned UK real estate investments, together with a significant amount of cash. After a decade-long dispute, the trustee and beneficiaries agreed to divide the trust fund “equally”. Although the initial intention was to divide the trust fund in three, the differing tax status of each beneficiary meant that such an approach would not be equitable. Each applicable jurisdiction’s tax rules treated each asset differently; and even though it may be possible to divide the assets in such a way that did not give rise to immediate tax leakage, there was no way of doing so without creating long term tax concerns. This complex dispute could have been avoided if, at the outset, the Settlor wrote a clear letter of wishes to the trustee, detailing how he’d like the trust to function.
Trust the trustee
PTCs are an excellent planning tool as they allow family members to be involved in decisions concerning the family wealth. They also allow the family to design a Trustee management process that is specific to their needs and the individual nature of the assets. However, if they are being used as the family is reluctant to rely on the professional trustee, this is counter productive. Professional trustees spend their working lives understanding what trustee responsibilities are, and in the event of a family dispute, non-professional trustees who sit on the PTC Board are often shocked to understand what these responsibilities involve.
Bring the trust to an end
Ending the trust, either by distributing the trust fund to the beneficiaries or by appointing it onto new trusts with separate beneficiaries, can be the most pragmatic solution to disputes. A careful and fair-minded division of assets can be the best resolution, and negotiations leading to that point will often flush out underlying concerns in a manner that was not possible beforehand.
Conclusion
Planning for orderly family wealth succession is essential and structures remain an integral part of this. Whilst we may not wish to believe it could ever happen, it is important to consider what might happen in the event of a future family dispute and to plan accordingly when putting any structure in place.
From growing a business to starting a family or handing over control of that business to the next generation, every individual has their own goals to aspire to. Our Private Wealth lawyers advise our clients throughout this family life cycle, providing the legal advice required for specific transactions such as purchasing a home or selling a business, whilst also advising on the long-term opportunities for succession and estate planning.
What it’s really like to live in a build-to-rent flat: Helen Streeton quoted in The Times
20 September 2021
Views
Commercial Real Estate Partner, Helen Streeton, has recently been quoted in The Times, Bricks & Mortar. The article explores the good and bad of living in a build-to-rent development and Helen comments on what happens to the security deposit if the property is damaged or left in a state of disrepair.
The article explains that a BTR landlord has 30 days to deduct the damage costs from the security deposit, and the tenant has the right to dispute this “within this time frame the deposit is placed ‘on hold’ while a third-party adjudicator makes a final decision about the amount of money to be taken off the deposit.”
To read the full article please click here. You will need a subscription.
The Court of Appeal has since reversed the High Court’s ruling, creating (arguably) a more commercial approach, but one which may lead to more extensive negotiation and complex drafting of limitation clauses.
Background
The parties entered into an SPA for the entire issued share capital of Outfit7 Investments Ltd (the Company). Included in the SPA was a tax covenant which stated that the warrantors would indemnify the buyer for any pre-completion tax liability. In order to bring a claim under the tax covenant the buyer had to give:
“written notice to the Warrantors stating in reasonable detail the matter which gives rise to such Claim, the nature of such Claim and (so far as reasonably practical) the amount claimed…”
Due to an ongoing investigation by the Slovenian tax authority into the transfer pricing practices of one of the Company’s subsidiaries, the buyer issued the warrantors with a notice of claim under the tax covenant. Despite the warrantors being fully aware of the reasons for the tax authority’s investigation and having been kept up-to-speed with the status of the investigation, the High Court ruled in favour of the warrantors on the grounds that the buyer had not fully complied with the SPA’s notification requirements. The High Court held that the notice of claim did not specify in reasonable detail the matter which gave rise to the claim; this was not the tax investigation itself but the underlying facts, events or circumstances on which the claim was based.
The decision was seen by some as uncommercial, onerous and unjust, potentially creating a stricter threshold for buy-side notification compliance, although it could also be viewed as providing certainty as contractual notices should follow the letter of the contract.
Court of Appeal decision
The buyer appealed and earlier this year, the Court of Appeal overruled the High Court’s decision, holding that the notice of claim was valid.
Although the High Court had been correct to say that it was the underlying facts, events or circumstances, rather than the tax investigation itself, which gave rise to the claim, consideration had to be given as to whether the matter had been stated in “reasonable detail”.
The Court of Appeal reiterated that a notice of claim must comply with the terms of the underlying contract, in this case the SPA. If the SPA had been specific as to the information to be included, the outcome of the case may have been very different but because the SPA only provided for “reasonable detail”, the question of what was reasonable would depend on the circumstances, which, in Nugee LJ’s view, “must include in particular what is already known to the recipient”.
The Court of Appeal also went on to say that the purpose of a notice of claim is to provide information about the claim to the warrantors. In this case, although the notice of claim did not provide much detail, the warrantors were fully aware of the details and so any extra detail would have served no commercial purpose. As Popplewell LJ stated:
“Businessmen would not expect or require further detail which served no commercial purpose. That would be the antithesis of what was reasonable.”
A further consideration was that the tax authority itself had only provided general and limited information regarding the investigation and therefore the buyer would not have been able to provide further specifics.
What does it mean for me?
Although sellers are likely to argue for detailed and extensive notification requirements to be set out in the SPA, buyers will want to err on the less is more principle. In any event, closely following any given notice requirements is crucial and legal advice should be taken before issuing any notice of claim. Providing as much detail as possible in any notice of claim is likely to be the safest option unless the sellers have been explicitly involved and have a full understanding of the situation as they did in this case.
That said, the Court of Appeal’s acknowledgment that the warrantors were unable to duck out of their liability on a procedural issue when they had full knowledge of the facts is to be welcomed; whilst arguably establishing an area of ambiguity in terms of the extent of notification, the decision ultimately promotes a commercially sound and pragmatic approach.
Disclaimer
This note reflects our opinion and views as of 17 September 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Restrictions on winding up petitions and statutory demands
20 September 2021
News
Regulations taking effect on 1 October 2021 (and set to last until 31 March 2022) will replace the current restrictions creditors face in winding up debtor companies.
The regulations mark a transitional period as the Government takes steps over the coming six months to remove restrictions creditors have faced to commercial debts.
Creditors will be able to serve and rely on statutory demands but, the new regulations impose additional conditions before a winding up petition can be applied for on the basis the company is unable to pay its debts, the usual ground relied on by creditors.
Tenants of commercial premises will retain some protection until 31 March 2022 in certain cases. A landlord will be unable to obtain a winding up order if the debt comprises rent (or any other payment due under the lease) which are unpaid “by reason of a financial effect of coronavirus”.
In all other cases creditors will be able to seek winding up orders for liquidated sums which are unpaid provided certain conditions are met including:
A 21-day notice. The notice confirms that the creditor is seeking a proposal from the debtor for payment and that if a satisfactory proposal is not made within 21 days that the creditor intends to apply to wind up the debtor. Creditors will be able to serve statutory demands at the same time and do not need to wait until the 21-day notice period has passed before issuing statutory demands.
The debt must be £10,000 or more. If more than one creditor wants to present a petition together, the total debt must be £10,000 or more.
When a creditor seeks a winding up order, if the debtor makes proposals for payment, the creditor must give its reasons to the Court why those proposals were not satisfactory. We anticipate the Court will review these reasons when considering whether to exercise its discretion to wind up a company.
In the right circumstances statutory demands winding up petitions will become a viable option for creditors to seek to wind up a company. While the regulations go some way to returning to a pre-Coronavirus position, landlords will still face additional uncertainty from the regulations and questions surrounding a winding up petition being an abuse of process to enforce a commercial debt remains.
Forsters’ Family team uplifted to Tier 1 in ePrivateClient Top Family Law Firms 2021
20 September 2021
News
We are delighted to share that Forsters’ Family team has been uplifted to Tier 1 in this year’s ePrivateclient Top Family Law Firms ranking.
The Tier 1 ranking is a testament to the team’s rapid growth, in terms of team size, clients and profile; whilst always upholding the highest levels of technical expertise, empathetic client care, innovation and discretion.
The recognition follows an already successful year for the team, which has included a shortlisting for ‘Family Law Firm of the Year (London)’ at the upcoming Family Law Awards 2021, a record number of listings in Spear’s Family Law Index 2021 and Jo Edwards’ inclusion in the ‘Spotlight Table’ of the Family/Matrimonial: Mediators list in the Chambers HNW Guide.
The ePrivateClient rankings are a result of a comprehensive analysis of the leading law firms providing family law advice in the UK. The full table can be viewed here, behind the paywall.
Forsters’ Residential Property team shortlisted for Legal/Professional Team of the Year at the RESI Awards
17 September 2021
News
Forsters’ Residential Property team have been shortlisted for Legal/Professional Team of the Year at the RESI Awards 2021.
The RESI Awards, organised by Property Week, acknowledge the residential property sector and its successes. We are delighted to have been recognised, it is a testament to the continued growth and achievements of the team and their dedication to clients.
The news is a wonderful addition to the team’s recent accomplishments which include becoming the firm with the greatest number of lawyers ranked in Spear’s Property Advisors Index and the high-profile hires of Residential Property Partners, Charles Mieville and Robert Barham.
The RESI Awards has a prestigious and rigorous judging process to ensure independence and provide clarity on the shortlists. This year judges include industry experts as well as representatives from the Property Week Diversity & Inclusion Editorial Advisory Board and our Climate Crisis Challenge campaign.
As the largest specialist team dedicated to Residential Property in London, our lawyers can provide an unrivalled level of service to clients. To learn more about our lawyers, and the services they can provide for you, please visit our luxury property hub.
The purchase or sale of a high value home requires expert legal advice to manage the complexities involved. Our lawyers are dedicated to sharing their knowledge to enable you to navigate the legal practicalities of buying and selling high value assets. We will support you through every stage of the process, and with the largest dedicated Residential Property team in London, we have the strength to do this.
James is described by his peers as “a safe pair of hands for High Net Worths”, having “great attention to details and really knows international tax law”. He has also been recognised for his work in crypto-assets since 2015.
CityWealth’s Top 100 identifies lawyers at the top of their field, and this year that included going above and beyond for their clients during what was a difficult year for all.
Forsters advises on £55 million investment deal for OakNorth Bank plc
17 September 2021
News
Forsters’ market leading Real Estate Finance team has advised long standing client OakNorth Bank plc. The team, led by partner Victoria Edwards, advised on a £55 million investment facility to Paradigm Land for its 288-home development at Gunnersbury Park in Brentford.
Working with Victoria was Senior Associate, Dominic Lintner. Advising on the Real Estate aspects of the deal was Commercial Real Estate Partner, Ben Brayford, and Senior Associate, Alexandra Burnaby.
The scheme is only 10 miles from Heathrow Airport and a short walk from the famous Kew Gardens and Kew Bridge train station. The investment facility from OakNorth Bank will support the sale and letting of the remaining units in a major mixed-use development, comprising 288 apartments, 18,500 sq. ft. of modern office space, and 220 private parking spaces.
The apartments overlook the 180-acre, Gunnersbury Park, with residents also benefitting from a 24-hour concierge service, gym, cinema, roof terrace, games room, residents lounge and bike storage.
Josh Garside, Managing Director of Paradigm Land, said: “The area surrounding Parkview is in the midst of a multi-million-pound regeneration project, which will see a major supermarket, fashion boutiques, a cinema and arts centre added to the local high street, as well as improvements made to the Brentford Community Stadium, home to newly-promoted Brentford FC. Extensive landscaping and green space are also being added to the area, allowing for new pedestrian and cycle routes, increasing the attraction for renters and buyers alike. In order to capitalise on this, we needed a funding partner with knowledge of the London property market and a willingness to be flexible whilst we let the remaining units. This is what OakNorth Bank provided us with, so despite it being a competitive process, their flexibility and commercial mindset is why we ultimately went with them. Bringing the scheme forward in the current environment has not been without its challenges and I must express my gratitude to our best in class management team and OakNorth Bank who have supported our business for the fourth time with this transaction.”
Damien Hughes, Senior Director of Property Finance at OakNorth Bank, added: “Given its proximity to several train stations and two major parks, its attractive rental prices, and its range of amenities including a gym, cinema, games room and meeting spaces, it’s not surprising that almost two thirds of the units have already been let. As a result of pandemic lockdowns, we have a newfound appreciation for our green spaces and being outdoors, so the fact that this development is close to both Kew Gardens and Gunnersbury Park, and offers outdoor space in the form of a roof terrace, means it appeals to young professionals and families. This transaction provided us a with a great opportunity to once again support an experienced property developer and we look forward to working with Josh and the Paradigm team again on future developments.”
Banking and Finance partner, Victoria Edwards, commented: “It was fantastic to be part of the OakNorth team supporting Paradigm in giving them the breathing space they needed for this fabulous project in Gunnersbury Park near Kew Bridge.”
The Pension Schemes Act 2021: Directors, Lenders, Everyone, Take Heed!
16 September 2021
News
Prompted by the high-profile collapses of the likes of BHS and Carillion, which left their employees facing severely diminished retirement funds due to pension scheme deficits of £275 million and £580 million respectively, the Government has proposed radical changes through the Pension Schemes Act 2021 (the “PSA“).
While you work to manoeuvre your business out from under the financial challenges imposed by the pandemic, you’d also be well-advised to pay attention to the wide-ranging provisions of the PSA so as not to fall foul of the new criminal and civil offences contained therein. What has changed? And why are the changes important for those in the corporate realm? Here, we set out an introductory overview of the new regime in terms of how they may apply to you and your business. (This article does not seek to explain the changes to the PSA as they may affect pension trustees.)
What type of pension does the PSA apply to?
The majority of the PSA’s provisions, including the new criminal offences, apply solely to defined benefit pension schemes (i.e. final salary schemes that guarantee a set retirement income), although certain provisions also apply to defined contribution schemes (i.e. money purchase schemes) where the retirement income is calculated according to how much is contributed into the scheme.
What are the new criminal offences?
The PSA has introduced two new criminal offences, being “the avoidance of employer debt” and “conduct risking accrued scheme benefits”:
The offence of avoidance of employer debt applies in relation to a section 75 debt, where a person, without reasonable excuse, does an act or engages in conduct that intentionally prevents the recovery of the debt in whole or in part, prevents the debt from becoming due, or otherwise compromises or settles the debt or reduces the amount that would otherwise fall due.
The offence of conduct risking accrued scheme benefits applies where a person, without reasonable excuse, does an act or engages in conduct that materially and adversely affects the probability of accrued scheme benefits being received, where such person knew or should have known that their act or conduct would have that effect.
In addition, where a person knowingly or recklessly gives the Pensions Regulator false or misleading information about a “notifiable event”, they will be deemed to have committed a criminal act. What will be considered a “notifiable event” is yet to be determined, but it is anticipated that it will include certain corporate transactions, such as the sale of a controlling interest, business or assets of the employer company and the granting of security in priority to a pension scheme’s debt. When notifying events to the Pensions Regulator, a pension scheme will be required to provide an accompanying statement which will set out prescribed information; in other words, it broadens the current duty on employers to disclose details of planned corporate transactions and activities to pension trustees and the Pensions Regulator.
On top of this, the PSA has also extended the list of people responsible for notification. This could now include other companies in the employer’s group, directors and, potentially, those parties with links to the directors, such as the spouse or civil partner of the director.
Finally, the PSA provides that a person who fails to comply with a contribution notice without reasonable excuse will be guilty of a criminal offence. It also provides the Pensions Regulator with two further grounds on which to issue a contribution notice. See below for further detail.
Potential issues for employers
1. Who can be prosecuted: wide scope for the meaning of ‘person’.
Most notably, the PSA empowers the Pensions Regulator to prosecute a wide range of people if an offence is committed, including the employer company, directors, group company directors, investors, advisors and even lenders. Although the Draft Criminal Policy Document (the “Policy Document“), published by the Pensions Regulator in March 2021, aims to provide some much-needed guidance on the broad wording, in reality it appears to do little to remedy the vast number of categories of individuals and companies that the PSA has the potential to ensnare. It is to be hoped that the suggested amendments which were touched on in a speech by the Executive Director for Regulatory Policy, Analysis and Advice following a consultation on the Policy Document, namely improving the illustrative examples given, providing clarity on the criminal offences’ retroactivity and the seriousness of behaviour which could amount to a criminal offence, will provide some clarity, however indirect.
2. Ordinary business behaviour could be caught by an offence.
The offence of avoidance of employer debt, i.e. where a person, without reasonable excuse, intentionally avoids an employer debt and the offence of conduct risking accrued scheme benefits both have the potential to apply to ordinary business behaviour. For example, a restructuring could potentially prevent an employer debt from arising, as could entering into corporate rescue proceedings or entering into a transaction that reduces net assets for a future gain. In the case of conduct risking accrued scheme benefits, the person need not have any ill intent; they may be guilty of the offence if they were not aware of the effect of their conduct but should have been.
There is a risk that these new provisions will adversely affect ordinary business practices as those involved exercise more caution, particularly when the regime first comes into effect. Employer companies and their boards of directors may incur additional adviser costs to obtain comfort, more discussion around decision-making will no doubt take place and parties to transactions may require reassurance and further contractual protections.
The Minister for Pensions has said that it “is certainly not the intention to frustrate legitimate business activities where they are conducted in good faith” and that “reasonableness” is a factor in relation to the concern that ordinary business behaviour will be caught up in the broadly worded offences. What is reasonable will apparently depend on the particular circumstances of the act or failure to act, but at least the burden will be on the Pensions Regulator to prove unreasonableness.
While the Pensions Regulator is expected to publish (much needed) guidance about these issues, guidance will not override the law and businesses will be conscious that the courts will have the final say.
3. Increased powers for the Pensions Regulator to issue a contribution notice.
Currently, a contribution notice, which requires the recipient to make a payment into the pension scheme, may be issued by the Pensions Regulator on one of two grounds:
The ‘material detriment test’ – where an act or failure to act that occurred on or after 14 April 2008 had a material detrimental effect on the probability of accrued scheme benefits being received.
The ‘main purpose of an act or failure test’ – where the main purpose, or one of the main purposes, of an act or deliberate failure to act that occurred on or after 27 April 2004 was to prevent the recovery of an employer debt that was (or might become) due, to prevent the debt becoming due or to compromise, settle or reduce that debt.
Under the PSA, the Pensions Regulator will also be able to issue a contribution notice where one of the following tests is met:
The ’employer insolvency test’ – where the value of the pension scheme’s assets is less than its aggregate liabilities and, if a section 75 debt had fallen due, an act or failure to act resulted in a material reduction of the amount of the debt that would likely be recovered by the scheme.
The ’employer resources test’ – where an act or failure to act reduced the value of the employer’s resources and that reduction was a material reduction relative to the estimated section 75 debt.
These new grounds can be successfully defended if the relevant person duly considered the act or failure to act and took all reasonable steps to eliminate or mitigate the possibility or extent of the impact that the act or failure to act had.
Furthermore, while the Pensions Regulator now has a fairly wide scope within which to issue contribution notices, it may only do so if it is reasonable. In other words, it must be reasonable to impose a financial liability on the recipient.
Potentially however, these new tests could add an extra layer of bureaucracy to a number of corporate and financial practices. For example, in the context of the employer resources test, the focus is on the relationship between the size of the dividend (or distribution as the case may be) and the section 75 deficit, rather than the resources of the employer. As a result, if a company intends to pay a sizeable dividend or distribution, prior clearance from the Pensions Regulator may be needed.
What sanctions could apply for non-compliance?
Sanctions under the criminal offences are not to be taken lightly; anyone found guilty of an offence could face up to seven years’ imprisonment and/or an unlimited fine. Furthermore, a civil penalty of a fine (capped at £1 million) could be imposed instead of, or in addition to, the criminal penalties.
In relation to other civil offences under the PSA, such as the failure to comply with the notifiable events framework, a fine (capped at £1 million) could be imposed. Non-compliance with information requests (including inspections and interviews) or delays in providing the information may result in the imposition of a fixed and escalating civil penalty, still to be developed as part of the Government’s secondary legislation package.
When will the PSA come into effect?
The PSA received Royal Assent on 11 February 2021, but its provisions will come into effect piecemeal with some parts only likely to come into effect in 2022 (and possibly later).
Certain provisions, which are outside the scope of this note, have already been enacted, while those provisions which deal with the new criminal offences, financial penalties, contribution notices (including the new employer insolvency and resources tests), the majority of notifiable events and the Pensions Regulator’s information-gathering powers will take effect on 1 October 2021 (with interim provisions applying before that date).
How to can you prepare your business for life under this new regulatory approach?
The PSA is expected to significantly change the way that defined benefit pension schemes are operated. With the new criminal offences and the Pensions Regulator’s enhanced powers of investigation and sanction, good dialogue between employers and pension trustees and effective management of pension schemes will be essential.
Stay informed: employers should keep up to date on further regulations and guidance, particularly insofar as it relates to notifiable events and new contribution notice events
Check insurance cover: companies would be well advised to ensure their directors’ and officers’ liability insurance covers the civil penalties
Record decisions and have evidence available: maintaining an audit trail will be important to provide evidence of reasonableness, particularly where an employer company’s actions are questioned months down the line; for example, board minutes that reflect that the board has duly considered a possible negative impact of a transaction on the pension scheme and has taken steps, including details of what such steps entail, to eliminate or mitigate the risk of such impact occurring.
Pensions down the road
The PSA has attracted a fair amount of scrutiny and controversy on the basis that the new criminal offences could undermine the widely, and readily relied-upon, business rescue practices in the UK. The saving grace for many wishing to take part in business rescue and other transactions may lie in the presumption that a person has a reasonable excuse for taking a particular action or failing to take an action, and that the onus to prove unreasonableness is on the Pensions Regulator.
The new regime may also delay corporate transactions with further consideration and scrutiny of the rules being needed and advice to be taken on how to ensure compliance with the new regime and avoid criminal and civil penalties. Engagement with trustees on transactions may also take longer and so factoring early engagement in to a transaction will be important for timetable purposes.
The Pensions Regulator is expected to clarify many of the points discussed in this article later this year, but for now, those who could be affected would do well to keep themselves informed, to treat pension schemes equitably and with caution, to maintain good dialogue between pension trustees and the corporate decision-makers and to interact openly with the Pensions Regulator when required to do so.
Disclaimer
This note reflects our opinion and views as of 13 September 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Natalie Collier is an Associate in our Corporate team.
How can I stop the smell from my neighbour smoking?: Elizabeth Oxendale features in The Times
9 September 2021
Views
Elizabeth Oxendale, Associate in the Property Litigation team, has recently featured in The Times. She has advised as to whether an individual has a legal standing in regards to a neighbour reducing the quality of air due to continuously smoking inside. This is a particularly prevalent issue within flats and as she explains, a claim in private nuisance may be available which could lead to an injunction requiring the neighbour to stop causing the inconvenience.
“You have a right to the undisturbed use and enjoyment of your home. If your neighbour is interfering with that right, you may have a claim in private nuisance.”
Elizabeth Small to speak at the VAT and Property Conference 2021
9 September 2021
News
Tax Partner, Elizabeth Small, has been invited to speak at the upcoming VAT and Property Conference 2021 hosted by Orca Law.
Elizabeth will be hosting the session, entitled ‘Consideration or compensation? RCB 12/20 and its aftermath’, on Monday 8 November at 10:30am. In her session, Elizabeth will reflect upon HMRC’s new guidance in 2020 and explore the following:
Were we supposed to add VAT to dilapidations or not?
What else no longer counted as compensation?
In a commercial context – why are these payments made, what are they for, and how are they agreed?
The case law behind HMRC’s rethink
What we know now, and what we don’t.
The digital event will be hosted over two days, from 8 – 9 November 2021. You can register for the conference here
Construction focus: Delay damages and termination – Dan Cudlipp and Candice Johnson write for Property Law Journal
9 September 2021
Views
What happens to an employer’s rights to liquidated damages for delay when a building contract is terminated before practical completion of the works has been achieved? Dan Cudlipp and Candice Johnson discuss a case that made it to the Supreme Court.
The consequence of the Supreme Court’s considerations was that while penalties remain outlawed, that does not necessarily mean that liquidated damages cannot exceed the innocent party’s actual losses arising from the breach, so long as they are proportionate to the innocent party’s legitimate interests in having the contract performed.
In recognition of Disability Awareness Day on 12th September, we thought it a pertinent time to shine a spotlight on the current disability-related employment law hot topics.
Talking point – long COVID
One of the most prominent discussions at the moment is whether or not long COVID should be recognised as a disability within the meaning of the Equality Act 2010 (the “Equality Act“). The Trades Union Congress is, for example, of the view that is should be.
Recognition would enable those people who are suffering from the effects of long COVID to benefit from the protections afforded by the Equality Act, including the right not to be directly or indirectly discriminated against. Employers would also be obliged to make reasonable adjustments to enable an employee suffering with the condition to carry out their duties, such as amending their working hours and, perhaps, allowing them to continue working at home.
We are still understanding long COVID’s full effects and the question around whether the condition amounts to a “disability” has not yet been considered by the Employment Tribunal; consequently, the debate is currently centred on the interpretation of the statutory definition of a disability, which is: a physical or mental impairment which has a ‘substantial’ and ‘long-term’ adverse effect on the ability to carry out normal day-to-day activities. With the key symptoms of long COVID having been described as a cough, breathlessness, fever, palpitations, fatigue, cognitive impairment and joint pain, some have commented that these symptoms, particularly cognitive impairment, breathlessness and fatigue, could inhibit an individual’s ability to carry out day to day activities.
On this basis and until a definitive answer is given, employers should act cautiously if an employee is thought to be suffering from long COVID. As ACAS has suggested in its guidance: “it’s a good idea for the employer to focus on the reasonable adjustments they can make rather than trying to work out if an employee’s condition is a disability”.
Government strategy – National Disability Strategy
Indicative of a continued intention to protect those who are classed, or who should be classed, as disabled under the Equality Act, the government published its National Disability Strategy in July 2021. This includes, amongst other points:
The intention to introduce access to work passports which would document an individual’s specific needs within the workplace in relation to their disability.
An employer and employee support hub in conjunction with ACAS, which would clearly set out the rights and obligations afforded to both individuals and organisations.
The possibility of reporting obligations, akin to those of gender pay reporting, to document an employer’s actions as well as their shortcomings in relation to accommodating disability within their workforce.
Tribunal judgment – who should make the adjustments?
Finally, a recent interesting judgment given by the Employment Appeal Tribunal in the case of Mallon v AECOM Ltd (2021), has stated that employers cannot take for granted the fact that a third party should have, or is likely to have, made reasonable adjustments which would otherwise have been made by the employer under its duty to make reasonable adjustments.
Key facts in the case focused on the employer’s assumption that a job applicant’s family would support him when making a job application, so the employer did not need to adjust their application process to accommodate his disability (dyslexia). Whilst the judge did not say that employers can never rely on a third party making adjustments, the overall message is clear – an employer must consider all the circumstances giving rise to the need to make reasonable adjustments and should not step away from this duty lightly. This is a useful reminder to employers to always consider whether adjustments need to be made to their application processes.
This note reflects our opinion and views as of 9 September 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Strategic Land and Development – Laying the legal foundations for commercial success
8 September 2021
News
The delivery of new homes across England and Wales is clear to see, and the demand for new deliverable sites remains highly competitive. In this article we explore the commercial drivers behind development and the importance of accommodating evolving policy, market forces and public funding and delivery requirements. We also consider the preliminary stages of a development project and the overarching considerations for a successful Development Agreement.
High Stakes Game
The profits landowners and developers can make from house building are widely and often disapprovingly remarked upon, especially by politicians and the media. But less well understood is the ever-growing list of amenities that the private sector is now expected to deliver as it helps government meet its target of 300,000 houses new houses each year. Public benefits like infrastructure, social housing, ecological mitigation and facilities for health and education are now par for the course on any substantial development. Providing these requires ever greater sophistication, organisation and close collaboration with local government, neighbouring landowners, utility companies, ecologists and many other interested parties. In short, there are many moving parts and by taking on such challenges in an uncertain regulatory landscape, landowners, housebuilders and developers bear considerable financial and reputational danger. The rewards may be great, but the risks are too, which is why a well prepared Development Agreement is key.
Setting the Right Tone
Most often, new projects start with an agreement between a landowner and developer or promoter, the need for landowners to diversify their business, the desire to contribute to the public good and for landowners to create long lasting housing legacy on their land. These initial proposals are usually embodied in a development agreement between landowner, promoter and/or housebuilder/developer. They are put in place long before a planning permission has been granted and anticipate the project from start to finish.
These agreements determine the basis on which the parties will collaborate to support and procure the delivery of a project, lay the overriding principles and vision for the development, require the developer to pursue and achieve a viable and implementable planning permission and eventually, forecasts the proposals for delivering a development.
Such proposals for delivery include the mechanism for the construction of major infrastructure projects, such as new roads, road junctions and railway stations, facilities for retail, employment, education and healthcare, the phasing of the development and the effective delivery of private and affordable housing. It also sets out the financial arrangements between landowner and developer and in time, the relevant council or government body factoring in the timing of the realisation of capital to fund public sector contributions.
A lot to be determined by one agreement! Yet the agreement and the process of entering to the agreement can set the tone for the future of the project and be instrumental in establishing the foundations for success. Where the agreement establishes a clear end goal with well-defined mechanisms, procedures and parameters and targets, it lays the groundworks for the progression of a project from the outset. Where the process of entering into the agreement has been carried out diligently and collaboratively by the legal and professional team, in theory, the rest should follow….
Flexibility for the Future
As alluded to above, a development agreement should stand the test of time and sets the ground rules for the delivery of a project from its inception to completion. Whilst unforeseen circumstances will undoubtedly arise over the course of a development, which on the larger scale could span up to 30-40 years, a well-negotiated agreement should have the ability to adapt to change, both in relation to the project itself and the wider and constantly evolving considerations of tax, planning policy, sustainability, housing needs and government policy.
A clear and recent example of this is the well covered Phosphate issue, where thousands of planning applications have been held up by the need for information on phosphate levels resulting from the proposed development. How these projects will progress will depend on a multitude of factors, but a well-crafted agreement will have the scope to accommodate the necessary steps to overcome the hurdle.
One shot, or one opportunity
Entering into a development agreement for a landowner is, more often than not, a once in a lifetime undertaking. The agreements themselves require dedicated drafting and negotiation in the hands of experienced lawyers with significant input our clients and their professional representatives. The process itself serves to identify opportunities and roadblocks alike and are a platform for all parties to forge long lasting relationships to build for the future.
In this episode of the More Than Law Podcast we feature our cross-departmental strategic land team, with host Miri Stickland talking to Partners Christopher Findley and Henry Cecil from the Rural Property team, Commercial Real Estate partner Ben Brayford and Planning partner Victoria Du Croz. Discussion points include what we mean by “strategic land”, who are the key parties and their particular drivers and concerns, and the key components needed for a successful strategic land development.
Forsters’ Family team shortlisted for Family Law Firm of the Year (London) award
6 September 2021
News
We are delighted to announce that the Family team have been recognised at the upcoming 2021 Family Law Awards with a shortlisting in the Family Law Firm of the Year (London) category.
The Family Law Awards recognises the important work of family lawyers and celebrate their many successes and outstanding achievements. Our shortlisting recognises Forsters’ family team‘s achievements this year in delivering quality legal advice to our clients throughout the pandemic and supporting families during this particularly challenging time. The team have also maintained an ethos of giving back to the wider family law community and providing assistance to vulnerable individuals through a range of pro bono and CSR initiatives.
The shortlist and winners are chosen by a judging panel made up of the heads of the Family Law Bar Association, Resolution, the Association of Lawyers for Children and the Chartered Institute of Legal Executives, along with Family Law editors and publishing professionals.
The winner will be announced at the awards ceremony on 24 November 2021.
Introducing Breaking Good, the new Forsters’ podcast. Comedian Marcus Brigstocke teams up with leading family lawyer Jo Edwards and members of Forsters’ Family team to demystify the divorce and separation process. An informative and entertaining guide to modern family 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.
Forsters’ top-ranked teams shortlisted in the Legal Business Awards 2021
3 September 2021
News
We are delighted to announce that Forsters has been recognised in the 23rd annual Legal Business Awards, which celebrates the very best in the legal profession.
Two of our top ranked teams have been selected by the judging panel as finalists in this year’s awards:
It is a testament to the firm that both of our principal practice areas have been selected by the research team at Legal Business. The shortlistings demonstrate the strength of expertise within our top-ranked teams, acknowledging the high quality and complex work that is carried out for both domestic and international clients.
In the last year both teams have grown in size and specialism, the Real Estate team welcomed the arrival of a 16-strong team from Orrick, while our Private Client practice saw three Senior Associates promoted to Partner.
The winners will be announced at the awards ceremony on 30 September.
Senior Partner, Smita Edwards who led the transaction for Octopus Real Estate which featured in our property submission commented: “I am delighted to see our real estate team recognised for our work in advising Octopus Real Estate on the acquisition of eight purpose built care homes. This was one of the biggest portfolio purchases completed to date by the Octopus Healthcare Fund and our team delivered on this challenging project within a demanding timescale. With thanks to Amy France, Ruth de Maupeou, Danielle Kenyon, Emma Francombe, Richard Spring, Caitlin Ervine, Lauren Archer, Laura Parrish and Sophie Smith who all played a significant part in the team’s success.”
Head of Commercial Real Estate, Andrew Crabbie commented: “We are, of course, delighted to be shortlisted for Property Team of the Year. The above transaction is just one of the many complex transactions we have handled this year. It has been a great year for us as a team.”
Head of Private Client, Xavier Nicholas commented: “Forsters has long been known for its expertise in advising on all aspects of private client matters. In a time that has presented challenges for families and businesses throughout the world, it is particularly satisfying to be recognised for our work and client commitment, as well as the strength of talent we have within our group.”
Forsters has advised Octopus Real Estate in relation to the acquisition of eight new care homes from LNT Care Developments for an overall purchase price of over £100 million.
From growing a business to starting a family or handing over control of that business to the next generation, every individual has their own goals to aspire to. Our Private Wealth lawyers advise our clients throughout this family life cycle, providing the legal advice required for specific transactions such as purchasing a home or selling a business, whilst also advising on the long-term opportunities for succession and estate planning.
The Building Safety Bill (the Bill) was introduced to the Commons on 5 July 2021, some four years after the Grenfell Tower disaster.
In what is proposed by the Government as being the biggest shakeup of building safety regulation since the Building Act 1984 (and following closely on the heels of the Fire Safety Act 2021), this legislation was widely expected to provide comprehensive detail about how the government intends to deliver its plan to end the cladding crisis which is estimated to be affecting four million leaseholders nationwide.
Although amendments are expected to be made to the Bill before it receives Royal Assent in or around April 2022, we have unpicked some of the key proposals it currently contains in our PDF guide here.
Building Safety Regulator
This new body will sit within the Health and Safety Executive (HSE) and lies at the heart of the new regulatory regime.
It will have three main functions:
Overseeing the safety and performance system for all buildings, including the provision of advice to the government about building regulation changes and the identification of risks in the built environment;
Encouraging the improvement of competence in the built environment sector; and
Leading the implementation of the new regulatory regime for higher-risk buildings (defined as being buildings in England that are at least 18 metres high, or at least seven storeys, or contain at least two residential units)
The HSE has a proven track record of enforcing related legislation stringently and so it is certainly to be welcomed that it has been named as the new regulator, provided it is given sufficient resources to incorporate this new role into its remit.
The Gateways
Three overarching Gateways will form part of the new regime governing how higher risk buildings are designed and constructed and how any major renovations are undertaken.
Planning (from 1 August 2021) – Anyone submitting planning applications to construct a higher risk building will need to show that they have considered fire safety issues and Dutyholders will need to provide fire safety information.
Prior to construction (12 – 18 months from Royal Assent) – Approval must be sought from the new Regulator before breaking ground, Dutyholders must demonstrate to the Regulator how the design and construction will comply with Building Regulations. Where works begin before this gateway has been passed, the Regulator will have a range of enforcement options, including prosecuting the developer.
Completion (12 – 18 months from Royal Assent) – Dutyholders must submit documentation to the Regulator, including detailed as-built drawings and must also demonstrate compliance with Building Regulations and fire safety requirements. The Regulator will undertake an assessment and, if satisfied that the building is fire safe, will issue a completion certificate.
The introduction of stop-go gateways, where evidence of compliance must be produced before a project can move into the next phase, should improve scrutiny of the proposed scheme.
Implied terms in leases
Several terms will be automatically inserted into the existing and new leases of flats in higher-risk buildings including:
An obligation on the lessee to allow access to the landlord/managing agents on reasonable notice in order to carry out building safety works;
A requirement in leases of more than seven years for the lessee to pay a proportion of any ‘building safety charges’ incurred by the landlord. These are the reasonable costs (or estimated costs) incurred by the Accountable Person in connection with building safety measures (and will include fees). As a condition of being able to re-charge the lessees, landlords will have to take ‘reasonable steps’ to ascertain whether there are any other viable avenues of funding for the relevant works
Parties will be unable to contract out from the implied terms.
Dutyholders and The Accountable Person
It is hoped that the implementation of ‘Dutyholder’ roles, similar to those under the Construction (Design and Management) Regulations 2015 will mean that it is clear who has responsibility for fire and building safety throughout the life cycle of a higher risk building.
The Accountable Person will need to be appointed once a building is occupied. It will be the person or entity who owns the common parts or who is under a relevant repairing obligation. In practice this is likely to be the freeholder, head leaseholder or management company or, where more than one of those exist, it appears that the freeholder will be the principal Accountable Person.
As part of its role, the Accountable Person will have a duty to ensure that the building is registered with the Regulator, to appoint a competent building safety manager and to obtain a Building Assurance Certificate which will confirm compliance with their various safety duties.
In addition to their duties at the relevant stages of construction, upon completion the Dutyholders will have to provide the Accountable Person with the ‘golden thread’ of building safety information for the particular building, setting out how the task has been managed from design to occupation.
Extension to Limitation Period of the Defective Premises Act 1972 (DPA)
A surprise addition to the Bill, provision has been included to more than double the limitation period for breaches of the duties contained in the DPA. This extends the time that proceedings could be brought against those responsible for any defective building, including designers, contractors and developers, from 6 years to 15 years and the change will apply retrospectively.
There are already murmurs of Human Rights Act challenges backed by industry bodies to this proposal if it becomes law which will relate to the sudden and hugely increased exposure to claims, but other sources consider that the likelihood of occupiers having the appetite, or the pockets, for this type of litigation will be minimal.
Development Levy
A new tax on large residential property developers is already at consultation stage, but an additional levy has been incorporated into the Bill and will attach to applications for Building Control approval for higher-risk buildings.
