Know where the bodies are buried… what if the house I’m buying has graves in the garden?
29 October 2021
News
As strange as it sounds, it isn’t unusual for country houses and estates to come with a few skeletons in the cupboard – or the garden at least. Many have graveyards or graves in the grounds, usually for previous inhabitants.
Graveyards or mausolea are occasionally retained by the descendants or their trustees, and may even be consecrated. So, what do you do if the house you are buying has graves in the grounds?
In general, people will be buried in a church graveyard (consecrated ground, owned by a Church of England body). Where they are buried on private land, that site may be consecrated too, in which case special restrictions apply. While we deal with consecrated mausolea and private chapels on some of our larger estates, most of the graves in country houses are on land that is not consecrated, and it is those cases that this article considers.
When buying a house with private graves, first, you need to check the burial complies with the existing law. The law on burials is largely drawn from Victorian times and is not as prescriptive as one might imagine. There is no restriction on burying someone on un-consecrated private property. However, the landowner does need to comply with various requirements. For instance, a landowner must:
Obtain a Certificate of Authority for Burial, usually obtained when the death is registered.
Comply with Environment Agency requirements not to pollute groundwater.
Not commit a nuisance, injury to neighbours, or breach any freehold or leasehold covenants.
Maintain a burial register pursuant to the Registration of Burials Act 1864. There is no prescribed form for the register, so a simple plan and note of who is buried, when and where should suffice. Failure to keep a register is a criminal offence.
If required, obtain planning permission. Permission is only required where the burial would constitute a change of use under the planning regime. Surprising though it may sound, this is simply a question of fact: broadly, a few burials in a large garden, grounds or a farm do not give rise to a material change of use, but they could well do in a much smaller garden or urban setting.
Permit access for the Secretary of State to inspect the burial ground if required (this is a statutory right under the Burial Act 1855). Obstructing him is a criminal offence.
Second, you need to check the location of the graves will not interfere with your plans for the property. There are various regulatory requirements designed to protect human remains where you propose to move or disturb the bodies. Complying with these regulations (including getting consent to exhume and relocate the bodies) can be an expensive and slow process, so it is critical to check that the graves are not near a potential extension or development site, and if they are, then you need proper advice before you proceed.
Finally, you need to know whether the graves affect the title. Sometimes there are rights for descendants to visit the grave. While these tend to get forgotten over time, it is essential to check whether someone could come onto your property and on what terms, and whether in practice anyone does so.
In conclusion, if you are buying a property with graves, you need a solicitor who understands the requirements and your plans for the property. Otherwise, you may have some unpleasant Hallowe’en surprises in store for you!
Forsters advises OakNorth on the increase of its facility to Hayfield
28 October 2021
News
Forsters’ Real Estate Finance team acted for OakNorth on the increase of its funding facility for five-star housebuilder Hayfield. Partner, Simon Collins, and Senior Associate, Dominic Lintner, have acted on the facility from its inception in 2020.
The previous loan was capped at £50 million. OakNorth has now provided a further £17 million.
Hayfield will use the additional funds to buy new sites around middle England and the commuter belt, to increase development to 500 homes a year. Hayfield currently has more than 400 homes under construction, a further 400 consented and over 1,000 homes in the pipeline.
Simon Collins commented: “It was great to work with and advise our long-standing client OakNorth on the increase of their facility to Hayfield and provide the support SME housebuilders require. The Forsters team were delighted to be involved on such an important deal.”
Natasha Rees considers the Court of Appeal decision in Aster v Chapman in RICS Property Journal
28 October 2021
Views
Head of Property Litigation, Natasha Rees, has written an article in the RICS Property Journal on the recent Court of Appeal case, Aster Communities v Kerry Chapman and Others.
The Court of Appeal considered the circumstances in which the First-tier Tribunal (FTT) may grant a landlord dispensation from the consultation requirements prescribed by Section 20 of the Landlord and Tenant Act 1985.
The article was first published by RICS Property Journal and is available on their website here.
Graduate Recruitment partner, Emily Holdstock, and Graduate Recruitment officer, Emma Cooper, join podcast host Miri Stickland to talk about the key dates and events coming up in the graduate recruitment calendar, key points for candidates to note and some top tips for navigating the application process.
The article was first published by Property Wire on 25 October and can be read in full below.
Despite the protracted Brexit process and the undeniable impact that Covid-19 has had on the capital, it is becoming increasingly clear that London’s international popularity is not going anywhere. History, food and dining, education, the arts (particular the return of live performances over recent months) and, of course, the city’s incredible diversity continue to tempt both overseas investors and occupiers to our resilient metropolis and ever more notably to the UK’s other cities such as Manchester and Birmingham.
The London property market, though desirable, has its nuances. Forewarned is forearmed, and this is irrefutably true when looking to purchase in Bonnie Blighty.
Freehold and Leasehold
The majority of flats in the UK are probably leasehold properties. Leasehold seems to be a tenure which is individual to the UK and is unsurprisingly confusing for most buyers (“why do I have a lease if I’m buying the property?”) and particularly for those residents in jurisdictions where leasehold does not exist. Despite the Leasehold Reform we have been promised for years, changes that have been brought in are few and (relatively) minor, the more significant overhaul seems lengthy and tricky to implement and it seems likely that leasehold in some form or another is here to stay for now. Competent property advisors and lawyers will know what to look for and help guide buyers through this minefield.>/p>
SDLT (and UK taxes generally)
Even conveyancers struggle with SDLT (stamp duty land tax) now. We are a world away from the straightforward slab rates from a few years ago. Is it an additional property? Could multiple dwellings relief apply? Is the purchaser a company and if so, does it qualify for business relief? And do remember to add on the extra 2% non-resident SDLT.
The government online calculator can be a helpful starting point but be sure to ask a lawyer or tax advisor to assess the likely SDLT position and any other tax implications. An overseas investor would be wise to use law firms with tax teams so that they can obtain all the relevant advice in one place.
Anti Money Laundering procedure
No one enjoys this process. No one. But with residential property continuing to prove an attractive ruse for money laundering, a rigorous compliance check to establish the person and source of funds behind each property purchase is essential. There is a lot to be said for starting this process before an offer is made and even before the property search begins to ensure there are no unnecessary delays which might impact on the purchase itself.
Planning rules
Savvy investors may well be looking to add value by renovating and/or extending their purchased property. It is worth considering from the outset what (if any) work is intended and taking bespoke advice from surveyors and lawyers as to the relevant planning regulations – these differ depending on the local borough and are frequently amended. In particular, consider whether the property is listed and/or in a conservation area which may restrict or require additional consents and impose further conditions on any planned alterations.
It (almost) goes without saying that instructing a good team is integral to the buying process. In a world where global travel is yet to return to 100% restriction free, it would hardly be surprising that many international investors might not be willing to make the trip to the UK to visit potential properties themselves for fear of changes in traffic light systems, or because (understandably) they do not wish to face weeks of possible quarantine on their return. A trusted team must be assembled to ensure a smooth transaction.
One hugely valuable asset could well be a buying agent. Unlike the US and Southeast Asia where savvy buyers will likely have a broker, estate agents in the UK are appointed by, and therefore primarily act for, the seller. Buying agents provide an independent and experienced insight into the property market, whilst often having access to properties which are not yet listed for sale. Many who instruct buying agents would argue that, as well as the invaluable advice they offer, their fees are often recovered by the discount they are able to negotiate thanks to their expertise and knowledge of the industry.
And of course, experienced, commercial lawyers with a strong knowledge of the local area are a must. The right lawyer should provide a thorough review of the title, searches and information provided by the seller, raise bespoke and relevant enquiries and keep buyers properly informed along the way. Lawyers can make or break a property sale/purchase, so it is worth shopping around and choosing a firm with an excellent reputation, as well as a proactive, solution-based approach.
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.
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 CMA’s announcement will no doubt be of grave concern to streaming platforms such as Spotify.
If the final report suggests that such platforms have acted anti-competitively, this could lead to a gigantic “opt out” class action against the platforms (in the style of the recent Collective Proceedings Orders (CPOs) granted in Merricks v Mastercard, Le Patourel v BT and Gutmann v London and South Eastern Railway Limited).
Given how ubiquitous streaming platforms are, the potential class of claimants could extend to all individuals who have streamed music over a specified period (potentially since the inception of the platforms), and the damages could run into billions (as was the case in each of Merricks v Mastercard and Le Patourel v BT). This is leaving aside class action that the musicians themselves could also launch.
Le Patourel v BT is of particular relevance here, because the CAT made it clear in that case that a CPO, the order required before an “opt out” group action can proceed, could be granted against BT on the basis of the findings of an Ofcom market review.
As such, the findings of the music streaming market study could themselves provide sufficient evidence for a CPO to be granted against streaming platforms (whereas the more traditional school of thought was that a specific finding of anti-competitive behaviour had to be made by the European Commission or CMA).
The threshold evidential requirement for granting CPOs has therefore been lowered by Le Patourel v BT, and it seems plausible that any findings of the recently announced market study by the CMA could be enough to get an “opt out” group action against the streaming platforms off the ground.”
Get your tips in order – new rules surrounding tips and gratuity payments for the hospitality sector
22 October 2021
News
In a world where cash payments are a growing rarity, practices around leaving a tip in recognition of good service in the hospitality sector are also changing. Customers are more frequently adding a gratuity at the point of payment when the card machine is presented to them. This is just one of the reasons why the UK government has deemed it necessary to review the way in which employers in the hospitality sector distribute tips, gratuity payments and service charges amongst their workers.
At the end of September 2021, the government confirmed its plans to introduce a package of measures to ensure that over two million workers in the hospitality sector are able to retain all of the tips, gratuity payments and service charges paid to them ; to enable these workers to receive “a fair day’s pay for a fair day’s work”.
The government has recently made several steps to protect and enhance workers’ rights and it seems that the onus for complying with this latest package lies predominantly with the employer. Employers will be required to:
have a policy in place stating how tips will be handled and distributed fairly, with no deductions (including deductions from card providers) other than tax and employee national insurance contributions; and
implement transparent and accurate record systems on how tips have historically been distributed to workers. These records must be provided to a worker within four weeks of their request to access them.
Failure to successfully adhere to the new statutory provisions will see aggrieved workers able to exercise their right to bring a claim in the Employment Tribunal for repayment of wrongfully deducted tips and gratuity payments. If a claim succeeds, the Employment Tribunal will also be able to issue a fine to the employer by way of penalty.
Commentary from business owners and employers in response to the announcement of the package is that, although willing to comply, challenges could arise when streamlining the handling of tips in a lawful way and is likely to require consultation with payroll providers and a revamp of commonplace practices of automated gratuity and service charges being applied at the point of card payment.
In the absence of a confirmed date for the measures to be implemented, now is the opportune time for employers in the hospitality industry to consider their current practices. This will reduce the risk of any costly penalties and avoid a last-minute scramble to become compliant when the statutory provisions come into force.
Joe is Counsel and Nina is a Legal Executive in our Employment team.
Disclaimer
This note reflects our opinion and views as of 22 October 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
The Covid-19 pandemic created a perfect storm for the hotels sector and, despite ever improving signs of recovery, the resulting devastation will take time and innovation to repair. Unprecedented economic life-support provided by the UK government over the last two years has kept the gathering clouds at bay, but there could well be casualties in 2022 and beyond. This was the conclusion of a roundtable discussion hosted by Forsters on 10 November 2021.
Entering into a joint venture with another party in respect of the development of a property continues to be a popular way of sharing risk, pooling knowledge and expertise, and potentially making a project more attractive to third party funders.
In this article, Ben Brayford and Christine Dubignon, consider the fundamental issues which should be considered when entering into a property joint venture arrangement.
I’ve been in talks with a proposed joint venture partner for some time, and we’ve now agreed to go ahead with the project. What should I do next?
Discussions up to this point are likely to have focussed on the potential of the underlying project and the broad contributions of each party, so it’s now time to consider the specifics of the joint venture arrangements. It’s not always necessary for a formal heads of terms to be entered into (and in some cases this can actually delay matters), but the key commercial issues should be agreed in principle before any legal documents are prepared. Not only will this make the legal process more efficient and cost effective, but it will also identify any key stumbling blocks at any early stage. These would include matters such as:
What legal structure is to be used (a company, LLP or limited partnership for example) and does either of the parties have any tax considerations that need to be addressed?
What are the ownership shares of each party?
How will decisions be made?
How will the project be funded?
Who is doing what in respect of the project (e.g., running any planning process, assuming any development management role etc.)?
When can new parties be admitted/ the existing parties exit?
How will disputes be dealt with?
We’ve agreed to fund the initial costs on a 50:50 basis, although once we achieve planning permission, we intend to borrow from a third party. Is there anything else that we need to consider in relation to funding?
If there is a cap on the amount the parties can be obliged to fund, this should be documented – ideally by reference to a budget or project appraisal. Project costs, even in the preliminary stages can be unpredictable and a contingency element should be included. Consider also what should happen if one party is unable/ unwilling to fund for some reason. Should they be forced to leave the venture or instead face some kind of financial penalty? Importantly, consider including an ability for one party to fund unilaterally where the other fails to do so. If all funding requires the consent of both parties, then one party could find themselves “blocked” from contributing much needed cash – where needed to secure the viability of the project generally as well as to protect any previous investment. This can be of particular importance where a dispute arises between the parties.
You should agree in principle what should happen if you fail to secure funding for the project on acceptable terms. Should the parties be allowed/ forced to fund it themselves, should the site be sold, or should another third-party investor be introduced? As these are all key decisions, it is helpful to agree a roadmap at this stage.
As we’re funding on a 50:50 basis, should we both be involved in all decisions?
Not necessarily. The starting point is to understand what each party is contributing to the project. If one of you has particular commercial expertise, it might be appropriate to delegate overall responsibility for certain functions to them – provided they operate within agreed parameters outside which you both must be in agreement.
Having an agreed business plan is crucial as this will clearly identify the objectives and milestones and can again be used to assist with delegation of responsibilities.
Fundamental issues, such as the introduction of new parties, disposing of the site, and entering into unusual or onerous contracts should be subject to the consent of both of you. However, care must be taken to not create an unwieldly operating model or a risk that one party could create a deadlock over something relatively trivial.
If certain decisions do require unanimous consent, you will need to agree what happens if you are unable to both agree to a particular proposal.
The other party is suggesting that we have a “buy out” mechanism in the case of any dispute. What would this involve?
A dispute is most likely to arise where you fail to both agree to a matter which requires unanimous consent and there are various ways this can be addressed.
It might be appropriate not to have any formal resolution mechanism as this can effectively force the parties to negotiate to achieve an appropriate commercial agreement. However, this does create uncertainty, and depending on the nature of the decisions which could give rise to a deadlock, could be unsatisfactory especially if the project is of different commercial significance to the parties. If it constitutes a major investment, a party is unlikely to want it to stall if a decision can’t be reached, but a larger participant who may have concluded that the project is not going to be as profitable as anticipated may be happy for it to be “mothballed”.
Many decisions requiring unanimous consent will have important commercial consequences, so whilst expert determination provides certainty, it will rarely be appropriate.
A buy out mechanism gives one party the right to buy out the interests of the other and tends to favour the party in a stronger financial position. It needs to be considered carefully as it can be exploited if a party wants to force an exit of the other and can also be used as commercial leverage in discussions about matters requiring unanimous consent.
It can be “softened” by imposing time restrictions on when it can be used, setting minimum prices to be paid (e.g. objectively determined “fair value”, or a premium on fair value), or by allowing it to be reversed on the party who has instigated the process. As any buy out mechanism can potentially lead to one party exiting the venture it will need to be extremely carefully negotiated.
The other party will be acting as development manager but has said that we don’t need a separate DMA as we will have a shareholders’ agreement. Is this correct?
The key issue here is to identify exactly which services you are expecting them to perform and the specific remuneration structure. If they completely fail to perform the services, or don’t do so to an appropriate standard would you be happy with them retaining 50% of any profits regardless?
It is often helpful for a separate development management agreement to be entered into – even if on an abbreviated basis. It should identify the relevant services, the basis on which they are to be performed, any fees payable, and termination rights. Structuring the arrangement like this means that an appropriate weighting can be given to the fees payable for the development management services and the profit entitlement arising by virtue of the parties’ initial funding of the project. It also allows the opportunity for the development management arrangements to be terminated if required.
It’s also worth considering how the joint venture and DM roles are connected. If the DM was in default, should this have any impact on its profit share or other rights as a member of the joint venture? Additionally, if a termination right does arise under the DMA, should the non-DM party be able to terminate the DMA without the DM blocking the termination at joint venture level?
How will the sale of the development be dealt with and will I have the ability to sell my interest in the joint venture before then?
The parties should be clear at the outset as to the exit strategy envisaged for the development and whether (outside of a dispute scenario) there will be the ability for either party to sell its interest at an earlier stage.
Typically, a completed development will need to be let and then sold. If one party has assumed the development manager role, then it may make sense for it to take on primary responsibility for putting together the letting strategy and disposal strategy, albeit with oversight from the other party. How this will work should be documented as part of the DMA and joint venture arrangements.
However, a party may wish to withdraw from the joint venture and sell its interest prior to completion and disposal of the development – perhaps because the development has become unexpectedly protracted or because financial pressures mean that party wishes to extract its investment at an earlier stage than anticipated.
Generally, a joint venture agreement will contain restrictions and controls around how (and when) this can be achieved. Some element of protection will often be necessary to limit the circumstances in which the other party can be saddled with a partner not of its choosing. This can be particularly relevant if one of the parties is performing the development manager role, and they will often be subject to ‘keyman’ provisions design to ensure that key personnel remain involved in the project.
Chambers and Partners continues to recognise Forsters as one of the leading London firms
21 October 2021
News
Chambers and Partners have today launched their latest guide to the legal market. Forsters is delighted to report that it has maintained its Top Band status in both Real Estate and Agriculture & Rural Affairs, and that the firm’s Property Litigation practice has been elevated to Band Two.
The news follows the firm’s success in the Chambers HNW Guide, where our Private Wealth Law and Private Wealth Disputes teams retained their Top Band ranking.
The UK Guide ranks 24 of Forsters’ leading Partners and Counsel and also recognises other expert teams including Property Litigation, Family and Construction. Included this year are four new individual rankings; Ben Barrison, Emily Holdstock, Richard Spring and Victoria Towers.
The Guide reports that “High-level client service and prompt, well-resourced and informed advice.” Are key features of the firm, further cementing Forsters reputation as one of the preeminent firms in the London market.
Chambers notes: Well-regarded rural team with capabilities across rural property, tax and contentious work. Clientele includes owners of traditional landed estates as well as international purchasers.
“It’s a dynamic team who are able to apply considerable skill and focus to a specific project. They have a depth of knowledge but more importantly approach problems with a can-do attitude and take particular care around managing their clients.”
Advises a number of leading real estate funds, offering expertise in all kinds of investment transactions. Also handles development matters including sizeable residential schemes. Represents developers, investors and landlords in relation to retail property concerns and also has notable expertise in handling matters related to the logistics sector. Continues to advise The Crown Estate on a range of matters concerning its London property portfolio.
One client says: “The team is experienced, knowledgeable, accurate and proactive. We have always had a good experience working with them, even on difficult projects.”
Chambers Notes: Represents a broad client base ranging from institutional investors and funds to property developers. Advises on a wide range of residential property disputes and enfranchisement cases. Maintains substantial expertise in contentious matters concerning rights to light, service charge disputes and professional negligence claims.
A great quote for Ben: “He’s a pleasure to work with and has a good relationship with clients. He recognises the strengths and weaknesses of a case and gives clear instructions.”
Chambers notes: Broad practice covering complex and high-value financial remedies, as well as a variety of children law matters for married and unmarried parents. Advises foreign nationals on complex post-separation issues, as well as UK-based parties with cross-border asset portfolios. Houses significant strength in nuptial agreements covering multiple jurisdictions. Particular experience in cases with trust-related issues, and acts on behalf of trustees.
A great quote for Jo: “She’s a well-known, reputable practitioner who can do everything!”
Forsters’ Family team is also ranked in Band Two in the Chambers HNW Guide 2022. Jo Is also ranked in Family/Matrimonial: Mainly ADR – London (Firms) table.
Chambers notes: Well-respected firm with a strong reputation for purchaser-side representation in both a contentious and non-contentious capacity. Receives regular instructions to advise clients on large-scale domestic residential and commercial developments. Able to assist with construction-related disputes, with experience in representing clients in the Technology and Construction Court, as well as arbitrations and adjudications.
“They are very commercial, incredibly responsive and cut through all of the unnecessary jargon”, an impressed client reveals.
The following Partners and Counsel are also Ranked Lawyers in the 2022 Guide:
Victoria du Croz – Planning “Victoria du Croz is extremely competent in the field, providing clear, succinct advice that aims at solving issues in a proactive way.”
Dearbhla Quigley – Capital Markets: AIM “She provides top-draw advice and guidance and has good technical abilities.”
Neasa Coen – Charities “She really adds value for us because she understands where we might see problems and presents us with options to get over our difficulties.”
Lucy Barber to judge the Spear’s Wealth Management Awards 2021
20 October 2021
News
Head of Residential Property, Lucy Barber, will act as one of the judges at the upcoming Spear’s Wealth Management Awards 2021.
For over a decade, the Spear’s Wealth Management Awards have recognised the best wealth managers, lawyers, property advisers, accountants, family office service providers and private banks relied upon by high net worth individuals.
In her role, Lucy will be responsible for objectively assessing the finalists in the Property Adviser of the Year category.
Contentious Trusts and Estates Senior Associate, Hannah Mantle, will also be representing Forsters at the awards, having been named as a finalist in the ‘Future Leader in Private Client Services’ category.
The winners will be announced at the virtual ceremony on 23 November 2021. You can register to attend the awards here.
Forsters LLP commits to a science-based emission reduction target
20 October 2021
News
Forsters, one of the leading Real Estate and Private Wealth law firms, announces today a commitment to a science-based emission reduction target. As part of its sustainability commitments, Forsters has set a target of reducing its absolute scope 1,2 and 3 emissions by 50% by 2030, starting from a baseline year of 2019.
At the same time, the firm has joined the Business Declares movement, cementing its formal recognition of the Climate Emergency and the role it wants to play in tackling climate change. These two developments coincide with the impending climate discussions taking place in November 2021 at COP26. Forsters recognises the importance of businesses taking action to tackle climate change and looks forward to the outcome of these discussions.
Forsters has been a carbon neutral firm since 2007 but has a desire to do more in tackling the climate crisis beyond offsetting its own emissions. With today’s announcement, Forsters becomes one of the first law firms among its peer group to make a formal commitment to science-based targets. The firm is working with the Achilles Carbon Reduce Programme and will be submitting its target to the Science Based Target initiative for validation. In addition to emission reduction, Forsters will continue to offset its emissions each year as it works towards its stated target.
The firm’s commitment to the Business Declares movement is therefore aligned with its own sustainability commitments and reflects its longer-term ambition to achieve net zero emissions by 2050, in accordance with UK Government goals.
Kelly Noel-Smith, CSR Partner at Forsters, said: “We feel passionately as a firm that collaboration with our immediate stakeholders and the wider business community is fundamental to bringing the necessary change to limit the worst effects of global warming. We understand the importance of businesses of all sizes taking action to address climate change, and we are proud to be one of the first law firms of our size to commit to these ambitious science-based targets.
We look forward to working alongside members of Business Declares, our clients, intermediaries and others, as well as continuing to work with other law firms in the Legal Sustainability Alliance and Sustainable Recruitment Alliance.”
We are committed to running a business that is environmentally sustainable. Not only do we continually strive to minimise our impact on the environment, but we have years of experience of incorporating sustainability considerations into the legal advice that we provide to our clients. Our sustainability hub brings together the team’s insights and legal expertise on a broad range of environmental matters that affect our clients’ business and personal affairs. This is a rapidly evolving and wide-ranging area of law and we will continue to share our insights about related legal developments on this hub.
Managing the hotel sector – getting the operator in
19 October 2021
News
One of the key elements for the owner of any new hotel is getting the right operator in place. More than just a covenant strength concern, the right operator is essential for ensuring the parties get the most out of the hotel from a financial perspective.
But once you have found your operator, on what basis do you bring them in? There are various ways of doing this, but generally speaking most hotels will be operated under either a lease, management contract or franchise arrangement – or in some cases, a combination of these.
Which option the parties choose will depend on a number of factors, including the nature of the hotel asset the level of knowledge and experience which the owner possesses in respect of the hotel sector, the liquidity of the particular hotel in question and the risk/reward appetites of the respective parties.
Lease
Under a lease structure the operator will be responsible for maintaining the property as well as performing all operating responsibilities. The operator will also take a greater degree of risk (and reward) in respect of the financial performance of the hotel since it will receive all of the profits after rents have been paid. Rental structures can vary depending on the amount of risk the parties are willing to take, but potential options include:
Fixed rent – This may be index linked or subject to open market reviews. Here the risk on hotel performance sits with the operator as the rent will not change however the hotel performs.
Share of revenue – The rent is calculated as a percentage of the gross revenue of the hotel. Sometimes the owner will have the benefit of a fixed base rent with scope for an uplift where revenue exceeds a given threshold.
Share of the profit/net income – Similar to a share of revenue, but here the owner will be taking a greater degree of risk since the cost of operating the hotel (which it has little control over) will also come into play.
Hotel Management Agreements
A hotel management agreement (or HMA) allows the owner to engage the operator to run the hotel for them in exchange for a management fee. The owner continues to own both the property and the business, whilst the operator manages the business on behalf of the owner. The risk and reward profile is greater in this arrangement as the owner bears all the costs and liabilities in the usual way of a business owner but also receives the profits after paying the operator its management and other fees under the agreement. A HMA is particularly attractive to owners who are interested in investing in hotels but do not want to operate it on a day-to-day basis, as well as allowing an owner to bring in a well-established manager and benefit from the manager’s expertise, efficiencies and reputation.
The fee structure under a hotel management structure generally comprise both a base fee and an incentive fee. A base fee will be payable based on a percentage of the total revenue and an incentive fee usually be a percentage of the adjusted gross operating profit (i.e. profit less base fee and, in some cases, FF&E reserve, property taxes and insurance). In addition to the base fee, there will be other fees payable such as a sales and marketing fee, licencing fee and fees for centrally provided services such reservations.
Hotel management agreements can be used alongside franchise agreements or can include the right for a management agreement to flip into a franchise arrangement after a period of time. A franchise agreement allows the owner to make use of a franchisor’s established business operations, intellectual and reputation for a franchise fee. The owner may either operate the hotel itself or appoint a manager on a white label basis who will operate the hotel under a management agreement that will require the manager to comply with the franchise agreement.
How to choose?
Many factors will impact on which arrangement the parties choose. Commonly budget and mid-market hotels which are considered more liquid will be operated under a lease, whereas upscale and luxury hotels are more likely to be subject to HMAs as they are more illiquid and it is harder to dispose of them.
An owner which prefers a lower risk profile or one with less experience of the hotel sector will typically lean towards a lease. This moves the transaction closer to a standard real estate transaction and the operator, as tenant, can be made fully responsible for the upkeep and outgoings of the property, leaving the owner to collect the rent. From the operator’s point of view, this structure generally leaves it with the greatest level of autonomy.
That being said, hybrid-type arrangements are becoming more common – leases which have a greater degree of owner oversight over the operator together with greater flexibility to reduce the risk of unsustainable rental levels, versus HMAs with guaranteed returns for the owner.
Additional considerations
Of course this is only the start, a transaction may also involve technical services agreements (if the hotel is being developed), asset management agreements (if the owner is employing a separate asset manager to oversee the performance of the operator) and non-disturbance agreements (if there is finance in place) to name a few.
The Covid-19 pandemic created a perfect storm for the hotels sector and, despite ever improving signs of recovery, the resulting devastation will take time and innovation to repair. Unprecedented economic life-support provided by the UK government over the last two years has kept the gathering clouds at bay, but there could well be casualties in 2022 and beyond. This was the conclusion of a roundtable discussion hosted by Forsters on 10 November 2021.
Forsters advises Barwood Capital on the acquisition of a proposed industrial and logistics scheme in Nottingham
19 October 2021
News
Forsters has advised Barwood Capital (“Barwood”) on the purchase of a 17.4 acre site in Bulwell, Nottingham for the development of a new high quality industrial and logistics scheme.
Barwood have teamed up with Premcor, who will act as their development manager, to secure planning and deliver a net zero carbon and BREEAM Excellent 370,000 sq.ft. single unit close to the M1.
Edward Henson, Director and Head of Transactions at Barwood Capital, comments: “With the support of the City of Nottingham, we are looking forward to creating first class, sustainable logistics accommodation in an area where there’s currently no available units above 300,000 sq ft. Meeting this demand will offer jobs and opportunities to many local residents as we continue to emerge from the Coronavirus pandemic.”
Hannah Mantle named as a finalist in the Spear’s Wealth Management Awards 2021
14 October 2021
News
Contentious Trusts and Estates Senior Associate, Hannah Mantle, has been named as one of the finalists at the Spear’s Wealth Management Awards 2021, in the ‘Future Leader in Private Client Services’ category.
For over a decade, the Spear’s Wealth Management Awards have recognised the best wealth managers, lawyers, property advisers, accountants, family office service providers and private banks relied upon by high net worth individuals.
Hannah’s shortlisting is a demonstration of the strength of her practice and ability to advise a full range of clients on complex and delicate private client disputes, as well as of her wider role within the team.
The winners will be announced at the virtual ceremony on 23 November 2021. You can register to attend the awards here.
Return of the SPAC? – Listing Rules Changes for UK SPACs
13 October 2021
News
In an effort to encourage a greater number of special purpose acquisition companies (SPACs) to list in the UK, the Financial Conduct Authority (FCA) has made a number of changes to the Listing Rules. Such changes came into effect on 10 August 2021.
As explained in our previous article, SPACs are companies that are formed to raise investment capital through an initial public offering (IPO) in order to fund the acquisition of an existing company. If no acquisition is made within a certain period of time (usually two years), the funds are returned to the investors.
Compared to other jurisdictions, such as the US, SPAC activity on the London markets has been negligible, with the main deterrent considered to be the suspension of trading in a SPAC’s shares once it announces a potential acquisition. This results in all investors being locked in while the SPAC is undergoing a reverse takeover and preparing the enlarged group for a new listing. Consequently, any investors who do not approve of the acquisition are unable to dispose of their shares until after completion.
Following Lord Hill’s review of the UK’s listing regime and recommendation report, an FCA consultation and an FCA policy statement, the Listing Rules have now been amended in an attempt to make the UK a more attractive venue for SPAC IPOs, while ensuring adequate protection for investors.
What are the changes to the Listing Rules?
Simply put, the presumption that trading in a SPAC’s shares will be suspended as soon as it announces a potential acquisition has been removed, provided that the SPAC meets the following conditions:
At least £100 million must be raised at the IPO stage.
The monies raised by the IPO must be ring-fenced to be used only to fund an acquisition or returned to investors (subject to any specified running costs of the SPAC).
Shareholders can redeem their shares at a pre-determined price prior to completion of the acquisition.
Approval of the acquisition by the SPAC’s board (excluding any directors with a conflict of interest).
The publication of a “fair and reasonable” statement written with the advice of an independent and qualified adviser if any of the SPAC’s directors have a conflict of interest in relation to the acquisition.
Approval of the acquisition by the shareholders (excluding the founders, sponsors and directors).
A time limit of two years in which to complete an acquisition, which can be increased to three years if the shareholders agree. A six-month extension is permitted without shareholder approval if the acquisition is well advanced.
Adequate disclosure of the key terms and risk factors from the time of the IPO through to completion of the acquisition.
SPACs that do not meet these requirements may still be listed, but the presumption of suspension will continue to apply to them.
The FCA has also stated that it will modify its supervisory approach such that SPACs will receive greater comfort prior to a listing that they fall within the new non-suspension regime.
The future of SPACs
The FCA’s revised approach seeks to provide larger SPACs and their investors with more flexibility, removing a significant disincentive to list in London and although the jury is still out on whether the new SPAC regime will lead to an influx of SPAC listings on the London markets, it will be interesting to see what the next couple of years brings. What is clear however, is that although the debate as to whether the UK will become the centre for SPAC activity remains open, the FCA’s flexible and market-oriented approach has been broadly welcomed.
Disclaimer
This note reflects our opinion and views as of 11 October 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Joining EG editor, Samantha McClary alongside Katherine were Rasheed Hassan, Head of Global Cross Border Investment at Savills, and James Edwards, Managing Director of Evans Randall Investors.
Discussing London’s continuing attractiveness as an investment hotspot, Katherine, Rasheed and Samantha share their insights on how investor interest may have changed as we start to rebound from the coronavirus pandemic, how ESG are three letters on everyone’s lips and just how confident London can feel for its future prospects.
Discussion points included:
How has investor interest changed after the pandemic?
Overseas investors: how is London’s recovery seen from outside the UK?
Offices: how expectations of occupiers is reshaping the market
Digital Assets Update: Apple’s Digital Legacy Program
12 October 2021
News
Since we published our comments on access to digital assets after death in the FT Adviser earlier this year, the thorny issue has moved no further up the government’s list of priorities. However, it is encouraging to see a growing awareness of the problem among tech giants, who are beginning to introduce more in-service solutions to enable personal representatives and family members to gain access to a deceased person’s digital assets.
It remains impossible to direct by will the ultimate destination of assets such as your email account or your photos stored on iCloud. However, you should not take this as carte blanche to ignore them when considering your estate planning. We advised earlier this year that not only should you regularly review your online assets so you are aware of their extent, but you should also take advantage of all in-service options to give your preferred individuals the access they will need after your death.
We were pleased to hear Apple’s announcement last month that they will follow other service providers, (such as Google) in introducing a post-death process to streamline data access after a user’s death.
This announcement was made as part of the iOS 15 preview and is known as the Digital Legacy program. As it has not yet been released, there is still much speculation over the form that it will take, but it seems to be a way to grant designated users access to your iCloud account and personal information after your death. This should be particularly useful for those who store photos or videos on their iCloud account, or emails relating to bank accounts, credit cards, or shareholdings.
We understand that the Digital Legacy program gives a user the option to nominate an individual (known as a legacy contact) during their lifetime. On the user’s death, that legacy contact will, on presentation of the deceased’s death certificate, be able to view emails, photos, notes and more. Apple have reassured users that the digital legacy contact will not be able to see any payment information or other sensitive information.
While information about the scheme is limited at this stage, we understand that a key drawback is the requirement for the nominated legacy contact to have their own Apple ID. This will limit the scope of people whom you might be able to appoint as your approved legacy contact. In addition, Apple has implied that the data will be accessible for only a short period; this could prove problematic if the extent of the deceased’s assets takes some time to determine.
We anticipate and hope that Apple’s decision will prove an impetus for other smaller tech companies to introduce equivalent procedures. In the meantime, it is therefore becoming ever more important to review what options are available for each of your online accounts in order to ensure that your loved ones have the access you desire after your death. Without such foresight, not only may the job of your personal representatives prove to be significantly more challenging, but your loved ones may end up without access to data which you wanted them to have.
We recommend therefore that when reviewing your will (which you should do at least every five years, and also on major life events e.g. marriage or the birth of a child), you also make a list of all your online accounts and other assets, and consider the best way to pass on all such information after your death.
Guy is a Partner and Zahava an Associate, both in our Private Client team.
When Tracey Crouch MP published her report on the “fan led” review of football, I was taken by the reference (see page 4) to the intention to “develop proposals…to offer greater protection…through a ‘golden share’ for fans, giving veto powers over reserved items, to be held by a democratic legally constituted fan group”.
When this was followed up by both Oliver Dowden MP visiting my football club (Brentford FC) and his successor Nadine Dorries MP referencing Brentford’s ‘golden share’, I thought – as the lawyer who advised the Brentford Supporters’ Trust on the implementation of its ‘golden share’ (or BU Special Share as that particular one is known) – that it would be worthwhile reflecting on the key points to consider in relation to such a share.
What is a ‘Golden Share’?
It’s a basic legal principle, well known to corporate lawyers, that a share is just a bundle of rights the benefit of which is held by the holder of such share. So, for this purpose, a ‘Golden Share’ is simply another share (albeit designated as a ‘Golden Share’) which is issued by a company to which certain rights as set out in the company’s articles of association attach.
Tracey Crouch MP, in her report, obviously envisages that football clubs will issue a new share (this ‘Golden Share’) to supporters’ groups. In many cases (including Brentford’s) this will be the club’s existing supporters’ trust which will thereby become the effective custodian of the ‘Golden Share’ and the rights attaching to it.
Why have a ‘Golden Share’?
Looking at Tracey Crouch MP’s report it’s clear that her focus is protecting the ownership of a club’s stadium, badge, location and colours. A ‘Golden Share’ could be used to give veto rights to a club’s supporters to protect all of these matters and so enable fans to protect their club’s heritage.
To my mind, the main benefit of a ‘Golden Share’ is that it provides fans with a say over, what is to them, some of the most important aspects of their club without an existing owner (who has invested a considerable amount in the club) having to give away valuable shares or otherwise asking fans to raise the funds to buy shares from an owner; at the top end of the football club pyramid, such shares will almost certainly be beyond most fans’ means and who’s to say whether an owner would be willing to sell in any event?
‘Golden Share’ considerations
From a purely legal perspective, creating a new class of shares and calling it a ‘Golden Share’ will be a relatively straightforward process for most companies (with a bit more complexity added in if the company is listed) but, based on my experience, there are several key considerations beyond merely creating a new share class:
Which entity should hold the ‘Golden Share’? As mentioned above, for many clubs this may be easily addressed by using an existing supporters’ trust, but if there isn’t one then consideration would need to be given to setting one up or using some other entity to hold the share so that ownership can continue on a long-term basis via that entity. The upside as I see it is that this is an opportunity for clubs, if used correctly, to gain some real additional engagement with their fans by making the supporters’ trust clearly relevant to the club and involved in its long-term future.
Which veto rights will be granted to the fans? As I’ve already touched on, Tracey Crouch MP talks about the stadium, club badges, location and colours but it’s crucial that, whichever rights are under consideration, they are defined and drafted precisely, so that it’s clear what is restricted, how the veto will work in practice and what happens in the event of a disagreement. In the case of Brentford, the ‘BU Special Share’ covers a veto over moving the ground unless a successor location, with a certain amount of seating and facilities at least as good as those we currently have, is found in one of the three surrounding boroughs. Any proposal to move the ground has to be put to the Brentford Supporters’ Trust which has the right to veto the move if it doesn’t comply with the specified criteria. In the event of a dispute as to whether the criteria is met then the decision will go to an independent binding arbitration panel to determine.
What other rights could be granted to fans in relation to a club? This answer is really down to whatever the imagination can create. A ‘Golden Share’ could include a right to appoint a director to the board, a right to certain financial information to be shared, a seat on the Audit or Risk Committees, a specific fan engagement role and so on. While the ‘fan led’ review focuses on heritage assets, such as club name and colours, it’s conceivable that a ‘Golden Share’ could include any other rights and benefits for fans that the existing shareholders are prepared to accept.
Should all aspects have the same veto rights? Some may consider that certain issues are more important to protect than others, for example, the stadium could be said to trump the club badge or colours, although many fans would consider each of these to be equally important. This lends itself to the question of whether the ‘Golden Share’ should provide differing levels of votes to veto certain actions. In the case of Brentford, only a veto over the stadium was included so that was relatively easy to address. The challenge might come in circumstances where (and I realise this will be heresy to many fans) a major company offers a huge sum of money to a club owner to, say, change the club’s nickname; it will be difficult to navigate the balance between protecting the club’s heritage, with fans having polar opposite views (some may be happy with a change if it means financial salvation or stability while some may never wish such a change to happen) and the ability for the change to be blocked against having to rely on the owner to fund the club without this financial backing.
How will the fans use the power of veto? If a supporters’ trust is used then the veto right may be vested in the hands of the trust’s board (who are elected by the fans on a regular basis), or it may be that the supporters’ trust is the vehicle (as is the case with Brentford) which canvasses its members as to whether the veto should be used. This will take some thought to ensure that the process allows fans to have their vote and that any time periods for vetoing a decision allow for meetings to be called and votes to be cast and counted.
Specific legislation for insolvency? Will there be a need for specific legislation to protect fans and clubs in the event of insolvency? While a ‘Golden Share’ grants rights over a company, if that company’s assets are sold then the share will end with that sale and there will be little that the fans can do about it, so I wonder if the government (or the football authorities) might need additional legislation or rules to bind a successor company or its owners.
Conclusion
As a Brentford fan I’m very proud that our owner voluntarily offered up a veto right over the sale of the stadium to the supporters’ group, to show his commitment to the club and its history (it’s well documented that he’s a fan himself); once again Brentford has seemingly led the way in its approach to football (ok – I’m a bit biased here). From a professional perspective too, as the lawyer who advised the Brentford Supporters’ Trust on the implementation of the “BU Special Share”, I’m intrigued to see how the proposals of Tracey Crouch MP are developed in relation to some of the above points and the other issues that will inevitably arise from the imposition on football club owners of a ‘Special Share’ regime.
Of course, there’s nothing to stop any football club owner implementing their own ‘Golden Share’ structure whenever they like and while I’m aware that the likes of Exeter (ownership of the club) and Wycombe (board seat) are engaged with fans at this sort of level, the Brentford ‘model’ (like the club’s on-pitch success) remains a rarity (if not a one-off, at least for now).
Stuart Hatcher is a Partner in our Corporate team.
Disclaimer
This note reflects our opinion and views as of 6 October 2021 (other than in relation to the support of Brentford FC which is definitely Stuart’s own opinion) and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Corporate Partner, Stuart Hatcher, has spoken to the Independent about Brentford’s golden share deal, which he drew up in 2012, and how he believes Chelsea’s new bosses should look to do something similar.
What can you do when your Local Search result turnaround time is six months?
11 October 2021
News
What is a local search?
As part of the conveyancing process, solicitors submit ‘searches’ to various public authorities to identify potential issues with the property. Perhaps the most important of these searches is the local authority search.
The local authority search is twofold. The first part is a land charges search which shows any statutory charge or restriction relating to the land being purchased. These would include whether the property is a listed building, located in a conservation area, subject to a tree protection order or any planning agreements and/or conditional planning permissions. The second part supplies information relating to public highways, proposals for new roads, rail schemes or planning decisions that could affect the property, as well as breaches of planning or building regulations or the existence of a compulsory purchase order. Limited environmental factors, such as whether there is radon gas present, are also covered.
Official Search or Personal Search?
There are two different types of local authority searches – official or personal.
The ‘official’ method involves sending forms directly to the local authority where a search is conducted by council staff. The search is then signed and stamped by a council officer and returned “as is” back to your solicitor.
The ‘personal’ (or regulated) method provides the same information as the official method but is put together by a search provider unaffiliated with the council. An employee of a search provider visits the council office and inspects and records the information kept. The search provider makes sure the searches are standardised and gives summaries of the most pertinent information required, so there is less chance important information is missed. Regulated searches have insurance policies attached to them, including professional indemnity insurance against individuals’ errors or omissions. It is important to remember to check such policies to ensure that they provide adequate cover, and to check whether third parties (such as lenders) can claim under them. Personal searches are usually quicker and cheaper than an official application, however legal practitioners debate over which search is preferable and most commercial real estate solicitors favour the official method.
What are the current delays and why?
There are currently long delays in obtaining local search results from several councils due to closures and business interruption caused by the coronavirus pandemic. However even before the pandemic some local land charges departments had a backlog of searches because of staff shortages and computer hacking. At the date of writing, West Dorset District Council has a 60 day turnaround (or a 90 day turnaround for an official search), Plymouth City Council has a turnaround of 40 days (or 55 for an official search) and due to their computer system being hacked, Hackney Council has a turnaround of 180 days (6 months) to return a local authority search (and a further 15 days for an official search). Clearly delays of such lengths will cause frustration and, in some cases, could lead to transactions not completing at all.
What can you do when faced with such long delays?
Indemnity insurance
One option available is to purchase a search indemnity policy. The risks covered by such insurance varies between providers, however generally they will cover any loss sustained because of adverse entries which would have otherwise been revealed had a search been carried out prior to completion of the transaction. Loss is usually calculated to the value of any financial charge revealed or as a reduction in market value of the property.
Although this is one way to mitigate certain financial loss, search indemnity insurance offers no protection against issues arising from the search results that would have prevented the transaction going ahead in the first place. For example, a developer’s plans for the site could be inhibited by the property being listed or a planned railway scheme being constructed next to the site. Similarly, the search results could reveal a matter which would prevent or hinder a future sale going ahead, thereby reducing the value of the asset.
In addition, many institutional funds will likely not agree to complete without search results and most mortgage lenders will stipulate that the borrower must order searches as part of their terms and conditions. However, in light of the current issues with extensive delays, some mortgage lenders are relaxing this requirement.
Conditional contract
Another option would be to exchange contracts conditional upon acceptable search results. If the local search reveals a result that negatively affects the property, the conditional contract would enable the buyer to pull out of the transaction and get the deposit back. However, if the search result is satisfactory the matter would proceed to completion. Clearly the negotiation of what would constitute an adverse result would be heavily negotiated and not all sellers would be happy to enter into a contract which is conditional upon search results (particularly where there could potentially be months of delay) unless they had an accurate expectation of what the results are likely to be.
Conclusion
Although these options are available and can be used to circumnavigate the local search delays to enable the purchase to progress swiftly, each case is specific to its requirements and buyers should carefully consider the risks of each route against waiting it out.
Real Estate and The National Security and Investment Act 2021
11 October 2021
News
At first blush, one could be forgiven for assuming that the National Security and Investment Act 2021 (the “Act“) would only apply to obviously “dodgy dealings” and “suspect individuals”. However, for anyone who has read our summary of the National Security and Investment Bill or our update following its receiving Royal Assent, it will be clear that the new regime will be far more wide-ranging, potentially catching a plethora of transactions and the parties involved. One sector which could be particularly affected in more ways than one is real estate.
What’s the purpose of the Act?
The Act provides the UK government with far-reaching powers to investigate and scrutinise transactions which could have a national security interest. Although “national security interest” has not been defined within the Act or any governmental guidance to date, the risk factors in any transaction have been listed as:
Target risk
Acquirer risk
Control risk (originally the trigger event risk).
Further information about each of these is included here.
Notification regime
Certain transactions will fall within the mandatory notification regime, while others can be notified voluntarily. The government will also have “call-in” powers where it considers that a transaction may have a national security interest. Real estate transactions or transactions involving real estate could fall within any of these options.
Mandatory notification
Notification will be required if a transaction involves a “qualifying entity” which carries on activity in a “sensitive sector” and results in a “trigger event”. Failure to notify will render the transaction void.
The definition of “qualifying entity” is broad and includes companies, partnerships, limited liability partnerships, trusts, other bodies corporate and so on. As such, the mandatory notification regime does not apply to asset (for example, property) transactions per se although if a qualifying entity owns real estate (whether it’s an operating business with premises or a special purpose vehicle formed for the sole purpose of holding a property) then the mandatory notification requirement may kick in.
A “sensitive sector” is any one from a list of 17 sectors set out by the government which comprise: advanced materials, advanced robotics, AI, civil nuclear, communications, computing hardware, critical suppliers to government, cryptographic authentication, data infrastructure, defence, energy, military and dual-use technologies, quantum technologies, satellite and space technologies, suppliers to the emergency services, synthetic biology and transport.
A “trigger event” will occur if the transaction: (a) results in the acquirer’s share ownership or voting rights in the qualifying entity passing certain percentage thresholds, i.e. 25% (where the acquirer held less than 25% pre-completion), 50% (where the acquirer held less than 50% pre-completion) and 75% (where the acquirer held less than 75% pre-completion); or (b) enables the acquirer to pass or block resolutions.
The mandatory notification regime only applies to share acquisitions, not to asset purchases. So, for example, the acquisition of a company which owns a factory in which medical supplies are manufactured may well be caught and a notification will need to be made to the Investment Security Unit (the “ISU“), which sits within the Department for Business, Energy & Industrial Strategy.
Voluntary notification
In cases where a mandatory notification does not apply, businesses or individuals may instead make a voluntary notification if the transaction in question could involve a national security interest and a “trigger event” will occur as a result. In this case, the definition of “trigger event” is wider and applies if the transaction will result, in the case of:
a qualifying entity, in the acquisition of (i) more than 25% (where the acquirer held less than 25% pre-completion), more than 50% (where the acquirer held less than 50% pre-completion) or more than 75% (where the acquirer held less than 75% pre-completion) of the votes or shares (or enables the acquirer to pass or block resolutions) or (ii) material influence; or
an asset, in the acquirer being able to (i) use the asset or use it to a greater extent than before the transaction or (ii) direct or control the use of the asset or direct or control its use to a greater extent than before the transaction.
It is clear from the above, and should be remembered, that whereas the mandatory notification regime only applies to share acquisitions, the voluntary notification regime may apply to both share and asset transactions. As such, the acquisition of a property which lies, for example, adjacent to an army base should be voluntarily notified to the ISU.
Government call-in right
The ISU is able to call-in any transaction which completes on or after 12 November 2020 if they consider that it might involve a national security risk. In the case of a transaction which was not notified but which should have been under the mandatory notification regime, this call-in right lasts in perpetuity. A transaction which could have been notified but was not obliged to be, has a five-year post-completion longstop date in which to be called-in. This period is reduced to six months upon the ISU becoming aware of a trigger event.
In determining whether to call-in a transaction, the ISU will consider various factors and has issued a draft statement setting out how it expects to use its call-in powers (the “Statement“). For example, it refers to land located near to a sensitive site as being potentially an issue of concern which may trigger the call-in. This could cause difficulties in practice. Not only will enhanced due diligence be required to cover off the property in question and the surrounding area, query whether parties will be able to determine to any degree whether a site or nearby land is sensitive or not; given that some locations used by the government or the Ministry of Defence are highly confidential and members of the public have no clue about them, it may be extremely difficult to determine whether a voluntary notification should be made. While the purchase of a tower block which partially overlooks Buckingham Palace could be deemed a potential issue, what about the purchase of a residential apartment block next door to the house of a senior Ministry of Defence official?
The phrase “sensitive site” also begs the question of how far up (and down) from the ground does a sensitive site reach? Say a telecommunications company, which has a network of underground cables, some of which run beneath a sensitive site, is acquired. Would this transaction be caught by the Act?
At present, no searches exist to check for sites with a national security interest and so purchasers will need to rely on maps and plans to determine whether there is cause for concern; such checks are hardly bullet-proof. Whether search providers introduce formal national security searches in the future remains to be seen but in any event, until these issues are ironed out (if they ever are ironed out), parties to transactions will be ever more reliant on their legal advisors who will have to consider all these possibilities and conduct a risk assessment in respect of each transaction and the likelihood of it being subject to a call-in notice. In these cases, getting in first with a voluntary notification is likely to be advisable and we may well see a plethora of “on the safe side” voluntary notifications being made in order to get comfort that an acquisition is not of concern.
Does location matter?
In a word, no. If the property is located outside of the UK but is used in connection with activities carried on in the UK or the supply of goods or services to the UK, then it will be caught by the Act. Similarly, a qualifying entity which is located outside of the UK will be caught if it carries on activities in, or supplies goods or services to, the UK.
While on paper this sounds reasonable, query how the ISU will enforce the Act where there is no English law nexus involved. For example, a US company purchases a factory in Germany from its German company owner. The factory manufactures micro-chips for use in weaponry which is supplied to the UK armed forces – at the point where the UK becomes involved, i.e. the supply, there will not have been a “trigger event” and so the Act will not kick in. Instead, the “trigger event”, i.e. the purchase of the factory, will have occurred between the US company and the German company. Although the property is used in connection with the “supply of goods to the UK”, it is difficult to see how the ISU will be able to effect a call-in of an overseas transaction or expect the parties to even be aware of the Act.
Recent government guidance has suggested that the ISU may “require actions to be taken by” the UK entity, in our example, the armed forces (or the entity in the UK which supplies the armed forces), which could include “additional checks” on the overseas supplier. This may come as a surprise to the UK entity who may not be aware that any “trigger event” has occurred between overseas parties and also to the overseas parties themselves who might not anticipate potential supply issues, particularly if they have no knowledge of the Act.
What orders can the ISU make?
The Act provides the ISU with wide-ranging powers in terms of the information they can request, the orders they can give while an investigation is ongoing, the outcome of any investigation and penalties if orders or the Act are not complied with.
Following completion of any investigation, the transaction may be approved, approved subject to conditions or prohibited from taking place. If the transaction has already completed, the ISU could order it to be unwound although query how this will happen in practice.
Pause for thought
Are you involved in the acquisition of an entity which owns property? Is that entity involved in one of the 17 core sectors or activities which could result in a national security risk? Are you considering a real estate transaction? Could security be enforced over real estate? Could there be a national security interest in respect of the transaction? Is there a sensitive site within the surrounding area? Who will acquire the entity or the land? What is the property’s intended use? Could the Act affect the real estate value? These are now all questions which need to be considered sooner rather than later in any acquisition process. In the main, they will be easily dismissed and the transaction can continue but if there is any possibility that the new national security and investment regime will apply, the appropriate steps will need to be taken.
We’ve already mentioned that the Act may well result in enhanced due diligence in respect of any real estate being acquired and neighbouring property, but investigation into the acquirer and intended use of the property will also become more critical. This is likely to increase costs and lengthen the transaction timetable. Parties to a transaction, in particular banks, may also insist on notification to the ISU or request additional conditions and so it will be important to discuss this with them at the earliest opportunity.
Going forwards, communication will be key and having those conversations with your agents and legal advisors as soon as possible will be of benefit in the long run.
The Statement may provide that “the Secretary of State expects to call in acquisitions of assets rarely and significantly less frequently than acquisitions of entities”, but for the real estate industry, the new regime can, and will, still bite and should not be dismissed lightly.
Key dates
12 November 2020 – any transaction that completes on or after this date could be caught by the new regime
29 April 2021 – Royal Assent to the Act received
Late 2021 – further governmental guidance and regulations expected
4 January 2022 – commencement of the new regime.
Disclaimer
This note reflects our opinion and views as of 6 October 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
VAT treatment of dilapidation payments: Elizabeth Small writes for Taxation
8 October 2021
Views
Tax Partner, Elizabeth Small’s article entitled ‘VAT treatment of dilapidation payments’ was published in Taxation.
Her article covers the following key points:
During or at the end of a tenancy the landlord may serve a terminal schedule of dilapidations on the tenant.
HMRC used to see the dilapidations payment as damages and not subject to VAT.
Revenue and Customs Brief 12/20 suggested that dilapidations would be liable to VAT.
Since then, HMRC has revised its guidance a number of times and now we are back to the position, in most cases, that businesses can continue to treat such payments as not subject to VAT, but this rule may not be applied ubiquitously and proper analysis is required.
In this article, it is assumed that the property is used purely for commercial purposes and has been opted for VAT purposes.
Professional indemnity insurance: Emily Holdstock and Oyin Ogunkanmi write for Property Law Journal
8 October 2021
Views
Emily Holdstock, Partner in our Construction team, and Oyin Ogunkanmi, Associate, have written for Property Law Journal on Professional Indemnity Insurance.
In their article, ‘Construction focus: Professional indemnity insurance’, Emily and Oyin explore the current state of the professional indemnity insurance market and the practical steps that insureds and their clients can take to safeguard their respective interests during development.
The article explores:
The principles of professional indemnity insurance
Why is professional indemnity insurance the subject of so much discussion?
Why has the PI market hardened?
What effects has the hardening of the market had on the construction sector specifically?
Advice for those seeking to take out or renew professional indemnity insurance
The article was first published and is also available on Property Law Journal‘s website.
On 13 October, Hannah will be presenting at the session entitled ‘All is Well that Ends Well’ and will be covering the following topics:
How should trustees tackle historical shortcomings in trust management?
Can they seek to right mistakes of the past?
Consideration of the recent decision in C Trust [2019] SC (Bda) 44 Civ.
Simon will be speaking at a session on 15 October, entitled ‘The Omar Akhbar Trust Part 4: the Economics of Marriage’. His session will discuss a case study relating to an upcoming marriage with a US element. Simon will be answering two key questions:
What headaches will the trustee encounter here?
Can we divorce proof for the future?
The three day forum will be taking place in Geneva from 13 – 15 October, you can register to attend here.
BT collective action ruling “could open the floodgates”: Ben Walton and Caroline Harbord write for The Times and Legal Futures
7 October 2021
Views
The Competition Appeal Tribunal’s (CAT) approval of a second opt-out collective action is likely to open the floodgates to more applications, claim Head of Commercial Litigation, Benedict Walton and Senior Associate, Caroline Harbord.
In approving a £600m claim against BT, the CAT showed that a collective proceedings order (CPO) can be obtained in claims where primary liability has yet to be established and not just follow-on damages claims.
Commenting on the decision, Caroline Harbord, Senior Associate in our Dispute Resolution team, said the decision was “significant” because it made clear that opt-out CPOs were not limited to “classic follow-on damages claims”, and could also be obtained in claims where primary liability has yet to be established.
The first CPO came in August in the Merricks v Mastercard case, brought after the European Commission made a finding of anti-competitive behaviour.
Caroline continues: “This order – being only the second of its kind issued by the CAT – may well serve to spark an increase in the number of CPO applications going forward…”
“If a class representative can gather together sufficiently compelling evidence of anti-competitive behaviour – so as to render the claim more than ‘fanciful’ – it may be able to successfully obtain an opt-out CPO, even if there hasn’t been a formal finding of anti-competitive behaviour by the European Commission or the Competition and Markets Authority.”
“The case, therefore, arguably opens the floodgates in this area.”
Senior Executives: thinking of relocating to the UK?
6 October 2021
News
Forsters’ SenEx Advisory Group regularly advises internationally mobile company executives and professionals when a move to or from the UK is being considered. The move triggers many questions, some of which are based on common misconceptions about the UK’s tax, immigration and employment regimes.
Once seen as a trend, W&I deals have become increasingly popular over the last decade or so – more recently as a way of dealing with liability on acquisitions in a pandemic scenario. If you’ve never been involved in one of these deals before or have only limited experience of them, read on to find out the basics.
A “standard” corporate acquisition
You might be familiar with how corporate acquisitions generally run:
The buyer conducts due diligence on the target company (the “Target“).
The parties negotiate sale terms in the sale and purchase agreement (the “SPA“), which include a set of warranties (akin to promises regarding the Target) that are given by the seller to the buyer – after completion if any warranty proves to be untrue the buyer can bring a claim against the seller for losses suffered. In the SPA the seller may also provide the buyer with indemnities (an obligation for the seller to reimburse the buyer if a specified event comes to fruition post-completion. For example, the parties know that the Target is subject to an ongoing litigation case and the seller provides an indemnity to the buyer in the event the Target loses that case post-completion and has to make a pay-out).
The buyer might discover issues in the Target as part of the due diligence process (or the seller might tell the buyer about them anyway). The seller would also note these in a disclosure letter to the buyer, meaning the buyer can’t bring a claim against the seller about them later.
The buyer will want to deal with any such issues before completion (for example, by making the seller rectify any issues pre-completion, demanding a price-chip or seeking an indemnity from the seller in the SPA).
Hopefully the transaction completes (and everyone celebrates!).
What is a W&I deal?
So, what actually is a “W&I deal”? Essentially, it’s a corporate transaction which is underwritten by warranty and indemnity insurance.
The trend began some years ago and the approach has been used in transactions steadily since. The parties will agree whether or not to use a W&I policy at an early stage of the transaction process (usually in the heads of terms). One party will approach their insurance broker to obtain “warranty and indemnity insurance” from an insurance company. Having this policy in place means that if after the deal completes the buyer needs to bring a claim against the seller (for a breach of warranty) or get cash from the seller under an indemnity in the SPA then, to the extent it is covered by the policy, the policyholder will actually approach the insurance company for that money. In the case of a policy taken out by the buyer, there is no recourse to the seller. In the case of a policy taken out by the seller, the seller would claim against the insurance policy in respect of any sums it was liable to pay the buyer.
Although a W&I policy may be taken out by the buyer or the seller as policyholder, in reality in recent years it is mostly the buyer who will take out the policy.
Why do a W&I deal?
A W&I policy is convenient in a few ways:
It can provide comfort to the buyer, for example if the seller has poor covenant strength and the buyer wants to be able to claim against a party of substance, using a policy to instead get the money from an insurance company is a good alternative.
A policy might also offer reassurance to the seller, for example if the seller wants to take the transaction proceeds and quickly apply them elsewhere without being concerned about setting funds aside in case the buyer brings a claim years down the line; having a policy in place allows the seller a swift and clean break. In an auction sale in particular, a bidder might gain a competitive edge in the process by offering to use a W&I policy to give the seller that clean break.
Since COVID-19 there has been a general uptake in interest in W&I deals on both the buy and sell-side for these reasons; essentially, as a way of getting deals done quickly (clean break) and with confidence on seller covenant strength.
Main issues
However, a W&I insurance policy does not provide total protection for the policyholder and it does require additional steps in the deal process. We’ve focused on three main areas below:
Process – a W&I deal involves a lot more process for the policyholder. They will need to engage their broker early on and discuss in detail what the policy is to cover. The broker will then approach several insurance companies and provide offers to the intended policyholder for review. Once the intended policyholder has decided on a policy, they will need to keep the insurance company up to date on all aspects of the actual deal, including the due diligence, negotiations and transaction documents. The insurance company and its legal counsel will thoroughly check and comment on all of these materials – they want to know that the policyholder has done a very thorough job and won’t provide a policy unless they are confident about this. This process runs alongside, and sometimes intertwines with, the ongoing negotiations with the other deal party. All in all, a lot more work for the policyholder and their advisors to keep the insurance company involved and happy behind the scenes.
Cost – the policyholder will need to pay broker fees, the insurance policy premium and increased advisor costs (although the buyer and seller may negotiate for the premium at least to be split between them in some way).
Coverage – as with any insurance policy, the insurance company will only cover low probability events. They won’t cover known issues – that’s for the buyer to negotiate a solution with the seller pre-completion. The areas of coverage will also need to be discussed – while the insurance company may cover issues around general warranty claims, they will want different policies to cover issues that are really fundamental (e.g. title, tax) or specialist (e.g. hazardous waste) and these will have higher premiums. In addition, the actual amount of coverage under any policy will also need to be negotiated; in fact, the policyholder is likely not to need (or want to pay for) 100% coverage on amounts claimed under the SPA, so the policy may only cover a set amount (e.g. 10% of the claim) – it really depends on what the Target does/holds.
Bear W&I in mind
If you are looking to do a somewhat challenging deal – whether you’re dealing with a cash-strapped seller or one looking to move on, or trying to find that edge in a competitive bidding process – W&I insurance could be the pragmatic solution for you.
Disclaimer
This note reflects our opinion and views as of 5 October 2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Catherine Hill, Emma Gillies and Catharine Bell listed in Spear’s Tax & Trust Advisers Index 2021
4 October 2021
News
Private Client Partners, Catherine Hill and Emma Gillies, and Private Client Consultant, Catharine Bell, have been listed in the Spear’s Tax & Trust Advisers Index 2021:
Spear’s publishes annual rankings of the top private client advisers and service providers to high net worth individuals. These are drawn up on the basis of peer nominations, client feedback, telephone and face-to-face interviews, data supplied by firms, as well as information gathered by the Spear’s editorial and research teams.
Forsters named Private Client Team of the Year at the Legal Business Awards
1 October 2021
News
Forsters have won Private Client Team of the Year at the Legal Business Awards 2021.
The team were commended for their “work on a swathe of significant and demanding estate planning and succession cases”.
On their win, the team commented: “We are elated to win Private Client Team of the Year. Thank you to the researchers at Legal Business, our colleagues and of course, our clients with whom we are proud to work. 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”.
The accolade marks the end of a successful month, which has also seen the Private Wealth practice win International Legal Team of the Year at the STEP awards, as well as maintain their top tier rankings in the Legal 500 UK 2021 and eprivateclient’s Top Law Firms 2021.
Forsters’ top ranked Real Estate team were also shortlisted for Real Estate Team of the Year at this year’s Legal Business Awards. Congratulations to Legal Business and its event co-ordinators as well as all those shortlisted for providing a night full of celebration.
Forsters continues with top tier ranking in the 2022 edition of The Legal 500
1 October 2021
News
Forsters, the leading London real estate and private wealth law firm, has been ranked in its key practice areas and is delighted to report that for the first time its market leading Residential team has been promoted to the top tier, noting that “their knowledge in this field is exceptional”.
“Strength in depth and very client focused, and the firm is proactive, well organised and responsive.” The Legal 500 2022
Henry Cecil leads a large and specialist team at Forsters LLP that is recommended for its vast experience of handling both transactional and strategic matters including complex tax and estate structuring advice and disputes. It has real strength in depth with key practitioners such as Penny Elliott, Christopher Findley and Andrew Lane. Catherine Hill and Rupert Mead also garner praise for their expertise on tax and trusts matters. Clients include sizeable landed estates, families and trusts with significant property and chattels as well as domestic and international private and commercial investors, wealthy individuals and landowner groups. Other strengths include advising on the establishment of holding structures for family wealth through companies, partnerships and trusts in addition to acting for landowners in relation to development work. It is also rated for its work on capital tax planning matters and on all aspects of the acquisition and disposal of estates, farms and country houses. It is a team of ‘problem solvers’.
Forsters LLP has a strong track record in this area and advises fiduciaries, protectors and beneficiaries on the full remit of disputes involving trusts, trust structures, wills and estates both in an onshore and offshore context. Other key clients include high-net-worth/high-profile individuals, charities and other professionals and intermediaries. The international side of its practice continues to thrive under the direction of Roberta Harvey. Other key figures include Emily Exton, who is praised for her handling of disputes in the private wealth arena. Catharine Bell is an international private client lawyer with specialist expertise in contentious trusts and estates, as well as wealth structuring, family governance and advice to family offices. The team is skilled at advising high-net-worth individuals, family offices, trustees and protectors on trust vehicles and other succession planning structures.
Under the leadership of Xavier Nicholas the team at Forsters LLP advises a broad range of domestic and international clients in the HNW and UNHW sphere with particular strength in advising international and multi-generational families on complex cross-border issues. Nicholas is adept at advising wealthy families on a range of matters, including family trusts, regulatory issues and tax residence matters, and also works closely with the real estate team to advise clients on the tax implications of UK property ownership and investment. Catharine Bell is another known name for her work on wealth structuring, family governance and advice to family offices. Carole Cook is also a key figure who is particularly strong at advising entrepreneurs. Nicholas Jacob advises many UNHW Asian families, while Anthony Thompson is well-regarded for his work with Middle Eastern UNHW clients. Rupert Mead is recognised for his work on rural property and landed estate matters. Patricia Boon, Jeremy Robertson and George Mitchell have been promoted to the partnership. ‘Each person is exceptionally experienced and committed to doing the best for the client, and to thinking constructively and around issues in order to provide a solution.’
Forsters LLP has a strong pedigree across the full spectrum of residential property work, which includes high-value acquisitions, sales and financings of prime real estate in London and elsewhere in the UK. It is also highly active in large-scale residential projects in London. Lucy Barber leads the team, which has a well-established reputation among high-net-worth and ultra-high-net-worth individuals, and serves prestigious clients such as The Crown Estate and The Phillimore Estate. In addition to Barber, another key individual in the group is Helen Marsh, whose expertise includes conveyancing and secured lending. Henry Cecil focuses on farms and country houses. Charles Miéville and Robert Barham are recent arrivals from Cripps Pemberton Greenish.
Forsters LLP is frequently instructed by high-profile and UHNW individuals who are well-known figures in the arts and sports sectors as well as acting for financiers and entrepreneurs. It advises on a wide range of complex matters with particular specialisms in ultra-high-value and international nuptial agreements. It is also skilled at advising on cross-border child arrangements as well as negotiating financial settlements for children. Joanne Edwards leads the team and is seen as a leading advisor for big-ticket litigation and complex mediation. Edwards is ‘achieving great things for her team’. Rosie Schumm is also experienced at negotiating bespoke nuptial agreements often with international aspects.
With the arrival of counsel Nichola Padget from Orrick, Herrington & Sutcliffe (UK) LLP in April 2020, Forsters LLP has added to its residential and commercial property litigation expertise, while the addition of senior consultant Damian Greenish, who joined from Cripps Pemberton Greenish in September 2020, brings additional residential leasehold reform capabilities. ‘Hugely experienced and very talented’ team head Natasha Rees is another key contact for leasehold enfranchisement and residential property disputes. The team of ‘first-class lawyers’ acts for a large number of landowners, estates and funds alongside property companies, developers and occupier clients. Its workload is equally diverse and has recently included easement and service charge disputes, dilapidation claims, forfeitures and other issues arising from CVAs and insolvencies, in addition to development matters concerning rights to light, vacant possessions and an increasing number of cladding-related instructions. Jonathan Ross‘ commercial property litigation expertise extends to associated professional negligence claims, while senior associate Anna Mullins is a key contact for landlord and tenant matters.