Forsters advises Fiera Real Estate and Wrenbridge on purchase of £33m ESG Exemplar Industrial Scheme in Portsmouth
31 May 2022
News
Forsters has advised Fiera Real Estate (‘FRE UK’) and Wrenbridge on the purchase of a 4.5-acre site in Portsmouth for a £33m ESG Exemplar Grade A industrial scheme.
Commercial Real Estate Partner Victoria Towers and Senior Associate Paul Grayson advised on the deal, which aims to obtain planning permission for seven industrial units ranging from 6319 sq ft to 29785 sq ft.
Sustainability and wellbeing considerations are central to the proposed scheme, which is targeting BREEAM Excellent and an EPC A rating. It will offer high efficiency heating and cooling systems, water-saving fixtures and fittings and PV panels will be fixed to all buildings. During construction, the scheme will promote the use of locally sourced goods and low-emitting carbon materials, as well as ensuring that the contractors are part of the Considerate Contractor Scheme.
Will Jarman, Associate Director at Wrenbridge commented: “we are delighted to secure this prominent site in Portsmouth and view this transaction as the first of many within a strategic push towards the M27 corridor on the South Coast. We are in discussions with occupiers on pre-lets as we plan to bring forward a highly sustainable scheme to the area. Wrenbridge and Fiera have significant capital to deploy into the industrial and logistics sector across our key geographies, with the South Coast now also firmly in focus.”
Special Purpose Vehicle (SPV) Sales – The Key Issues
26 May 2022
News
A significant number of property purchases continue to be undertaken as corporate transactions, with the buyer acquiring the shares in the target company (Target) which owns the property, the Target generally being a special purpose vehicle (SPV).
The parties will often agree a heads of terms which assumes an asset deal but gives the parties an option to “convert” to a corporate deal before completion if terms can be agreed.
Notwithstanding the benefits of a corporate deal, which we have written about previously, such a transaction raises various additional issues and workstreams which will need to be addressed in order to reach a successful completion and which will generally, also lead to higher transaction costs for both parties. In order to reduce the risk of time and money being wasted, we consider here some of the key issues which the parties should consider at the outset of a transaction in order to establish whether or not a corporate deal is viable.
1. Is the Target truly an SPV?
When a Target is purchased, a buyer will effectively acquire all of its assets and liabilities – not just the property which it owns. Liabilities can include obligations to pay tax or risks associated with historic contracts which have been entered into by the Target. If the Target has been in existence for a significant period of time or undertaken a range of activities in addition to owning the property, this will not only make the due diligence process more complicated but may significantly change the risk profile for the buyer. Before undertaking any significant work, a buyer should seek reassurance that the Target is a “clean” SPV and undertake a high-level due diligence exercise to verify the same before incurring any significant costs.
2. Fundamental tax issues
A buyer will be extremely concerned to understand the tax profile of the Target and what tax (if any) might be due. A high-level tax due diligence exercise should be undertaken to identify any major issues, including:
If the Target is offshore, has it always been managed and controlled appropriately and if not, are there any questions around its tax residency which could have financial implications?
Is there any “pregnant” corporation tax liability in the Target? If the value of the underlying asset has increased significantly since it was originally acquired, any transfer of the property out of the Target after completion could result in a corporation tax liability.
3. How has the price been calculated?
If the parties have agreed to consider a corporate transaction after terms have been agreed for a property deal, the price will typically have been agreed by reference to the value of the property. Thought will need to be given as to whether the price is fixed or whether an adjustment is to be made by reference to any other assets and liabilities of the Target, such as cash deposits, the right to receive historic rent arrears or tax refunds, or sums payable to third parties under existing contracts.
The parties should identify and agree in principle how any major items are to be dealt with as early as possible in the transaction process. This could require the parties agreeing to formally transfer the right to receive certain sums from the Target to the seller or for cash deposits to be distributed out or applied against any existing debt prior to completion.
It is not uncommon for there to be a formal price adjustment mechanism incorporated into the purchase agreement. The value of the property will generally be fixed, but to the extent there are any other assets or liabilities, the price will be adjusted with a balancing payment made by either the buyer or the seller. Such a price adjustment can be complicated, requiring agreement of specific accounting policies and principles between the parties and the preparation of a pro forma set of accounts. This can take a significant amount of time and will need to be dealt with in parallel to the legal transaction documents to ensure there are no delays.
4. Who will provide the warranties?
In a corporate transaction, the buyer obtains protection through the provision of warranties and indemnities from the seller. These are effectively confirmatory statements which the seller provides in the purchase agreement (for example, that the Target has no liabilities save as disclosed, that the Target is an SPV, that all tax of the Target has been paid up to date, and so on). If any warranty proves to be untrue, the buyer can bring a claim for breach of warranty against the seller.
SPVs are often part of a broader corporate structure and sale proceeds will generally be distributed out to the parent company or ultimate beneficial owners immediately following completion. The buyer needs to be comfortable that it will have recourse against a person of suitable standing in the event of a warranty or indemnity claim, with any additional security requirements (such as a parent company guarantee or cash retention) being requested as soon as possible.
5. W&I policies
The past decade has seen an almost exponential growth in the use of warranty and indemnity insurance policies (W&I Policies). These are a third party insurance policy taken out by the buyer or seller to provide insurance in the event of a warranty or indemnity claim under the purchase agreement. They are most commonly taken out by the buyer allowing it to bring a claim under the policy in the event of a breach of warranty or an indemnity kicking in, while the seller benefits from a £1 cap on its liability (unless it has fraudulently concealed information). Although W&I Policies can be a convenient device, their cost can be significant, and the parties should agree at the outset who is to take out the policy and how any costs are to be borne.
For further discussion about W&I policies, see here.
Conclusion
Although corporate acquisitions of property often present many potential advantages to the parties, they undoubtedly involve additional time, effort, and costs for all involved. Considering some fundamental questions at the start of a transaction will not only allow matters to progress as quickly and efficiently as possible but will also reduce the risk of a “fatal” issue arising at a later stage.
Disclaimer
This note reflects our opinion and views as of 26 May 2022 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Economic Crime Act – compliance tips for accountants: Bryan Shacklady and Joe May write for Accountancy Daily
25 May 2022
Views
Bryan Shacklady, Counsel, and Joe May, trainee solicitor, at Forsters LLP examine what accountants need to consider if their clients are affected by the Economic Crime Act and how the new legislation will work.
In response to the current situation in Ukraine, parliament hastily passed the Economic Crime (Transparency and Enforcement) Act 2022 introducing the register of overseas entities. Broadly speaking, the Act requires the identification of ultimate beneficial owners of UK land, similarly to the persons of significant control regime introduced in relation to UK companies in 2016. The Act also strengthens the unexplained wealth orders regime introduced in 2018 and streamlines the existing arrangements in relation to sanctions.
With this, the government delivers the message that the UK is not a soft touch for economic crime. At the same time, the Act is only part I of the proposed reforms to target the financial assets of wrongdoers.
The government states: ‘These measures form part of a wider package of legislative proposals to tackle illicit finance which will be introduced in parliament in the coming months, including reforming Companies House and introducing new powers to seize crypto assets more easily.’
UK government agencies have already begun to adapt to new classes of assets such as non-fungible tokens (NFTs) and cryptocurrency, the most well-known of which is Bitcoin. For example, HMRC recently seized three NFTs in relation to a suspected £1.4m VAT fraud and about £5,000 worth of cryptocurrency assets.
It is not yet clear what wider powers the government intends to take in relation to crypto assets. However, practitioners would be wise to flag the coming focus on such assets to their clients and to bear in mind three key points.
Implications for holders of cryptocurrency
First, while cryptocurrencies have a reputation for being untraceable and anonymous, this is overplayed. Transactions involving Bitcoin are recorded publicly, albeit in an anonymous form, which can assist tracing when the operations are accompanied by other information.
Many people will hold their cryptocurrency through digital exchanges or mobile wallets,which are regulated in the UK if based here. There will be records showing how the crypto assets were acquired and who is entitled to them. It will not be difficult to craft legislation requiring cryptocurrency infrastructure providers to divulge that information to law enforcement authorities.
Second, even if assets are held in jurisdictions where regulation is lighter, a UK person is likely to leave a trace when moving the funds to acquire those assets. For example, a bank transfer from a UK bank account to a wallet provider will be recorded by the UK bank.
With this information court orders may be obtained abroad or made in the UK against UK-based persons to divulge further information in relation to those assets. This might lead to successful asset tracing and seizure.
Third, practitioners will need to be aware that crypto assets can be held ‘off-grid’ or in’cold storage’. Here, the wallet containing the cryptocurrency is secured by a key held by the person who owns the cryptocurrency. That key could be written down or put on a USB stick and kept in a safe. It would be prudent for practitioners to regard crypto assets stored in this way as cash or precious metal. Even so, the process of acquiring such assets may leave traces, and the authorities could be empowered to seize the key if it is recorded on a physical object.
Furthermore, the new legislation may not only focus on the cryptocurrency infrastructure providers, but also on professional advisers. Responding to orders to divulge information that advisers hold on clients may be costly and time consuming.
Professionals will want to ensure that they are indemnified or insured against such risks when the legislation is published in its intended form. They will also need to inform clients of the duties imposed on advisers that clash with the duties owed to clients, such as confidentiality.
It is also important to consider potential consequences of a deliberate or inadvertent failure to comply with either legislation or a court order.
Finally, it is necessary to be aware of how existing legislation may be used to target crypto assets. As one example, we touched briefly above on transactions in bank accounts that show transfers being made to crypto exchanges or wallet providers. Where such assets do not appear in a client’s assets as known to you, is it time to make a suspicious activity report to the National Crime Agency?
All these considerations mean it is more important than ever to be on top of the changing nature of assets in the digital world.
This article originally appeared in Accountancy Daily on 23rd May 2022, and is available here behind their paywall.
A guide for British Expats in Singapore: Estate & Wealth Planning Post-Divorce
23 May 2022
News
Your divorce is now final. What next? The last thing on your mind may be to consider your estate and wealth planning, and the prospect of dealing with lawyers again so soon after your divorce can quite understandably be unappealing for some!
However, there is a good chance that your existing planning arrangements (if any) are no longer appropriate for your post-divorce circumstances. They may be overly reliant on your ex-spouse, or too intertwined with their planning and not reflective of your individual wishes. Perhaps they do not cater for any post-divorce obligations you may owe to your ex-spouse or are wholly inadequate for the significant windfall you received from them.
Doing nothing or waiting too long to redress these sorts of issues may lead to serious and unintended consequences that could adversely affect any or all of your children and the rest of your immediate family in the event of your death or loss of mental capacity. Now is therefore the most critical and opportune time to start afresh with your estate and wealth planning and give yourself peace of mind after going through such a major life event.
This article serves to highlight the key areas of planning to consider, which are equally applicable to either party to a divorce and to British expats residing in jurisdictions other than Singapore. UK tax considerations in a divorce scenario are also critical given that estate planning and tax (particularly UK inheritance tax if a person is UK domiciled) go hand-in-hand and cannot be compartmentalised. Further details of such considerations can be found here but suffice to say tax advice should always be sought when embarking on any aspect of estate and wealth planning.
Please note that references in this article to England or English law should be understood to also include Wales but not Scotland and Northern Ireland whose laws differ to that of England and Wales.
The first step – review your estate
Your estate may have significantly changed as a result of the dissolution of your marriage. Therefore, the best starting point is to review it, and prepare a general inventory of your current worldwide assets and liabilities.
Not only will this help to identify what is in your estate, but it will also focus your mind on your succession objectives and help to establish your thoughts on important issues, such as:
any particular wishes you have regarding the devolution of specific assets;
assets of sufficiently high value that require bespoke succession arrangements;
how to deal effectively with any digital assets or cryptocurrency you own;
any family inheritance you are due to receive; and
liabilities (particularly any owed to your ex-spouse pursuant to the divorce) and how they may need to be dealt with following your death.
Such a review should also establish if you have a life insurance policy or pension (either privately or through your employment in Singapore or elsewhere) and whether pay-outs to nominated beneficiaries require updating if you had previously nominated your ex-spouse.
Cross-border estates
Living in Singapore, you may have an international lifestyle and perhaps own assets located in multiple jurisdictions. You may even have acquired a foreign asset from your ex-spouse as part of the divorce settlement.
In these circumstances, you have a cross-border estate, which will add a level of complexity to your wealth and succession planning if ‘conflict of law’ issues arise. Broadly, conflicts may arise between the laws of different countries when determining which law should ultimately govern the succession of your assets at death. To resolve such conflicts, countries have developed domestic ‘private international law’ rules to determine which law should apply in different circumstances. This is a particularly complicated area of law and beyond the scope of this article, so formal legal advice should be sought if such rules may be relevant to you.
As a general overview, if you are domiciled in England at the time of your death, then English private international law rules will apply to the succession of your estate. Having British nationality and a British passport does not automatically mean you have a domicile within one of the countries of the UK. The concept of ‘domicile’ under English law is rather nebulous and made up of a variety of relevant factors that seek to draw out a person’s strength of connections to a particular jurisdiction and their current and future intentions. It is important to bear in mind that domicile can differ for succession purposes and UK taxation purposes.
If you have an English domicile, the general rule is that ‘moveable’ assets (e.g. paintings, jewellery, shares etc.) devolve in accordance with English law, whereas the succession of ‘immoveable’ assets (e.g. real estate) is governed by the local laws in which the asset is situated. Under English law, a person generally has complete testamentary freedom to dispose of their entire estate on death provided they have a valid and effective English Will in place. This widely contrasts with the rules in civil law jurisdictions (such as countries in Europe) where a system of ‘forced heirship’ operates which dictate that a certain portion of a person’s estate must devolve to certain family members in prescribed percentages and cannot be altered by a Will.
A situation could occur where your English Will governs the succession of your worldwide estate, but it does not when it comes to your holiday home in France, for example. The EU Succession Regulations were introduced in 2015 to avoid these types of situations and harmonise succession laws for cross-border estates involving EU countries by enabling a person to choose whether the law applicable to their whole estate wherever situate and whether moveable or immoveable should be that of either their habitual residence at the time of their death (the default position) or their nationality, which must be elected in a Will to override the default position. Therefore, if you own real estate in an EU country, you have the option to elect in your Will that English law governs the succession of that property on the basis of your British nationality. Brexit has had no impact on your ability to make such an election.
Nonetheless, this only applies to assets situated in EU countries. Conflict of law issues will still exist if you own assets in other civil law countries with forced heirship such as Vietnam, the Philippines and Japan. Careful planning will be necessary for such assets, particularly if they are valuable
Wills
Both England and Singapore are common law jurisdictions and therefore provide for testamentary freedom facilitated by a valid and effective Will. If a person dies without one, then the relevant intestacy rules will apply to the succession of their estate. Such rules dictate who can inherit from the estate and in what manner, which are likely to be contrary to the deceased’s wishes. To avoid this situation occurring, it is vital that a person has a Will regardless of their circumstances.
Being newly divorced, it is critical that you update your Will if you have one already. For example, it may leave everything to your ex-spouse and appoint them as an executor of your estate, which is a common and appropriate arrangement for married couples but not for divorcees.
If you are domiciled in England and have an existing English Will, divorce does not revoke it. Your ex-spouse is treated as if they had died at the date of the decree absolute. This could inadvertently result in an intestacy situation if your existing Will leaves everything to your ex-spouse but is silent on what should happen in the event of their death. Problems can also arise if your ex-spouse is named as the sole appointed executor and trustee in your existing Will and fails to appoint substitute executors and trustees in the event of their death.
If you are not domiciled in England, then your Will could create a discretionary trust over your estate for the benefit of your children (but not for your ex-spouse). This may be very useful in long term tax planning for any of your children (and successive generations) who may live in the UK in the future and therefore have a UK domicile; it avoids your assets and wealth your children may not immediately need from falling into their own individual estates for UK inheritance tax purposes.
Minor children
If you have minor children, an important question will be: who should be their guardian(s) if both you and your ex-spouse pass away while they are still minors? This can be a tricky and highly emotive issue but if you and your ex-spouse are able to agree on a guardian in this scenario it is best to record this in a separate document signed by you both rather than leaving it to be stated in your respective Wills (which is common practice), one of which could be changed without the other’s involvement or knowledge.
Another important consideration is that if your ex-spouse does become your children’s sole guardian following your death, they could have absolute control over any wealth your children inherit directly from your estate until they reach 18 years old. Any risk that your ex-spouse may abuse their position and enrich themselves from your wealth may be mitigated if under the terms of your Will, you create a trust over it for the benefit of your children to be managed and controlled by independent trustees appointed in your Will.
Lifetime trusts
Singapore has a thriving and robust professional trusts and fiduciary services industry and a modern trust law. If your estate is of significant value with surplus wealth, you might wish to create a discretionary trust during your lifetime as part of your estate planning. A discretionary trust is so-called because it is made by the ‘settlor’ (you) in favour of a class of potential beneficiaries (for example your children and immediate family). The appointed trustee(s) have absolute discretion to determine how much (if anything), when and in what manner potential beneficiaries receive funds from the trust.
Discretionary trusts are flexible and enable the trustees to take into account the changing circumstances of the beneficiaries. It is usual for the settlor to write a non-legally binding letter of wishes to the trustee(s) to provide guidance on how the trustee(s) should consider exercising their discretion and manage the trust. This is a flexible mechanism, as a letter of wishes can be changed from time to time without any legal formality.
Holding assets through a trust structure can be advantageous for a number of reasons:
it allows you to plan for the succession of assets for the benefit of future generations of your family;
it avoids the need to go through the probate process on death for assets held in the trust;
it may assist with asset protection and tax planning for your family; and
it may help in family governance or business succession planning.
Trusts are not appropriate in every case for particular reasons. For example:
a core feature of a trust is that the settlor gives up a significant degree of control over the trust assets, which some may not find comfortable (although there may be ways to mitigate this to some extent);
the creation of a trust is likely to give rise to UK inheritance tax consequences if you are UK domiciled (or deemed to be so domiciled for tax purposes), or if you are non-UK domiciled but transfer UK assets (or non-UK companies owning UK residential property) into a trust; and
other rules regarding the UK taxation of offshore trusts may apply if beneficiaries of the trust are UK tax resident (for example, children being educated in the UK) or you plan to relocate to the UK in the future. These rules can be complex, and you may decide that the cost and effort of navigating the complexities is disproportionate to the non-tax advantages of a trust.
Incapacity planning
A growing feature of estate planning is to ensure arrangements are in place to deal with the eventuality of a person becoming mentally incapable. Given your connections to the UK and Singapore, you may have created Lasting Powers of Attorney (LPAs) in each jurisdiction already, whereby you appoint someone as your attorney to make decisions on your behalf regarding the management of your personal affairs if you lose mental capacity.
There are two forms of LPA available in England, one relating to property and financial affairs, and the other dealing with health and personal welfare. During your marriage, you may have created one or both types of LPA, and perhaps appointed your ex-spouse as an attorney. Your divorce will have had the effect of terminating their appointment, which could have the wider knock-on effect of terminating the LPAs entirely depending on how attorneys are appointed. For this reason, it is advisable to review and update your existing English LPAs following your divorce. This is also advisable if you have an LPA in Singapore or its equivalent in any other jurisdiction where you have assets.
Renters’ Reform Bill – the end of no fault evictions?
18 May 2022
News
The government has announced in the Queen’s Speech that it will shortly publish a White Paper setting out details of the much anticipated Renters’ Reform Bill.
The Bill was first proposed by Theresa May’s government in April 2019 to offer tenants renting privately greater security. Having lost momentum whilst the COVID pandemic became the government’s priority, it now forms part of the government’s “levelling up” policy.
The main elements of the Bill are as follows:
The abolishment of “no fault” evictions. These currently fall under section 21 of the Housing Act 1988 and allow landlords to serve a notice on tenants to terminate the tenancy without reason;
Reforming possession grounds for landlords, introducing new and stronger grounds for repeated incidences of rent arrears, and reducing notice periods for anti-social behaviour;
The application of a legally binding “Decent Homes Standard” in the Private Rented Sector, intended to stop private landlords renting out homes that are of such a low quality that they endanger the health of their tenants;
The introduction of a new Private Renters’ Ombudsman, intended to resolve landlord and tenant disputes without the need to go to court; and
The implementation of a new property portal to “help landlords understand their obligations, give tenants performance information to hold their landlord to account, and help councils crack down on poor practice”. It is not entirely clear what this will entail.
In an accompanying press statement, Michael Gove described the use of section 21 as an “injustice that sees renters unable to put down roots in their communities”. Whilst its arbitrary nature can lead to tenants being subjected to unfair treatment, many landlords use section 21 to legitimately end tenancy agreements – for example if they wish to sell the property. If the government is to maintain a fair balance between landlords’ abilities to deal with their assets and tenants’ abilities to live securely in their homes, it will need to introduce additional grounds for possession as well as strengthening the current regime.
It is clear that change is firmly on the government’s agenda but for now the law remains unchanged and the proposed reforms are unlikely to come into force for some time given they are at a preliminary stage. Any landlords or potential landlords should bear in mind that the introduction of these reforms could, in due course, severely restrict the ability to obtain vacant possession of properties within their portfolio.
The nomination reflects their achievements over the past 12 months from their outstanding work and strategic growth to their excellence in client service, and confirms the team’s position as market-leading advisors.
Forsters’ Residential Property team have enjoyed a successful year, which has included a Tier 1 ranking in the Legal 500 UK Guide, listings in the Spear’s Property Advisors Index as Top Flight and Recommended lawyers, ‘Highly Commended’ at the RESI Awards and a win at the Enfranchisement & Right to Manage Awards for ‘Solicitors Firm of the Year’.
Construction focus: Oral contracts – Emma Swan writes for Property Law Journal
17 May 2022
Views
In the latest Forsters contribution to the Property Law Journal, Construction Associate, Emma Swan, warns against the use of oral contracts in order to avoid uncertainty.
This article was first published in Property Law Journal 397 (May 2022) and is also available on lawjournals.co.uk.
In her article, titled ‘Construction Focus: The unwritten rule’, Emma discusses how numerous contractors, developers and consultants rely on oral contracts due to either time constraints regarding the completion of paperwork, (occasionally misplaced) trust between parties, or the instance that subsequent variations of written contracts are agreed orally.
A key difficulty with oral contracts and oral variations is that it is difficult to prove what has actually been agreed between parties if there is a disagreement about the terms of the agreement. To highlight this point, Emma goes on to reference the key provisions of the Construction Act 1996 and highlight the risks involved when parties rely solely on an oral contract.
She concludes that clearly setting out the terms at the beginning of a contractual relationship, parties to a construction contract can effectively protect themselves as far as possible against the headache of having to retrospectively attempt to persuade a court of what was originally agreed between parties.
Oral contracts, more often than not, cause ambiguity and can lead to expensive and time-consuming disputes that could have easily been avoided by the existence of a clear written contract.
The Green Unknown: might Conservation Covenants transform the English countryside?
16 May 2022
News
Conservation Covenants (“CCs”) will allow landowners and developers to deliver “public money for public goods” through large-scale Environmental Land Management Schemes, tap into emerging private natural capital markets and discharge Biodiversity Net Gain obligations. If they are really to take off, the Government needs to align the tax regime with these environmental incentives.
CCs are a quietly radical innovation with the potential to revolutionize the way English and Welsh land is owned and managed. Introduced in the recent Environment Act and inspired by similar concepts in other countries, CCs will allow landowners to contract voluntarily with a “Responsible Body” to commit their land to “conservation”. They will be new “statutory burdens on land”, a unique and interesting mixture of new and existing legal instruments.
Tying up land long-term, perhaps even indefinitely, in such a specific way is a dramatic step and we will see how popular they become. Rural landowners will be expected to provide land for conservation and to meet Biodiversity Net Gain (“BNG”) and other targets, so CCs will be particularly relevant to them. Moreover, sustainability is now so embedded in the national consciousness that, soon, every development will have a conservation element, even if only to offset or outsource its obligations, and particularly to provide the BNG required for planning permissions.
In this article, we try and answer the following questions:
What are CCs?;
How will CCs work?; and
Why would a landowner want to enter into a CC?
1. What are CCs?
1.1 Context
CCs have been part of the conservation conversation for some time. The Law Commission published a report in 2014 and the Government carried out a consultation in 2019. They also exist, in various forms, in other jurisdictions including Scotland, New Zealand, USA and Australia. England and Wales formally introduced them in the Environment Act, which received royal assent on 9 November 2021. CCs will come into being on 30 September 2022.
1.2 The legislation
Part 7 of the Environment Act is the Big Bang for CCs in England and Wales. There are two main elements. A landowner must contract:
with a “Responsible Body”; and
to use the land for a “conservation purpose”.
1.3 What is a Responsible Body (“RB”)?
RBs must be approved by the Government and have some kind of conservation purpose. They will be responsible for enforcing the landowner’s obligations, but it can be either the RB or the landowner who actually carries out the conservation work. Both the landowner and the RB can enforce against one another like parties in a conventional contract (RBs will not be arms of the state).
It seems likely that RBs will principally be large, national charities like the National Trust or the RSPB, but they could also be local (even community) bodies set up specifically for small-scale projects. They will not receive any public funding for administering CCs. At this stage, various questions arise:
Will RBs be mainly existing bodies or new ones set up specifically to enter CCs?
Will RBs be primarily national or local? (Even specific to particular CCs?)
Will RBs be primarily mass-membership organisations like the National Trust, or private bodies like charitable trusts established by landowners?
Where will RBs find the resources to carry out their obligations under CCs?
Will RBs want public access to land within CCs (including to pay for them)?
1.4 What is a “conservation purpose”?
A conservation purpose must be intended to be for the public good and:
to conserve the natural environment of land or the natural resources of land; or
to conserve land as a place of archaeological, architectural, artistic, cultural or historic interest; or
to conserve the setting of land with a natural environment or natural resources or which is a place of archaeological, architectural, artistic, cultural or historic interest.
It is so widely drawn that, arguably, pretty much any land might have a conservation purpose. The Government and Law Commission emphasize that the “public good” should be interpreted in the widest sense. It will be interesting to see how creatively this is interpreted. Ultimately, if challenged, the courts will decide whether a CC is valid or not, although sensible agreements will contain dispute resolution provisions.
1.5 CC legal foundations
CCs combine elements of:
ordinary covenants, requiring the landowner to do or not do certain things on the land;
special National Trust and Forestry Commission covenants, as RBs will be able to enforce them without owning adjoining land; and
section 106 planning agreements, as CCs will appear on the Land Charges Register rather than the property’s title.
The really novel feature is that CCs can impose positive (as well as negative) obligations on a landowner’s successors.
2. How will CCs work?
Only when they come into force will we see how CCs work in practice. Meanwhile, the Environment Act give a sense of their shape:
2.1 Tenants
Whether a tenant can enter a CC without landlord’s consent is a grey area. Consequently, it will be in both parties’ interests for a tenant to seek landlord’s approval before entering into a CC.
The Government is keen for tenants to enter into CCs; there is no landlord consent requirement in the legislation. However, if the CC involves the tenant significantly altering their holding or farming practice, consent could be required.
Several commercial points flow from a tenant entering a CC. It could affect the rent review by enhancing or diminishing the land value. Who will own / have the benefit of any enhancement to the land arising from the CC? The tenant might seek compensation for any improvement to the value of the land. The landlord might argue that the CC has diminished the value of the land and seek damages. If a tenant CC prevents the landlord from developing the land then the diminution in value could be substantial. As with consent for alterations, the licence for consent should provide explicitly for these issues to avoid dispute later. In new leases, landlords should include a requirement for such a licence if a tenant wants to enter into a CC.
The legislation says anyone who owns land freehold or has a lease of more than seven years (no matter how much has expired) can enter into a CC. This poses problems for Agricultural Holdings Act (“AHA“) tenants. Although AHA tenants have high security of tenure and are long-term occupiers, AHA tenancies run year to year. Unless the Government clarifies or changes the legislation, AHA tenants may be excluded from CCs on this ground.
2.2 Duration
As noted above, CCs will bind the landowner’s successors in title. CCs can be indefinite but sensible landowners will agree a specific period with the RB . They will need to last for at least 30 years to secure Biodiversity Net Gain, which we cover below. For tenants, they will last until the end of the term. Significantly, if a tenancy is terminated early, (one year into a hundred-year term, for example) the CC would carry on for the remaining years and bind the landlord – another reason for landlords to insist the tenant seek their consent. Licences for consent should include protection against losses flowing from a tenant’s default, such as security over a deposit account.
2.3 Enforcement
Punishments for breaching CCs are the usual suspects: orders for specific performance of obligations; injunctions; damages; orders for payment of amounts due. The court will consider the public interest in choosing a remedy and could award exemplary / punitive damages against a landowner in excess of actual damage caused. The limitation period will be six years from the date of the breach, although as most breaches will be ongoing this could be elastic. Landowners will be able to use factors beyond their control and emergencies as defences. As CCs are private, contractual agreements there will be no criminal sanctions.
2.4 Discharge or modification
The landowner and RB can agree to modify or discharge a CC, though any modifications will still need to meet the “conservation purpose” criteria. Either party can also apply to the Upper Tribunal to modify or discharge CCs where reasonable, but the Upper Tribunal will not be able to take account of a change in a party’s circumstances making a CC unaffordable for that person, so long term cashflow will obviously need to be considered when entering a CC.
In practice, ongoing dialogue between a landowner and RB will be important, particularly in the early days. Parties should also agree a timeframe for reviewing a CC formally, say every two years.
3. Why would a landowner want to enter into a CC?
Time will tell how popular CCs are. The starting point is that CCs will restrict a landowner’s agency over their land and, therefore, devalue it, potentially substantially, depending on the opportunity cost. What’s more, there is no direct public funding so CCs will need to align with other revenue schemes.
3.1 Altruism / environmental reasons
The environmental movement is now so strong that many people are keen to do and be seen to do “the right thing” for the planet. CCs are one way of achieving this. As discussed, CCs’ “conservation purpose” is broad and could have wide appeal to protect specific things that people or companies want to preserve or enhance, whether in their lifetime or as a legacy. The point when land is transacted – whether sold, leased, or left or gifted to a family member – is a logical moment to enter into a CC. Even if environmental conscience is not the sole reason it will often be a factor in decision making alongside other considerations.
3.2 BNG
Every development requiring planning consent will need to show 10% BNG), another Environment Act innovation. So there is going to be a lot of BNG around; CCs will be one way of providing it as developers and builders will have the choice between CCs and planning obligations (typically delivered under section 106 agreements with local authorities). There will be a register of land on which BNG requirements are secured by CCs or planning obligations, but we do not yet know how detailed it will be. The main difference between CCs and section 106 agreements is enforcement; the latter will be enforced by the local authority whereas the former will be subject to an RB. Initially, developers will likely stick with the devil they know (section 106 agreements), but they could switch to CCs if they perceive them to be more flexible, more bespoke, more straightforward to agree and cheaper than section 106 agreements. Cynically, you might expect RBs (because of the uncertainty of their resources) to be less rigorous enforcers than local authorities.
3.3 Natural Capital Agreements
Natural capital agreements are where a landowner contracts with a third party to provide an environmental service, like carbon sequestration or tree planting. They are relatively new but likely to become popular as governments, companies and individuals take steps to reduce their carbon footprint and environmental impact. Currently, they take the form of leases or service contracts. CCs could be a way to secure and enforce the environmental obligations within natural capital agreements, like a charge or a restriction on a property’s title to protect an overage agreement or other obligation. They could also tie into the Environmental Land Management Schemes (“ELMS”) we cover below.
3.4 Tax incentives
Tax is the elephant in the forest here. At the moment there are no tax incentives for CCs – the Government wants CCs (and indeed all natural capital arrangements) to be primarily private sector funded. But that could change if it wants to promote them and join up incentives for landowners. In other countries there seems to have been major take up only where there is a tax incentive (the USA is world-leader here, with federal income tax deductions and state tax credits). Agricultural subsidy reform may push landowners towards more sustainable management, but this does not align with the tax regime yet; notably inheritance tax with its traditional definitions of agriculture for Agricultural Property Relief and business for Business Property Relief. Without a change in the law, entering land into environmental schemes and pursuing less conventional farming will jeopardize both reliefs. This is a key policy focus in the rural world.
3.5 Environmental Land Management Schemes (ELMS)
CCs are well-suited to Landscape Recovery Schemes (“LR Schemes”). LR Schemes are the largest, most ambitious ELMS component, intended for landowners who (according to DEFRA) want to “take a more radical and large-scale approach to producing environmental and climate goods on their land”, they will operate over 500 to 5,000 hectares and are expected to last for at least 20 years. Most LR Schemes will require co-operation by groups of landowners, which is where CCs come in. DEFRA suggests CCs could be used to secure agreement between landowners and secure the LR Schemes, as with natural capital agreements.
Applications for pilot LR Schemes opened on 1 February 2022 and up to fifteen will be chosen in the summer of 2022. Like CCs, LR Schemes are yet to come into force. This is a space worth watching. We do not know how much money will be available for LR Schemes. Each will be bespoke, and the Government says they must secure private as well as public funding. Indeed, LR Schemes are intended to help landowners access the growing market for natural capital services like carbon sequestration and to develop standards and rules for those markets.
While some landowners will go the full Knepp and rewild, most will want to ensure that land in LR Schemes can still be farmed commercially (including to qualify for inheritance tax reliefs). Therefore, those negotiating and drafting CCs should take care that they are not too restrictive of farming and other activities. And, as suggested above, well-drafted CCs will include a review mechanism. On the ground, this will be complex, particularly as LR Schemes will probably involve several landowners.
Conclusion
Farming and landowning in the UK are in a period of regulatory and economic uncertainty. If the Government wants farmers to deliver public goods (as well as food security), it needs to ensure ELMS provides sufficient public money. It also needs to reform tax reliefs to reward conservation. CCs are potentially a good means by which landowners can deliver conservation – especially on a large scale with ELMS – but on their own they are not enough.
Student Housing Conference 2022 – what did we learn?
12 May 2022
News
Commercial Real Estate Partners, Ronan Ledwidge and Anthony Goodmaker, were back at this year’s Student Housing Conference – an in-person event held at the Grand Connaught Rooms on Wednesday 11 May, which brought together all the biggest names in the UK student accommodation market.
The last few years have taught us that the sector has a proven, resilient track record and that purpose-built student accommodation (PBSA) is now considered a mainstream asset class: it’s no longer viewed as “alternative” but as a key investment opportunity by many prominent UK investment funds, whilst also attracting significant interest from the international investment community.
But what are the main talking points for 2022 and beyond?
Lack of Supply – the limited availability of operational stock is the main issue for the investment market, pushing investors into the development funding world as they are forced to take on greater risk to secure their chosen assets. The problem is exacerbated further in key locations where it is notoriously difficult to get planning permission for new PBSA schemes.
Rising Costs – by no means unique to the PBSA market, but a perfect storm is likely to increase price pressure in this sector. Land prices continue to rise due to lack of supply, in spite of increasing build costs. Add to that the general cost of living crisis, with focus on the price of utilities and whether those will be passed on to PBSA’s end users and you are left wondering quite what the budgetary constraints of tomorrow’s students will look like in the face of these rising costs and how that will impact the market.
Sustainability – ESG credentials have long been spoken about in the student sector, and with good reason. Perhaps no other sector can count its end users – the students – as being so intrinsically engaged and sensitised by the climate crisis and general green agenda. Not only do they demand action, they expect it. But whilst there is concern that implementing these requirements comes at a cost, the data suggests that location remains, above all others, the number one determining factor when it comes to students choosing their accommodation. Will we see this change as the ESG requirements of tomorrow’s students become more and more important?
Despite these challenges, the outlook remains overwhelmingly positive. Investment in PBSA will continue to grow as funds, both domestic and overseas, look to place further capital in this sector. And even the local authorities are starting to adjust to the growing demand for new, high-quality student accommodation in key locations – Bristol City Council has recently announced new policy to facilitate the development of PBSA and other shared living accommodation in the city. If other sought-after localities can follow suit, perhaps we will see more supply, quicker than we otherwise might have expected.
The annual three day event will be taking place from 18 – 20 May 2022.
On 18 May at 9:40am, Maryam is hosting a session on Sham Trusts with Rachael Reynolds QC of Ogier.
Dickon will be co-presenting the session ‘Stress in the Legal and Trust Workplace’ on 20 May at 12:10pm, alongside Katharine Landells of Withers and Annmarie Carvalho of The Carvalho Consultancy.
Hannah will be joining the panel discussion on Letters of Wishes at 2:45pm, with Jordan Holland of 5 Stone Buildings.
London’s Tall Buildings: The Survey, The Plan and The Master Brewer – Victoria Du Croz writes for NLA
9 May 2022
Views
Head of Planning, Victoria Du Croz, writes for New London Architecture, following publication of the 2022 NLA Tall Buildings Survey, providing insight into the changing planning landscape underpinning the development of tall buildings in London.
Despite a myriad of potentially frustrating factors in recent years ranging from supply chain problems to commodity prices, development of tall buildings in London in 2022 continues apace, with planning applications approved in record numbers last year (2021) according to the 2022 NLA London Tall Buildings Survey, published 26 April and in partnership with Knight Frank.
2021 also saw welcome clarification, via judicial review, of former Housing Secretary Robert Jenrick’s direction of December 2019 concerning planning policy D9 of the London Plan. Jenrick’s intervention was a response to objections about circumstances where it was felt that tall buildings fail to reflect the character of the areas in which they were being proposed. The proposed solution was to attempt to confine tall buildings to “clearly defined areas within the local plan”.
Whilst the Government’s intervention in the wording of policy D9 was welcomed by bodies such as Historic England, many developers were concerned as to how policy D9 would be applied and if it would prevent tall buildings coming forward unless the site is allocated as such in the local plan. The knock-on effect could have been serious delays to the delivery of tall buildings in the capital.
Further clarity on the interpretation of D9 was obtained in December 2021 in London Borough of Hillingdon, R (On the Application Of) v Mayor of London [2021] EWHC 3387 (Admin), better known as the Master Brewer case, where the High Court found, contrary to widespread fears, that it’s entirely possible for a tall building to come forward even if the site is not allocated as such in the local plan. Planning applications nevertheless must still comply with D9 requirements to consider visual impact on a short, medium and long-range basis; functional impact including regard for local services and transport capacity; and environmental impact, including wind, daylight and sunlight penetration, among other considerations. In light of the original direction, many feared that the court would adopt a stricter interpretation.
Greater certainty is also assisted by Historic England, who have issued multiple advice notes on tall buildings, the latest of which, published 2022, cites the London Plan and policy D9 as a good example of a development plan that sets out a clear strategy for the development of tall buildings. The advice note aims to support local planning authorities and other stakeholders by setting out clear guidance on all aspects of the planning framework for delivering tall buildings. It offers guidance on identifying sites suitable for tall buildings in local plans, and a supporting documentation checklist for tall building planning applications. It is understood that Historic England remain concerned about the application of policy D9 given the Master Brewer case and continue to closely monitor planning applications for tall buildings in London.
Whilst widespread concern amongst developers about a strict interpretation of policy D9 has been removed by Master Brewer, planning for tall buildings in London is far from straightforward and seldom achieved quickly.
New London Architecture (NLA) is the world’s leading centre for excellence for the built environment. Their purpose is to improve the quality of people’s lives by making London a better place to live, work and visit.
The NLA Tall Buildings Survey is an annual publication, developed with research partner Knight Frank, delivering up-to-date figures and analysis of the London tall buildings pipeline.
The post-Covid high street – Andrew Denye speaks to New London Architecture
9 May 2022
Views
Commercial Real Estate Partner and Head of Retail, Andrew Denye, talks to New London Architecture Curator-in-Chief, Peter Murray OBE, about the challenges and opportunities for the Retail sector and what the post-Covid high street might look like.
A current member of the NLA Expert Panel on Retail and Hospitality, Andrew discusses how the retail industry is in the process of ‘bouncing back’ from pandemic conditions and what might be in store for the sector, with particular reference to the changing nature of the high street, flexible use, and community hubs.
The full interview is available to watch and listen to here.
Forcing landlords to let empty shops: will it save the high street? – Andrew Denye speaks to React News
6 May 2022
Views
One in seven shops across the country now sits empty, according to the British Retail Consortium, causing a devasting domino effect on nearby hospitality businesses.
In an attempt to reinvigorate the UK’s high streets and solve the growing issue of unoccupied retail properties, the Levelling Up and Regeneration Bill (to be announced in the forthcoming Queen’s speech) is expected to include plans to force landlords to let out empty shops. But how will this work in practice?
Commercial Real Estate Partner and Head of Retail, Andrew Denye, says, “The policy assumes that there are hordes of landlord out there deliberately choosing not to rent out their premises, as well as an equal number of potential occupiers who would like to take the space, but feel unable to negotiate with landlords, yet somehow would be willing to jump into a completely new concept in this rental auction… My concern is that those two assumptions are just wrong.”
Emphasising the vast costs involved in implementing such a scheme, Denye is concerned that compulsory rent auctions would only work for the “better empty units” as “community hubs and small businesses are not likely to want to take on a unit which requires capital expenditure”.
Whilst fully supportive of local level high street revival schemes, Denye believes a “one size fits all approach” such as this proposed initiative is “very optimistic”.
This article originally appeared in React News on 4th May 2022, available here behind their paywall.
The UK Logistics Market, A Gift That Keeps On Giving – Victoria Towers speaks to Logistics Manager
6 May 2022
Views
Despite the UK experiencing its deepest recession for 300 years, the industrials and logistics property industry has been enjoying a surprising period of growth.
Industrials & Logistics Partner, Victoria Towers, has provided expert commentary to Logistics Manager magazine on this welcome rise in demand for the sector, describing how Forsters“has seen rent levels in London go up from £17.50 to £24 per square foot (an increase of 37%) in ‘a matter of months.'”
“You are not going to see that kind of growth in offices [or retail at the moment].”
An interesting aspect of today’s market, she adds, which is contributing to the rise in rental prices, “is that some of the big players cannot get their foot in the door and so are pairing-up with developers on the ground and pursuing off-market deals.”
Victoria explains that many investors look to avoid open market sales in which they may be outbid, and so are acting quickly to prevent such competitive situations.
This article first appeared in the May 2022 edition of Logistics Manager magazine, it is available here.
Auctions have seen a surge in popularity over the last few years, with an increasing number of prime properties going under the hammer.
In her article, ‘How to buy property at auction’, Lucy explains what prospective bidders should be aware of, and the all-important due diligence required beforehand…
It is commonly thought that buying a property at an auction is an opportunity to pick up a bargain as there is often less competition than when buying a property on the open market. The lure of a bargain should not mean that any short cuts are taken when carrying out the necessary property due diligence, otherwise it can turn into a very expensive bargain.
When buying a property at an auction, there are several important things to consider which differ from buying on the open market.
“It is quite common at auction to find properties that are being sold by a lender where the borrower has defaulted on their mortgage, so there may be limited information available.”
Before the action, you would be well advised to ensure that a solicitor has reviewed any legal pack that is available for the property. In addition, they should carry out any additional searches or investigations that may be appropriate. It is quite common at auction to find properties that are being sold by a lender where the borrower has defaulted on their mortgage, so there may be limited information available. It may also mean that the owner had not been able to maintain the property, so renovations may be required. This is why seeking advice from solicitors and surveyors is very important. If works are required to be carried out, or you just wish to refurbish the property, you should ensure that there are no restrictions preventing you from doing so.
For example, a leasehold property may have restrictions in the lease which prevent you from doing the alterations you want. There can also be restrictive covenants which apply to a freehold property, which could prevent you from using the property in a manner in which you require. Therefore, it is important to get the title checked by a legal advisor.
Where there is not an opportunity to inspect the inside of the property before purchasing, you should inspect the outside of the property as that can be a good quality indication of the inside. For example, if its dilapidated and uncared for on the outside, the same should be assumed for the inside.
If you are looking to buy a block of residential flats as a ground rent investment, you should check whether or notthe provisions of the Landlord and Tenant Act 1987 (“the Act”) apply and that it has been complied with. If the landlord of a residential building (or some mixed use buildings as well) wishes to sell their building and the building is one which meets all the criteria under the Act, the landlord has to serve statutory notices to the residential tenants offering them the opportunity to buy the property at the price obtained at the auction. The notices have to be served at a specific time period before the auction. You should obtain legal advice to ensure that the statutory provisions have been followed correctly and ascertain whether the tenants have elected to take up the opportunity to purchase the property themselves. If this is the case, they are entitled to purchase the property at the price agreed at the auction. In the event the provisions of the Act are not followed, the tenants may have the right to later buy the property at the price obtained at the auction; therefore you may find yourself successfully bidding for the property, but not actually being able to complete your purchase or having to sell it to the tenants at the price you bought it for.
“The reserve price is not usually disclosed, therefore there is no guarantee that the seller will sell the property if the reserve price is not met.”
You should also be aware of the meaning of reserve price. The reserve price will be the value below which the seller has indicated they would not be willing to sell the property. The reserve price is not usually disclosed, therefore there is no guarantee that the seller will sell the property if the reserve price is not met.
If you are successful in bidding for a property at an auction, you will be asked to sign the contract immediately and the completion date will be fixed. The completion timetable after exchange can vary, but it is usually a few weeks after the exchange. If you are relying on mortgage finance, you need to ensure that you have it readily available. Mortgage offers can take several weeks to come through and may not come through in time for completion. There are specialist auction finance companies which can also assist with providing quick finance but it means you won’t have available to you the wide ranging offers on the wider mortgage market.
It is therefore important to seek advice from experts if you are considering buying a property at an auction. It is paramount to do this in good time as you may struggle to find a legal advisor or surveyor if you leave it to the day before the auction. It is crucial that you seek advice to ensure your title to the property is marketable and permits you to do what you wish.
The article was first published in Prime Resi on 5 May 2022.
Blockchain technology has opened up huge entrepreneurial opportunities that a great number of industries have been quick to exploit. The trust industry, on the other hand, is naturally (and with good reason) circumspect about all things blockchain. But perceptions within the industry are rapidly changing.
As such, trustees are therefore now grappling, in some cases urgently, with the challenges of holding cryptoassets in trust. In his article, James highlights the core issues that trustees are facing:
They will join leading players in the student housing sector for a discussion on future opportunities within student accommodation property.
Forsters Student Accommodation team have a strong track record of working with investors, real estate funds and developers within the student housing and purpose-built student accommodation (PBSA) sector and our ability to provide a full range of services – from site acquisition, to ongoing strategic management and disposal – puts us in a strong position to provide strategic and commercial legal advice to ensure best value is achieved.
Read more about our dedicated Student Accommodation team here.
Following the announcement of the Government’s plans for an independent football regulator, Stuart has said it might be “rendered toothless by conflicting aims”.
“It’s going to be a big call for a regulator to remove a club’s licence, because that means they can’t play football any more and potentially goes against trying to protect a club.”
This article was first published on City AM on 2 May 2022. You can read the full article here.
