Evolving industrial and logistics sector finds reason for optimism – Victoria Towers speaks to Property Week
26 May 2023
Views
Commercial Real Estate Partner and Co-Head of the Industrial & Logistics group, Victoria Towers, has spoken to Property Week on Forsters’ survey, conducted for our recent ‘Outside the Box‘ campaign, on current market sentiment within the Industrial and Logistics space.
Towers says: “Investors are confident of long-term occupier demand and of overcoming construction risk as inflation peaks.
“So much is changing so quickly, and the sector is definitely having to adapt more than it has previously. The sector is innovating and continues to show resilience.”
To find out more about our ‘Outside the Box’ campaign and explore the statistics learnt from our survey, click here.
This article was originally published on 12 May 2023 by Property Week and can be read here (behind their paywall).
Why the logistics sector is under pressure to evolve – Victoria Towers writes for React News
26 May 2023
Views
Commercial Real Estate Partner and Co-Head of the Industrial & Logistics group, Victoria Towers, has written for React News on the evolution of the logistics sector and how owners are pushing to innovate and meet sustainability goals.
Towers writes that “[Forsters’] recent Outside the Box study of the expectations of investors and developers in the [industrial and logistics] sector confirms our own experience as lawyers in advising on our clients’ innovations. Multi-storey formats, renewable energy and integration with residential require legal and technological support.”
From the survey, we saw that the greatest consensus was on multi-storey sheds. “77% believe they will play a large role in the UK logistics sector in the future and 52% have seen an increase in developer appetite in the past year.”
The key driver for this is the competition for land, with all that’s missing a confidence in the resilience of this new multi-storey shed format. “Are there cost-effective structural engineering solutions and ways around a vehicle stuck on a ramp? Are goods lifts now reliable enough?” Regardless, Towers says we should expect to see a proliferation of warehouses, light industrial units and the occasional 20-storey tower.
“In the meantime, lawyers will develop the legal structures needed to ensure that a multi-tenanted, multi-storey scheme remains attractive to both tenants and investors.”
The co-location of residential and urban logistics is causing issues in relation to design, technology and legal rights, with classic NIMBYism in play.
The solution will most likely lie with technology, which will also improve prospects for planning. Key forms of technology raised in our survey include clean energy, modernised site infrastructure, air filters and quieter HGV engines. There is also particular optimism for the impact of e-commerce, robotics (67%) and EV charging.
The real cause for excitement is, however, the impacts expected from artificial intelligence. Towers explains that “automation has required tighter legal controls on landlords to avoid them marching in on an inspection and getting in the way of a robot. As we start to see the uses emerging for AI we will get a clearer sense of the legal principles no longer fit for purpose and the gaps in regulation.”
Missing link
Battery storage has been a particular source of debate. Industrial real estate is becoming increasingly power hungry, and the “broad, flat roofs of our sheds are a gift for photovoltaics.”
“Battery storage is the missing link. The industry needs the capacity and ability to retain the energy generated by photovoltaics. If the panels produce excess energy, it is wasted should the National Grid not buy it back and there is nowhere to store it.
“The innovations we have discussed so far could have a big impact on the efficiency, value and deliverability of industrial real estate. But there could be a more disruptive change in the pipeline.”
Towers goes onto highlight the environmental incentive of shifting from road to rail, with particular reference to HGVS. This sentiment is shown in our survey with many anticipating rail freight generating the greatest growth in occupier demand in 2023.
“The picture that emerges is of a sector that is far from complacent in surfing the continuing wave of strong demand and high values. The industrial real estate sector is conscious of pressure to transform its environmental performance, and is investing in the innovations that will deliver a cleaner and more efficient industry.”
To find out more about our ‘Outside the Box’ campaign and explore the findings of our survey in detail, click here.
This article was originally published on 22 May 2023 by React News and can be read here (behind their paywall).
Chambers HNW Awards: Forsters’ Private Wealth practice shortlisted for four awards
26 May 2023
News
Forsters’ Private Wealth practice have been nominated for both team and individual awards at the Chambers HNW Awards 2023:
Private Client Team of the Year
Contentious Trusts and Estates Team of the Year
Rising Star – Hannah Mantle, Contentious Trusts and Estates Partner
Star Associate/Junior Under 10 Years’ Call – Maryam Oghanna, Contentious Trusts and Estates Senior Associate
The awards are based on the research for the recent edition of Chambers High Net Worth and reflects the achievements over the past 12 months including outstanding work, impressive strategic growth, and excellence in client service.
Head of Contentious Trusts and Estates, Roberta Harvey, commented: “I am delighted that our CTE team has been recognised in three categories this year. The shortlistings showcase the strength of our growing team and the commitment and expertise shown by the team”.
Head of Private Client, Xavier Nicholas, commented: “It’s great to see our top-band Private Client team recognised as one of the best in the field, in a year in which we have continued to see growth in demand for our advice to HNW families across all disciplines”.
The winners will be announced at the award ceremony on 13 July 2023.
Enforcing net zero targets – Louise Irvine writes for EG
25 May 2023
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In the final article of a three-part series on ESG and sustainability, Senior Knowledge Development Lawyer, Louise Irvine, has written for Estates Gazette on the rise of sustainable leases and the challenges around enforcement.
Irvine writes how a recent report by JLL and the BPF identified access to data – particularly on energy consumption – as a major challenge in implementing these leases, with the BPF also recommending a mandate for data sharing between landlords and occupiers. “Without accurate and timely data sharing, it will become increasingly difficult for both landlords and tenants to track against their own and industry-wide sustainability targets.”
She explains that it is difficult to enforce provisions that serve to encourage more sustainable behaviour, rather than obligate them. Even where there is an obligation for the tenant, the landlord is unlikely to forfeit a lease for such a breach. It may also be difficult for a landlord to demonstrate loss arising from breach of a green lease clause.
This is where, Irvine emphasises, collaboration between landlord and tenant is crucial.
“It has historically been more challenging to introduce green lease provisions on a lease renewal under the Landlord and Tenant Act 1954. However, this was considered last year in Clipper Logistics plc v Scottish Equitable plc (unreported, Sheffield County Court, 7 March 2022) where it was held that requirements on the tenant to preserve the existing EPC rating of the property were reasonable modernisation and could be included in a renewal lease.
“As green lease provisions become increasingly common, we are slowly shifting towards an institutionally acceptable sustainable lease. The new 8th edition City of London Law Society Certificate of Title, published in May 2023, includes a statement that tenants will not carry out alterations which adversely affect the EPC rating for the property, and that landlords and tenants will share data relating to the environmental performance of the property. These are small but promising steps towards lenders expecting sustainable lease provisions.
“The Financial Conduct Authority is making moves to investigate and tackle greenwashing, which will inevitably mean that contractual arrangements start to be more scrutinised. Green leases will need to be backed up by demonstrable steps or activity to avoid regulatory enforcement for greenwashing going forward.”
The role of regulation
Irvine explains that “as part of the government’s net zero push, there will be a major overhaul of the non-domestic Part L of the Building Regulations in 2025. In the interim, the Minimum Energy Efficiency Standard is the primary driver for change.” The goal is to achieve an EPC rating of B by 2030 and, while this may be unrealistic, it has certainly proved a catalyst in prompting action.
While we have not seen much enforcement of MEES breaches so far, it will be interesting to see if there is a rise in penalties for landlords letting below the requisite EPC rating. Irvine argues that the reputational damage incurred by sub-standard EPC ratings may do more to drive change.
“The government’s Roadmap to Sustainable Investing, published in October 2021, proposed introducing sustainability disclosure requirements into UK legislation to encourage firms (including pension funds, asset managers and investment companies) to accurately report on their ESG data and policies, and this could help to drive change.
“The Law Society has issued guidance to lawyers covering the transition to net zero, and how climate change risks may be relevant to client advice. There are already searches covering climate change risk, which raises the question of the extent to which property lawyers are required to analyse and report on this to clients, or whether this should remain strictly within the remit of surveyors and the client’s own ESG team.”
Future steps
The BPF also advocates greater collaboration between businesses and the government. To catalyse progress, landlords must learn from each other and support a system of greater transparency. “The government response refers to supporting businesses to provide “consistent and comparable data”, which has been welcomed by landlords.
“The Better Building Partnership launched its green lease toolkit back in 2013 and is expected to update its model lease clauses and guidance later this year. Lawyers are also working collaboratively through the Chancery Lane Project, a movement of legal professionals dedicated to using contracts to fight climate change and examine net zero clauses. These go beyond what we are typically seeing in the market and will help to drive the argument for significant drafting changes to meet more ambitious sustainability targets in the future.”
To find out more about Forsters’ ESG & Sustainability credentials, please click here.
Renters’ Reform Bill may introduce new risks for tenants – Anna Mullins comments
22 May 2023
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Property Litigation Partner, Anna Mullins, has been quoted in Property Week and Property Reporter on the long-awaited Renters’ Reform Bill entering Parliament, and the new risks it may pose for both landlords and tenants.
Experts have warned that the Bill, published on 17 May 2023, could make it more difficult for low-income renters to secure tenancies since private landlords could be newly motivated to sell their properties.
Mullins commented: “The removal of section 21 no-fault evictions will provide greater security for tenants in the private rented sector. However, it may also drive landlords out of the market and exacerbate the housing crisis, ultimately driving rents up and making it harder for tenants to find affordable rental properties.
“Even if new grounds for possession are introduced or the current grounds are strengthened as proposed, there is bound to be litigation around the circumstances in which problematic tenants can be evicted.
“For example, the proposed wording for the expanded antisocial behaviour ground will extend to “any behaviour ‘capable’ of causing nuisance or annoyance.”
This is clearly open to interpretation and such uncertainty could be detrimental for both landlords and tenants. Similarly, what will constitute an “unreasonable” refusal for a tenant to keep a pet?“These will be issues left for the courts to decide. For landlords, the procedure for obtaining possession is already time-consuming and costly, with many County Courts understaffed and ill-equipped to deal with the volume of straightforward possession claims.”
These comments were originally published on 17 May and can be read here (behind the Property Week paywall) and here in full in Property Reporter.
Working together towards net zero – Laura Haworth and Louise Irvine write for EG
19 May 2023
Views
In the second article of a three-part series on ESG and sustainability, Commercial Real Estate Senior Associate, Laura Haworth, and Senior Knowledge Development Lawyer, Louise Irvine, have written for Estates Gazette on how landlords and tenants should collaborate on improving energy efficiency and reducing carbon emissions.
With the government target to achieve nationwide net zero by 2050, the real estate industry is subject to increasing scrutiny to reduce its emissions within this timeframe, if not sooner.
The key point on this is deciding where the responsibility lies and who will pay for the transition. “The industry is coming to realise that the burden is shared, and that only through collaboration can the sector, as a whole, shift forwards and deliver results.”
Sharing data
Irvine and Haworth explain that: “a key opportunity for landlords and tenants, across both the commercial and residential sectors, is to boost data sharing, a crucial factor in meeting net zero goals.”
By doing so, landlords will be more able to understand their tenants’ energy demands and both parties will be better informed as to possible improvements.
The evolution of green leases
“On 1 April 2023, new requirements came into force for all let commercial properties to have an EPC rating of E or above, otherwise those property owners face fines pursuant to the Minimum Energy Efficiency Standard Regulations. But this is the tip of the iceberg in terms of green lease drafting.”
There is a trend towards “dark green” lease clauses, which include provisions such as the sharing of information regarding energy use and waste management, landlord rights of entry to carry out energy efficiency works and more general provisions for the landlord and tenant to co-operate with each other to improve energy efficiency. An implication of this is that tenants “may be required to avoid using gas and for both landlord and tenant to procure their energy supplies from renewable energy providers.
“These green clauses are generally seen by landlords as a back-up. It is preferable that there is an ongoing open dialogue between landlords and their tenants, with a shared objective to move closer to net zero. The provisions in the lease are something to point to if a tenant becomes obstructive.”
Irvine and Haworth write that collaboration is key in making green clauses work since landlords are unlikely to forfeit a lease if a tenant has not provided data on their energy usage. While in the past tenants have often struck out green clauses in leases, today we are seeing much more of an acceptance as many tenants also need to demonstrate their own green credentials as well.
Fit-out for the future
Irvine and Haworth explain that landlords tend to fit-out a space to a basic level, with subsequent occupiers then altering the space in order to it make work for them.
“While there is generally a requirement for the parties to use, where possible, materials that have been recycled and/or are recyclable, often with an obligation to carry out the works with a view to achieving the landlord’s net zero target, parties are now increasingly realising the environmental impact of these frequent re-fits. There is a focus in the industry towards reducing the environmental impact of changing occupiers. There are calls for more flexible spaces so that minimal works are required for each change of use.
“If possible, it is useful to get the tenant involved as early as possible and to work together so that there is only one joint fit-out. However, this involves significant trust between the parties and a willingness to compromise to meet the needs of both.
“Another option is for landlords to retain much greater control over tenants’ works than they perhaps have done previously. Rather than just approving drawings and letting the tenant get on with it, landlords will need to ensure that the actual works meet all of the environmental targets promised in the design stage.”
Tech longevity
“There is a focus on investment in net zero technologies, so it is expected that we will see quite a rapid development of smart tech to assist with energy efficiency. Landlords might find that fairly new systems they have installed become outdated quite quickly. The key is going to be ensuring that individual elements of smart systems can be updated without a total overhaul. This will mean making sure that systems do not use specialist cabling or that the chosen system is not limited by only a handful of people being able to do works to it.
“By working collaboratively, landlords and tenants can move towards a cleaner and greener future. But a willingness to be open and transparent is essential to decarbonising our built environment and reducing operational energy. It is in the interests of both landlord and tenants.”
To find out more about Forsters’ ESG & Sustainability credentials, please click here.
To read the first article in this three-part series, click here.
This article was originally published by EG on 16 May 2023 and is available here (behind their paywall).
She provides insight into her career so far, as well as offers thoughts on Forsters’ recent success in acting for the MoD in defence of claims made my Annington Homes.
What are your thoughts on the case?
“This case was about whether the Government could be entitled to benefit from legislation which gives long leasehold owners the right to purchase the freehold of their homes (known as enfranchisement).
The MoD had sold off a large portfolio of military family homes to Annington Homes, a private equity funded vehicle, in 1996, and simultaneously taken a 200-year leaseback. At the time of the deal, enfranchisement rights did not apply to MoD but there had been subsequent changes in the legislation expanding the definition of a ‘qualifying tenant’.
The MoD was keen to explore whether enfranchisement might bring better value for money for the taxpayer than the current lease arrangement, and so brought a handful of test claims to gain some clarity on the legal position. However, as the legislation was not written with government tenants in mind, there were numerous factual and legal complexities in issue, many of which had never been decided before.
Much turned on whether the MoD had a business tenancy, which would have disqualified it from enfranchisement, or whether the legislation could apply to a Crown interest. Annington also sought to attack the claims on judicial review grounds, arguing that the MoD had acted with an improper purpose. We were delighted to win on all grounds.”
How has it been dealing with the media?
“As we were part of a much wider legal team (including Slaughter and May, MoD Legal Advisers and Government Legal Department, plus a large Counsel team), we took a coordinated approach to everything in the litigation. MoD’s very capable communications team has taken the lead in handling media enquiries.”
Why did you become a lawyer?
“My family used to joke that I was so argumentative I ought to become a lawyer. This was around the same time that Ally McBeal so I think the combination of the two probably sowed the seed.”
What has been your career high?
“Getting a job on qualification in the property litigation team at Herbert Smith Freehills; initially they had not posted a vacancy, so I chose transactional real estate instead, but then a space opened up at the last minute. I am a litigator at heart, so I was very lucky to get on the right path.”
What has been your career low?
“In my final seat, whilst working on an exhausting deal that had involved multiple 5am finishes, I had an operation to remove an infected wisdom tooth. When I came round from the general anaesthetic, I realised I had only been under for an hour. I was apparently inconsolable not to have caught up on more sleep!”
This article was originally published in the Law Society Gazette on 19 May 2023 and can also be read here (Page 11).
On Tuesday 9 May, LD Events organised an in-depth review of the current student housing market with panel discussions from a wide range of industry experts.
Here are my five takeaway points from the Conference:
Demand versus Viability
The student housing sector is seeing unprecedented demand, largely driven by a 23% increase in international students and a 33% increase in postgraduate students since the 2019/2020 academic year. During that 2 year period there has been an increase in demand of 59,190 beds in London but only an extra 1,511 PBSA units have been built.
So what’s stopping us from building more? Money!
Despite a healthy growth in rents within the sector, they can’t keep up with rising costs from construction (including as a result of the Building Safety Act), the unwieldy planning system and operator costs (including a 30-50% increase in the cost of utilities and staff pay rises of 10% to keep up with inflation). It costs an average of £80/90k to build 1 unit of PBSA, which would likely need to command an annual rent of £7.5k to meet viability requirements – for comparison, the average student loan outside of London is £5.5k, creating an obvious strain on profitability.
This also raises issues beyond the real estate sector. On the back of a failing student loan system, we risk creating a two-tier market where certain universities are only accessible to students from the wealthiest backgrounds. This issue is not confined to London either; Durham saw a 14.9% rent rise but demand was seemingly unaffected. It is thought this is partly due to the fact that 38% of students at Durham are from independent schools, whose families are more likely to be able to assist with the increased rents.
Viability is the biggest challenge facing this industry and, despite innovation from the private sector, universities and the Government are going to have to address this issue if they want to keep attracting the best students – and not just the wealthiest ones.
Out with the new, in with the old?
As the industry strives to bridge the gap between available units and ever-increasing demand, one solution is to repurpose existing buildings rather than build from scratch – in particular, the number of vacant department stores and office buildings were identified as a potential growth area.
For many schemes, this could reduce costs given that planning can be easier to obtain when redeveloping existing buildings however, retrofitting isn’t always cheaper. Given the focus on net zero targets, heavy capex can be required to improve the sustainability credentials of existing building stock. This risks creating a two-tier market (as is being increasingly being seen in the office sector) where only the top investors can hold ‘green’ stock.
Location, Location, Location
Location is always important, but in a sector where the occupiers have such specific (and usually predictable) requirements, location really is everything! Student satisfaction is known to be lower if they are not happy with the location – after all a lot of students aren’t just going to University for the academics. From my personal experience, some universities in London couldn’t guarantee me a room in student accommodation as my family home in Essex was deemed commutable and consequently, I did not apply to those universities.
As well as building the right types of PBSA in the right towns and cities, the micro-location also counts – this means consulting people with local knowledge to ensure that accommodation is being built in the best locations within towns/cities for the intended end-users.
What else is important to students?
Other than the price and location, what else matters to gen Z/ Alpha students?
Unsurprisingly, high speed internet is number 1 on the shopping list, followed by smart tech and security. Research has found that students don’t want to pay for social spaces, which is good news for developers as they can maximise (and more importantly rentalise) all available space within a scheme. That said, there are certain things that students expect to be included as standard (at no extra cost), such as well-being support and strong ESG credentials.
Ultimately, it is important for universities and investors that developers build schemes that will be popular and therefore successful. Consistent with my own experience when applying to University, 50% of students responding to the UCAS Student Accommodation survey 2022/2023 said that the availability of accommodation had influenced their decision on where to study.
Operators coming to the fore
Operators are now front and centre of the accommodation offering especially following Covid and in light of the cost of living crisis. This is leading to an increase in brand recognition and a desire to live in branded accommodation. 60% of students living in PBSA indicated that brand was a factor in choosing their accommodation. It is therefore more important than ever that owners appoint the right operator for their scheme.
Net zero and the push for a greener tomorrow – Laura Haworth and Louise Irvine write for EG
15 May 2023
Views
In the first article of a three-part series on ESG and sustainability, Commercial Real Estate Senior Associate, Laura Haworth, and Senior Knowledge Development Lawyer, Louise Irvine, have contributed a piece to Estates Gazette about the UK’s pathway to reach net zero by 2050.
On 31 March, the government released three documents intended to lay out the UK’s plan to achieve this: the Green Finance Strategy, the Net Zero Growth Plan and the Energy Security Plan. These were released collectively under the government banner of “Green Day” announcements.
Haworth and Irvine write of how, “for those in real estate, the challenge is that there were scant measures that addressed the sector directly, yet at the same time, a large proportion of the measures will have an indirect impact and will need to be considered.”
Despite this, they do say that the announcements clearly outline the government’s overall strategy centring around a “pro-growth regulatory regime”, with examples including “carbon border taxes” and plans to upgrade the UK’s power grid.
Green Day provisions for real estate
The “Great British insulation scheme” is one of the few policy references to real estate, albeit focused on domestic buildings only. It involves middle-income households being offered grants worth hundreds of pounds to make their homes more energy efficient.
A common criticism of this scheme is that while the UK Green Building Council say 27m homes need retrofitting, this initiative will only cover 300,000 households. Moreover, there is no such scheme for commercial real estate.
As expected, the government is also focusing on transitioning to low-carbon heating systems such as heat pumps. For social and low-income homes, the aim is to improve energy efficiency through the extension of the Energy Company Obligation levy.
“While this is a positive move, it does not address energy inefficiency, a fundamental issue that must be rectified across domestic and commercial real estate if the industry is to meet net zero.”
How can landlords fill in the blanks?
Since Green Day, real estate trade bodies like the British Property Federation, the BPF and CBRE say that a much greater level of detail is needed from government in terms of a net zero transition strategy.
Haworth and Irvine believe that landlords are already under considerable pressure to demonstrate how they are tackling the fight towards net zero. “There are factors beyond looming regulatory pressures, such as reputational risk and the idea that there will increasingly be a premium on green spaces. Landlords want to attract the best tenants so they need to ensure that what they are offering is both what tenants want and competitive against other offerings. It is also important to bear in mind that tenants will have their own environmental targets, which will affect their real estate requirements.
“Competition is playing out in terms of compliance with the growing number of accreditations that landlords can seek for their buildings. These not only improve reputation but also help to attract tenants.”
The retrofit revolution
Retrofitting, which carries the dual benefit of helping to decarbonise the sector while also enabling landlords to think more creatively in terms of sustainability and design, is gaining popularity.
Haworth and Irvine comment: “The trend is moving away from the white box spaces that have been popular for so long and towards spaces with more character and in which sustainable measures are very visible. It is a chance to showcase and to create flexible spaces that do not require a complete re-fit every time there is a change of occupier.”
In order to keep pace with the trend’s growing momentum, there is a need for a larger workforce to carry out the improvements to building stock as currently there are few that specialise. The government talks of securing supply chains for the transition, but only time will tell if that extends to the types of skills required for retrofitting and whether it translates into government investment for skills training or if that is left largely to private funding.
How should it be funded?
The Green Finance Strategy indicates that financial markets are planned as a key driver in funding this climate action. “Once again, the real estate sector is in a prime position to benefit from more money going into green projects through dedicated green funds or green loans.”
While the Green Finance Strategy does not, as many had hoped, contain a finalised green taxonomy, it does include a renewed commitment for the UK to be the “best place in the world for raising transition capital”.
“Although there has been an increase in sustainability-linked lending (a loan where the pricing is tied to the borrower’s achievement of sustainability performance objectives as an incentive), and green loans (where the loan proceeds are used for green projects), these are not as commonplace as might be expected, and do not usually offer a real financial incentive to landowners.”
Haworth and Irvine believe that lenders will increasingly focus on the green credentials of buildings and interrogate this more closely as part of their due diligence.
“The question then is – should landlords or tenants pay for the works? There is no one size fits all. The good news is that payback periods for measures such as solar panels are getting shorter. This means tenants are more likely to contribute if they are going to get a full return on their investment during the term of their lease. But, largely, the cost will fall to landlords, and landlords will pay in order to attract the best tenants and achieve the best rents.”
A way to go
Haworth and Irvine conclude by writing: “While there is still a long way to go, the property sector has proven itself to be committed to net zero, as confirmed by a recent joint survey by the BPF and JLL. The government’s Green Day drive has been welcomed for the partial direction that it gives but, as has been the case to date, it will be the pioneers within the sector that drive the initiative and the innovation needed. The good news is there is a growing bank of evidence that green commercial buildings are attracting higher rents, which is expected to act as an incentive, alongside government policies and regulatory requirements.”
To find out more about Forsters’ ESG & Sustainability credentials, please click here.
This article was originally published by EG on 9 May 2023 and is available here (behind their paywall).
In the wake of Brexit, Government schemes introduced as successors to the removal of EU subsidies have shifted the focus away from agricultural activities towards environmental land stewardship. However, tax in the rural economy, particularly Agricultural Property Relief (APR) under the inheritance tax (IHT) regime, has not evolved to reflect this change of emphasis. This leaves the rural sector operating in tax and subsidy frameworks with little clarity and conflicting incentives.
The consultation is broadly in two parts, the first calling for evidence on the tax treatment of environmental land management and ecosystem service markets. Part 2 then focuses on APR as a whole, with an ancillary section to consult on whether the Government should implement the Rock Review’s recommendation that APR be restricted to farm tenancies with a life span of at least eight years.
A New Rural Landscape – The Government’s Agricultural Policy Shift
Post-Brexit support for farmers and landowners is moving away from the Basic Payment Scheme to Environmental Land Management Schemes (ELMS): ‘public money for public goods’. There are three tiers of ELMS:
Sustainable Farming Incentive (SFI) will pay farmers to adopt sustainable farming practices.
Countryside Stewardship (CS) will pay for targeted environmental work, like restoring wildlife habitats.
Landscape Recovery (LR) will fund longer-term, large-scale projects (over 500 to 5,000 hectares), such as improving water quality across a river catchment area.
As well as direct Government support, landowners are being encouraged to access private sector funding through ‘ecosystem service markets’, including:
Woodland carbon units, which pay for carbon sequestration.
Biodiversity Net Gain (BNG): from November 2023 (or April 2024 for small sites), every planning permission will be required to generate at least 10% BNG. While the preference will be for BNG to be delivered onsite, it will also be possible to deliver offsite. Landowners will be able to sell BNG units to developers to meet the condition.
Nutrient Neutrality (NN): to date, Natural England has advised seventy-four local planning authorities that protected habitats within their areas are in unfavourable condition due to excess nutrients and that development should only go ahead where it will not cause additional pollution to those sites. Mitigation measures for nutrient pollution can be delivered onsite (such as wastewater treatment facilities) or offsite (such as the creation or restoration of natural wetlands). Landowners can deliver offsite
mitigation and then sell NN credits to developers.
ELMS and ecosystem services will involve moving away from intensive agriculture and (other than SFI), from focusing on food production. Landowners need to understand the implications of this policy shift for their IHT planning.
The Agricultural Property Relief Incentives at Odds with the New Rural Subsidies Schemes
Broadly speaking, APR is available where an IHT ‘transfer of value’ is attributable to the agricultural value of agricultural property. Agricultural value does not take account of any value the same property may have by virtue of other aspects, such as being a site with potential for building development. The relief may apply to lifetime transfers (broadly to trustees on trust or on a gift made by someone within seven years of death), transfers on death or when agricultural property is held on trust under the IHT ‘relevant property regime’ (which can result in a charge being levied on property transferred out of a trust or on every 10-year anniversary).
APR can apply at 50% or 100%, largely depending on who farms the land and the nature of any tenancies in place over it. To qualify for the relief, there are two main parts that have to apply, one of which relates to ownership and occupation requirements. The other, which is where the problems lie in the context of the incentives under the new environmental schemes, is that the property has to be ‘agricultural property’, which is (broadly speaking) land occupied for the purposes of agriculture, together with cottages, buildings and farmhouses which are of a character appropriate to that property.
The tension lies within this definition of agricultural property, specifically the need for it to be ‘occupied for agricultural purposes’ to qualify for the relief – which does not, on the face of it, include land used for, or to take advantage of, the environmental schemes described above.
Questions that we are regularly asked by clients include, “If I graze my sheep over a wildflower meadow a few times a year, is this enough for the land to qualify for APR?” “Will I lose APR if I rewild my land and stop farming?” Of course, the availability of APR is always fact-specific, but at the moment, the legislation raises more questions than it answers.
The problem is exemplified in upland regions of the UK where vast areas have seen a significant increase in value thanks to natural capital potential. As things stand, this uplift in value is unlikely to be covered by APR as it does not fall within the current definition of ‘agricultural value’. The consultation acknowledges this and asks how environmental land should be valued.
Clarity on the Horizon?
Tax and subsidies are key to the way the rural economy functions and the way land is managed. So long as conflicts exist within these frameworks, the rural sector will be in limbo. Forsters will be contributing to the consultation, which closes for feedback on 9 June 2023, in the hope that its outcome will lead to meaningful clarification of the Government’s agricultural policy. Aligning the tax and subsidy incentives is key to restoring the rural sector’s confidence in a robust, sustainable and thriving future.
Forsters advises Ministry of Defence in successful defence of claims by Annington Homes
15 May 2023
News
Forsters is delighted to have acted for the Ministry of Defence in successfully defending the claims brought by Annington Homes regarding military service family accommodation.
The High Court has found that the Ministry of Defence does benefit from a right to enfranchise; the Ministry of Defence will now consider whether enfranchisement might achieve better value for money for the taxpayer. The case involved complex aspects of the law of enfranchisement, some of which had never been decided before.
The team at Forsters was led by Senior Partner, Natasha Rees, and Partner, Julia Tobbell. Natasha Rees is a property litigator with expertise in the field of enfranchisement, whilst Julia has significant experience in managing high-profile, high-value property litigation. They received superb support from Associates James Carpenter and Harvey Small.
The Forsters team worked closely with Slaughter and May, as well as Ministry of Defence Legal Advisers, who advised the Ministry of Defence in respect of public law issues.
Forsters wins bid to be reappointed as legal advisors to Notting Hill Genesis
12 May 2023
News
We are delighted to announce that, after a highly competitive tender process, Forsters have been reappointed as advisors to Notting Hill Genesis, one of London’s largest housing associations. We will continue to provide advice to Notting Hill Genesis, our longstanding client, on:
building safety
acquisitions
sales
developments (complex as well as simple)
joint ventures
Section 106 schemes
commercial lettings
residential sales and resales
Commercial Real Estate Partner and Head of Affordable Housing, Sara Branch, says: “We are delighted that Notting Hill Genesis has chosen to retain Forsters to work alongside them and we look forward to continuing to work with them in delivering much needed affordable housing and helping to fulfil their ambitious affordable housing development and sales programme.”
Forsters’ Affordable Housing Development Team provides a complete legal service; including property, construction, planning, finance, tax, residential services, corporate and property litigation.
Structures crave stability. You wouldn’t choose to build in an earthquake zone. If you had no choice but to do so, you would ensure your structure had sufficient flexibility to withstand a powerful shock.
Divorce is a major source of instability for a family wealth-holding structure because it exposes the structure to scrutiny by a powerful and potentially hostile external body – the family court.
Following the earthquake analogy, in an ideal world, wealth-holding structures would be created in such a way that they are outside the reach of the family court. Failing that, they should be created in such a way that they can adapt and, if necessary, absorb a certain amount of damage without compromising their structural integrity.
This article is based on English law, but the points raised are very much applicable to divorce proofing trusts in most common law jurisdictions.
Jurisdiction
Not all family courts are equal. Some will have little knowledge or understanding of trust structures or will lack powers to compel disclosure or compliance by trustees. Others, particularly those in common law jurisdictions, will be very familiar with trusts structures and will have an arsenal of legislative weapons available. As Mr Justice Coleridge famously said in (J v V (Disclosure: Offshore Corporations) ): these sophisticated offshore structures ……..neither impress, intimidate, nor fool anyone”.
When considering jurisdiction, much thought is given to the “best” jurisdiction for the trust and firewall legislation However, less thought is given to another aspect of jurisdiction: what are the factors that will enable a beneficiary or their spouse to invoke the jurisdiction of a particular family court?
Each jurisdiction has its own rules setting out the circumstances in which a party can apply to be divorced in that jurisdiction. There is no international convention regulating the question (although EU member states have a common set of rules), so any dispute as to which is the proper forum for a particular divorce is likely to involve litigation in two jurisdictions. The potential jurisdictional net is cast wider than one might expect.
It is relatively easy for a couple to move in and out of the jurisdiction of the English family court at different stages of their lives. It is also noteworthy that an individual who has an English domicile, but who has spent little or no time in England, can find themselves subject to the English family court if they divorce.
There is little that trustees can do to prescribe the divorce jurisdiction of their beneficiaries. However, trustees and their advisers should consider:
Reviewing the likely family court jurisdiction that would apply to each of their beneficiaries at the time the trust is established. That information will prove invaluable when considering what protective steps can and should be taken.
Taking advice if a beneficiary is contemplating moving abroad to establish whether they are potentially entering the jurisdiction of a more hostile family court.
If a beneficiary is contemplating marriage, make enquiries as to the intended spouse’s background (nationality, domicile, habitual residence) and take advice as to whether they will potentially “import” the jurisdiction of their home family court.
Generally keeping abreast of the beneficiaries’ marital situations so the trustees are warned as early as possible of any forthcoming difficulties. However, it is vital that the trustees to NOT take peremptory steps (such as excluding a spouse) if the beneficiary’s marriage is faltering. This is like a red rag to a bull so far as the divorce courts are concerned.
The family court’s powers
Family courts often have extensive powers in relation to trustees and trust assets:
Power to compel disclosure. Parties to financial remedy proceedings on divorce are subject to a “duty of full and frank disclosure” in relation to their financial affairs. That requires parties not merely to provide information that is in their knowledge or possession. A beneficiary will be expected to request information from trustees regarding the extent of trust assets and the likelihood that a request for assistance will be agreed to.
If the court feels a beneficiary is being deliberately obstructive, the court has power to join the trustees as a party to the proceedings and to require them to provide information regarding trust assets. Trustees are then faced with difficult decisions about whether to submit to the court’s jurisdiction or to refuse and risk potentially adverse publicity if the judgment is published. Joinder can also lead to expensive satellite litigation in the trust’s home jurisdiction as guidance is sought from the local court.
Power to vary the terms of a trust if that trust is found to be a “nuptial settlement”, which can be defined as “a settlement for the benefit of one or both of the parties or their children, created because of the marriage, or referring to the marriage, whether made before the marriage (ante-nuptial settlement) or after it (post-nuptial settlement)”. The court often has the power to vary such a settlement by, for instance, reinstating a spouse who has been removed from the class of beneficiaries, or requiring the trustees to make a distribution to a beneficiary to pay off his or her spouse.
The court sometimes has resorted to “judicious encouragement” in cases where a beneficiary professes that they are unable to receive a benefit from a trust once the divorce has concluded. In such cases, the court would award the beneficiary spouse a smaller proportion of the matrimonial assets on the basis that the court expected that the trustees would make up the shortfall once the case was concluded, either directly or through a “forced” distribution to the beneficiary.
The power, in appropriate circumstances to “pierce the corporate veil” as the court seeks to establish the underlying beneficial ownership of assets held in complex structures. (Prest v Petrodel Resources Ltd & Ors ).
In the great majority of cases, where adequate disclosure is made, the family court will understand and respect the trustees’ role. However, the court will look beyond the terms of the trust deed and will examine the extent to which the beneficiary has in fact benefited and the extent to which they can expect to do so in future. So established patterns of benefitting can be detrimental in such circumstances.
Dynastic Trusts: a trust that is dynastic in nature is far less likely to suffer adverse consequences than a trust which is clearly primarily for a beneficiary who is divorcing. The court is generally reluctant to interfere with the potential benefits of future generations.
Reserved Powers: Settlors reserving powers of revocation, and/or other reserved powers, such as the power to determine distributions and certain extensive investment powers, may find that the courts order them to exercise those powers to bring back the assets into their hands for the purposes of the divorce.
Letters of Wishes: Courts are very likely to want to see Letters of Wishes, as they often reveal the real intended beneficiaries and how they will benefit. It is essential to draft them carefully, and with this in mind. They should not be changed when a marriage break-up is in prospect.
Is it a trust at all? The very recent La Dolce Vita case in Singapore is a timely reminder that if the trust is, in reality, the settlor’s “alter ego”, then divorce courts will look straight through the trust and regards the assets as those of the settlor.
Nuptial agreements – pre- and post
A nuptial agreement can perform a number of useful tasks in an asset-protection context:
Fixing jurisdiction. A nuptial agreement will typically contain clauses in which the parties agree to submit to a particular jurisdiction. They provide powerful evidence of the parties’ intentions at the time they signed the agreement and can be helpful if jurisdiction becomes contested.
Fixing choice of law. In addition, a nuptial agreement will typically contain a choice of law clause. This will specify the law which is to be applied when interpreting and giving effect to the agreement, regardless of where the divorce takes place.
Arbitration. It is common for nuptial agreements to contain an arbitration clause. Arbitration frequently provides a swifter, less costly and more confidential form of dispute resolution, as compared to court proceedings.
Punitive costs. Agreements will frequently contain a clause specifying that a party who seeks to challenge a nuptial agreement in court should be required to pay the other party’s costs.
Confidentiality. Nuptial agreements will typically contain extensive confidentiality clauses. In addition to the above, the principal purpose of a nuptial agreement is to set out the terms on which the couple agree their financial claims should be resolved in the event of divorce.
For international couples, care should be taken, wherever possible, to ensure the nuptial agreement will be upheld in each state which could potentially have jurisdiction to hear the divorce.
In England, the Supreme Court considered whether nuptial agreements should be upheld in the landmark case of Radmacher v Granatino . Their conclusion was that they should, subject to some important provisos (neither party should be under undue pressure to sign, both should provide a reasonable level of disclosure of assets, each should have independent specialist legal advice, and the agreement should not be unfair).
For those seeking to mitigate the risk of divorce to structures, therefore, the first step is to ensure beneficiaries enter into a nuptial agreement. We often recommend a clause in the trust deed obliging a beneficiary marrying to enter into a pre-nuptial agreement, unless that provision is waived because the trustees are satisfied that it might be disadvantageous. Failure to do so could mean the beneficiary being excluded or receiving less than they otherwise would.
The Family Court always retains oversight. A pre-nuptial agreement cannot therefore be enforced in the same way as a contract, since the court will always retain the ability to decide whether it would be fair to hold the parties to the terms of the agreement. Even if a nuptial agreement is challenged, however, it is likely that it will result in a far more restricted award than if there were no agreement.
Governance considerations:
Selecting jurisdiction for structures and investments (there is little point in setting up a Cook Islands structure if the underlying asset is a UK residential property).
Considering carefully the class of beneficiaries.
Considering carefully whether a new or existing structure risks being considered a “nuptial settlement”.
Considering whether to create a separate trust or sub-trust for a beneficiary perceived to be exposed to divorce risk, so as to limit the potential damage to wider structures.
As part of wider family governance conversations, consider a requirement that all beneficiaries are expected to enter into nuptial agreements to protect the trusts, and granting trustees the power to treat those who fail to do so less generously (or to exclude them altogether).
Focus on making trusts dynastic in nature.
Take great care over reserved powers and revocation powers.
Draft Letters of Wishes very carefully, and on the assumption that the divorce court will see it.
Forsters acts on forward sale of BTR homes at Gallions Quarter in London’s Royal Docks
11 May 2023
News
We are thrilled to announce that members of our Commercial Real Estate team led by Partner Sara Branch acted for a JV between Telford Homes and Notting Hill Genesis to secure a £66m forward sale to London BTR Investments Limited (a joint venture between EQT Exeter and Sigma Capital Group) of a Block of 132 homes for market rent on the final phase of the JV’s development at Gallions Quarter in Royal Albert Wharf.
The sale relates to the Build to Rent element of the Gallions Quarter site at Royal Albert Wharf, in the Royal Docks, with units planned to be ready for occupancy in Q1 2024. In addition 135 homes, 51% of the overall scheme, are being delivered as a combination of affordable rent and shared ownership and will be owned and managed by Notting Hill Genesis. Forsters has also advised on the delivery and acquisition of the affordable homes.
Max Sugden, Transactions Director at Telford Homes, said: “Delighted to exchange on the forward sale of the BTR element within Gallions Quarter Phase 2B to London BTR Investments, a JV between EQT Exeter and Sigma Capital Group. A pleasure working alongside our JV partner Notting Hill Genesis (Jake BrodetskyJulian Rodriguez), our lawyers Forsters LLP (Sara Branch) and JLL (Simon ScottGeorge JonesMax Wilkinson) as our selling agents.”
John Hughes, group director of development and deputy chief executive of Notting Hill Genesis, said: “Royal Albert Wharf is a triumph of partnership working and we are delighted to welcome Sigma and EQT Exeter to the future success of Royal Albert Wharf.”
Commercial Real Estate Partner, Sara Branch says: “It was fantastic to work with the JV on the sale of the BTR Block, securing the units on the final phase of the development. It was great to be able to close this transaction during a period of such economic uncertainty.”
Major survey of investors and developers reveals growth opportunities in evolving industrial real estate market
11 May 2023
News
Extensive independent research commissioned by law firm Forsters reveals key growth opportunities as the industrial and logistics real estate sector adapts to market and policy pressures.
Forsters’ report, Outside the box: supporting an industrial evolution, is based on a survey by FTI Consulting’s professional research team in the first quarter of 2023. Sixty-one UK-based professional investors and developers in UK real estate assets were surveyed and another four leading developers and investors were interviewed about their experiences in competing for land, investment and occupiers while adapting to the shifts taking place in uses, formats, locations and policy.
Markets and demand
The ‘warehouse bubble’ has burst for 77% of the sector, but almost half (46%) expect an increase in asset values and rental levels in 2023 and a smaller proportion (39%) believe there will be an increase in occupier demand.
Urban logistics and last-mile real estate are expected to experience greatest demand in 2023. As last-mile delivery centres move closer to residential areas, the sector acknowledges the need to be neighbourly. Around half say that running HGVs on clean energy (46%) and creating a modernised site infrastructure (46%) will help co-location and planning permission.
The research suggests some mismatch between future investment development. There is a higher demand from investors than developers in transport and logistics (49% investors, 36% developers), retail (28% and 15%) and post and parcel delivery (26% and 18%). Where there is higher demand from developers than investors, the result could be a lack of finance for speculative development. Uses most affected would be data centres (25% investors and 38% developers) and food and beverage (31% and 38%).
Advocates of modal shift from road to rail will be heartened to see rail come top for its prospects: 51% believe rail freight will generate the greatest growth in occupier demand in 2023, compared with 33% for both road and maritime.
Greater London is seen as offering the best prospects for investment by 28%, followed by the North West (13%), South East (11%) and West Midlands (11%). Those who selected Greater London were mainly driven by its connectivity (47%), availability of assets (35%) and availability of supply (35%). Across all regions, the key factors for investors were connectivity (51%), closely followed by good value (49%) before a large gap to availability of labour (30%).
Innovation
Competition for land continues to drive interest in multi-storey industrial development: 52% have seen an increase in developer appetite in the past year and 77% believe that multi-storey sheds will play a large role in UK logistics in the future.
Investors and developers were optimistic about the impact of technologies, such as e-commerce (69%), robotics (67%) and electric vehicle charging (67%), and saw the most significant positive impact coming from artificial intelligence (33%) which trumped e-commerce (28%). AI was also seen as most likely to have a negative impact (15%).
Sustainability
The industry highlighted the need for assistance in meeting net zero targets. Key asks were government subsidies for renewable energy (54%), assistance with measuring progress (34%) and expert guidance (26%). With growing pressure for refurbishment, 57% said that cost is an issue, while 34% highlighted the extent of refurbishment required and around a quarter blamed inadequate structures (26%) or the quality achievable through refurbishment (23%).
Smart meters (57%) were most popular as a means of improving the sustainability of existing developments, followed by additional insulation (51%), while 77% of respondents currently use solar panels or plan to. Although only 18% currently use battery storage technology, a huge 51% are planning on using it.
When it comes to incentivising tenants to reduce energy consumption, 39% advocate the use of smart meters as part of a reciprocal agreement. Only 26% of respondents see green lease provisions as the most effective incentive to offer a tenant.
Forsters partner Victoria Towers comments, “Investors are confident of long-term occupier demand and of overcoming construction risk as inflation peaks. What this national survey reveals is huge diversity in not only the opportunities but also the responses to them.
“The sector is innovating and continues to show resilience. The pioneers will need legal innovation to keep pace. Lawyers must help manage the development and use of space looking to the long term to preserve asset value in schemes. This should include supporting a collaborative relationship between landlords and tenants to achieve environmental and social sustainability objectives.”
The Index recognises the top family lawyers for high net worth clients in the UK, ranking individuals that have the ability to combine expert legal knowledge with an emotional understanding of a client’s situation to produce the best results.
Spear’s publishes annual rankings of the top private client advisers and service providers to high net worth individuals.
These are compiled from peer nominations, client feedback, telephone and face-to-face interviews, data supplied by firms, and information gathered by the Spear’s editorial and research teams.
Taking Care: Europe’s (sometimes) controversial later living market – Amy France speaks to Institutional Real Estate, Inc.
2 May 2023
Views
Commercial Real Estate Partner and Head of Later Living, Amy France, is quoted in Institutional Real Estate, Inc.’s latest piece on Europe’s later living market, which looks at how private capital is sometimes prevented from entering the sector, and how more uniform regulation could reassure investors.
The article describes how “care homes and senior living, such as retirement villages with medical and hotel-style facilities, are proving popular with investors across Europe.” While there is a clear reasoning for such investment trends, when understood alongside Europe’s ageing, affluent demographic, there are still several challenges which need of tackling.
One such challenge is fragmentation within the sector, on which France comments: “This is a story of two halves, concerning regulation and planning. In the UK, care home regulation is in a good place compared to other types of retirement living, but many believe that increased government guidance on leasehold structure and deferred management fees, for example, would help the sector grow, providing consumers with more reassurance. And planning remains an issue, with consented sites in short supply.”
This article was originally published in the May 2023, Vol. 7, No. 5, edition of Institutional Real Estate, Inc. and is available here behind their paywall.
Developments in the UK film and TV sector – Owen Spencer speaks to Property Week
2 May 2023
Views
Commercial Real Estate Counsel and member of the Film & TV Studios group, Owen Spencer, has spoken to Property Week about how the last 12 months have seen a change from the rapid rise in film and TV studio space, which the industry had enjoyed throughout the five years prior.
Property Week report that the last year has seen “a number of films due to be produced in the UK, including the next instalment of Star Wars, delayed, and industry giants Disney and Netflix have both reported falls in profits, potentially affecting future productions.”
This has provoked questions as to how much further studio development will take place, especially as a record £6.27bn was spent by film and TV companies last year; much of it going towards an additional 1.1m sq ft of stage space that has been developed since 2021.
Does this extra capacity, then, mean that the market is likely to cool?
Spencer, whose clients include Netflix, Warner Bros. and Sony Pictures, comments that it is more a case that the market has matured, rather than reached saturation point.
He notes that after the likes of Disney and Universal started striking long-term deals with established studios such as Pinewood and Elstree from 2019, their owners were able to create secure incomes and studio space became even more scarce as a result.
Now, with many major film and TV companies having studio deals in place, the market has changed, but Spencer adds: “Some big studios don’t have long-term commitments in the UK, so it’s not necessarily the case that there aren’t more big deals to be done, but we’ve moved into a different phase.”
One strategy employed by studios as a response to the scarcity in available studio space, was the trend of converting industrial warehouses into studios.
Spencer says yields will vary depending on location but adds that there are additional benefits to striking such deals with film companies.
“The other thing that’s attractive about doing a film-studio conversion from a landlord’s point of view is that it might be quite nice to have an international corporation on your books as opposed to a small logistics operator.”
This article was first published in Property Week on 26 April 2023 and is available to read in full here, behind their paywall.
