Organisations are regularly faced with grievances or allegations of wrongdoing that need prompt and thorough investigation. Getting it wrong can result in costly claims and damage to an organisation’s reputation. Here are our key points to consider for employers conducting investigations as part of a formal HR process:
Policy and procedure – identify (and be clear about) the HR policy and procedure you are following (especially if there are potential overlaps). For example, if an employee raises a grievance which deals with wider regulatory matters, will this be dealt with under your grievance and/or whistle-blowing procedure? Ensure that policies and procedures are applied fairly and consistently
Appoint an appropriate investigator – ensure independent investigators with sufficient expertise, training and experience are appointed. An investigator will typically be of certain seniority. Always consider whether an external investor (such as a law firm) might be more appropriate, especially where the subject matter is particularly sensitive and/or involves senior level employees
Scoping and framework – set out a clear scope and framework for the investigation. In particular give thought to the allegations/matters being investigated, what format the findings should take, and whether the investigator is to make any recommendations to the decision maker. Individuals involved in investigations should clearly understand their role and remit. However, remember things can change and the scope and framework might need to be updated
Confidentiality – ensure matters are dealt with as confidentially as possible. Only share matters to those who need to know and consider whether information can be shared in a more limited away (for example, just providing relevant extracts of documents rather than the whole thing)
General factors – for employers to remember and relay as applicable:
interrogate the evidence and always look for corroboration
understand the burden of proof to be applied (“case to answer” for investigations and “balance of probabilities” for hearings and decisions).
ensure decisions are made on facts and evidence and not speculation
keep careful paper trails and accurate notes
make sure everyone is aware that drafts of the investigation report could become disclosable in legal proceedings. The language and the tone of the report and any recommendations should also be appropriate
if an investigation touches upon criminal or regulatory matters, consider whether there is any need to make an external report.
Download our workplace investigations factsheet
Organisations are regularly faced with grievances or allegations of wrongdoing. Getting it wrong can damage an organisation’s reputation and result in costly claims.
Government reveals details of inheritance tax reform on farms and businesses
3 March 2025
Views
Eight essential points
On 27 February the government published its consultation on the changes to inheritance tax (“IHT”) announced in the October 2024 Budget.
As is now well known, from 6 April 2026 only £1m of a person’s assets will be eligible for 100% agricultural property relief (“APR”) and business property relief (“BPR”). Beyond that £1m allowance, APR and BPR will be available at only 50%. The widely criticised changes will bring a huge number of farms and businesses into the IHT net.
The consultation clarifies some of the announcements made in the Budget and sets out how the new rules will apply to trusts.
There are a number of technical matters covered, but the eight key points to be aware of are:
The allowance (like the familiar £325,000 nil rate band) will ‘refresh’ every seven years, meaning that an individual can settle £1m of relievable property into trust every seven years. (There were concerns that the consultation would announce a £1m lifetime allowance.)
Unlike the £325,000 nil rate band, however, any unused portion of the £1m allowance cannot be transferred between spouses. We expect this point to be widely criticised in the consultation. But on the assumption that the government will not be diverted from its course, individuals should review their wills to ensure that everyone makes full use of their £1m allowance. The fact that the £1m allowance is not transferable may lead families to divide their businesses or farms between themselves in order to use as many allowances as possible. On a related note, the consultation proposes specific anti-fragmentation rules designed to prevent people depressing the overall value of their farm or business by dividing it between trusts and family members.
Helpfully, any pre-Budget succession planning (i.e. gifts of APR or BPR assets) will be subject to the rules at the time. So if someone dies after next April, but within seven years of having made a pre-Budget gift, the current rules (i.e. full BPR and APR) will apply.
IHT on agricultural and business property can be paid over ten years in interest-free instalments. As the interest rate on unpaid IHT is currently extremely high, this is helpful.
On an individual’s death, the £1m allowance will be shared with any trusts in which they have a ‘qualifying interest in possession’.
Trustees of ‘relevant property trusts’ (i.e. those that are subject to IHT charges every ten years) will have a £1m allowance, which will refresh every ten years.
Trusts created before the Budget that held relievable property will each have their own £1m allowance. For any trusts created subsequently, the settlor’s £1m allowance will be split between them.
For trusts created before the Budget, no IHT exit charges will arise on distributions of APR or BPR qualifying assets until those trusts have passed their first tenth anniversary. After the first tenth anniversary, the new regime will apply.
In conclusion, the details set out in the consultation are, in the main, sensible, albeit in the context of what is, for many business owners and farms, an enormously damaging change in the tax code. While we await the draft legislation, those affected by the reforms should seek specialist advice.
Contact us
Please get in touch with your usual Forsters contact to find out more or contact us here.
Sophie Smith speaks to Property Week on NPPF response and Nature Reservation Fund
10 January 2025
Views
In December, the Ministry of Housing, Communities and Local Government published their response to the National Planning Policy Framework, developing their green-belt policies and further defining grey belt land. Adding to the discussion, they also published plans for a new Nature Reservation Fund, designed to help developers with their environmental mitigation costs.
A key takeaway is that the government has changed plans for a flat 50% affordable housing requirement on green belt land, instead having a variable premium ranging from 15% to 50%, on top of the targets set by local plans.
Sophie Smith, Associate on our Planning team, spoke to Property Week on how open to interpretation these requirements are now, and how this will affect identifying grey belt land.
“[The number of appeals will depend on] how local authorities seek to interpret and apply the new policy on a local application specific level”.
On the new Nature Reservation Fund, this could “iron out the delays in the development process”. With scheme environmental aspects often the cause of additional work and delays, the fund could possibly give “greater certainty to developers as to how these issues can be addressed and mitigated much earlier in the development process”.
Andrew Parker speaks to The Times on Building Safety Gateway Delays
7 January 2025
Views
Post Grenfell and the subsequent Building Safety Act, a new rigorous gateway regime has been established to ensure the safety of residential high-rise buildings. However, numerous building and construction projects up and down the country are being held in an everlasting bottleneck, halting construction progress. Red tape, confusion around the completion of forms, and understaffing of the BSR has led to decision waiting times being more than twice the legal limit of 12 weeks. Further complicating the process, less than 15% of applications made to the BSR are approved, with 31% being returned as “invalid”.
Speaking to The Times, Andrew Parker, Head of Building Safety and Construction Disputes, gives his insight on these delays:
“[The new regime] is the result of a fairly damning critique of the construction industry in terms of how they procured, designed, tested, built and actually managed high-risk buildings. Nobody is under any illusion now that it’s a tick-box exercise. It needs to be handled properly. Maybe I’m naïve but it would be great to think that people realise that this is a problem that now affects everybody – contractors and developers, investors. It may well be that it just gives the construction industry the shot in the arm it needed for collaboration.”
Family Limited Partnerships: A lifeline in the IHT storm
19 December 2024
Views
The US and the UK are separated by the vast and tumultuous waters of the Atlantic Ocean. Those with connections to both countries will often find themselves rowing against the tide between two very different and complex regimes. With the right specialist advice, they can navigate the cross-border challenges safely and make the best use of planning opportunities.
Understand the issues, avoid the traps, and discover ways to plan ahead in our Navigating the Atlantic series for US-connected clients.
In this instalment, we consider the impact of changes to UK inheritance tax (IHT) on the use of trusts by UK resident Americans and explore the use of family limited partnerships (FLPs) as an alternative vehicle for wealth planning.
Impact of proposed changes to IHT from April 2025
Changes to IHT that are due to take effect on 6 April 2025 will be a significant concern to many UK resident Americans. After ten consecutive (or ten out of the prior 20) tax years of UK residence, those who come to the UK from the US will become exposed to IHT on their worldwide assets. IHT is charged at a flat rate of 40% on death to the extent that the value of the deceased’s estate exceeds his or her available ‘nil rate band’ (NRB) amount of up to £325,000.
While those who are US citizens or domiciliaries will already have a worldwide exposure to US estate tax at up to 40% on death (and, in principle, the treaty between the US and the UK should prevent double taxation) the UK exposure represents a real additional tax cost. This is down to the size of the US federal estate tax exemption that is currently available to US citizens and domiciliaries, of up to $13.99m per individual in 2025. In effect, the worldwide IHT exposure gives rise to an additional tax liability equal to 40% of the difference between the available NRB amount and the available US estate tax exemption of the deceased (or the total value of their estate if it is less than the available US exemption) on death. Based on a USD:GBP exchange rate of 1: 0.8, this represents a real additional tax cost of up to $5.43m per individual estate.
Historically, many UK resident Americans who were expecting to remain in the UK long enough to acquire a worldwide exposure to IHT (which would occur after 15 years of UK residence under current rules) would have taken steps in advance of the change to mitigate the adverse implications. Most commonly, they would do this by transferring some or all of their non-UK assets into trust. By doing so, under IHT rules at the time, they could shelter those assets from IHT indefinitely, even if they were able to benefit from the trust. Under new rules, this planning will no longer be effective where the trust is funded on or after 30 October 2024. Instead, the trust assets will form part of the settlor’s estate for IHT purposes on death unless the settlor is excluded from benefit irrevocably. The trust assets will also be exposed to IHT charges of up to 6% every ten years and on ‘exits’ (such as capital distributions) from the trust between ten-year anniversaries for so long as the settlor retains a worldwide exposure to IHT.
There may still be opportunities for US citizens and domiciliaries (who are not also UK citizens) to leverage the US-UK estate and gift tax treaty to protect their non-UK assets from IHT through transfers into trust, but the scope for this will be significantly more limited than it has been previously. Therefore, UK resident Americans who are concerned about IHT will want to explore alternative planning strategies.
Considering alternative IHT planning strategies
It will, of course, remain important to think about how assets can pass efficiently on death. As a minimum, married couples should look to structure their wills in a way that allows access to the spouse exemption from IHT on the first death, postponing any IHT liability until they have both died. If both spouses are in good health, they may find they are able to obtain life insurance on their joint lives relatively cheaply to cover the IHT bill that arises on the second death. This can be a good option alone where substantial lifetime gifts are not viable, or it can be used in combination with a gifting strategy. Life policies taken out for this purpose should be written into trust to prevent the death benefit itself from being subject to IHT.
Potentially Exempt Transfer (PET) regime remains intact
Contrary to speculation in the run-up to the Autumn Budget, the UK’s PET regime is to be left intact following the April 2025 changes. This regime allows outright gifts in any amount to be made free of IHT if the donor survives the gift by seven years (with a reduced rate of IHT applying if the donor survives by more than three but less than seven years). Making PETs can be a powerful IHT planning tool in the right circumstances. In theory, this could allow a person to give away everything they have free of IHT during lifetime! However, there are important non-tax considerations to factor in.
First, the donor must be able to afford to give the relevant assets away. Anti-avoidance rules (known as the ‘gift with reservation of benefit’ rules) prevent the donor from ‘having his cake and eating it’, so it will be critical for the donor to cease his own enjoyment of the relevant assets at the time of the gift. Secondly, the donor must be prepared to make the gift with ‘no strings attached’. The gift must be absolute, and the donee must be free to do as he chooses with the relevant assets, which will belong to him. The donor is required to give up all formal control and ownership rights upon making the gift, which could reduce the appeal of this planning where there are concerns regarding asset protection and/or how the relevant assets will be used by the donee.
Family Investment Company (FIC) structures
This dilemma has led many to explore the use of structures through which the PET regime can be leveraged while at the same time incorporating some of the control and asset protection benefits associated with trusts. A popular structure has been the FIC. As the name suggests, a FIC is a private company that is created for the purposes of holding investments for a family. The allocation of shares and the associated rights of shareholders can be tailored to the family’s needs and can allow the division of voting control and economic interests between different generations. Gifts of shares (or funds for children to subscribe for shares) in the FIC will be PETs for IHT purposes, but control mechanisms can be built in via the company’s articles and by agreement between shareholders, which can make this option more attractive than making outright gifts of cash.
However, the use of FICs presents various challenges for American donors and donees. Active steps would need to be taken to prevent the FIC becoming entangled in penal US anti-avoidance rules that apply to ‘passive foreign investment companies’ (PFICs). Where the PFIC regime applies, the US imposes onerous income tax and interest charges on certain distributions and profits made by the FIC. Even if this can be managed (for instance, by making a ‘check the box’ election to make the entity transparent for US tax purposes), the structure presents a risk of double taxation if profits are extracted from it by UK resident family members. This generally limits the effectiveness of the planning to scenarios where the family can afford not to benefit from the FIC while they are UK resident.
The appeal of FLPs
FLPs can offer similar non-tax advantages to FICs, but without the same penal anti-avoidance rules and double tax risks. This is because an FLP is, by default, transparent for tax purposes in both the US and the UK. Therefore, the partners are subject to tax on their respective shares of the partnership’s income and gains directly as they arise.
How do they work?
In a typical FLP structure, the parent/grandparent will fund the FLP in exchange for limited partner (LP) and general partner (GP) interests. The GP interest (to which minimal economic value will be attributed) will hold the management rights, including strategic decision-making powers and control over the FLP’s distribution policy. The GP interest will often be held through a limited company to provide de facto limited liability. LP interests (including a pro-rated share of profits) will be given by the parent/grandparent to his children/grandchildren. A partnership agreement will be put in place that is bespoke to the family’s requirements. This is likely to incorporate control mechanisms and seek to provide a degree of asset protection for the partners – e.g. by incorporating limits on transfers of interests, admission to the partnership, redemption of capital, exercise of voting rights, etc. The GP interest will sometimes be retained by the donor, but more often will be transferred to a spouse or third party to mitigate the risk of the donor reserving powers that prevent the gifts from being ‘completed’ for US transfer tax purposes.
Tax considerations
No liability to tax should arise in the US or the UK on the initial funding of the FLP by the donor because there will not be any change to the beneficial ownership of the underlying assets. From a transfer tax perspective, the gifts of the LP interests will be PETs for IHT purposes, so will pass free of IHT if the donor survives the gifts by seven years. If the donor is a US citizen or domiciliary, the gifts will also be subject to US gift tax, but no liability will arise if the value of the gifts falls within the donor’s available exclusion amounts. When assessing the value of the gifts for tax purposes, there may be discounts available for minority interests and lack of marketability. Future growth on the assets will occur outside the donor’s estate for IHT and US estate tax purposes.
Although the gifts of the LP interests will not constitute ‘gain recognition events’ for US income tax purposes, they will represent disposals of the underlying assets for UK capital gains tax (CGT) purposes. This could mean it is preferable to fund the FLP with cash or, where the FLP is funded with assets in specie, to structure the transfers as gifts of cash, followed by sales of the LP interests. The sales will trigger tax on uncrystallised gains in both the US and the UK, but relief should be available under the US-UK income tax treaty to prevent double taxation.
Non-tax considerations
FLPs offer a mechanism to pass wealth to younger generations while retaining a degree of control and protection over the underlying economic interests. In many respects, this separation of control and economic ownership is reminiscent of a trust structure, which is attractive. However, this must be balanced against other non-tax considerations related to the use of FLPs. In particular:
Because FLPs are transparent for tax purposes, they will give rise to tax liabilities for the limited partners, even if no distributions are made. This exposure to tax on the profits of the FLP means the limited partners will require full transparency regarding the finances of the partnership, to enable them to comply with their personal tax reporting obligations. There will be little mystery as to the value of their interests!
There will be substantial professional costs associated with the setup and maintenance of the structure, including annual compliance costs for the FLP and its partners.
Historically, there have also been concerns that FLPs may be treated as collective investments schemes, requiring regulatory oversight by the Financial Conduct Authority (FCA). However, the FCA has confirmed that this is not relevant to single family FLPs.
In a nutshell:
Upcoming changes to UK inheritance tax will be a concern to many UK resident Americans, who may want to explore new IHT planning strategies. For UK tax reasons, the use of trusts as vehicles for lifetime gifting will become unappealing and ineffective in many cases. While UK tax rules favour outright gifts as an IHT planning tool, there are non-tax factors that can prohibit or limit the appeal of lifetime giving. FLP structures can offer a tax-efficient and flexible solution, which balances the desire to reduce the size of the donor’s estate with the need for a controlled transfer of wealth to younger generations.
Disclaimer
The members of our US/UK team are admitted to practise in England and Wales and cannot advise on foreign law. Comments made in this article relating to US tax and legal matters reflect the authors’ understanding of the US position, based on experience of advising on US-connected matters. The circumstances of each case vary, and this article should not be relied upon in place of specific legal advice.
Family Limited Partnerships: A lifeline in the IHT storm
‘Planning to make a better rental market’ Helen Streeton shares her thoughts with Landlord Today
5 November 2024
Views
Following its General Election victory, the Labour Government sprang into action to tackle the housing crisis, tabling a Planning and Infrastructure Bill and Renters’ Rights Bill in the King’s Speech within weeks of taking office.
It also announced an eight-week consultation on a revised NPPF, reiterated its manifesto commitment to delivering 370,000 homes a year in this parliament, and addressed mandatory housing targets for councils and the ability to build homes on the ‘greybelt’ (greenbelt of poor quality and underutilised land).
It’s clear that Britain’s 12 million renters won’t be forgotten under a Labour Government, but will Labour policies create an appealing landscape for investors?
The UK Build to Rent sector is one of the fastest-growing sectors in the housing market, with the delivery of units increasing at an average rate of 54% per annum between 2015 and 2021, according to JLL. Despite this, there is disparity up and down the country regarding planning authorities’ knowledge and understanding of BTR as a product and how financial viability modelling works. This is different to housing delivered for sale.
The number of households renting is rising, 35% of households now rent, compared with 35% who own outright (most of whom belong to the over 65 age category) and 30% who own with a mortgage. Renting is no longer the reserve of the young, with the number of households in England where the main tenant is between 45 and 64, sitting at around 70% of the rental market.
The Renters’ Rights Bill seeks to ensure that renters have long term secure and high-quality housing. BTR developers and operators welcome new laws which will provide these protections – the vast majority of landlords want their tenants to be with them long-term and already provide the flexibility to move between properties as needs change.
At the same time, any new legislation needs to ensure a balance between those protections and investor appetite – it would backfire if the upshot is that landlords, especially smaller PRS landlords, withdraw from the market, further choking off supply and putting upward pressure on rents.
Research from the British Property Federation earlier this year showed that 40% of BTR sites take at least a year to achieve planning consent and there are concerns within the industry about the pace at which the new Building Safety Regulator can review buildings within the Building Safety Act Gateways.
Changes to the planning system are a key priority for the government, with Labour hoping it can unlock schemes and investment. Great certainty in planning timelines and a clear framework should enable schemes to progress more quickly. But with both the planning system and building safety, questions remain over resource – is there enough focus on ensuring we have professionals with the necessary skills within the sector?
Labour’s ‘getting Britain building’ rhetoric will only succeed if there are fundamental changes to how Britain’s planning system operates in tandem with a concerted effort to increase resource at a local and national level.
The industry and investors will be eagerly awaiting next steps on the Renter’s Rights Bill tabled by the Government, which is now at the committee stage. Early signs are promising for individual renters, with increases to rights and protections including banning Section 21 ‘no-fault’ evictions for new and existing tenancies. However, the precise and final details of the Bill will be critical in determining the impact on investor appetite.
Labour needs to work closely with industry stakeholders to develop a rental framework that balances the interests of landlords, tenants, and local communities, ensuring fair and transparent practices.
This article was published in Landlord Today on 04 November 2024.
In her first budget held on 30 October, the new Chancellor, Rachel Reeves, confirmed that the government will press ahead with the abolition of the non-dom tax regime.
Draft legislation has been published setting out the detail of the new rules, which will apply from 6 April 2025.
The proposals are broadly in line with those announced by the previous government in March. The information released yesterday brings some clarifications, and significant further detail in relation to the reforms to inheritance tax (IHT).
Income and gains – the FIG regime
A new four-year foreign income and gains (FIG) regime will apply from 6 April 2025. Those who qualify for the FIG regime will benefit from a complete exemption from UK tax on their foreign income and gains, whether or not they remit them to the UK. Anyone wishing to avail themselves of the regime will need to declare their global earnings on a tax return that will need to be submitted to the UK tax authority (HMRC).
Eligibility for the new regime
The four-year FIG regime will be available to anyone in their first four years of UK residence, provided they have not been UK resident in the previous 10 years.
This means that those who are already UK resident will only be eligible for the new regime if they became UK resident on or after 6 April 2022 and were non-UK resident in the preceding 10 tax years. Subject to the residence criteria, the four-year FIG regime will be available to UK citizens and UK domiciliaries.
Trusts
The FIG regime will apply to non-UK resident trusts. Settlors who are within the FIG regime will not be taxed on the foreign income and gains of trusts they have created. Beneficiaries will not be taxed on distributions that are matched with income and gains of the trust while they are eligible for the regime.
Exceptions
Those individuals who are not in the FIG regime will be subject to income tax and capital gains tax (CGT) on their worldwide income and gains. Settlors will generally be taxed on the worldwide income and gains of trusts from which they can benefit. Currently, there are exceptions from the automatic attribution of income and gains for those who have funded overseas companies (including companies owned by non-resident trusts) where the avoidance of UK tax was not a reason for creating the structure. These exceptions – the so-called “motive defences” – will continue to apply although the rules of which the motive defences form part will be subject to government review in the course of 2025.
Transitional rules
There are two transitional rules for individuals who were already UK resident:
Temporary Repatriation Facility
The Temporary Repatriation Facility (TRF) will allow those who have previously been taxed on the remittance basis and who have unremitted income and gains to remit them and pay tax at a reduced rate. The TRF will be available for three years from 6 April 2025 (i.e., until 5 April 2028).
The reduced rates will be as follows:
12% in the 2025/2026 and 2026/2027 tax years; and
15% in the 2027/2028 tax year
The TRF will also apply to unremitted income and gains arising in non-UK resident trusts and non-UK resident companies before 6 April 2025, and also income and gains arising within such a structure that has been attributed to them before this date under the UK’s anti-avoidance rules. In addition, the TRF will cover pre-6 April 2025 income and gains within such structures that have not been attributed to the individual to the extent that the income and gains “matches” to benefits received by the individual during the TRF window. However, the TRF will not be available for distributions of post-6 April 2025 income.
Capital gains tax rebasing
This will allow current and past remittance basis users to rebase foreign assets to their market value as at 6 April 2017. This could reduce the chargeable gain if an asset is disposed of on or after 6 April 2025 and the individual is not eligible for the FIG regime.
This CGT rebasing will not be available to individuals who are already UK domiciled or deemed UK domiciled, or become so prior to 6 April 2025.
Inheritance tax
From 6 April 2025, a person will be within the scope of IHT once they have become a ‘long-term resident’ of the UK. Domicile will cease to be relevant. An individual will become liable to IHT on their worldwide assets once they have been UK resident for at least 10 out of the immediately preceding 20 tax years. This will be determined based on the existing residence rules – the statutory residence test (SRT) from the 2013/2014 tax year onwards; and the pre-SRT rules for earlier years.
UK situated assets and non-UK situated assets that derive their value from UK residential property will remain within the scope of IHT, regardless of other factors.
The “tail period”
It had previously been proposed that, once within the scope of worldwide IHT, an individual would remain so for 10 years after ceasing UK residence. That will be the case for an individual who has been UK resident for at least 20 years, but the “tail” period will be reduced where the individual has been UK resident for between 10 and 19 years, on a taper basis. For example, an individual who has been UK resident for 13 out of 20 tax years, will only need three years of non-UK residence to fall outside the scope of IHT.
“Excluded property” trusts
Buried in the budget announcements, there was some limited good news for non-doms with existing “excluded property” trusts. Currently, non-doms who settled non-UK assets into trust are protected from IHT on death. The government had announced previously that this protection would be lost. In response to widespread lobbying, the government has decided that excluded property trusts settled before 30 October 2024 should continue to be exempt from IHT on the death of the settlor.
Non-UK situated property held within a discretionary trust will no longer be excluded property where, and for so long as, the settlor is a long-term resident within the scope of IHT. If the settlor loses their long-term residence status, then the trust can reacquire excluded property status and this will trigger an exit charge for IHT. Settlements that currently have a UK domiciled settlor (under current rules) who will not be a long-term resident (under the new rules) on 6 April 2025, will be facing an unexpected exit charge. Many trusts will be in a situation where the settlor is non-domiciled (under current rules) but will be a long-term resident (under the new rules) and will become subject to the ongoing IHT charging regime with periodic and exit charges.
Commentary
The government has placed growth and wealth creation at the centre of its agenda. It has promoted the FIG regime as “internationally competitive”. The assumption seems to be that those who move to the UK to take advantage of the regime will remain beyond the four-year period and accept UK tax on their worldwide assets thereafter.
The appeal of what is (in effect) a four-year tax haven has drawn speculation. The obligation on those availing themselves of the FIG regime to report their global assets to the UK tax authority may add to the doubt.
The government appears to have heard at least part of the message that has been delivered over recent months. Subjecting existing UK resident non-doms to IHT at 40% on assets settled into trust under the current rules has been widely reported as a deal-breaker for those considering their options. While this was a step too far for many non-doms who were waiting for this clarification, it remains to be seen how those who are left will respond.
Next steps
We will be working closely with our clients and contacts to work out what the detail of the changes will mean to them and to their plans going forward.
Key takeaways for UK Private Clients – 2024 Autumn Budget
30 October 2024
Views
There are some finer details yet to be released, but here is a summary of the key takeaways from the 2024 Autumn Budget:
Capital Gains Tax (CGT)
Rates of CGT – immediate changes
Despite rumours of CGT hikes to bring rates in line with income tax, residential property rates for CGT remain at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Non-residential property rates increase from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher and additional rate taxpayers (including trustees and personal representatives).
Business Asset Disposal Relief – changes from 6th April 2025
The rates for disposals qualifying for Business Asset Disposal Relief will increase from 10% to 14% next April, and from 14% to 18% for disposals after 6th April 2026. See further detail in our briefing here.
CGT will be triggered on the return of assets to members on the liquidation of an LLP.
Inheritance tax (IHT)
We knew that IHT reliefs were under scrutiny, and there was a lot of speculation about the form any changes would take.
Before going through the changes, it is worth briefly explaining the current position. Broadly speaking, IHT is due on a person’s estate at 40% on the value over and above their IHT nil rate band (NRB) of £325k. It is also possible to claim the residential nil rate band (RNRB) of up to £175k when descendants inherit qualifying residences.
100% relief is available on business and agricultural assets qualifying for Business Property Relief (BPR) or Agricultural Property Relief (APR), with no cap on the value of assets to which the reliefs apply. Those reliefs were designed to ensure that farms and businesses could be kept intact from one generation to the next.
NRB and RNRB thresholds
The existing NRB and RNRB thresholds will be frozen until 2030. (The NRB has not changed since April 2009.)
APR and BPR
From next April, APR will be extended to land managed under an environmental scheme, although the details are yet to be confirmed.
From April 2026, 100% relief will continue to apply to the first £1m of combined APR and BPR assets, with the excess qualifying for 50% relief only. For example, if you own £2m of shares qualifying for BPR, £1m of those shares would attract 100% relief, and the remaining £1m would be subject to IHT of £200k.
There will be a consultation in March 2025 on how the new allowance will affect trusts subject to the so-called relevant property regime (which levies a charge of 6% every ten years on assets held in trust).
Estates will continue to benefit from the NRB, RNRB and other exemptions (e.g. to spouses, charities etc.). However, it has been made clear that if any of the £1m relievable property allowance is not used on death, it cannot (unlike the NRB and RNRB) be transferred to a surviving spouse. Outright gifts will also continue to escape IHT if made at least seven years before death – there had been concerns that Labour would increase the period to ten years.
There is no mention of the uplift on death for CGT purposes, and so it seems that it will continue to apply.
Assets currently qualifying for 50% relief will remain subject to that rate and will not use up any of the £1m allowance, meaning at least that the allowance is not ‘wasted’ on assets qualifying for a lower rate of relief.
Where there is a mixture of assets qualifying for APR and BPR at 100%, the £1m threshold will be divided proportionately. Taking the Government’s example “if there was agricultural property of £3m and business property of £2m, the allowance for the agricultural property and the business property would be £600k and £400k respectively”.
The instalment option can continue to be claimed on APR and BPR assets.
AIM
The rate of BPR on AIM shares will be reduced from 100% to 50%.
Pensions
Currently there is no IHT on unused pensions funds held in discretionary trusts.
From April 2027, IHT relief on pensions will no longer apply, regardless whether or not the unused pension funds are held in a discretionary trust. Pension providers, rather than the deceased’s personal representatives, will be responsible for sending HMRC the funds to pay the IHT on the unused pension.
It appears that recipients of the balance of unused pension funds (after pension providers have paid the IHT) will remain subject to income tax on withdrawals, meaning, in effect, a double tax charge.
IHT return (online filings)
HMRC will introduce a new online digital platform for filing IHT returns and managing payments.
Other
Private schools
As already announced, VAT will be charged on school fees from January 2025. The Government plans to legislate to remove the eligibility of private schools in England to business rates charity relief. It is intended that this will take effect next April.
Interest on late payment of tax
From 6th April 2025, the interest charged by HMRC on unpaid tax liabilities will increase by 1.5% to 4% above the Bank of England’s base rate. This will substantively increase the cost of claiming the instalment option on IHT.
An update on corporate and property taxes – Autumn Budget 2024
30 October 2024
Views
The Chancellor introduced a number of measures that impact businesses and business owners. The following are some of the key points that may need immediate consideration.
Unusually direct tax and indirect tax measures have been introduced effective from Budget Day.
Capital Gains Tax (CGT)
The main rates of CGT that apply to assets other than residential property and carried interest have changed from 10% and 20% to 18% and 24% respectively, for disposals made on or after 30 October 2024. The rate of CGT that applies to Business Asset Disposal Relief (BADR) and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026.
Many taxpayers have been racing to exchange contracts before Budget Day and HMRC is aware of this as it is noted in the Budget press releases that the change in rates are accompanied by forestalling rules to apply to: unconditional but uncompleted contracts before 30 October 2024, and for Business Asset Disposal Relief and Investors’ Relief, where a contract is made from 30 October 2024 to 5 April 2026 and completed from 6 April 2025. In such cases disposals will be subject to the new rates of Capital Gains Tax unless:
the parties to the contract can demonstrate that they did not enter into the contract with a purpose of obtaining a tax advantage by reason of the timing rule in section 28 of the Taxation of Chargeable Gains Act 1992 (this provision provides that the date of disposal of an unconditional contract is the date of exchange rather than completion)
where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons
Where these apply a statement must also be made where the gain exceeds £100,000.
Action point
Taxpayers will need to be able to demonstrate that there was a commercial reason for the exhanged contract.
Carried Interest
An increase in rates from April 2025 and more radical change from April 2026. For further details read our briefing on Carried Interest.
Action Point
Review the terms of any current arrangements and take advice before entering into new arrangements.
Sale to an employee ownership trust (EOT)
There is a total exemption from CGT where a qualifying disposal is made to an EOT.
Before Budget day there were five broad requirements which may have been summarised as follows:
The trading requirement: most easily satisfied by the target company being a trading company
The all-employee benefit requirement: the EOT must provide that all eligible employees/directors are beneficiaries who benefit on the same terms (subject to objective criteria such as time reserved)
The controlling interest requirement: the EOT must hold more than 50% of the ordinary issued share capital, voting and economic rights in the company
The limited participation requirement – any seller (or persons connected with him) who continues to own 5% or more of the shares in the company should not make up 40% or more of the employees/office holders in the company
The no related disposal requirement – the person claiming relief (and persons connected with him) should not have claimed this relief in respect of the target company (or is group companies) in earlier years
Disposals to EOTs have become a standard method of achieving a tax-free exit and to limit perceived abuse various measures have been introduced and these include the following which have effect for disposals on or after 30 October 2024:
to ensure that the principle behind (3), the controlling interest, is not subverted by ensuring that the seller cannot indirectly control the company by controlling the EOT
to ensure that the EOT is tax compliant by requiring the trustees to be UK tax resident (particularly relevant as there is a CGT charge for the trustees, if the relief is clawed back)
to ensure that only the current market value of the company comes within the exemption and not that anticipated future growth in value of the shares: by requiring that the trustees only pay market value for the shares. Although well advised trustees who have wanted to ensure that they were acting within their fiduciary powers would normally have insisted on an independent market value valuation of the shares
the clawback increases from one to four years
Action point
For recent purchasers by EOTs it will be prudent to obtain a valuation report if one had not been commissioned.
Loans to participators – close companies
Generally, if a close company makes a loan to a participator (otherwise than in the ordinary course of a banking business) and that loan is left outstanding 9 months after the end of the accounting period in which that loan was made the company has a tax charge of 33.75% of the amount of the loan. A new targeted anti avoidance rule (TAAR) will be introduced to combat the making of short-term repayments to prevent the tax charge becoming due and payable, very shortly followed by a withdrawal of a ‘new’ loan on similar terms (known as ‘bed and breakfasting’).
Action point
Review all loans made by close companies.
SDLT
From 31 October 2024 the Higher Rates for Additional Dwellings (HRAD) surcharge on Stamp Duty Land Tax (SDLT) will be increased by 2 percentage points from 3% to 5%. Assuming that the non-resident SDLT surcharge doesn’t apply, the top rate of SDLT is now 17%. Despite a manifesto commitment to increase it to 3%, it seems that the non-resident surcharge will remain at 2%.
The flat rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies will also be increased by 2 percentage points from 15% to 17% (for those companies that cannot claim a business use exemption such as renting to independent third parties). If the contract was exchanged before 31 October 2024, then it will be grandfathered and protected from these new rates provided that:
there is no variation of the contract, or assignment of rights under the contract, on or after 31 October 2024
the transaction is effected in consequence of the exercise on or after that date of any option, right of pre-emption or similar right, or
on or after that date, there is an assignment, subsale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance
Action point
Ensure that no pre-31 October 2024 contracts are taken out of the grandfathering provisions.
Listen to our Instant Insights on SDLT
Tax Partner, Elizabeth Small explains the change to SDLT Tax rates for second homes and what happens if a contract was exchanged on or before 31 October 2024:
Barely a Budget ever goes by these days without there being a change to SDLT tax rates and the Autumn 2024 Budget saw no change there. This time the target was not the non-resident SDLT, which had been mentioned in the Labour Party manifesto, but instead the higher rates for additional dwellings, sometimes called the surcharge for second homes.
These rates, with effect from the 31st of October 2024 have now gone up by a further 2%, i.e. from 3% to 5%. This means that taking into account the NRSDLT rate of 2%, that one is now at a top SDLT rate on the most expensive properties of 19%, very close in my mind to the 20% current VAT rate.
If a contract was exchanged on or before the 31st of October 2024, it will be possible to argue that the contract is still only subject to the 3% rate and not the 5% increased rate, but in order to do that, it is absolutely vital that the contract must not be, to use a colloquialism, messed with. In other words, you mustn’t vary that contract, or assign the rights under that contract, and you mustn’t sub-sale the contract, or in any other way make it such that somebody other than the original purchaser becomes entitled to call for a conveyance.
As long as you stay outside those rules, it should be possible for your old contract to be grandfathered and protected from these new rates. Going forwards, whenever you’re looking at a pre 31st of October 2024 contract, it’s going to be very important to understand that this contract has not been altered, varied or subsold.
An update on carried interest – Autumn Budget 2024
30 October 2024
Views
The headlines
Holders of carried interest will be relieved that in the Budget it has been announced that the rate of CGT applying to carried interest (as it arises) will increase from 28% to 32% but not immediately; only on or after 6 April 2025. The decision not to impose an even higher rate will have been influenced by the extensive lobbying which has been taking place to persuade the Government that, if that were to be done, private equity managers would move to favourable jurisdictions such as France, Italy and the Middle East.
However, this 32% rate will only remain in place until the Government has implemented a wider reform package in April 2026. The Government had already sought views on how carried interest should be taxed and this call for evidence closed on 30 August 2024.
Now a Budget document has been published which sets out Government thinking, and they will be consulting further on this until 31 January 2025.
The new proposal
The proposal is that a revised carried interest tax regime will apply which will sit wholly within the income tax (rather than the CGT) regime. Carried interest will be treated as trading profits, subject to income tax and Class 4 NICs. The amount of “qualifying” carried interest (explained further below) subject to tax will be adjusted by applying a 72.5% multiplier.
The tax charge applying under the new carried interest regime will be an exclusive charge. Under the existing regime, carried interest has been taxed according to the nature of the relevant amount coming up from the underlying fund/ its assets. So, for example, amounts representing interest income would have been taxed as interest income; under the proposed regime all amounts will be taxed as deemed trading income.
IBCI
Income Based Carried Interest (IBCI) is already taxed as income, but the IBCI regime has not applied to employment related securities so employees/ directors who have made what is known as section 431 elections have been able to keep outside the IBCI regime. The Government now proposes that the IBCI rules will be amended so that employment related securities are not excluded from it. This will be a significant change as, previously, the IBCI regime has distinguished between the self- employed and the employed.
Carried Interest within the IBCI regime will not be “qualifying” carried interest. The Government is also now going to consult as to what other conditions need to be satisfied to fall within the “qualifying” category. In particular, there may be a minimum co-investment requirement and/ or a minimum time period between a carried interest award and receipt. These new conditions to determine whether carried interest is “qualifying” will be added to the existing IBCI legislation.
DIMF
The existing Disguised Investment Management Fee (DIMF) rules will remain in place.
Non–residents and carried interest
The deemed trade under the revised regime will be treated as carried on in the UK to the extent that the investment management services in relation to which the carried interest arose were performed in the UK, and outside the UK to the extent that the investment management services were performed outside the UK. As a result, non-UK residents will be subject to income tax on carried interest to the extent that it relates to services performed in the UK (subject to the terms of any applicable double tax agreement). This is the same as the approach in the DIMF rules.
What now?
Draft legislation is going to be published during 2025. In the meantime, we and other interested stakeholders will be working to seek to ensure that the proposals put forward by the Government can be implemented in a way which does not result in those involved in the fund management industry leaving the UK for another jurisdiction which they regard as having more favourable rules.
Listen to our Instant Insights on carried interest
Tax Partner, Elizabeth Small explains the changes to how carried interest will be taxed:
One of the most eagerly anticipated parts of the Budget speech from the chancellor was in respect of carried interest. A vexed topic of conversation for chancellors over many, many years, perhaps even decades. Famously a beneficiary of carried interest in the private equity market, had said that he paid an effective tax rate of less than his cleaner. That had been changed over the years and current rate of taxation of carried interest is 28%.
Currently, carried interest is subject to the capital gains tax regime and with the concerns regarding the taxation and change of rate of CGT, there was a concern that carried interest would have moved up to an income tax rate of say 45%, which would have been at variance with other jurisdictions which treat carried interest as capital and at a rate of around 30%.
What the Chancellor has announced is that with effect, for carry being cashed in on or after the 6th of April 2025 that the rate will increase from 28% to 32%, but for carry that is cashed in after the 6th of April 2026 that there will have been a whole scale alteration of the carried interest regime, with the potential that carried interest will be treated as trading profits, subject to income tax and Class 4 NICs.
This will apply to qualifying carried interest. What that term means will be debated and explored between now and April 2026, although there are some indications in the press releases that came out with the Autumn Statement as to the initial view of the meaning of a qualified carried interest, but even though the profits will be treated as trading profits post 2026, that doesn’t mean a 45% actual tax rate will apply, because the initial indication is that tax will be subject to an adjustment by applying a 72.5% multiplier to the amount of tax.
This will be a significant increase and change the taxation of carried interest and so it’s going to be very interesting to see how private equity funds and the like adjust their incentivisation of managers between now and April 2026.
Employers are subject to a new duty to take reasonable steps to prevent sexual harassment at work with effect from 26 October. This is a steep change, as employers must now proactively make efforts to address such behaviour. If a claim of sexual harassment is established, a Tribunal will have to consider as a matter of course whether the employer took suitable steps and, if not, any compensation may be increased by up to 25%.
Between the introduction of this new duty, the publication of related guidance from the Equality and Human Rights Commission (or ‘EHRC’), and the approaching wave of work-related social events as the festive period draws nearer, there has never been a more opportune time for employers to act.
In this article we share five practical ways to embrace this important change to the law.
1. Introduce meaningful policy
Many employers will have longstanding policies to address harassment. All too often, however, we see ‘one-size-fits-all’ policies which are unlikely to be sufficient to meet the new and more demanding duty.
Your policy should take into account the specific risks and challenges posed by your workforce and working environment. For example, do you have risk factors such as lone or night workers, or colleagues in significant power imbalances? The EHRC guidance lists a host of potential matters to consider, much in the same way that a health and safety assessment might be undertaken. It may be beneficial to discuss matters with colleagues, to gain a better understanding of the interactions faced by workers and employees.
Implementing thorough and accurate policies is likely to be more than a simple box-ticking exercise and having these documents available is important in ensuring that all members of the workforce understand what is expected of them when it comes to preventing sexual harassment. A well thought out and articulated policy will serve as valuable evidence that you have seriously considered your duty and taken steps to comply with it.
Generally, a well-drafted policy should not stand isolated from your other policies, and this an opportune time to review things generally to ensure that compliance with this duty permeates your culture.
2. Implement consistent training
Having a policy in place is a crucial first step, but making sure that staff and management alike have received – and continue to receive – training on its content is essential to stand the strongest chance of making meaningful change and demonstrating compliance with the duty.
An effective training programme should cover: what constitutes sexual harassment; how to spot it; and how to appropriately respond to instances of sexual harassment, including escalating where appropriate. We are very familiar with providing external training and welcome any queries about either introducing or delivering a suitable programme.
It is worth bearing in mind that different roles are likely to require different training. For example, senior management may need a stronger awareness of how they will conduct investigations and risk assessments, whereas training for more junior colleagues may be best focussed upon reporting procedures. Truly embedding this new approach to sexual harassment will require education throughout the workforce.
3. Set a framework for investigations
An investigative framework is another essential mechanism to make sure that complaints of sexual harassment are handled in a manner which is effective, sensitive and compliant with the law.
In the unfortunate circumstances where you need to investigate allegations, a robust plan and an informed group of potential investigators will be vital to ensure that matters are progressed swiftly and without confusion. Key management figures should know what their role is vis-à-vis any investigation and how to support it effectively.
Under the spotlight of this new preventative duty, where an allegation of sexual harassment requires investigation, employers should conduct investigations through a lens of both fact finding and with a view to reflecting and learning, so that future occurrences of sexual harassment can be mitigated.
4. Actively manage internal processes
Strong policies, effective training and a clear investigative framework will do much to meet the challenge of the new preventative duty. However, the duty is an ongoing one and treating compliance as a one-time exercise is unlikely to suffice. Workplaces are ever-changing and active management will be necessary.
You might consider an annual review of internal processes, to reflect upon whether any changes to your workforce or workplace, or lessons learnt more generally, should change your approach. To make that meaningful, accurate records should be kept of incidents that have arisen and how they have been handled, as well the training that has been provided and to whom.
5. Read the guidance
Making these enduring changes is no small task. However, while we await case law, the EHRC published detailed and helpful guidance in September which is likely to hold considerable sway. The full guidance is available to read here.
The guidance helpfully provides case studies showing how the duty will apply in given scenarios. In addition, it explains legal terminology to help employers navigate the new requirements. Most notably, the guidance goes a significant way towards clarifying the ambiguity of what may be deemed to be ‘reasonable’ steps in a given workplace, although much will still depend on the context.
If you have any queries about how to implement the new duty to prevent sexual harassment, or would like assistance with policies, training or investigations, please do get in touch with our team.
Tradition abolition – Emma Gillies and Rebecca Anstey write for STEP Journal
10 October 2024
Views
Emma Gillies and Rebecca Anstey on why the proposed abolition of the UK’s non-dom regime will have little impact on many UK resident Americans.
What is the issue?
The UK government has proposed changes to the taxation of non-UK domiciled, UK residents from 6 April 2025.
What does it mean for me?
Individuals will be looking to their advisors for help navigating these changes and those advising US citizens will need to understand how the new rules affect their clients.
What can I take away?
The interaction between US and UK tax laws means that US citizens residing in or moving to the UK may not be as concerned as others by the changes, but there are still challenges and potential planning opportunities to be aware of.
It will be old news to many that the UK government plans to introduce changes to the tax treatment of non-UK domiciled, UK-resident individuals (so-called ‘non-doms’) with effect from 6 April 2025. Although many non-doms will have concerns about the impact of the new regime, US non-doms should be sheltered from the fallout more than most.
Proposed changes to UK income tax and capital gains tax
Abolition of the remittance basis
Non-doms can currently claim the remittance basis of taxation. Those who do are subject to tax on their UK-source income and capital gains as they arise, but only on non-UK income and gains if and to the extent that they are ‘remitted’ to (broadly, brought to or used in) the UK.
It is proposed that the remittance basis will be abolished and replaced by a new ‘foreign income and gains’ (FIG) regime. Under the FIG regime, those who have not been UK resident in any of the previous ten years will be exempt from tax on their non-UK income and gains during their first four years of residence (regardless of any remittances). Thereafter, they will become subject to tax on their worldwide income and gains as they arise.
In many cases, the loss of access to the remittance basis will not be a major concern to US non-doms.Unlike most non-doms, US citizens are already exposed to tax (in the US) on their worldwide income and gains as they arise. Fortunately, there is a treaty in place between the UK and the US that is designed to provide relief from double taxation where a liability arises in both countries at the same time. A UK-resident US citizen (with exposure to tax in both countries under domestic rules) may be able to show that they should be treated as tax resident in the US for the purposes of the treaty, at least for the early years of residence when their ties to the US remain strong. In these cases, their exposure to UK tax will be limited to certain types of UK income, with no need to claim the remittance basis on their foreign income and gains.
Where the taxpayer is resident in the UK for the purposes of the treaty, they will generally be exposed to tax at the higher of the two countries’ effective rates on a given item of income or gain. In that scenario, the utility of the remittance basis is generally limited to avoiding the risk of double taxation. This can be helpful where an item of income or gain is treated differently in the UK and the US, and treaty relief is not available. It can also assist in avoiding a higher rate of tax in the UK than is payable in the US; for example, on investment returns from US mutual funds that do not have ‘reporting’ status in the UK, which are taxed at capital gains rates (20 per cent) in the US but income tax rates (45 per cent) in the UK.
For these reasons, it is uncommon for US non-doms to claim the remittance basis beyond the point at which it comes at the cost of an annual charge (i.e., from the beginning of the eighth consecutive tax year of residence). Before that, it can be convenient to claim the remittance basis from a reporting perspective. However, using the remittance basis to defer UK tax is generally not wise for US citizens, because a mismatch in the timing of the UK and US liabilities can often cause a loss of treaty relief, resulting (ironically) in double taxation. It should only really be used where the taxpayer is confident that their foreign income and gains will never be remitted to the UK.
Removal of ‘protected settlement’ status for ‘settlor-interested’ trusts
Under current rules, where a non-dom settles assets into a non-UK-resident trust, the trust’s non-UK source income and capital gains are generally sheltered from tax unless and until a UK-resident individual receives a benefit from the trust, at which point a liability may be triggered. It looks as though the protected’ status of these trusts will no longer be available under the new regime. Instead, where the UK-resident settlor retains an interest in the trust (within the relevant statutory definitions) it is proposed that the trust’s worldwide income and gains will be treated as arising to the settlor, and will be taxed accordingly.
Again, this change will be of less concern to many US settlors, who will have deliberately put their trusts outside the ‘protected settlement’ regime, having been advised to do so on the basis of double taxation risks. These arise because most lifetime trusts settled by US citizens will be grantor trusts for US income tax purposes, meaning the income and gains of the trust are taxed on the settlor as they arise. The resulting mismatch in the timing of the tax liability (immediate in the US versus deferred in the UK) and, potentially, the identity of the taxpayer (settlor in the US versus beneficiary in the UK) will often cause a loss of treaty relief. By contrast, maximum relief should be available if the income and gains are taxed on the settlor in both the UK and the US as they arise.
Changes to UK IHT
Under current rules, non-doms who are not deemed domiciled in the UK (because they have not been resident in 15 or more of the past 20 tax years) are only subject to UK inheritance tax (IHT) on UK assets. Under the new regime, domicile will no longer be relevant when assessing IHT. Instead, a person will become exposed to IHT on worldwide assets after ten years’ tax residence in the UK.
The deemed domicile ‘tail’
Currently, where a non-dom becomes deemed domiciled, they will continue to be deemed domiciled for IHT purposes for a further four tax years after ceasing UK residence. Under the new regime, it is proposed that this IHT ‘tail’ will be extended to ten years.
Thanks to the US-UK Estate and Gift Tax Convention (the Treaty), US citizens who leave the UK to return to the US will lose this ‘tail’ much sooner than other non-doms, provided they can show they are US resident for the purposes of the Treaty (and they are not UK citizens). In that scenario, the US will have exclusive taxing rights over the estate, save for UK immovable property or business property of a permanent establishment (BPPE).
Excluded property trusts
Until now, assets transferred into trust by non-doms (including US citizens) who are not yet deemed domiciled are excluded from IHT indefinitely (hence the term, ‘excluded property trusts’).
The government has announced that trust assets will no longer be excluded from IHT. However, some US citizens may be able to rely on the Treaty to achieve the same result. The Treaty provides that no IHT is due on trust assets (other than UK real estate and BPPE) settled by someone who was domiciled in the US and not a UK citizen. If the treaty continues to apply in the same way under the new regime (with UK domicile interpreted to mean ten years’ UK tax residence), assets settled into trust by US citizens who are not UK citizens and have not yet spent ten years in the UK may be protected from IHT beyond the ten-year threshold.
Impact on advice
US non-doms who currently make use of the remittance basis should review their financial affair with their advisors, with the Treaty in mind.
US citizens moving to the UK for the first time will have four tax years to tailor their investments to account for UK tax considerations. Pre-arrival advice will still be required to avoid tripping up on UK rules affecting existing trusts, business interests and reporting obligations.
UK-resident US citizens approaching the new ten-year threshold for worldwide IHT exposure may still consider trust planning to protect their non-UK assets from tax. Alternatives to cover include lifetime giving, structuring wills to defer IHT until the second death of a married couple, investing in relievable assets and/or taking out life insurance to cover the bill.
Following the biodiversity net gain (“BNG”) requirements of the Environment Act 2021 coming into effect on 12 February 2024 and 2 April 2024 for major and small sites respectively, this note summarises some key points we have seen arise to date.
Please also refer to our previous notes of October 2023 and February 2024 for further detail on these obligations.
How are councils approaching BNG at application stage?
Broadly we have seen councils proactively engage with the BNG requirements but as expected, there are a number of issues arising due to local authority resourcing and the capacity to deal with the more onerous obligations associated with complying with the BNG requirements. Please refer to our note from February 2024 for details of what needs to be submitted at application stage.
We have seen some local authorities take an approach to the application requirements which does not accord with the legislative provisions. For example, we are aware of local authorities requiring the offsite gain units (where applicable) to have already been located and identified at application stage. There is no regulatory requirement for this and from a practical perspective, it is often unlikely that applicants and developers will be able to demonstrate this at application stage, particularly given the number of registered gain sites (see further comments below).
Does the bng regime apply where the council does not expressly impose the relevant condition on the face of the permission?
Yes, the pre-commencement condition requiring a biodiversity gain plan to be submitted is deemed to be imposed regardless as to whether it is included within the decision notice itself. It is important to bear this in mind when reviewing decision notices possibly with the intention of acquiring sites to develop or for investment purposes, as we are aware that some councils have not expressly included the condition even where the permission is subject to the BNG regime.
Are planning applications for alterations to building subject to the bng regime?
Alteration applications are not specifically excluded but some of the exemptions could apply. In particular, the BNG regime does not apply to the works carried out pursuant to a development right. Equally, the de minimis exemption is likely to apply in the context of alterations; in broad terms if the works will impact less than 25sqm of onsite habitat the statutory BNG regime will not apply.
It may therefore become important to consider the extent of the application boundary when applying for planning permission, to ensure this does not include any habitat at the property which is not in reality the subject of the application.
Is the biodiversity register working effectively?
The register itself is publicly available and (at the date of this note) shows 11 registered gain sites. The register of course only shows the sites once they have been registered and where applicable the allocation and as a result, it is not representative of the number of sites which are in the pipeline to come forward. We are aware there are various sites where preparation work is underway for the gain sites to be dedicated but where this has not yet completed. Commercially, this may be because landowners are reluctant to tie up their land for this purpose until buyers for the units have been found.
How is the market for offsite gain units emerging?
Given the number of developments which will not be able to deliver the entire required 10% gain on site, the market for offsite units will continue to grow in importance. The hierarchy of mitigation options means the BNG system is to an extent reliant on offsite units continuing to become available, otherwise the default position will be the purchase of the statutory credits which have been priced to disincentivise this option. This balance between the supply of the gain sites and the demand for the units is still emerging in these initial months since the regime became mandatory. As more applications which are submitted requiring offsite units it will become clear whether demand outgrows supply and at that point, whether the resort to the statutory credits becomes more prevalent than it has been to date.
Can applications to allocate units to a development be made at the same time as the registration of the gain site?
Yes, applications to register an offsite gain area and allocate the associated units can be submitted at the same time. This is achieved via the online registration platform. Operating via this approach would be taken where the dedication and allocation has effectively happened simultaneously, perhaps where a landowner has dedicated land specifically for the purposes of providing the relevant units to offset a particular development.
How long does it take to register a gain site and allocate units to a development?
The Government website currently indicates a 6 week period from receipt of the application to registration (provided the application is successful). The time period for this registration gap should be factored into transactional timetables which may be conditional on successful registration of the gain site.
Will it be less onerous to comply with the bng requirements when trying to develop brownfield land?
The level of difficulty in complying with the BNG obligations will often be dependent on the baseline number of units on the site, as this dictates the target level of the 10% uplift. The rules apply equally to brownfield and greenfield land and regardless of the level of the baseline.
The assumption is that often, brownfield sites will have a lower baseline ecological value than their greenfield counterparts. Whilst in some cases this will be the position, it is not necessarily the case. As a particular example, open mosaic habitats are often found on brownfield land and are classified as a ‘high distinctiveness’ habitat in the statutory metric. An open mosaic habitat is identified by hard surfaces interspersed with vegetated areas; an example would be broken or fragmented paving in which habitats have naturally grown and often developing over a long period of time.
It therefore remains important to do robust initial assessments of the onsite habitat as early as possible and not assume that a brownfield site will have a low ecological baseline value.
Is there an industry standard s106 agreement for the purposes of securing bng?
Each local authority will have its own preferred form of s106 agreement for addressing BNG, similar to any other type of planning obligation. In terms of dedicating land as an offsite BNG area, again this will often depend on the dedicating party and whether a local authority or habitat provider are party to the agreement who may have preferred form documents in place.
In terms of the BNG plan to be submitted to discharge the planning conditions, the government has prepared an example plan which can be used to apply to discharge the pre-commencement condition. It is expected that most local authorities’ preference will be that the BNG plans follow this template.
Please get in touch with our Planning Team for any specific advice or guidance on any individual sites.
Information correct as at September 2024. This note is a summary, please refer to the legislation and guidance for full details.
Grenfell Inquiry phase 2 report: how it could affect the construction industry
1 October 2024
Views
The Grenfell Tower Inquiry’s final report was published on 4 September 2024. Amongst its findings regarding the causes of the fire, which make sobering reading, the report made clear that it feels more can and should be done to bring a change of attitude to the construction industry.
The report contains various recommendations for change. The scale of the overall impact is not currently clear, as it remains to be seen whether and how they will be implemented, however one of the recommendations does encourage their implementation by suggesting that reasons for not executing any particular recommendation should be explained clearly in writing, and made publicly available. The government’s response to the recommendations should bring some clarity on this, and will be awaited eagerly. In the meantime, we summarise some of the report’s key recommendations below (the full list of recommendations is to be found in Chapter 13 of the Report):
Fire safety responsibility within government
The Inquiry was critical of the fragmented approach to fire safety issues within both government and the construction industry. It recommends that the following appointments be made, with a view to consolidating the various responsibilities, driving change and enabling effective information sharing between those responsible for different aspects of the industry.
A single Secretary of State with responsibility for fire safety functions.
A Chief Construction Adviser, with good working knowledge and practical experience of the construction industry, to provide advice on all matters affecting the construction industry.
A new Construction Regulator overseeing a single independent body, reporting to the Secretary of State. They should be responsible for the regulation, testing and certification of construction products, the regulation of building control, licencing contractors to work on HRBs, and other associated tasks.
A review of the definition of “Higher-Risk Building”
Of particular note is the Inquiry’s recommendation that the government urgently reviews what is considered to be a higher-risk building.
The concept of a “higher-risk building” (HRB) was introduced by the Building Safety Act 2022 (the Act). At the moment, a HRB is a building that is at least 18 metres in height (or has at least seven storeys) and contains a minimum of two residential units. Care homes and hospitals are considered to be HRBs during the design and construction phase, but not during the occupation phase and buildings that are used exclusively as hotels are not HRBs unless they are part of a mixed use building, in which case they might be considered an HRB.
Those buildings which meet the definition are subject to the onerous regulations contained in the Act, which govern the design, construction and occupation of those buildings. It is of paramount importance for a developer, and those working for them, to know whether or not any building will be a higher-risk building. In the Inquiry’s opinion, determining whether a building is an HRB by reference to its height is an arbitrary measure, and it preferred instead consideration of the nature and use of the building, and in particular the presence of any vulnerable occupants. The Inquiry recommended that what qualifies as an HRB under the BSA is reviewed urgently.
It is not clear how the government would go about formulating a new definition of HRB. The need for certainty will be key, but that will be difficult given that even the process of measuring the height of a building has given rise to disputes!
A review of the definition could have a significant impact on which buildings are subject to the enhanced regulatory regime under the Act, and significant consequences for the viability of developments which were previously understood to be outside of that regime. Also, it may mean that the number of buildings considered to HRBs is likely to increase, putting strain on a regulatory regime that is already struggling.
Regulation of professionals within the construction industry
The Inquiry makes the following recommendations as to how professionals working within the construction industry should be regulated:
A licensing scheme operated by the construction regulator should be introduced for principal contractors wishing to undertake the construction or refurbishment of higher-risk buildings. A nominated director of such companies should provide a personal undertaking to take all reasonable care to ensure that, on completion and handover, the building is as safe as is required by the Building Regulations.
The Architects Registration Board and the Royal Institute of British Architects should review the steps they have taken since the Grenfell Tower fire to improve the education and training of architects, to check that they are in line with the Inquiry’s findings.
The profession of fire engineers should be recognised and protected by law and an independent body be established to regulate the profession. A group of practitioners and academics should be convened to define the knowledge and skills to be expected of a competent fire engineer. An understanding of the principles of fire engineering should be encouraged in construction professionals and members of the fire and rescue services.
The government should establish a system of mandatory accreditation to certify the competence of fire risk assessors by setting standards for qualification and continuing professional development and such other measures as may be considered necessary or desirable.
A review of building regulation guidance
The statutory guidance to the building regulations, particularly the guidance contained in Approved Document B (ADB), was found to be unsatisfactory. This has been the source of many problems, as it has been the tendency of many in the industry to treat ADB as a definitive statement of what the regulations require rather than as simply guidance, which is its intended purpose.
The Inquiry recommended that ADB is reviewed, and a revised version published as soon as possible. The revised version will make clear that it is guidance only, and that complying with it may not necessarily result in compliance with the regulations.
Whilst the Inquiry did not think it appropriate to recommend specific changes to ADB, it did make some comments which may have an impact on building owners’ current fire strategies. The Inquiry notes that ADB assumes “that effective compartmentation renders a stay put strategy an appropriate response to a fire in a flat in a high-rise residential building” but calls into question whether effective compartmentation can be assumed in the context of an existing building that has undergone some “overcladding”. This means that building owners of buildings that have been overclad may need to revisit their fire strategies, particularly if it is a stay put strategy.
Changes to the “Gateways” building control regime
The Inquiry makes a number of recommendations which would have an impact on the “gateways” building control regime for higher-risk buildings introduced by the Act.
It is recommended that the following additional documents are submitted with the building control application (Gateway 2):
A fire safety strategy for the building produced by a registered fire engineer, which takes account of vulnerable people.
A statement from a senior manager of the principal designer that all reasonable steps have been taken to ensure that, on completion, the building as designed will be as safe as is required by the building regulations.
A personal undertaking from a director or senior manager of the principal contractor to take all reasonable care to ensure that on completion and handover the building is as safe as is required by the building regulations.
It is also recommended that the fire safety strategy submitted at Gateway 2 should be reviewed and re-submitted at the stage of completion (Gateway 3).
Changes to those exercising building control functions
The Inquiry found that, at the time of the fire, many of those involved in major construction projects regarded building control primarily as a source of advice and assistance. It also found that approved inspectors had a commercial interest in acquiring and retaining customers that conflicted with the performance of their role as guardians of the public interest.
In light of these findings, the Inquiry recommended that the government appoints an independent panel to consider whether it is in the public interest for building control functions to be performed by those who have a commercial interest in the process, or whether building control functions should be performed by a national authority.
Lessons from the Olympics: creating lasting value at pace. Helen Streeton writes for EG
12 September 2024
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With the Paralympics now finished, attention turns to what the future holds for Paris’s Olympic Village and its legacy for Parisians.
The newly developed Olympic Village is to be transformed into a combination of homes, leisure, commercial, community and education facilities. The homes will be a mix of social and open-market homes, with the design of the apartment buildings highlighting how good affordable housing can be.
Similar to the plans for Paris, the London 2012 Olympics kick-started a huge regeneration project in east London, transforming Stratford and Hackney Wick through £400m of investment into the area. This delivered economic growth which exceeded pre-Games projections three-fold, with almost 40% growth in local employment and thousands of homes (East Village, the former Athletes’ Village, has more than 3,284 homes and an estimated 6,500 people live there). Legacy was at the forefront of the vision for the London Olympics – a goal it has seemingly successfully achieved.
The French government also has ambitious plans to create four new Metro lines for greater Paris through the Grand Paris Express project, which will focus on connecting disadvantaged areas and streamlining commutes for thousands of people. Not only does this new infrastructure reduce travel times, but ultimately provides access to employment opportunities and amenities that are currently out of reach for many in Paris. It is said there will be 11 times more job offers to people within a 45-mile radius of the new hub than now, showing the true value added through improvement to infrastructure and travel.
Need for speed
The connectivity to Stratford was key to unlocking the East Village. Stratford International opened in 2009, connecting the area to King’s Cross in seven minutes, followed by the Elizabeth Line in 2022. Sustainable travel connections need to underpin any major regeneration, alongside employment opportunities and affordable housing.
Hosting the Olympics is a remarkable opportunity and can create meaningful value for the surrounding community and wider country, but it cannot continue to be the case that we need to be on the world stage to release necessary funding and deliver projects successfully and at speed.
Government funding was a key element of ensuring the London Games were delivered by the Olympic Delivery Authority and demonstrates that it is possible to deliver government-funded housing at speed when there is a need. With the Athletes’ Village then sold on to the private sector, this shows how effective public-private partnerships can be.
In many ways, the transformational ideas of the Paris and London games align with the Labour government’s focus on “new towns”. A few weeks ago the government announced its New Towns Taskforce, a key role of which will be to advise ministers on appropriate locations for significant housing growth. A final shortlist will be coming down the track within 12 months.
We can expect a mix of new standalone communities built on “greenfield” and a number of “urban extensions”, presumably to optimise transport links and other important infrastructure. The unifying principle is that they will contain at least 10,000 homes. That is a large metropolis, which will throw up additional demand for public services – schools, medical facilities, green spaces and so on. It isn’t clear where this land will come from – exercise of CPO powers is slow and public-private partnerships may be a part of the answer for land assembly.
Lessons from the past
As a new programme of garden cities and new towns looks increasingly likely, it is surely the case that there is much to be learn from the post-war new towns programme – the most ambitious large-scale project of its type in the UK. Between 1946 and 1970, 32new towns were delivered across the UK. Brought forward by development corporations, which had a wide range of borrowing, planning and strategic powers, the towns provided homes and jobs, while aiming to create socially balanced communities. Key to the successful delivery of these new towns was the powers the development corporations possessed, similar to those that the Ebbsfleet Development Corporation has for the delivery of Ebbsfleet Garden City.
The New Towns Taskforce is in good hands with Sir Michael Lyons, who chaired the 2014 Lyons Housing Review, at the helm. It will be interesting to see how the plans develop – what use can be made of the existing legislation and what lessons can be drawn from the building of the previous new towns – to deliver much-needed housing. Much like the Olympic villages of London and Paris, the earliest new towns were delivered quickly – Stevenage in 1946 and Harlow by 1947. Let’s hope we can take some lessons from the Olympics.
Published in EG on 10 September 2024, you can also access the article here.
Financing Biodiversity Net Gain requirements – who pays? Sophie Smith shares her thoughts with Sustain
9 August 2024
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Best practice is yet to emerge on how responsibility and cost for compliance with biodiversity net gain (BNG) planning requirements in England will be split between developers, landlords and occupiers. In this article, Sophie Smith, an associate at law firm Forsters, discusses how to lessen the likelihood of disputes between these parties and whether BNG considerations are likely to slow an already sluggish planning system.
BNG aims to leave the biodiversity position of development sites in a measurably better state than before the development was carried out, maintained over a 30-year period. Developments are required to deliver a 10% increase in biodiversity value relative to the pre-development value of the onsite habitat.
Achieving this comes with costs which landowners must factor into the price paid for development sites at the outset. Depending on whether the net gain is provided on-site, off-site, via the purchase of statutory creds, or as a combination, BNG compliance costs arise differently.
For on-site delivery, in addition to the initial cost during development, ongoing maintenance costs throughout the 30-year period will arise. Depending on the nature of the site and at what stage the landlord-tenant relationship arises, these costs could be recovered via service charge. From a landlord perspective, the leasehold allocation of responsibility for BNG should be considered from a future onward sale or funding perspective. Traditionally, landlords have expected a “clean” rent and there is no reason why that could not capture maintenance of on-site, and off-site mitigation. We expect landlords will take a robust position on this, but whether the market will accept that remains to be seen.
Responsibility for maintaining BNG for the requisite 30-year long period will bind successor interests in the site. Where the on-site gain is secured by a s106 agreement, depending on how the s106 is drafted, it could relieve occupiers from responsibility for maintaining onsite BNG. This is distinct from any leasehold covenant of the tenant to be responsible for BNG and apportioning financial and/or active maintenance responsibility for BNG amongst a multi-let estate. Factors to consider include where the relevant mitigation is located within the site and the level of maintenance required to protect the net gain. Careful consideration will be required as to the initial delivery of BNG and separately its ongoing maintenance, particularly in terms of phased planning permissions.
Whilst BNG mitigation is a hierarchical system, with the onus being on on-site delivery in the first instance, an alternative option is to deliver the required BNG by securing off-site units. Whilst this could be expensive for landlords in terms of upfront costs, off-site BNG delivery gives developers more freedom on-site resulting in neater solutions.
A last resort is the purchase of statutory biodiversity credits from the Government, which are invested in habitat creation in England. Depending on the distinctiveness of the habitat, a measure based on the type of habitat and its distinguishing features, such credits can cost anywhere between £42,000 per unit rising to a maximum of £650,000 per unit for the highest value water environments. These costs can be more than ten times the price of delivering on site, according to CBRE, making them significant for developers.
Advance planning, from both landlords and tenants, is crucial to successfully financing and complying with these planning requirements. Equally, additional time should be factored into developments owing to a lack of resource at local authority level, which may cause delays both in obtaining planning permission and discharging the associated pre-commencement condition.
This article was published on Sustain on 07 August and can be read here.
Building Blocks of Tax – Elizabeth Small writes for Taxation
8 August 2024
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In an article for Taxation Magazine, Corporate Tax Partner, Elizabeth Small considers the recent Supreme Court decision in Centrica Overseas Holdings Ltd v HMRC [2024] UKSC 25.
Centrica (the company which owns British Gas) argued that the fees charged by its professional advisors on the sale of one of its assets was a management expense and should be deemed to be a revenue expense and therefore deductible from their corporation tax bill. The Supreme Court unanimously dismissed Centrica’s appeal and held that the expenditure was capital in nature and could not be deducted.
In the article, Elizabeth looks at the facts of the case and discusses why being able to differentiate between capital and revenue expenditure is a fundamental part of the UK tax and in this case, a holding investment company’s ability to deduct deal fees. With reference to the Supreme Court judgement the article considers the three legal tests which help determine whether something is revenue or capital in nature and sets out the principles which the court applied to reach its decision, and how early in the process the advisory fees may become costs of disposal.
Victoria Du Croz and Amy France share how housing need is an age-old issue with Property Week
2 August 2024
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The government must factor older people’s accommodation needs into its plans to boost housing supply.
It has been refreshing to see planning policy at the forefront of the new Labour government’s initial announcements. Many in the industry have welcomed the approach being taken by the government and we certainly need ambitious growth plans for housing delivery if we are to redress the under delivery of the past decade. However, we also need a nuanced approach to ensure a range of housing is delivered to meet the needs of all members of society, and the delivery of specialist housing for older people in particular needs to be addressed.
A recent JLL report indicates that there will be a shortage of up to 46,000 later-living homes in the next five years. The challenges facing the sector include competition from mainstream housebuilders for sites; the impact of inflation on build costs and viability; and the planning system, which continues to stymie development.
A review of appeal decisions for later-living development indicates that establishing the ‘need’ for these facilities takes up a huge amount of time at the planning committee stage and subsequently at appeal. The difficulties are in part due to the range of care models available, which often leads to planning applications for developments where the residents will have specific care requirements.
However, need assessments carried out by local authorities often use data from the Care Quality Commission based on the number of registered beds available (ie, the maximum number permitted, which may be more than the actual number provided) and apply that to their duty of care to provide support to all those over the age of 65.
The data available is often not directly applicable to the proposed development, so assumptions and extrapolations need to be made. Further clarity is urgently needed to help local planning authorities formulate local plan policies that meet the needs of the communities in their administrative area.
The National Planning Policy Framework (NPPF) requires local planning authorities to plan for housing to meet the needs of older people, with the 2023 NPPF changes expanding that definition to reference “retirement housing, housing with care and care homes”. However, this does not encompass the wide range of available models, such as integrated retirement communities, sheltered housing, extra care/assisted living and older persons shared ownership.
Simplistic use classes
The current Use Classes Order is too simplistic, with residential accommodation either failing within class C3 (dwelling houses) or class C2 (residential institutions). Many later-living developments will look to cater for residents with a range of care needs and with the flexibility to meet their changing needs in the future. The ability to provide for a range of care options within a facility without needing planning permissions or without rendering the whole facility sui generis would be welcomed.
The later-living sector continues to wait with bated breath for the findings of the Older People’s Housing Taskforce, which was set up to look at options for the provision of greater choice, quality and security of housing for older people. The taskforce’s objectives were to examine how to increase supply and improve housing options for people in later life, as well as to explore how to overcome obstacles to this goal. The taskforce submitted its report to the previous government on 22 May 2024. However, the general election was called before any action could be taken.
It is hoped that the new Labour government will pick up the taskforce’s report swiftly and look to implement its recommendations as a priority. Those in the sector will be looking out for proposed changes that will bring more clarity to the planning system, so that specialist schemes for older people’s housing are not inadvertently being disadvantaged at the planning stage for the reasons set out above.
Given that Labour has made it clear it aims to build 1.5 million new homes within the first five years of taking office, it would also be welcomed if the government could set out an ambitious target for the proportion of this housing that will be set aside for the specialist later-living accommodation.
There is much to be optimistic out of government in these early days of the new parliament. We can only hope that these announcements result in concrete proposals and policies that can effect change sooner rather than later, particularly for the later-living sector.
This article was released In Property Week on 01 August 2024 and can also be read behind the paywall here.
The Art of The Family Office: Effective Oversight, James Brockhurst and Claris Bell write for the IFC
2 August 2024
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In the evolving landscape of private wealth, the role of the family office has never been more critical. But what sets the most successful family offices apart? Private Client partner, James Brockhurst and trainee Claris Bell, share their insights in an article for the IFC Review.
Key takeaways from the article include:
The Importance of Governance: Discover how well-defined governance structures provide the foundation for a family office, enabling clear decision-making and alignment with family values.
Strategic Oversight: Understand how proactive and strategic oversight can transform a family office into a thriving organisation that adapts to changing economic climates while staying true to its core objectives.
Balancing Tradition and Innovation: Explore the delicate balance between preserving family legacy and embracing innovation to foster long-term growth.
Read the full article here on IFC Review to learn more about the evolution of Family Offices.
Time to loosen the green belt? Victoria Du Croz quoted in Property Week
12 July 2024
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The Labour Party has pledged to unlock ‘grey-belt’ land to tackle the housing shortage – but what planning issues could they be faced with? Head of Planning, Victoria Du Croz, shared her views in Property Week.
“We don’t have a legal or policy concept of what grey belt is, The National Planning Policy Framework (NPPF) sets out five purposes of the green belt. So, would developers have to show that area of green belt doesn’t meet all five of those purposes, just one of them or some of them for it to be considered grey belt?
I think (Labour’s proposal) shows the misunderstanding about what green-belt land is and what purpose it serves… Many think it’s quintessential rolling green fields, but green-belt land doesn’t need to have any ecological or biodiversity value or any right of access for the public.”
Read the full article here to understand more about the planning hurdles that could impact Labour’s proposed plans.
The impact of the new Labour Government’s “Day One” rights – Jo Keddie’s views featured in The Lawyer
8 July 2024
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Head of Employment at Forsters, Jo Keddie, shared her views on the most significant changes that UK employers are going to have to grapple with. Interviewed for The Lawyer’s Election Special podcast, Jo discussed:
Individual Rights from Day 1
Probationary and Hiring Going forwards
The right to disconnect
“Giving all workers more rights from day one will be a significant shift for employers, as is Labour’s plan to do away with the two-year minimum period for bringing an unfair dismissal claim.
We expect this will result in far more litigation in the Employment Tribunal, which is already overworked with cases taking well over a year to be heard, as well as far more focus by employers on recruitment policies and dismissal strategies.
Indeed, the first impact of a Labour government may be a spike in dismissals as the employers look to remove any employees with less than two years’ service where there is any doubt over their long-term future.”
Helen Streeton featured in PERE’s ‘on the minds of the experts’
3 June 2024
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The residential sector remains attractive, with strong supply and demand dynamics across markets, but it is not without its challenges. PERE looks to the experts to answer questions on the residential sector and Helen Streeton, Partner and head of our BTR sector, shares her thoughts as one of the industry leaders.
Question: What is the current appetite for residential property investing and how has that changed in recent years?
Helen shares “Investments into BTR continues despite economic headwinds as demand outstrips supply. In 2023, the BTR market saw £4.5 billion invested. Housebuilders continue to face challenging conditions, meaning that investment is greatly needed to tackle the UK’s housing shortage.”
Amy France speaks to CoStar on how investors are finally waking up to the potential of care homes
29 May 2024
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Published as one of CoStar’s expert opinions, Amy France discussed the big supply-demand imbalance the private sector can plug and how investors are finally seeing the potential in care homes.
The gaping supply-demand imbalance for care homes has now reached acute levels, yet delivery has been slow and investors have been reticent in making serious moves into the asset class. However, numerous factors and a succession of significant deals indicate that in the first quarter 2024, sector activity is picking up and looks set for a period of sustained growth.
According to the Office for National Statistics, the proportion of the population over 85 years old in the UK is forecast to more than double over the next three decades, from 2.5% in 2021 to 5.2% in 2051. Research from Knight Frank has found that by 2035 there will be a shortfall of 58,000 beds across the later living sector and that by 2050 an additional 350,000 older people will potentially need a care bed, which indicates an even greater acceleration in the demand for more beds.
Read the full article published on 29 May 2024 on CoStar’s website here.
Louise Marin-Bataller shares her thoughts on ‘Plugging the affordability gap’ with Property Week
24 May 2024
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In Property Week’s article titled ‘Plugging the affordability gap’, Louise Marin-Bataller from our Commercial Real Estate team shares her thoughts on social rented homes.
Louise Marin-Bataller, senior associate and property specialist at law firm Forsters, calls for an increased focus on provision of homes for tenants. “If the provision of social rented accommodation was increased significantly, this would take many more people away from the complicated elements of the affordable sector,” she says.
“Providing sufficient volumes of accommodation with a rent of 50% market value is going to require significant funding from central and local government. But with the Affordable Homes Programme allocating £11.5bn of funding from 2021 to 2026, and prioritising social rent, this should help registered providers increase supply.”
Read the full article, and hear the thoughts of other industry experts, on Property Week’s website here.
Helen Streeton features in BTR News’ Legal Perspective: five minutes with Forsters Head of Build to Rent
22 May 2024
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Helen Streeton, Head of Build to Rent at Forsters, recently sat down with BTR News to discuss her role at Forsters, the challenges facing the industry and the future of the sector.
In the interview, Helen discusses her 30 year career in real estate and the different challenges and opportunities she has come across over this time. From the affordability of UK housing, the sense of community that Build to Rent can bring, and the Renters Reform Bill, Helen shares her thoughts on key considerations in the market – you can also find out a few fun, non-property related facts about her too!
To read the interview in full, please visit BTR News, here.
Is the UK housing market facing the prospect of rent controls? Louise Marin-Bataller shares her thoughts with IPE Real Assets
22 May 2024
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Louise Marin-Bataller, Senior Associate within our Commercial Real Estate team, has shared her industry reactions to The Renters Reform Bill with IPE Real Assets in a feature named ‘Is the UK housing market facing the prospect of rent controls?’
Louise questions “how long could a reform of the court system take? Will it ever happen and will section 21 ever go?” It seems unlikely during the current government’s lifetime.
There are many other aspects to the Reform Bill, however, which might still have implications if not further amended. Worries around the private student housing market appear to have abated, which is lucky as some of the original proposal regarding changes to notice were quite simply “a minefield” in Marin-Bataller’s opinion.
She remains worried about proposals to stop landlords accepting more than one month’s rent in advance. This could cause problems for foreign renters or those with bad credit histories, who “would normally get around the credit referencing issue by paying six to 12 months’ rent in advance,” Marin-Bataller says. “What will happen to this group of people, particularly when some have suggested that guarantors should also no longer be allowed?”
Tenants could clearly benefit from landlords being unable to service notice to terminate a lease until six months into the lease term. But unless proposed amendments are accepted, “landlords could be faced with notices served on day one by tenants resulting in short-term lets of two months”. Marin-Bataller wonders: “Will this ultimately lead to landlords leaving the PRS?”
Real the full article, alongside comments from other industry leaders from the BPF, Get Living and Nido, on IPE Real Assets’ website here.
The key to a successful country home or farm sale – Adam Saunby shares his insights
15 May 2024
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Adam Saunby joins Matthew Allen and Richard Gadd of Fisher German, on their podcast ‘Fisher German Talks’, to share his insight and expert analysis of the rural property market.
In the podcast, Adam highlights the importance of thorough preparation before properties are marketed. He covers:
If you are preparing to sell your country home or farm and would like expert advice on the process, please do give Adam or a member of our Rural Land and Property team a call.
Five factors shaping the future of landed estates: Henry Cecil quoted in Spear’s
9 May 2024
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Henry Cecil and other industry experts have provided their insight on the future of landed estates to Spear’s.
The article, ‘Five factors shaping the future of landed estates’, discusses various challenges and emerging trends in the management and ownership of landed estates. Henry’s key takeaways are summarised below:
Legislative Changes
The phasing Basic Payment Scheme (BPS) has previously acted as a safety net for farmers and crofters by supplementing their main business income, but it also presents a challenge for in-hand estates.
It could lead to significant opportunities with new streams of income in natural capital markets.
Diversification
There is a growth in interest for landowners wanting to enter into natural capital markets, ranging from biodiversity net gain projects to nutrient neutrality and exploring landscape recovery schemes.
There has been an expansion in the scope of Agricultural Property Relief which now includes environmental land management schemes. This is a step in the right direction for landed estate owners to have confidence to enter natural capital markets.
With diversification on the rise, there are growing opportunities in renewable energy and other emerging markets.
Climate Change
There is an increase in flooding in parts of the UK at the moment. While it is area dependent, estates must prepare for changes in response to environmental and climate shifts.
Global Ownership
Although British farmers and entrepreneurs make up the majority of buyers and sellers, there has been a recent uptick in interest from American buyers.
Owen Spencer quoted in Property Week on the increase of film and TV studios in the North
2 May 2024
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Owen Spencer, Counsel in our Commercial Real Estate team, has been quoted alongside other industry experts in Property Week’s article discussing the increase of film and TV studios being developed in the North.
The article ‘Northern Hollywoods’ reports that several film and TV studios are set to significantly increase production capacity in the North of the UK, and explores the reasons to drive development in the North.
When most people think about the film and TV industry, their minds turn to Hollywood’s rolling hills or maybe Manhattan’s skyline. Increasingly, however, US production companies, among others, are choosing to shoot in the UK, attracted by a variety of factors including tax breaks and highly skilled production staff.
Owen adds that while living and working in the North has many attractions, being dependent on one studio would not appeal to everyone. “It will be a key challenge for new studios to train and bring forward their own skills pathways,” he says.
The full article, published on 26 April 2024, can be accessed here, behind a paywall.
Victoria Du Croz speaks to Property Week on the slow path to planning reform
1 May 2024
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Partner and Head of Planning, Victoria Du Croz, met with Property Week to discuss the planning system and the government’s decision to increase application fees.
Many people attribute delays in the planning system to under-resourced local planning authorities. However, the government’s solution – to increase planning application fees at the end of last year – caused an outcry among developers, with many rushing to submit applications before the fees hike.
Much of the outcry focused on the government’s refusal to ringfence income from the increased fees so that it could only be spent within the planning department of the local authority. Given how cash-strapped local authorities are, it would be understandable if income generated from fees was diverted to prop up other council services.
In practice, this means many developers are paying the increased application fee and are still being asked by local authorities to enter into a planning performance agreement (PPA). PPAs will usually set out an agreed programme for determination, including commitments on officer engagement in return for the developer paying a fee.
However, what can a developer do if the local planning authority does not keep to the determination programme set out in the PPA or fails to ensure a sufficient level of officer involvement? Many are calling for PPAs to have more teeth, but in practice what penalty could there be other than requiring the local planning authority to return the PPA fee?
The developer still would not have any certainty over the determination period, and the local planning authority would have to return money it has probably already spent.
The full article, published on 18 April 2024, can be accessed here behind the paywall.
Second staircases mandatory in residential buildings over 18m from 30 September 2026
24 April 2024
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The Department for Levelling Up, Housing and Communities (DLUHC) has published its long-awaited guidance on second staircases in residential buildings in England. The update to Approved Document B brings certainty for developers navigating this area. Residential buildings over 18m will be required to have two staircases from 30 September 2026 save for those that at this date are “sufficiently progressed.”
Updates to Approved Document B
The updates to Approved Document B (the Government’s building guidance covering fire safety) were published on 29 March 2024. They confirm that all new blocks of flats over 18 meters being built from 30 September 2026 will be required to have two staircases.
There is an exception to this requirement where: “a building notice or an initial notice has been given to, or a building control approval application with full plans made to, the relevant authority before 30 September 2026 and either the building work to which it relates: a. has started and is sufficiently progressed before that day; or b. is started and is sufficiently progressed within the period of 18 months beginning on that day.”
‘Building notice’, ‘initial notice’ and ‘building control approval application with full plans’ have the meanings defined in the Buildings Regulations 2010.
Building works are “sufficiently progressed:” a. where the building work consists of the construction of a building, when the pouring of concrete for the permanent placement of the trench, pad or raft foundations has started, or the permanent placement of piling has started; or b. where the building work consists of work to an existing building, when that work has started; c. where the building work consists of a material change of use of a building, when work to effect that change of use has started.”
Background to the Two Staircase Policy
The second staircase policy was first announced by the Government back in December 2022. Then it was proposing to mandate second staircases in blocks of flats over 30 meters. The new policy was a response to the Grenfell tragedy in 2017 and growing public concerns about building safety standards.
public consultation, DLUHC announced the Government’s intention to lower the proposed height threshold to 18 meters. This reflected the views of industry experts including the National Fire Chiefs Council and the Royal Institute of British Architects. DLUHC acknowledged the development sector’s call for “coherence and certainty,” and promised further guidance as the Government moved to bring England in line with many countries in Europe, North America, and Australasia where second staircase in tall buildings are already mandatory.
On 24 October 2023, DLUHC provided a further update confirming that there would be a 30-month transitional period from when the new guidance was published.
Planning considerations
Building Regulations are not expressly considered as part of the determination of a planning application. However, legally, buildings must comply with the relevant Building Regulations standards when they are built. It is essential therefore that the planning permission reflects the Building Regulations anticipated to be in force at the time of construction.
However, from a planning perspective, the update is no more than a technical formality with second staircases already being treated by planning officers and planning committee members, particularly in London (following the Mayor’s announcement in February 2023), as a requirement for planning applications for new tall buildings over 18m.
The uncertainty around when the new two staircase requirement would come into effect, and at what height, has therefore meant that many development proposals have been on hold. A delay many developers cannot afford in the current economic climate of rapidly rising construction and borrowing costs. It is predicted that in London alone, it has delayed the delivery of at least 38,000 homes.
Revising a scheme to add a second-core often results in the need for a substantial redesign and often impacts on unit numbers and the proposed mix of unit sizes. It is unlikely these changes can be dealt with as a non-material amendment by the local planning authority, and therefore means a variation (s.73) to the original permission is required. This involves a new round of public consultation and where relevant, in London, referral to the Mayor. This is a risk as it can open up the principle of development for reconsideration which may no longer be acceptable, or viable for the developer, if the planning policy position has changed. The redesign itself may also have already impacted on rental/sales values and viability given the addition of a second staircase will reduce the development’s utilisable internal areas.
Future considerations
It is yet to be seen whether there will be any material impact on the value of single-core assets going forward. Currently, it is understood, that the lack of supply to meet demand is meaning that the market remains good for single-core assets which have effective safety measures.
However, how this plays out in the long-term will be interesting. Those holding dated single-core assets, which cannot be reconfigured, may be facing potentially extensive capital expenditure to upgrade their safety systems and depreciating values in circumstances where fire safety risks cannot be appropriately mitigated.
Institutional owners, funds cognisant of reputational-risk and end-users themselves are also driving demand for second staircases. There seems to a general public perception now that one staircase is “dangerous” and two are “safe.” Industry experts consider this to be an over simplification, which fails to consider building safety in the round; a criticism which has been expressly levied at the Government’s updated technical guidance. Experts state that a box-ticking exercise will not necessarily result in safer buildings, nor, is it always necessary for there to be two staircases, where other safety systems can be effective.
For more thoughts on this, please see Charlotte Youngs’ (Senior Associate, Commercial Real Estate) blog on the topic here.
Alfred Liu speaks to Citywealth on NextGens and bridging the generation gap
23 April 2024
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Private Client Partner, Alfred Liu, has provided his insight to Citywealth on how families and their advisors can bridge the gap between generations to transfer wealth successfully and harmoniously.
In the article, ‘The nexus of NextGen’, industry professionals discuss the key issues, and potential solutions, for connecting with the next generation of UHNW individuals. Alfred’s key takeaways are as follows:
Generational Differences:
Advisers working with multigenerational families must be aware of deeply ingrained generational differences.
These differences can lead to intrafamily disputes and disharmony, risking the fragmentation and dissipation of family wealth.
Advisers should help families establish common ground, identify potential generational differences, and develop constructive ways to bridge the divide.
Dynamic Wealth Transfer:
The “Big Wealth Transfer” should not be treated as a one-off event.
Viewing it as a process rather than an isolated event prevents complacency.
Strategies and frameworks must adapt to macro issues, geopolitical changes, and evolving circumstances.
The planning for wealth transfer should be dynamic, regularly reviewed, and capable of evolution.
Next Gen Considerations:
Next Gens (younger generations) have distinct experiences and relationships with wealth compared to their parents or grandparents.
They are often more internationally mobile, exposed to diverse cultures, and seek independence.
Advisers must be sensitive to these differences and support families in avoiding disputes.
Alfred reminds readers that wealth transfer is a process not a single event, and understanding the psychology of Next Gens is critical during intergenerational transitions.
The introduction of the ‘Gateway Regime’ was one of the major building safety reforms arising from the Building Safety Act 2022 (BSA).
The Gateway Regime is a series of additional safety requirements (known as ‘gateways’) to be complied with at three major stages of the design and construction of a higher risk building (HRB) (i.e. those buildings that are at least 18m or seven storeys high which comprise at least two residential units or is a care home or hospital). Each gateway requires either consultation with, or formal sign off from, the Building Safety Regulator (BSR) before the next stage of the development can proceed. The BSR is the new building control authority for all HRBs in England.
Note: The Gateway Regime also applies to refurbishments of existing HRBs and other projects involving works on or conversions of buildings into HRBs. This note is intended to provide a brief overview of each stage of the Gateway Regime and how it will impact the life cycle of your HRB
Gateway 1: Planning and design phase – the fire safety statement
The first gateway is to ensure that fire safety matters in connection to the building have been considered at the planning stage. It has been a requirement for developers since August 2021 to submit a fire safety statement to the Local Planning Authority (LPA) alongside all planning applications for HRBs detailing the site layout, how fire safety will be managed in the building and how the emergency services can access the building among other matters.
The LPA will review the fire safety statement and will consult with the BSR before deciding whether or not to grant planning permission for a HRB. The LPA has the power to refuse planning applications where they consider the safety provisions contained within to be inadequate. An additional consideration to bear in mind for projects in London is that all major planning applications which require Stage 2 approval by the Mayor of London and relate to residential buildings over 30 metres must be designed to provide for a second staircase.
The Government has also recently announced that, from 30 September 2026, all new residential buildings in England above 18 metres must have a second staircase. Projects where a building notice has been given, or a building control approval application made, to the relevant authority before 30 September 2026 do not need to comply with the requirement for a second staircase provided that the building work has started and is “sufficiently progressed” by 30 September 2026. Compliance with the new rules around second staircases in England will be checked at Gateway 1. For more information on how this will impact your development please speak to our BSA team.
Gateway 2: Pre-construction phase
The second gateway is to ensure that building regulation requirements will be complied with and that building safety is considered during the whole construction phase.
The developer is required to submit to the BSR a building control application which demonstrates how the proposed construction works will comply with all applicable requirements of the building regulations. This is separate to the planning application process in Gateway 1 above and works of construction are not permitted to begin until the BSR has approved the application. The BSR has 12 weeks (8 weeks where works are to an existing HRB) or longer (if agreed) to either approve or reject the building control application.
While the statutory obligation to submit the building control application is on the developer, it is open for the developer and the contractor to allocate contractually responsible for Gateway 2 (and each of the gateways) and we can help you with the contractual negotiations in your sale contracts or forward funding agreements to achieve your desired outcome. We can also assist you in ensuring that key events in the approval process under Gateway 2 are accounted for in the contractual documents with sufficient time allowed for delays.
If the building control application has been approved by the BSR under Gateway 2, further points that could impact timing are:
the developer is to notify the BSR at least 5 days before ‘starting’ the works;
the developer is to further notify the BSR within 5 days of the work having commenced;
‘major changes’ to the construction of the HRB require BSR approval which can take up to 4-6 weeks to either approve or reject. While the ‘major change’ is being considered no work can take place on any area subject to a ‘major change’. A major change is one that has a significant impact on the design or fire strategy of the HRB; and
‘notifiable changes’ need to be referred to the BSR prior to implementation although these works will be able to proceed unless there is an objection within 14 days.
Gateway 3: Post-construction phase
The final gateway is to ensure that the building is safe for occupation. Gateway 3 requires the developer to submit a completion certificate application (or a partial completion certificate application if there is to be a sectional completion) to the BSR once the works have been completed and before the building is occupied. There is also a requirement to provide the BSR with 2 weeks’ advance warning before submitting this application so that they have sufficient time to manage workload.
The application will include handing over the ‘golden thread’ of information which includes as-built plans, documents demonstrating that the requirements of the building regulations have been met and signed declarations from the principal contractor and principal designer that the works and building comply with the building regulations. The BSR has 8 weeks to determine the application and an inspection will be carried out before deciding whether to issue a completion certificate.
If a completion certificate application is approved the legal owner of the building has to apply separately to register the building as a HRB with the BSR (automatic registration does not occur when a completion certificate is issued). It is possible to achieve partial approval of Gateway 3 with several parts of the building or development being able to commence occupation before others.
Residential parts of the HRB cannot be occupied before a completion certificate has been granted for the building and the building has been registered. It is a criminal offence to do so.
Conclusion
The new BSA regime is complex and carries serious consequences if breached. For more detailed advice on any of the points covered in this note please speak to member of the Forsters Building Safety Act Team who will be happy to provide further information and assistance. This note reflects the law as at April 2024.
Knowing Receipt Claims: Maryam Oghanna writes for Private Client Business Journal
19 March 2024
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Contentious Trusts and Estates Senior Associate, Maryam Oghanna, has written an article for Private Client Business Journal on knowing receipt claims.
In the article, entitled ‘Knowing Receipt after Byers v Saudi National Bank’, Maryam discusses the law on knowing receipt and the distinction between dishonest assistance and knowing receipt claims in light of the recent Supreme Court Decision in Byers v Saudi National Bank. The Supreme Court held that a knowing receipt claim cannot be made if the claimant’s equitable proprietary interest in the relevant asset has been extinguished at the time of the alleged knowing receipt.
The full article can be read here, behind a paywall.
Construction insolvencies are up – what can developers do?
19 March 2024
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Thérèse Marie Rodgers, Counsel in the Construction team, has written a piece for React News discussing how the strict application of contractual rights is not always the best way forward.
The latest monthly figures from the government’s Insolvency Service, out last week, show that 4,370 construction firms failed in the UK in the year to the end of November 2023 – around 7% up on the previous year.
While we wait to see whether an upward trend in construction sector insolvencies continues to the end of the year, the figures still make grim reading for the construction industry, and have ramifications for the property and development sectors.
The rate of inflation has been impacting the already slim margins of contractors, many of whom were still recovering from the financial pressures resulting from pandemic-related delays. With the majority of the Building Safety Act 2022 now in force, this financial stress will increase on contractors.
Where difficulties start to arise on some projects as a result, employers and developers should consider whether strict application of their contractual rights is the best option for the project as a whole.
For example, levying liquidated damages as soon as a party is entitled to may initially appear attractive – but it could be the difference between a contractor completing a project or becoming insolvent.
The collapse of a sub-contractor causes delays, but a main contractor’s failure can have a far more serious effect, halting projects for months. Buckingham’s collapse in August left its clients with unfinished projects and the unenviable challenge of finding a replacement contractor.
New challenges
While the focus of the Building Safety Act has been on higher-risk buildings (namely those that are 18m or taller, or seven storeys high), parts of the act will have implications for all buildings. This means that all contractors will need to expend time and money ensuring they are adhering to the evolving applicable laws and regulations for each specific project.
The significant increase to the limitation periods for claims under the Defective Premises Act 1972 – 30 years for works completed before 28 June 2022, and 15 years for claims for works completed after 28 June 2022 – is likely to affect all players in the construction cycle, with claims arising in relation to projects long since completed.
In respect of higher risk buildings, the act brings multiple challenges. The new gateway process introduces the requirement for building control approval before building work can commence, and once it is complete, prior to occupation of the building.
These stages are likely to cause delay, and the risk of submitting the relevant applications and incorporating the period for any such applications into the programme will need to be considered at the outset of a project. There is also more onerous competency and golden thread requirements, which are likely to cause increased costs or put a further squeeze on profit margins.
Warning signs
What are the signs that a contractor may be nearing insolvency? On site, you’d expect to see work stalling, contractual milestones being missed and fewer people on site, as well as equipment, plant and materials disappearing.
Problems with cash flow may lead to the contractor requesting early payments, and potentially submitting over-inflated claims. Further down the chain, sub-contractors might complain of lack of payment – and may even request direct payment.
There are some practical actions developers or employers can take in these circumstances, such as ensuring it has a complete set of contractual documents – all guarantees and warranties, including any sub-contractor collateral warranties – and to check the insurance required under the building contract is still in place and all premiums paid.
It is prudent to increase monitoring of the progress of the works to ensure the information on the contractor and status of the project is understood. It would also be beneficial to understand the contractual position in the event of a contractor insolvency. Are protections in place, such as a performance bond, parent company guarantee, step-in rights and termination rights?
A new agreement
Notwithstanding the above, in the vast majority of scenarios, it’s in everyone’s interest to reach a commercial solution that gets the project completed with the contractor continuing in business. That’s likely to need open and frequent communication – initially to understand whether the contractor is willing and able to complete the project, and whether realistically that can be achieved by a commercial agreement.
Such agreements could restructure payment arrangements, speeding up payments, making them more frequent and perhaps providing that the employer pay subcontractors directly. It’s key that safeguards are put in place to ensure any such funds are only being used to complete the project at issue, and not propping up other projects.
A moratorium on liquidated damages may also assist, with the incentive of waiving them altogether if a new agreed programme to complete the project is met.
If completion by the contractor isn’t possible, the discussion should focus on an orderly handover of works. To what stage of the project is the contractor able to complete? When will an alternative contractor need to be engaged to complete the works? Relieving some pressure on the contractor in this way could lead to improved performance.
Whichever option you take, you must protect your interests. Don’t just agree a new programme without maintaining an incentive for performance, and ensure you have a remedy should the project deteriorate.
Worst-case scenario
If the worst happens, it’s not impossible to continue with an insolvent contactor, dependent on the type of insolvency proceedings and whether the contractor considers it’s able to complete the works. It might be the best option if the project is very near completion.
There is also the option of stepping in to engage subcontractors directly to complete the project or, following termination for insolvency, engaging directly with the subcontractors. This is the approach Liverpool FC has taken (at least in part) to complete its stadium following Buckingham’s insolvency.
Engaging a new contractor is not always a silver bullet, and can come with significant downsides. It could delay completion and is likely to be more expensive. The new contractor may not assume responsibility for the insolvent contractor’s works, or will charge a premium for doing so.
Should your project encounter contractor insolvency, careful consideration of all the options available is needed to get work back on track, with the minimum amount of disruption.
Originally published on 22 January 2024, the article can be accessed here behind the paywall.
Elizabeth Small quoted in The Times on the abolition of Multiple Dwellings Relief
15 March 2024
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Tax Partner, Elizabeth Small, has been quoted alongside other industry experts in The Times’ Bricks & Mortar on the upcoming proposed abolition of multiple dwellings relief (MDR).
The article ‘Want a house with an annexe?’ delves into what the announcement means for country houses. Since 2011, MDR has made country houses with annexes, cottages and converted outbuildings more appealing and affordable for buyers as it reduced the amount of Stamp Duty Land Tax (“SDLT”) payable.
MDR differs from the usual Stamp Duty Land Tax (“SDLT”) treatment by averaging the SDLT due across the number of properties that are being bought. Therefore, instead of paying tax on the total purchase price, the tax is calculated on the lower average. As SDLT rates increase as the property price rises, MDR can produce a lower SDLT liability. The MDR is subject to a minimum rate of 1% of the purchase price.
But what is considered an additional dwelling? Elizabeth explains that it is generally considered to be “somewhere where the occupant can shelter behind their lockable front door and be able to live in reasonable comfort, so with cooking and separate bathroom facilities and windows”.
The full article can be read here. Behind a paywall.
From 1 June 2024, property transactions that have not completed will no longer qualify for MDR. If you have concerns or further questions on this topic, please contact Elizabeth Small.
Helen Streeton quoted in Inside Housing on the landmark ruling demanding building owners pay for cladding fixes
13 March 2024
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Partner and Head of BTR, Helen Streeton, has been quoted in the Inside Housing article entitled “What the landmark Get Living ruling means for housing associations and leaseholders”.
Late in January, a first-tier tribunal ordered the owners of London’s Olympic village to pay £18m to fix fire safety issues on five blocks of flats. The judgement was the first use of new remediation contribution order (RCO) powers under the Building Safety Act 2022. It was hailed as a victory by the leaseholders, who have been unable to sell their flats since defects were uncovered, and Triathlon Homes, the housing association that brought the action.
The first-tier tribunal has ruled that Stratford Village Development Partnership (SVDP), the developer of East Village, and Get Living, its parent company, must pay £18m towards making five of the 66 blocks safe.
Helen Streeton, Head of Build-to-Rent at law firm Fosters, says the decision bumps up against other government legislation to cover remediation work. Under the ruling, the owners must now reimburse the government’s Building Safety Fund (BSF), which is paying £24.5m of taxpayers’ money to cover both Get Living and Triathlon’s share of the works.
On the RCO, she says, “its interface with the BSF is a bit odd. They’re not particularly aligned”. The Building Safety Fund allows people with responsibility for remediating the defective cladding to apply for taxpayers’ money, but “overlayed on that”, the Building Safety Act says “we can require you to contribute”.
“Although I understand the concept of somebody apart from the taxpayer being responsible for funding the works, I think it’s a massive decision for developers and building owners,” she says, as it “provides uncertainty” over whether they or their shareholders will have to pay back into the fund.
Helen adds that further thought will now be required around due diligence and the decision may deter investment into the residential HRB sector.
The full article, published on 27 February 2024, can be read here behind a paywall.
Can the Government’s new Office-to-Residential rules solve the UK housing crisis?
12 March 2024
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Andrew McEwan, Senior Associate in the Commercial Real Estate team, recently wrote an article for CoStar on the new legislation around permitted development rights and how it can assist the UK housing crisis.
Housing Secretary Michael Gove recently announced legislation to relax the rules around permitted development rights. New flexibilities came into force on 5 March and have been introduced to support office-to-residential conversions, a trend that has been gathering pace over the past few years.
The government has made the changes with the intention of creating a more favourable planning context to address the fact that a large proportion of office buildings are becoming obsolete (due to the twin effect of more home-working and tightening sustainability requirements) while we remain in the grips of a worsening housing shortage.
Office-to-residential conversions have, however, produced inconsistent results to date, and the latest changes are likely to be met with opposition from local authorities who continue to face a lack of funding which would help alleviate some of the delays experienced with the ‘traditional’ planning regime.
You can read the original article, published on 29 February 2024, behind the paywall here.
Department stores considering a wide range of uses to fill vacant spaces – Andrew Denye speaks to Property Week
12 March 2024
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Partner and Head of Retail, Andrew Denye, has been quoted in a Property Week article discussing the wide range of uses former department store owners are considering to fill the vacant spaces.
This April will mark eight years since the high-profile collapse of BHS. With all 167 of its shops closing, it proved to be the tip of the iceberg for department store chains and their problems. Since then, Debenhams and House of Fraser have suffered a similar fate, albeit not a complete wipeout, while long-established chains such as Beales now only operate a couple of sites.
So, what has become of these properties and what are the challenges their owners face in repurposing some of them?
For Andrew Denye, head of retail at law firm Forsters, it is simply the scale of the buildings that has left some landlords struggling to find a way forward. “It took a while for landlords to work out what on earth they were going to do” he says. “Some of these spaces are bigger than shopping centres. That’s a very big hole to fill.”
Denye has already spotted an uptick in department store deals coming through. “We’ve got more big-box deals on our books than at any point over the past 10 years. There’s been a really positive uptick in people looking at these spaces.”
Originally published on Property Week on 1 February, the full article can be read here behind the paywall.
A look at landed estates: Charles Hancock is quoted in CityWealth
7 March 2024
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Private Client Senior Associate, Charles Hancock, has been quoted in the CityWealth article ‘A look at landed estates’. In the article, CityWealth editor, Ashleigh John, discusses the current trends and concerns for landed estates and their owners with leading industry experts.
Connected thinking on rooftop solar – Victoria Towers writes for EG
4 March 2024
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Victoria Towers, Partner and Co-Head of Industrial and Logistics, has written a piece for EG on the benefits of collective thinking to streamline the legal processes causing delay to rooftop solar.
With time running out for promised legislative change to facilitate rooftop solar, there is much to be achieved in banging a few heads together and streamlining some of the legal processes currently causing delays.
The issue is acute for power-hungry industrial and logistics development, when rooftop solar is often incorporated as part of any planning application and the market is clamouring for fast delivery of new space in the right locations.
It was October, in energy secretary Claire Coutinho’s speech to the Conservative Party conference, promising to reduce red tape for solar panels on industrial rooftops, that she bemoaned solar farms covering our green and pleasant land, and pledged to make it easier for solar panels to be installed on industrial rooftops, warehouses, car parks and factories, cutting through the planning red tape that limits the amount of solar that businesses can currently install.
At the same time, her department’s Solar Taskforce has been looking at barriers to rooftop solar after highlighting the untapped potential of commercial sites, such as warehouses. The task force is due to be wound up around February, and its work will be used for a solar roadmap, to be published later this year.
This time last year, a survey by Forsters found 77% of developers and investors currently used solar panels on industrial and logistics real estate or planned to. The Department for Energy Security and Net Zero should be pushing at an open door.
The government’s own figures show progress in getting photovoltaics on to buildings. An update published in January showed that 50% of capacity came from ground-mounted or stand-alone solar installations at the end of September 2023, but – rather perversely – the majority of the remaining capacity was on domestic buildings, not commercial.
November’s Autumn Statement addressed the issue, promising reform of the grid connection process to cut waiting times, including freeing up more than 100GW of capacity so that renewable energy projects can connect sooner, potentially reducing connection delays from five years to no more than six months.
Co-operation is key
For those of us negotiating these connections for industrial developments, day in and day out, investment is certainly needed. Not only in the grid infrastructure itself but also – much like the challenges around the planning process – in the process of securing a connection. Client projects seem to be held to ransom on substation and wayleave arrangements when they want to connect to the grid.
A question often presents itself when repeatedly agreeing substation leases with providers: why, when dealing again with the same provider, can we not cut through the negotiation and proceed on similar terms? There are a handful of points that are site-specific, but the usual obligations around repair, alterations, use and works in the vicinity of any cabling do not need to be brokered every time. Surely it is better for all those concerned to ensure that the legal documentation is progressed as swiftly and efficiently as possible.
To that end, it does not seem beyond contemplation to have a common ground as a starting point – but standard terms will only work if drafted well. A few years ago, a template wayleave agreement was introduced, but the result was too complicated and everyone quickly broke away from the standard approach. As the pressure increases on all those involved, it seems that we should look at agreeing a succinct, market-appropriate suite of documents that can be called on.
We know that most substation providers have a list of requirements – for example, uncapped indemnities – but many of these are unrealistic and deter investment. Investors don’t like indemnities where they are unnecessary, and quite often facts can allay the concerns that providers have. For instance, an indemnity should not be required on a site that is verified as remediated from an environmental perspective.
Mindset shift
Another frustration comes in the interplay between utility companies. If a gas pipe and an electricity cable are both needed, we would expect some joined-up thinking in using the same route and consulting with each other over installation.
We need more co-operation between independent distribution network operators and distribution network operators. We find ourselves in situations, albeit rare, where we are only permitted to liaise with the IDNO, which in turn has to pick up with the DNO. Alternatively – and again rather confusingly – we liaise with each entity but they do not have any contact with each other. This makes negotiations more protracted and challenging.
There is an interesting legal question here as to whether a potential power user has a right to be connected to the grid. We know the regulatory backdrop, but more and more we are being presented with a “take it or leave it” attitude to negotiations, where the view seems to be that if the end user does not agree to the terms, then the relevant development can be left without power. How has it come to this?
An attitude shift and greater uniformity should not require test cases or legislation. Instead, there should be a focus on working together, taking a sensible approach and not reinventing the wheel every time negotiations are commenced. Strict timelines, set in legislation, would focus minds, but it is hard to imagine a sanction that would not make the situation worse by drawing resources away from investment in grid infrastructure.
Developers are incurring huge costs as a result of delays in getting substations built, signed off and energised. Industrial and logistics development needs to be quick to meet demand – and we need the providers to be more responsive and more reasonable.
The article was originally published on 27 February 2024 and can be read here behind the paywall.
Q&A: Five minutes with Victoria Du Croz, Head of Planning at Forsters, featured in Property Week
1 March 2024
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Head of Planning, Victoria Du Croz, spoke to Property Week in their regular ‘Five Minutes With’ column on how she got started in property, her favourite destination, her top book and album recommendations and the celebrity she would most like to meet.
How did you join the property industry?
“I was able to do a few law modules while studying English literature at Durham University and found the subject fascinating. I got accepted on to a vacation scheme at Lovell White Durrant (now Hogan Lovells), at the end of which I was offered a training contract. After qualifying, I could not decide between international banking or planning, but I am so relieved I chose the latter and have not looked back.”
What does your job entail?
“I am head of planning at Forsters, working closely with my commercial and rural estates colleagues to advise on all aspects of planning law. We advise major developers, institutional investors, housebuilders, high-net-worth individuals, strategic land promoters, landowners, local authorities, film studios, hotel operators – basically anyone who needs planning law advice.”
What do you like most about the property industry?
“I love that there is a physical building at the end of it. I am incredibly proud of the schemes I have worked on – my family says that from the way I talk about the finished buildings, you would think I had personally built them.”
The article was first published on Property Week on 16 February 2024, and is available to read in full here, behind the paywall.
Drone technology in real estate: the future or pie in the sky? – Louise Irvine writes for PBC Today
28 February 2024
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Louise Irvine, Senior Knowledge Development Lawyer, has written a piece for PBC Today (Planning, Building and Construction) on the expanding use of drones in the world of real estate and examines the legal considerations.
Drone technology in real estate: The future or pie in the sky?
Drone technology might be hitting the headlines due to their vital usage by the armed forces in global conflicts, but its potential is also fast expanding in the world of real estate. Louise Irvine, senior knowledge development lawyer at Forsters, takes a look.
New developments are continuously emerging but current uses of drone technology include bird’s eye and panoramic surveys, which are particularly useful for large agricultural sites or greenfield development, carrying out inspections in hard-to-reach areas and investigating breaches of planning regulations.
Drone technology can also access areas that might be hazardous or not otherwise accessible at all, such as dilapidated buildings with structural issues (such as unstable roof spaces) or where there is known contamination. They can also provide footage for 3D surface models and imagery overlapping.
Real estate businesses are starting to ready themselves for more extensive uses of drones. Clients such as Cubex Land are incorporating drone landing pads into their new schemes, such as with the Halo Building in Bristol.
What is the current legal framework – who owns the sky?
The common legal position in England and Wales is that a landowner owns the air immediately above their land up to the height that would be reasonably necessary for the ordinary use and enjoyment of the land and the structures upon it.
This does infer a vertical limit on a landlord’s ownership and in terms of the usage of the sky above their properties.
There are also various rules that apply in different scenarios around when and where drones may be flown but as a general principle, it’s worth noting that commercial drones may not be flown within 50m of people, vehicles, vessels, buildings or other structures which the drone operator doesn’t control and must be further away still from large crowds.
At present, the regulation of drones is restrictive, particularly in busy metropolitan areas. So, the Civil Aviation Authority has not yet had to worry about managing airspace for drones. It will be a huge amount of work to ensure that drones are integrated into the existing air traffic control system, which represents a major regulatory hurdle.
Planning drone landing spots or vertiports on new build and refurbishment schemes
As business start to futureproof their buildings ready for widespread drone usage, we expect to see more landing spots or vertiports on new build and refurbishment schemes.
Roofspace on commercial buildings, such as office blocks and car parks, are largely underutilised, presenting a commercial opportunity for landlords to add value.
Landlords and developers will need to consider planning permission, firstly in relation to the use of the property as a whole and whether use as a vertiport is either permitted under the existing permitted use of the building or whether it is ancillary to the existing permitted use.
Secondly, in terms of whether the installation of external infrastructure to support a vertiport on a building will constitute development for planning permission purposes.
Planners may also need to consider the ecological impact of drone flight on animals, particularly birds. This is from the obvious risk of collision but also with disturbances and stress caused by noise, lights and the presence of drones in their natural habitat.
Nuisance, privacy and GDPR considerations
It is important to bear in mind privacy, as drones have increasingly sophisticated long-range cameras and recording devices. Using drones over private areas could constitute an invasion of privacy.
GDPR must also be factored in, as those who collate and control data from drones will need to ensure that it is being managed in accordance with regulation.
Most leases will also have restrictions against doing or permitting anything on the premises which may cause nuisance, annoyance or disturbance to the landlord, any other occupiers of the building or estate, and occupiers of any premises in the neighbourhood.
If such a clause is in the lease then the drone operator will have to consider the hours during which the drones can take off and land, and any ways in which noise can be restricted.
Future uses of drone technology
Companies such as Skyports are exploring air taxi services and have been acquiring sites for this purpose. Around 50 different countries are reportedly looking into the viability of unmanned flights forming part of their transport network, driven by often congested and ageing road networks, but it’s unlikely we’ll see any unmanned drone taxi flights before the 2030s at the earliest.
In 2016, Amazon completed its first commercial delivery using a drone in the UK as part of its Amazon Air trial using a GPS-guided drone to deliver its cargo to a home in Cambridge. But progress has since been slow.
However, in Australia, Wing (which is part of the Alphabet group) has been regularly delivering cups of coffee and other groceries by drone, apparently without any safety issues thus far.
In London, the Lyons Place residential development is the first residential development to incorporate a drone port to accommodate drone deliveries to the residents of the building. Meanwhile, Royal Mail has partnered with a few UK drone companies to start transporting parcels using drones to remote rural areas.
Skyports has also been exploring medical uses. Drones delivered Coronavirus testing kits and medical supplies to the remote region of Argyll & Bute in Scotland during the pandemic.
It remains to be seen whether drone technology will rapidly rise or if progress will be slow. Either way, there will need to be more legislation and regulation to protect privacy, flight paths and areas of national security. But the potential for drone usage to expand is clear, and it is definitely an area to keep a close eye on.
This article was originally published by PBC Today on 29 Jan 2024 and can be read here in full.
Paper trials – Conveyancing and the Building Safety Act: Charles Miéville quoted in the Law Society Gazette
23 February 2024
Views
Residential Property Partner, Charles Miéville, has been quoted in the Law Society Gazette in an article on conveyancing and the Building Safety Act.
The article draws on opinions from industry experts and touches on the issues surrounding the Building Safety Act 2022 and the subsequent slowing of leasehold transactions. The article elaborates on recent guidance published to try to provide conveyancers with some clarity.
Charles highlights issues when selling a property and the difficulties of navigating the legislation when dealing with property transactions. He comments: ‘There’s a bit of a learning curve, and some of the legislation hasn’t been tested in the courts.’
As a solution to these issues Charles suggests that there is a ‘need to advise landlord clients where they sit in terms of remediation costs. If one deadline is missed, costs cannot be recouped from the tenant.’
Making your gift go further – Elizabeth Small and Oliver Claridge write for Taxation
14 February 2024
Views
Gift aid exists to encourage individuals (which includes partnerships and sole traders) to make charitable donations.
Many taxpayers give to charity (or community amateur sports clubs, which also qualify for gift aid) from a purely altruistic perspective, but by properly utilising gift aid they can make their gift go further…
Elizabeth Small and Oliver Claridge consider how gift aid can make a charitable gift go further while also providing an element of relief to the giver – and even potentially restoring a higher-rate taxpayer’s personal allowance.
Testing the limits of transparency: Guy Abrahams is quoted in Property Week on land ownership
7 February 2024
Views
Private Client Partner, Guy Abrahams, has been quoted in the Property Week article ‘Testing the limits of transparency’.
The article seeks the opinion of industry experts on the transparency of Britain’s property market regarding land ownership. The push for greater transparency is to help target illicit finance and corruption in the property sector.
Guy explains a key issue in identifying property owners is balancing the need for transparency with the right to privacy. On whether the government should enforce the publicity of property-owning trusts, he comments that it would not go far enough to minimise the chance of illicit funds infiltrating the property market.
What’s in store in ’24? Andrew Crabbie quoted in BE news
30 January 2024
Views
Andrew Crabbie, Partner and Head of Commercial Real Estate, has been quoted in BE News offering his predictions for 2024, alongside other leading industry figures.
Crabbie highlighted the importance of high quality, sustainable office space to occupiers, as Forsters settles into their new office in 22 Baker Street. He stated:
“Planning will continue to be a thorn in the side for developers. Local and national government must get to grips with the planning application bottlenecks (though with a general election looming, it is likely this will be on the back burner). The impact in 2024 of the introduction of biodiversity net gain regulations will prove another challenge to developers. Michael Gove’s decision to refuse M&S’s plans to develop its flagship store on Oxford Street on the grounds that the project was not compatible with the transition to a low-carbon future has amplified the ‘demolish and re-build versus retrofit’ debate, which will continue to run in 2024. From an occupier perspective, the flight to quality zeitgeist will grow across all assets as companies share the same priority of inhabiting well located, highly amenitised, sustainable and flexible workspace that puts the performance and well-being of its employees at its heart. Indeed, here at Forsters we’re a living, breathing exemplar as in January we’re consolidating our London business into a new headquarters on Baker Street in the heart of Marylebone.”
The full article was published by BE news and can be read here (behind their paywall)
The overriding concern of the industry is that the government’s proposals will lead to even less housing being delivered – Victoria Du Croz quoted in the Financial Times
20 December 2023
Views
Planning Partner, Victoria Du Croz, has been quoted in the FT article entitled “Michael Gove insists he has not ‘abandoned’ local housing targets.”
Speaking on Tuesday 19 December, as the revised National Planning Policy Framework (NPPF) was published, Michael Gove said that local authorities will be given three months to deliver housing plans or face losing planning powers.
In the article, in which housing and property industry groups responded to Gove’s speech, Victoria du Croz, partner at Forsters said “The overriding concern of the industry is that the government’s proposals will lead to even less housing being delivered. The government has produced no convincing evidence to demonstrate how their reforms will deliver more housing.”
To read the full article (behind a paywall) please click here.
To Advise or Not to Advise? Timothy Evans and Olivia Longrigg write for Financial Remedies Journal
6 December 2023
Views
Family Associates, Timothy Evans and Olivia Longrigg, have written a piece for the Financial Remedies Journal providing commentary following the case of Lewis v Cunningtons Solicitors [2023] EWHC 822 (KB) which concerned a professional negligence claim against the claimant’s matrimonial solicitors.
In particular, the claim concerned a failure to advise in respect of a pension, which was the primary asset of value in the matrimonial proceedings.
The case provides guidance on the use of limited retainers and waiver letters, and also restates the jurisprudence surrounding a solicitor’s duty to advise. The article also raises questions as to procedural best practice in respect of pensions at an early stage of the retainer.
Timothy and Olivia highlight that:
Cunningtons had enough knowledge (absent full and frank disclosure) to know of the importance of and therefore advise upon the pension asset;
A public sector defined benefit scheme is one which should be a red flag for practitioners, as the attributable CE value is likely to be much less than the pension’s true worth;
Pensions remain one of the main potential sources of negligence litigation against family law solicitors. They are often an overlooked part of the divorce process, in part because of their complexity, in part because some clients do not want to engage with them and, sometimes, because in high net worth cases the pensions are dwarfed by other assets.
“Family Wars – lessons to be learned from conflicts” The Royal Gazette covers Nick Jacob’s STEP seminar
5 December 2023
Views
Private Client Partner, Nick Jacob, was invited to present a session at the recent STEP Bermuda Conference 2023. His session, entitled ‘Family Wars – lessons to be learned from conflicts’ has since been covered in an article by The Royal Gazette.
“No matter how big your business empire, or how tight your grip on it, you need a will and a succession plan. This was the sage advice from Nick Jacob” writes the editor.
The article highlights Nick’s top tips to avoid family conflict:
Facing up to potential conflict issues before they become real conflicts is absolutely critical.
Getting everybody in the family to buy in to the structuring and to understand why it has been set up is important.
Trust professionals must ensure that the structures they set up are not too complicated to understand.
Advisors need to think about whether what we are advising is right for the client. Are the structures going to work for that family, and are they dynamic enough to change in the future?
Spurs result flags up venues’ residential neighbour disputes – Victoria Du Croz speaks to Property Week
27 November 2023
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Head of Planning, Victoria Du Croz, has spoken to Property Week on how a legal dispute recently lost by Tottenham Hotspur football club has returned attention to the debate over the balance of rights and obligations for both businesses and local residents.
Commenting on how the club had objected to proposed residential developments close to their stadium (and had had a subsequent judicial review dismissed on the grounds that access to the stadium would not be unreasonably impacted), Du Croz wrote that:
“Spurs was looking at how it could future-proof itself and force Lendlease to allow very reasonable terms through the planning system, without having to rely on a commercial negotiation.”
No guarantees
Businesses such as these inevitably come with noise and disturbance to the local area, with a previous example being that from 2011 in which a proposed development within earshot of Elephant & Castle’s Ministry of Sound nightclub threatened the club’s operation.
Du Croz explained that the Ministry of Sound eventually settled its case with a compromise, writing that:
“The owners of the new residential development agreed to allow the Ministry of Sound to make a certain noise level without it being considered a nuisance. That then enabled permission to be granted.”
She caveats this story with the point that the introduction of the ‘agent of change’ principle to the National Planning Policy Framework has since altered such circumstances. Now, “the onus is on new residential schemes to put in place noise-mitigating measures.”
This principle, however, does now demand that new developments have no impact on businesses. What it emphasises, Du Croz believes, is the need for “entertainment operators to diversity and in [reaching agreements] agree what the noise level should be.”
“You want to allow for diversity. Football stadiums often have pop concerts that exhibit a different noise matrix [to football].”
Light issues
Beyond noise, the effect of light is also an issue currently being contested, with current attention current fixed on the proposed MSG Sphere development in Stratford. On this, Du Croz explains that the law isn’t as developed for light as it is for noise.
“The sphere is visually dynamic, but potentially visually intrusive. There’ll be planning policies in place to ensure that any new developer doesn’t adversely impact people’s amenity and access to light, so they will have to contend with that.”
This article was originally published by Property Week on 15 November 2023 and can be read here in full (behind their paywall).
“Succession planning down on the farm” Forsters Partner, Polly Montoneri quoted in the Times
16 November 2023
Views
Rural, Land and Business Partner, Polly Montoneri shares her insights on the rise in proprietary estoppel cases, in the Times article entitled “Succession planning down on the farm”.
Following a number of high profile proprietary estoppel cases over recent years, increasing public awareness and the rising value of farmland form part of the reason for the rise in proprietary estoppel disputes. Polly discusses diversification within farming as another significant factor alongside the disconnect between generations about how to develop a modern farming business, highlighting that it is one of the challenges in ensuring a smooth transition between generations.
“There has often been a generational tension about how farming assets are managed over the years. There is always a period where the older generation needs to hand over to the younger generation. That is an aspect that has long been very carefully managed by families, advisers and lawyers to ascertain the best way to progress.”
“If you look back over the past 30 years diversification has become increasingly important. Some farms and estates have diversified because they wanted to, others because they have had to. Over time the stakes have become higher, with the younger generation now perhaps more ambitious in terms of, for example, environmental sustainability and being a source for green energy, which is a huge part of how the rural economy is developing.”
To read the full article (behind a paywall) please click here.
Damages: an appropriate remedy? – Natasha Rees writes for EG
13 November 2023
Views
The Estates Gazette have featured an article by Natasha Rees on the conclusion of the nuisance case against the Tate Gallery.
The article considers the Court’s approach to the question of remedy in nuisance claims where decisions now appear to be reached on a case-by-case basis, and factors such as planning permission and public interest are relevant.
Rees writes that: “Earlier this year the Supreme Court found in favour of five Neo Bankside residents, holding that the viewing gallery at the Tate Modern’s Blavatnik Building had created a nuisance by interfering with the residents’ use and enjoyment of their flats (Fearn and others v Board of Trustees of Tate Gallery [2023] UKSC 4; [2023] EGLR 14). As recommended by Lord Leggatt in his majority judgment, the proceedings were then remitted to the original trial judge in the High Court, Sir Anthony Mann, to determine the appropriate remedy.”
Following a hearing before the original trial Judge the Tate elected not to argue for damages and subsequently entered into an agreement with the defendants preventing use of the property in the way that had caused nuisance.
As such, Rees writes, this has “[put] an end to the nuisance and [disposed] of the proceedings.”
Questions
This ruling has raised questions regarding the circumstances in which courts will grant an injunction or will decide that damages should be awarded instead. The courts power to grant damages instead of an injunction derives from statute – “originally the Chancery Amendment Act 1858 (colloquially known as Lord Cairns’ Act) and currently the Senior Courts Act 1981.”
The article considers the Court’s approach which was until fairly recently based on the leading case of Shelfer v City of London Electric Lighting Co (1895), and which assumed an injunction would be granted save for in exception circumstances. This changed following the Supreme Court’s ruling in Lawrence and another v Coventry and others (2014)].
She writes that: “Lord Neuberger, who gave the leading judgment, stated that the mechanical application of the four tests leading to damages being awarded only in ‘exceptional circumstances’ was simply wrong in principle and that although prima facie the remedy for nuisance is an injunction, there may be circumstances where damages are more appropriate and there should be no inclination either way.”
Going forward
As Rees states “The onus is on the defendant to show why an injunction should not be granted.”
“The court now has a wider discretion and the choice between an injunction or damages depends on the relevant facts, circumstances, and arguments in the case. While this allows the courts greater flexibility, it also introduces much greater uncertainty.”
The factors that might be taken into account include whether planning permission authorises the activity, or if any potential injunction would affect the viability of the defendant’s business or indeed the public’s ability to enjoy the activities carried out by that business.
What this meant in the Tate case was that the Tate’s activities or its use of the Viewing Platform was probably relevant to the remedy.
She writes that: “In his leading judgment, Lord Leggatt indicated that matters which needed to be addressed were whether there was a public interest in maintaining the viewing platform with a 360-degree view which was capable of overriding the prima facie remedy of an injunction.”
Rees concludes that:
“Where a person’s right to the enjoyment of their home is disturbed by an invasion of privacy, it is hard to envisage when damages might be an appropriate remedy. Such a right can rarely be compensated for in monetary terms. This was the majority view in Lawrence.
“In such cases, it is hard to see what public interest considerations might outweigh this. Matters of national defence or the provision of public services such as healthcare may, but it seems unlikely that recreational facilities or the public’s enjoyment of those facilities would tip the balance.”
This article was originally published in EG on 31 October 2023 and can be read here in full (behind their paywall).
Building Safety Act 2022 ‘key information for developers of higher-risk buildings’
1 November 2023
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On 1 October 2023, a host of secondary legislation published under the Act came into force. It created new obligations for developers of Higher-Risk Buildings, which supplement those already in place.
This note gives an overview of the obligations that a developer of a new Higher-Risk Building will now face.
The Responsible Actors Scheme
The Responsible Actors Scheme is intended to ensure that developers remedy any defects in existing buildings for which they are responsible. It works by requiring certain developers to enter into a remediation contract with the government and imposes consequences if they do not.
You will be eligible to apply for the Scheme if:
your principal business (more than 50%) has been residential or mixed-use property
development, you meet the Profits Condition and you have developed or refurbished (excluding work done solely as a contractor) one or more residential buildings over 11 metres in height in England between 5 April 1992 and 4 April 2022;
you are a developer who meets the Profits Condition and have developed or refurbished (excluding work done solely as a contractor) two or more buildings eligible for a relevant government cladding remediation scheme; or
you are a developer who has developed or refurbished (excluding work done solely as a contractor) at least one residential building over 11 metres in height that qualifies for remediation under the terms set out in the developer remediation contract, and you voluntarily choose to join the Scheme.
If you are eligible to become a member of the Scheme, you must:
enter into a developer remediation contract with the government;
in accordance with the contract terms:
identify residential buildings that are over 11 metres in height developed or refurbished by you over the 30 years ending on 4 April 2022, and any of those buildings known to have life-critical fire safety defects;
remediate and/or mitigate or pay for the remediation/mitigation of life-critical fire safety defects in those buildings;
reimburse government schemes for taxpayer-funded work to remediate and/ or mitigate defects in those buildings;
not undertake restructurings or certain other steps which would mean that you cannot fulfil your obligations under the Scheme;
meet all other obligations of the developer remediation contract, including keeping building owners, residents and the government updated on the progress of remediation works.
comply with requests for information made by the Secretary of State pursuant to the contract and regulations, to enable the Secretary of State to carry out his monitoring and enforcement functions; and
not take steps to avoid your obligations under the Scheme or defeat its aims.
If you do not do so, the consequences are severe. They include:
Planning prohibitions – You will not be able to carry out major development of land, which includes 10 or more residential units, residential schemes on a site of at least 0.5 hectares in size, commercial development of 1000m or more of floor space, and development sites over 1 hectare in size
Building control prohibitions – You will not be able to give or receive relevant notices (i.e., building commencement notices), certificates, and applications.
The dutyholder roles
The legislation creates new roles and responsibilities. The Building Safety Regulator (BSR) explains that, as a developer, your main duties will be as follows:
to make (and review as necessary) suitable arrangements for planning, managing and monitoring a project, including the allocation of sufficient time and resource, to deliver compliance with building regulations. In practice, this means appointing the right people, with the right competencies (the skills, knowledge, experience and behaviours or organisational capability) for the work and ensuring that they have systems in place to ensure compliance with building regulations;
where there are several firms working on different aspects of the project, to appoint a Principal Designer to be in control of design work and a Principal Contractor to be in control of the building work;
to provide building information to every designer and contractor on the project and ensure that they are aware that the project includes any existing or proposed Higher- Risk Building work; and
to co-operate and share information with other relevant duty holders.
Building control regime for Higher-Risk Buildings
The new building control regime, colloquially known as the ‘Gateway Regime’, commenced on 1 October 2023. There are three ‘gateways’, one during the planning phase, another during the construction phase, and the final gateway at the completion of the project. This section deals with the three ‘gateways’.
Application process
Before building works start on a new Higher- Risk Building a building control application must be secured. The application must be submitted to the BSR, which has 12 weeks to assess the application. As a developer, you will have overall responsibility for the application. The application must contain sufficient information to show how the building when built will:
satisfy all applicable functional requirements; and
demonstrate how the developer intends to manage the construction activity.
If it is determined that the new building will be a Higher-Risk Building, it must include the following documents:
a competence declaration;
a building regulations compliance statement;
a fire and emergency file;
a construction control plan;
a change control plan;
a mandatory occurrence reporting plan; and
a partial completion strategy.
Each of these documents has particular aims and requirements and will need to be considered in detail.
Golden Thread
The “Golden Thread” of information in relation to a building is the information that allows a person to understand a building and the steps needed to keep both the building and people safe, now and in the future. The legislation places requirements for the Golden Thread to be managed throughout the life cycle of a building.
Once you have building control approval, you must give the BSR at least 5 days notice before commencing work. The Principal Contractor will then be responsible for managing the Golden Thread. That said, as a developer you must be aware of the Principal Contractor’s responsibilities and appropriately monitor whether they are performing their duties. Furthermore, the practical reality is that the Principal Designer will need to collaborate with the Principal Contractor, so this should be kept at the forefront of your mind. The Golden Thread must be:
kept digitally;
kept securely;
a building’s single source of truth;
available to people who need the information to do a job;
available when the person needs the information; and
presented in a way that the person can use.
Construction phase
There is no doubt that throughout the construction phase of any project, changes occur. There are new processes that must be followed in relation to changes. The process will depend on whether the change is a Major Change or a Notifiable Change. There are detailed provisions regarding what will amount to each, and legal advice should be sought if the position is unclear. The BSR has the power to change the category of any change, where it deems appropriate to do so.
It is essential that any Safety Occurrences during the construction phase are reported to the BSR, via the MOR system. As the developer, you will need to take all reasonable steps to ensure that the Principal Designer and the Principal Contractor have put an effective MOR system in place.
Completion certificates
Higher-Risk Buildings need a completion certificate to enable the building to be registered or occupied.
Developers must now submit a completion certificate application once notifiable building work is complete. Occupation will not be allowed unless the BSR issues a completion certificate, which may take at least 8 weeks.
This application comprises of the following (which will be stored in the Golden Thread):
‘as built’ plans and information;
final versions of all accompanying documents that accompanied the initial application;
any controlled changes and the change control log;
information captured through construction;
information captured through commissioning; and
information captured through final functional inspections.
Upon receipt of the application, the BSR will conduct its final inspections of the building work and, if satisfied, will issue the completion certificate. If not, the BSR must reject the application. Errors can be corrected – but this will no doubt incur unwanted additional time costs and pressures.
Non-compliance and enforcement Under the new secondary legislation, the BSR’s power to enforce non-compliance is strengthened. The table below identifies the offence of non-compliance and the penalty associated with the offence.
Offence
Scope of power
Penalty
Reference
Providing false or misleading information to BSR
Criminal offence
Triable as an either way offence
Unlimited fine 1 year imprisonment (magistrates)
2 years imprisonment (crown)
Section 24 BSA22
Contravention of building regulations
Criminal offence Triable as an either way offence
No time limit
Compliance notice must be served within 12 months
Stop notice
Unlimited fine
Fine for each day the contravention continues (£200)
Section 35 BA84
Failure to comply with compliance and stop notice
Criminal Offence
Unlimited fine
1 year imprisonment (upon summary conviction – magistrates)
2 years imprisonment (upon indictment – Crown)
Section 35B BA84 Section 35C BA84
Removal of offending work
Time limit extended to 10 years
Notice to remove contravening work
Chargeable work
Section 36 BA 84
It is critical to take note that directors and managers of companies may be found liable for the criminal offences identified above.
Conclusion
In this current post-Grenfell climate, and in the wake of the host of obligations created by the secondary legislation, it is critical that developers of new Higher-Risk Buildings are acutely aware of their obligations and seek legal and other professional advice where necessary. The BSR has the power to enforce penalties against the company as well as directors and managers personally.
Glossary
Act: Building Safety Act 2022.
BSR (Building Safety Regulator): The Health and Safety Executive, in its capacity as Building Safety Regulator.
Higher-Risk Building: A building which is at least 18 metres in height (or has at least seven storeys) and contains at least two residential units, or is a care home or is a hospital. Inc student accommodation. Does not include secure residential institutions; hotels; military barracks and living accommodation for military personnel.
Major Change: A change that would undermine the basis by which building control approval was granted.
MOR: Mandatory Occurrence Reporting.
Notifiable Change: A change that potentially has an impact on compliance with building control approval.
Profits Condition: Your average annual operating profit in the financial years ending 2017, 2018 and 2019 was greater than or equal to £10,000,000.00.
Safety Occurrence: A safety occurrence (structural safety or fire safety) in relation to the design of a building or an incident or situation during construction for which the building, if occupied without the risk being remedied, is likely to present a risk of a significant number of deaths or serious injury to a significant number of people.
Building Safety Act 2022 – key information for leaseholders
1 November 2023
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The Building Safety Act 2022 aims to ensure that works to remedy safety defects in high-rise buildings are carried out and that leaseholders are protected from the costs of the works insofar as possible. The majority of the leaseholder protections came into force on 28 June 2022. If you are a leaseholder of a high-rise building, it is worth understanding how they affect you.
This note provides key information to help you navigate the rules and regulations and sheds light on how the Act is working to protect you and how it may work in future.
Are you a qualifying leaseholder?
The Act seeks to protect leaseholders from landlords passing on the costs of necessary remediation works via the service charge. The level of protection will differ depending on whether or not you are “a Qualifying Leaseholder”.
You will be a Qualifying Leaseholder if your lease meets the following criteria:
it is a long lease (more than 21 years in length) of a single dwelling within a Relevant Building;
you are liable to pay a service charge under the lease;
it was granted before 14 February 2022; and
on 14 February 2022:
the dwelling was your only or principal home; or
you did not own more than 3 dwellings in the UK in total.
Are you protected from remediation costs?
Protections for qualifying leaseholders
If you are a Qualifying Leaseholder, the following costs cannot be passed on to you via the service charge:
historical safety remediation costs where the developer responsible for the defect is, or is associated with, your building owner;
historical safety remediation costs where the landlord as at 14 February 2022 met the Contribution Condition;
historical safety remediation costs where your property is worth less than £325,000 in Greater London or £175,000 elsewhere in England;
unsafe cladding remediation costs (i.e., the removal or replacement of something that both a) forms the outer wall of an external wall system of your building and b) is unsafe);
legal or associated professional services costs relating to liability for relevant defects.
Costs that may be passed on to you via the service charge (up to a capped amount and according to the terms of your lease) include:
waking watch costs;
remediation of non-cladding defects, for example:
replacement of a fire door that has prematurely degraded and is no longer safe;
installation of missing fire compartmentation.
Any protections which apply will automatically transfer to any future buyers of the lease. This means that if your property was eligible for the protections on 14 February 2022 and you sell it, your buyer also benefits from those protections (and vice versa).
Protections for non-qualifying leaseholders
If you are a Non-Qualifying Leaseholder, the position is less favourable, although the landlord still won’t be able to pass on historical remediation costs (including the cost of fixing or replacing any unsafe cladding) where the developer responsible for the defect is, or is associated with, your building owner.
If the costs don’t fall in this category then you may be asked to contribute to remediation costs according to the terms of your lease. Before your landlord does pass these costs on to you, it has to try to obtain government funding, and it may also be able to claim some of the costs back from responsible third parties. It is important to note that the costs passed on to you cannot be increased to replace money that Qualifying Leaseholders are not liable for.
Landlord and leaseholders certificates
The legislation introduces a certification procedure, which is intended to ensure that the parties have the information required to understand who is liable for remediation costs.
Leaseholder’s Deed of Certificates
To demonstrate whether you are a Qualifying Leaseholder and to enable your landlord to work out any capped contributions for non-cladding remediation works, you need to provide your landlord with a Deed of Certificate.
You can do this at any time, or when your landlord asks you to provide one.
Landlord’s Certificates
Before it can pass on any remediation costs, your current landlord (defined as a person who is a landlord under a lease of premises in a Relevant Building) must complete a Landlord’s Certificate. It will demonstrate whether the landlord of your lease on 14 February 2022 met the Contribution Condition and whether at that date any of the landlords in the building were, or were associated with, the person responsible for a relevant defect.
There are certain ‘trigger events’ following which your landlord must provide you with a:
Landlord’s certificate:
when they want to pass on remediation costs to you through the service charge;
within 4 weeks of receiving notification from you that you are selling your property;
within 4 weeks of them becoming aware of a relevant defect which was not covered by a previous Landlord’s Certificate;
within 4 weeks of you requesting one;
within 4 weeks of becoming aware of a new leaseholder’s Deed of Certificate which contained information that was not included in a previous Landlord’s Certificate.
If your current landlord does not provide a valid Landlord’s Certificate they will be unable to pass remediation costs on to you.
What protections will be in place for the future?
There are various rules in place to protect occupants of new and existing Higher-Risk Buildings against building safety risks in future, and it is expected that these will be supplemented by additional legislation shortly.
Accountable person(s)
The legislation creates the roles of the Accountable Person(s) and the Principal Accountable Person (PAP). They will together manage the building safety risks in each Higher-Risk Building.
The PAP of an existing Higher-Risk Building was required to register the building with the BSR by 1 October 2023. It is now an offence for the building to be occupied but not registered.
It is expected that further secondary legislation will come into force soon which will add to and define the obligations placed on the Accountable Person(s) and PAP.
Expected Implied Lease Terms
It is also expected that, in due course, legislation will amend various elements of the 1985 Act, by implying terms into leases of dwellings in Higher-Risk Buildings. The amendments are expected to place obligations on both landlords and leaseholders and amend the service charge provisions in some cases.
Expected Implied Terms for Landlords
Where the landlord is an Accountable Person for a Higher-Risk Building, to comply with its building safety duties.
To co-operate with any person in connection with a “relevant person” who is complying with their building safety duties.
Where a special measures order in relation to a Higher-Risk Building is in force, to comply with that order so far as it relates to the landlord.
Where a covenant or agreement purports to exclude or limit these obligations on the landlord, that covenant or agreement will be void. If an agreement seeks to impose a penalty or obligation on the leaseholder for enforcing a landlord’s obligations under the 1985 Act this will also be void.
Expected implied terms for leaseholders
In addition to implied terms for landlords, the Act is also expected to introduce a number of implied terms into a qualifying lease for leaseholders. These include the following:
To allow the landlord, an Accountable Person or a special measures manager (or anyone authorised in writing by them) to enter the premises for a relevant building safety purpose, which includes:
inspecting the premises in connection with their building safety duties;
carrying out works to the premises that are required to comply with building safety duties. “Works” is defined as including alterations, improvements, and installations; and
accessing a part of the building that is not let to a leaseholder to inspect or carry out works to that part of the building.
If the leaseholder is a resident in a Higher- Risk Building, it is expected that the Act will imply various duties on leaseholders aimed at ensuring that their conduct does not result in building safety risks materialising and ensuring co-operation with the Accountable Person(s) and PAP.
To ensure compliance with any special measures order made, insofar as the order relates to that leaseholder.
If any covenant or agreement purports to exclude or limit these obligations, that covenant or agreement will be void.
Implied terms re service charge
The Act also operates to amend the service charge provisions in a relevant lease (being a lease of 7 years or more under which a service charge is payable, and which is not a relevant social housing tenancy) of residential premises in a Higher-Risk Building.
These allow the costs to include the taking of “building safety measures” by, or on behalf of, a landlord or superior landlord who is also the Accountable Person, or a special measures manager. These can include the costs of applying for the building to be registered, and other costs associated with the managerial requirements of the Accountable Person(s) and PAP. Any costs resulting from non-compliance with the rules will not be recoverable.
What can I do if my landlord is not carrying out necessary works?
There are steps which leaseholders can take to ensure that their landlord undertakes any necessary remediation works.
Leaseholders can apply on their own, or as a group, to a Tribunal for a binding remediation order which requires landlords/building owners to remediate building safety defects.
Leaseholders can also apply for a remediation contribution order which will require a company to make payments in connection with the remediation of building safety defects. The application can be made alongside an application for a remediation order or as a standalone application.
Conclusion
The Act has widespread ramifications and is a complex piece of legislation. A central part to understanding the obligations arising from the Act is the correct identification of whether leaseholders have a qualifying lease, or if the building is a Higher-Risk Building. Legal advice is likely to be needed.
The statutory criteria relating to the Accountable Person or PAP is strict so a third party cannot volunteer for those roles. Outsourcing of the role will not absolve the actual Accountable Person or PAP from liability.
1985 Act
Landlord and Tenant Act 1985
Accountable Person
1. An owner of any part of the common parts (an estate owner) but not if either: each long lease of which the estate owner is lessor provides that another person (who does not own any part of the building) is under a repairing obligation in relation to the common parts (e.g. a management company); or the repairing obligations in relation to the common parts are functions of an RTM.
2. A person who is not an owner of any part of the building, but who is under a relevant repairing obligation in relation to any part of the common parts.
Act
Building Safety Act 2022.
Contribution Condition
A landlord met this if it had a net worth of more than £2 million per each Relevant Building in their ownership on 14 February 2022.
Higher-Risk Building
A building which is at least 18 metres in height (or has at least seven storeys) and contains at least two residential units. This includes student accommodation. Does not include care homes, hospitals, secure residential institutions, hotels, military barracks and living accommodation for military personnel.
Landlord’s Certificate
A standard form certificate demonstrating whether the landlord of your lease on 14 February 2022 met the Contribution Condition and whether at that date any of the landlords in the building were, or were associated with, the person responsible for a relevant defect.
Non-Qualifying Leaseholder
A leaseholder who is not a Qualifying Leaseholder.
PAP (Principal Accountable Person)
If there is more than one Accountable Person, the PAP is: The Accountable Person who holds a legal estate in possession in the relevant parts of the structure and exterior; or A person who is within the scenario above because of a relevant repairing obligation in relation to the relevant parts of the structure and exterior of the building.
Qualifying Leaseholder
A leaseholder meeting the test set out under the heading “Are you a Qualifying Leaseholder” in the text above.
Relevant Building
A building of above 11 metres or at least 5 storeys.
Is there a capital gains tax problem on sale of marital property? Michael Armstrong and Rebecca Anstey write for Taxation
23 October 2023
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Private Client Counsel, Michael Armstrong, and Private Client Associate, Rebecca Anstey, have written a piece for Taxation answering the reader’s question ‘Is there a capital gains tax problem on sale of marital property?’
In the article, Michael and Rebecca focus on a case study of a couple. Mrs B suffered a serious psychotic episode two years ago and is now permanently in hospital care. Mr B wishes to sell their home, so would like to know:
whether principal private residence relief (“PPR relief”) will apply; and
if not, whether he could transfer her share into his own name before selling using the lasting power of attorney Mrs B granted him.
Michael and Rebecca highlight that:
Mr and Mrs B will still be treated as ‘living together’ and having one residence for the purposes of PPR relief unless separated under a court order, by deed of separation, or in circumstances in which separation is likely to be permanent.
If Mr and Mrs B are permanently separated, Mrs B should still be eligible to claim PPR relief on her share of the property as the final period allowance should be extended to 36 months because she is a long-term resident in a ‘care home’ (defined in the legislation to include any establishment that provides accommodation and nursing or personal care).
Where an asset is transferred between spouses, such as the proposed transfer to Mr B, it will be a “no gain, no loss” transfer. This means that, unlike other gifts, no CGT liability should arise as the recipient spouse takes over the other spouse’s acquisition cost. However, previously, this treatment did not apply to separated couples after the end of the tax year in which they separated.
The provisions of Finance (No.2) Act 2023 (in force from 11 July 2023) now mean that if Mr B were to acquire his wife’s share of the property, then this no gain/loss treatment could now continue until the end of the third tax year after the couple ceased living together (even if Mrs B were not a long-term care home resident).
If Mrs B does not have capacity to make decisions, Mr B should be able to use the LPA to manage Mrs B’s share of the property but the court would need to approve a gift of it to Mr B and any sale or other transfer would need to be in her best interests.
Consider the following options… – Elizabeth Small writes for Taxation
17 October 2023
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Tax Partner, Elizabeth Small, has written for Taxation on the tax consequences of the different ways of owning and operating a hotel.
When recently sipping a coffee in a hotel lobby, I was pondering (being between books) that there are a number of ways in which a hotel might be owned and operated and that each of these will have a raft of different tax consequences. In the following scenarios I am going to assume that the freehold to a Brighton hotel is owned by ‘HotelCo’, a single purpose entity which is ‘property rich’. The scenarios to be explored are:
UK tax resident friends and family own the shares in HotelCo (in this scenario, a UK tax resident company) which owns the freehold interest and operates the hotel;
HotelCo is a non-resident company, owned by non-resident persons, and has leased the hotel to ‘Opco’, a wholly-owned subsidiary which operates the hotel (as explained further below, little turns on where the central management and control (CMC) of OpCo is or indeed where OpCo was originally incorporated);
HotelCo is rebranded as LandlordCo (again it is nonresident both in terms of CMC and incorporation) and lets the property to a third party branded hotel tenant, ‘LeaseCo’;HotelCo is rebranded as ‘NRHotelCo’ (obviously non-UK tax resident) and enters into a hotel management agreement (HMA) with a third party branded company, ‘HMACo’.
Building liability orders lift the corporate veil on developers – Andrew Parker writes for Property Week
11 October 2023
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Construction Partner and Head of Building Safety, Andrew Parker, has written for Property Week on how, a year on from the passing of the Building Safety Act 2022 (BSA), we are now starting to see the cumulative effect of all the new devices for holding the residential development industry to account for the building safety crisis.
However, Parker adds that: “What we have not yet seen is any clue as to how the High Court will decide what is ‘just and equitable’ in the granting of a building liability order (BLO). The phrase ‘just and equitable’ appears to give the court discretion and introduces huge uncertainty.”
BLOs allow those pursuing litigation to “lift the corporate veil” on special-purpose vehicles being used for developments. In other words, where a company is liable for a building safety risk, a BCO also then enables the associated company to become liable itself.
“This sounds well intentioned”, writes Parker, who holds the same view of the BSA’s retrospective extension of limitation period by 30 years, as well as the Residential Property Developer Tax, the Building Safety Levy and the “contracts requiring developers to fix what they built.”
Looking beyond the impact of developers on this crisis, who may arguably now carry a disproportionate burden in solving the crisis, the government also wants other parts of the supply chain to contribute. Namely, they are focusing on the investors in the manufactures implicated in the Grenfell Tower fire. “The government probably assumes that developers will recover costs through litigation, but it has identified developers as a soft target with deep pockets.”
There is concern, then, that BLOs have gone too far. They pose the risk of “undermining the financial stability of development groups, boosting insurance premiums to cover uncertainty and affecting the feasibility of schemes.
“The complex corporate structures under attack are how property developments are commonly procured; and so to retrospectively create liabilities for companies that would otherwise not have had them is dramatic. It may hit share prices for companies, with knock-on effects for funding and future developments.”
Corporate liabilities
Parker considers whether it was wise to lift the corporate veil in this instance; a mechanism that has been in place for some time and successfully resisted numerous previous arguments against it. Those developers who made corporate acquisitions to enter the residential development market now hold considerable liabilities thanks to these changes in legislation.
SMEs, which the government “has been straining to advantage in the market”, will face real challenges in this new landscape of extended and uncertain liability.
Parker predicts legal challenges, and so expensive litigation, before the rules are fully understood. Any increased reliance on insurers will not help a market that has already hardened and indeed insurers may not even pay out where policies did not consider such liabilities across the group.
A potential workaround Parker raises is via the ownership by individuals rather than companies, since BLOs only apply to corporate bodies. This may however have significant tax consequences.
Parker concludes by writing that: “All of this could give rise to further insolvencies within construction given the market has seen contractors struggle to cope with price increases. Now, they will have to face unforeseen claims.
“The position could have been improved if the meaning of ‘just and equitable’ had been addressed in the explanatory notes. We may find that BLOs are ordered very rarely; but until the courts hear some cases, we will not know and the damage to the industry will have been done.”
This article was originally published in Property Week on 13 September 2023 and can be read here in full (behind their paywall).
Kelly Noel-Smith and John FitzGerald write for Taxation on the UK tax residence net
6 October 2023
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Private Client Partner, Kelly Noel-Smith, and Private Client Senior Associate, John FitzGerald, have written an article for Taxation entitled ‘No escape’ in which they explore the question of whether an individual escapes the UK tax net when they become non-UK resident?
The article is derived from the ‘Relocating to the UK’ campaign of Forsters’ Senior Executives Advisory Committee, which Kelly leads and of which John is a key member. It highlights these key points:
the temporary non-residence rules;
dual residence: an individual may be resident for tax purposes in more than one jurisdiction and may benefit under the provisions of a double tax treaty;
the 2015 CGT changes for non-residents;
the election for a property to be treated as a main residence for the purposes of PPR relief; and
minimising exposure to UK tax during a period of non-residence.
Will lease extension be deemed a disposal for tax purposes? Elizabeth Small and Lucy Barber write for Taxation
5 October 2023
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Tax Partner, Elizabeth Small, and Head of Residential Property, Lucy Barber, have answered a reader’s question for Taxation on lease extensions.
In the article, entitled ‘Will extension be deemed a disposal for tax purposes?’, the reader asks:
“A client owns the freehold of a block of flats in London and granted a 99-year lease for one of the flats to a lessee some years ago. A premium was received which was subject to tax under the usual part disposal principles. The lessee now wishes to extend the lease to 999 years and a further premium of £10,000 will be paid. I understand that the premium is relatively small as there is little difference in value between a 99-year lease and a 999-year lease. It seems that the transaction will be deemed for tax purposes as a disposal of the old lease by the lessee and the grant of a new lease by the freeholder.”
Elizabeth and Lucy explain that typically, the extension will be outside the terms of the current lease and therefore it will be treated as though there was a surrender of the old lease and the grant of the new longer lease. Sometimes, it may be possible to ameliorate this by ensuring that there is not a surrender and regrant, and instead grant a reversionary lease which takes effect at the end of the term of the existing lease. A supportable valuation of the reversionary freehold interest and the value of the lease surrendered will be key to determining the tax impact, and awareness of these issues is key to ensure that a proportionate tax result is achieved.
The New Dutyholder Regime under the Building Safety Act 2022
2 October 2023
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One of the common misconceptions surrounding the Building Safety Act 2022 (“BSA”) and associated secondary legislation is that its provisions only apply to higher-risk buildings (in very simple terms, certain residential buildings above 18 metres or seven storeys in height). However, parts of the new regulatory regime impose legal responsibilities on anyone who commissions a construction project or is involved with its design and construction.
One part of the legislation which applies to all building work is the new building safety “dutyholder” regime, which was brought into force pursuant to the Building Regulations etc. (Amendment) (England) Regulations 2023, which amends the Building Regulations 2010.
Those familiar with the Construction (Design and Management) Regulations 2015 (“the CDM Regulations”) will recognise many similarities between the new building safety dutyholder regime and the position adopted by the CDM Regulations, which should allow industry professionals to get to grips with the new regime quickly.
When does the new dutyholder regime apply?
The new regime applies when “building work” is being carried out in England (save where the work is “minor work”). “Building work” and “minor work” are defined in the Building Regulations 2010 and building work includes the erection or extension of a building and the material alteration of a building.
When does the new dutyholder regime come into effect?
The new regime came into force on 1 October 2023 with transitional arrangements which confirm that the new regime is not applicable where:
building work commenced before 1 October 2023
plans were deposited with the local authority before 1 October 2023, unless the plans are rejected or building work has not commenced on site by6 April 2024.
If “building work” has not commenced before 6 April 2024, the new regime will apply.
What does the new dutyholder regime do?
The new regime has been implemented to promote the co-ordination of design work and building work by all key dutyholders in a construction project, including the client, all contractors and all designers. The regulations set out the duties imposed on each party, with enhanced duties applicable to higher-risk buildings.
Who are the key dutyholders under the new regime?
The Client Like the CDM Regulations, one of the main dutyholders is the “client”, who is “the person for whom the project is carried out”. Clients’ duties include:
making suitable arrangements to plan, manage and monitor a project
providing building information to every designer and contractor on a project
checking the competence of the entities it proposes to appoint on a project, including the principal contractor and the principal designer.
For higher-risk buildings there are enhanced obligations around checking competence and a duty to make sure everyone involved on a project is aware that the work is higher-risk building work. In these circumstances the client must keep written records of the checks it makes.
The duties applicable to commercial clients differ from those applicable to a domestic client. Please see further below.
Can there be more than one client on a project?
Yes. There may be more than one “client” on a project and in these circumstances (similar to the CDM Regulations), the new regime allows parties to agree between themselves who will act as the client for the purposes of the Building Regulations. Agreements should be made in writing. In practice we are likely to see these agreements being made in documents such as agreements for lease, forward funding agreements and other development documents where there are two or more parties who could be considered to be clients.
It is important to note that even if parties A and B agree in writing that party A is to be the client for the purposes of the new regime, party B retains certain duties, including:
a duty to provide building information to each designer and contractor involved in a project, as soon as practicable
a duty to co-operate with any other person working on or in relation to a project to allow persons with duties or functions under the Building Regulations to fulfil those duties or functions
where the work is higher-risk building work:
to ensure that information is provided to designers and contractors to make them aware that the project includes higher-risk building work and the nature of such work; and
to periodically review the building work and the design work included or to be included in the project so as to identify whether it is higher-risk building work and to ensure information is provided where it becomes higher-risk building work.
The Principal Contractor and the Principal Designer
Again, these terms will be familiar to those who are familiar with the CDM Regulations. Under the new building safety regime, a principal contractor and a principal designer must be appointed by the client wherever there is more than one contractor working on a project. This mirrors the obligation under the CDM Regulations.
The key duties of the principal designer and the principal contractor include: Principal designer
to plan, manage and monitor design work during the design phase to ensure that the work is in compliance with relevant requirements
to co-ordinate the work of all designers so that if the building work is built in accordance with the design, it would comply with all relevant requirements
to liaise with the principal contractor and share information with them.
Principal contractor
to plan, manage and monitor building work during the construction phase and co-ordinate the building work to ensure it complies with all relevant requirements
to share information with the principal designer on the planning, management and monitoring of design work and co-ordinating design and building work to ensure compliance with all relevant requirements.
Where the principal designer or principal contractor is a company, an individual must be appointed to manage the functions of the relevant role.
When does the appointment have to be made?
The principal contractor and the principal designer should be appointed before the construction phase begins, unless the project is for higher risk building work in which case the appointment must be made before the building control approval application is submitted to the regulator.
What happens if there is only one contractor working on a project?
In these circumstances:
the contractor is required to fulfil the role of principal contractor
if there is more than one designer, the designers must agree who will fulfil the duties of principal designer and give a copy of the agreement to the client. Where there is only one designer that designer must act as the principal designer.
What if the client doesn’t appoint a principal designer or a principal contractor?
A commercial client must fulfil the duties of the principal designer and the principal contractor until they make an appointment.
The rules differ for domestic clients. Default provisions apply where the client has not made the necessary appointments: the designer in control of the design phase is appointed as principal designer and the contractor in control of the construction phase is appointed as principal contractor.
Contractors and Designers
The Building Regulations also recognise the roles of all contractors and designers who are involved in a project. They may not be the principal contractor or the principal designer, but they are still subject to various duties designed to ensure compliance with Building Regulations.
What are the requirements around who can be appointed as a dutyholder?
The Building Regulations contain detailed provisions requiring each prospective dutyholder to be “competent” to carry out building work or design work (as appropriate). In practice, we expect consultants and contractors will be expected to make declarations of their competence within professional appointments and building contracts, but clients should also be aware of their duties to check competence.
The test of competence differs depending on the duties the appointee is to perform, whether the appointee is an individual or a company and whether the building is a higher-risk building or not, but the main requirement for a company on a non-higher risk building is to ensure that they have the “organisational capability” to fulfil the relevant role.
What happens on completion of the building work?
Within five days after the completion of building work, the person carrying out building work is required to give notice confirming that the work is complete. The notice must include (amongst other information) a signed statement from the client confirming that to the best of the client’s knowledge, the work complies with all applicable requirements of the Building Regulations and a statement by each principal contractor and principal designer confirming that they have fulfilled their duties.
This requirement does not apply to higher-risk building work, where the gateway regime applies.
Frequently asked questions
Will the principal contractor and the principal designer for the purposes of the CDM Regulations be the same entities as the principal contractor and the principal designer for the purposes of the Building Regulations?
The Act does not require the parties appointed as principal contractor and principal designer for the CDM Regulations to perform the relevant roles under the building safety regime, although in practice, this may be the case. Whoever is appointed, must be appointed in writing.
A client will be treated as having complied with the requirement to appoint a principal designer and a principal contractor if they certify in writing that the person who is the CDM principal designer or the CDM principal contractor, is treated as appointed as the principal designer or the principal contractor for the purposes of the Building Regulations.
Can the principal designer or another consultant assist the client with the discharge of the client duties?
Under the CDM Regulations, it is common for a consultant to assist the client in the discharge of the client’s duties under the CDM Regulations. Sometimes this role is undertaken by the principal designer or it may be that the client appoints a CDM advisor.
One of the questions the new regime raises is whether we might see a similar position being adopted for the client duties under the Building Regulations. It is too early to say whether a similar approach will be adopted by the industry but we suspect this is likely to happen given that many clients will doubtless want assistance from professionals to help establish competence. Where clients do appoint others to assist with the discharge of client duties, clients should be aware that this not absolve the client from its liability.
What is “organisational capability” for the purposes of the competence requirements?
“Organisational capability” is defined as “appropriate management policies, procedures, systems and resources to ensure:
individuals under the control of the organisation who carry out building work or design work comply with the relevant competence requirements
individuals under the control of the organisation who are in training to develop the necessary skills, knowledge, experience and behaviours, are appropriately supervised.”
In practice, we expect clients to adopt similar practices to those they have in place to establish competence under the CDM Regulations. Although not strictly required for non-higher risk buildings it would be good practice for clients to keep records of competence assessments and to monitor competence throughout the project.
It is expected that evidence of competence is likely to include details of previous experience on similar projects/types of building and membership of industry bodies or particular qualifications.
What happens if a party does not comply with its duties?
Non-compliance with the new regime is a criminal offence, with sanctions including imprisonment and fines.
What do clients need to do now?
Step 1: ascertain whether the new regime applies
If the client intends to carry out building work in England, the position will be as follows:
if the building work started before 1 October 2023, the new regime will not apply.
if plans are lodged with the local authority before 1 October 2023 or a building notice has been given to the local authority before 1 October 2023, the new regime will not apply, unless:
the plans are rejected
building work has not commenced on site by 6 April 2024.
from 6 April 2024 the new regime will apply to all building work.
Step 2: understand the client duties
If the new regime applies, clients should familiarise themselves with the client duties and establish the competence of those it intends to appoint in relation to the project. If a principal contractor and a principal designer have already been appointed for CDM purposes, clients may choose to appoint the CDM principal contractor and the CDM principal designer as principal contractor and principal designer under the building safety regime, provided they are satisfied as to the competence of the appointees.
The charge of microgrids – Louise Irvine speaks to Property Week
25 September 2023
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Senior Knowledge Development Lawyer in the Commercial Real Estate team, Louise Irvine, has spoken to Property Week on energy alternatives for developers, should the national grid run out of capacity.
One method of overcoming the issue of power shortages, currently being considered by developers, is the creation of microgrids, which involves producing and storing electricity from renewable sources locally and then distributing it around a development.
Main benefits
Irvine believes in the future of microgrids and that they will evolve to play a bigger role in property developments.
She says that: “In the future, local microgrids could connect to each other so that developments could buy and sell electricity to and from each other in times of need or surplus to avoid drawing from the National Grid.
“Whatever form a microgrid takes, there are benefits to such systems. Microgrids help overcome the inefficiency of distributing power over a larger distance.
“It is estimated that up to as much as 15% of electricity dissipates in transit, so by having the power generated close to the area being served, this issue is greatly reduced.”
Cost-effectiveness
Microgrids may indeed be cost-effective, especially after considering the cost and likely delays of connecting to the national grid.
There are restrictions that developers need to be aware of; namely that any microgrid on a residential development needs to be operated by an IDNO.
However, it is possible that microgrids – or at least the potential for their future development – could become compulsory.
“It is currently a Section 106 requirement to ensure developers leave capacity for and safeguard a route for future connection to combined heat networks, subject to the costs being viable,” says Irvine. “We might see similar rules being inserted relating to microgrids.”
So, while microgrids might be some way off being mainstream in the UK, it looks likely that they will play a growing role in property developments in the future.
This article was originally published by Property Week on 21 September 2023 and can be read here (behind their paywall).
Next steps to supporting later living’s golden age – Amy France writes for EG
12 September 2023
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Commercial Real Estate Partner and Head of Later Living, Amy France, has written for EG on the growth of the later living sector and how, despite this, there are several issues in need of government and industry attention in order to maintain the momentum.
Having attended the annual ARCO later living conference, France writes of how the panellists, one of whom was Housing Minister, Rachel Maclean, “set out the key issues that will shape the sector in the year ahead, including upcoming recommendations from the Older People’s Housing Taskforce.”
Lifting the fog
Despite the recommendations of the Older People’s Housing Taskforce not due until May 2024, chair Julienne Meyer provided some early insight with France pleased to hear that planning reforms will be a priority, in addition to measures that will boost the appeal of later living options to consumers.
France writes how the Taskforce must also look to clarify the use of event and deferred management fees, “which are the payments made upon certain events, such as the sale of a unit.” Providing this clarity will undoubtedly help increase consumer confidence in the sector.
France believes that the Taskforce should build on the Law Commission’s 2017 recommendations in respect of event fees, which were confirmed for implementation at the time but have still not yet reached the statute books. “Event/deferred management fees should not be eliminated but restructured. If applied ethically, innovative charging models can deliver advantages to developers, operators and consumers alike, not least in boosting the viability and pace of new developments.
“From a consumer perspective, the sector needs to look at affordability and offering different tenure models and a range of price points. This is particularly evident in the case of integrated retirement communities, where consumers have the choice to either rent or buy a unit in a development, and balance event fees against other types of payment options during their period of ownership. ARCO emphasised the need to educate potential occupants about the options available to them, which should also serve to increase consumer trust in the later living sector.”
OK, boomers
France believes that the sector should adopted ARCO’s proposed “leasehold plus” model, which aims to make leasehold ownership of later living units more flexible for occupiers, as well as boost consumer interest in such schemes by offering more protections.
France supports the advocacy for a new, bespoke use class for later living and the removal of CIL charges to make them more viable.
She concludes by writing: “The great news is that growth is not just reliant on interventions. As pointed out by Bobby Duffy, professor of public policy at King’s College London, baby boomers, with their relatively high levels of wealth, are only just coming to the age when they are more likely to move into later living residences. Their arrival into this age bracket will create the demand needed to significantly boost supply for the next 15-20 years, signalling that a “golden age” for the later living sector is on the horizon.”
This article was originally published byEG on 6 September 2023 and can be readhere in full.
Jo Edwards quoted in The Times on the Parental Alienation debate
8 September 2023
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In The Times’ article entitled “Parental alienation triggers debate”, Head of Family, Jo Edwards shares her views on some of the challenges facing the courts in complex private law children cases.
Recent research published by academics at the University of Manchester highlighted the use of “parental alienation” as a concept used in some family cases to counter claims of domestic abuse. The researchers have renewed the debate over the use of parental alienation as a legal argument, particularly against the backdrop of concern about the Family Court’s ability properly and sensitively to deal with allegations of domestic abuse; an increase in both cases involving so-called alienating behaviour, and those where accused perpetrators of domestic abuse wrongly raise alienation in response to those allegations; and growing pressure on the family courts to deal with a rising number of applications for child arrangement orders.
Jo highlighted that where allegations of alienating behaviour are raised in response to claims of domestic abuse “the court is left in the invidious position of trying to decide what the true position is and what are the interim and long-term arrangements for the child that would be in their welfare interests and safe”.
In relation to the report published this week, Jo said that “the sad reality is that while the cases highlighted are worrying, shocking and inexcusable, there are countless children across the country who no longer see one of their parents because of alienating behaviours by the other parent and which the family courts have been powerless to fix”.
The debate highlights the need for an accepted legal definition of parental alienation and the challenges the court faces in getting decisions right for children.
The full article can be read here behind a paywall.
Forsters’ Family team have extensive experience of complex children work, as well as cases where the issues are more straightforward. We help parents with these cases in a variety of ways, be it through solicitor negotiation, mediation, early neutral evaluation, children arbitration or court.
Wealth that works: Alfred Liu joins other private wealth experts for an ESG-focussed STEP Journal roundtable discussion
1 September 2023
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Private Client Senior Associate, Alfred Liu, shared his views as a Family Governance and Next Gen adviser at the latest STEP Journal roundtable discussion, sponsored by Hawksford.
The conversation focused on sustainable investing, examining who the responsibility sits with and how trustees and advisors can manage their fiduciary duty as they balance environmental, social and governance (ESG) factors and return on investment.
When asked how ESG values and sustainable legacy considerations develop in his family governance and business advisory experience Alfred comments:
“It’s incumbent on us as advisors not to be static and to be very aware that families evolve. In turn, structures and investment strategies need to be updated. What does it take for families to consider sustainability? It tends to be the second or third generations that are driving those discussions because they’re the ones considering the implications of the structures the first or predecessor generation has picked. It’s important for us to be able to discuss and educate, help families find where the common values and disparities lie, and get consensus to preserve harmony – which is a big part of any meaningful family governance exercise”.
Click here to read more about the roundtable discussion in the STEP Journal, Issue 4 2023.
Could census data be better used to determine housing supply? – Matthew Evans and Helen Streeton write for CoStar
29 August 2023
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Commercial Real Estate Partner and Head of Forsters’ Build to Rent group, Helen Streeton, and Planning Counsel, Matthew Evans, have written for CoStar on how the data is there to get new homes built, and why it is not currently being mined.
The pair write how the local plan-making process to deliver new homes was further complicated by Michael Gove’s announcement earlier in the year that the government is scrapping housebuilding targets.
Even before this decision, the delay in implementing planning reforms had been causing severe challenges to the delivery of these new homes.
Evans and Streeton explain that “although local authorities still need to update (or in some circumstances, create) local plans, many are still adopting a wait-and-see-approach while they wait for further clarity on legislative reform within the Levelling-up and Regeneration Bill and the government’s response to its recent consultation on the National Planning policy Framework.”
Resultantly, housing needs continue to go unmet and rental levels continue to rise. This is particularly pertinent for the rental market, with average prices nationwide rising 4.8% in the 12 months to April 2023, “the highest increase since the national data series began in 2016.”
Despite widespread focus on community opposition to new homes, and a strong anti-development rhetoric in mainstream media, Evans and Streeton say that the reality is very different.
There is a genuine appreciation for the need for new homes, but the underlying concern is around the demands an increased population would place on local infrastructure.
“Would top-down housing numbers solve the problem? Potentially, if they leaned on data that gives a true representation of housing need. Utilising census data could be a more effective way of identifying the tenure and size of homes needed, and in what locations.”
The pair add that even though the Build to Rent sector is projected to grow rapidly over the next decade or so, moving from 1.5% to 8% of the total rental market by 2032, there continues to be a lack of knowledge and expertise around its role in meeting housing need.
It is a similar case for the later living sector. There is an urgent need for sector growth but insufficient amounts of suitable housing. The pair suggest that creating a separate use class could be helpful in expediting planning applications, thus alleviating the strain on the sector.
Evans and Streeton conclude that: “The answer to meet housing need is not to scrap housing targets. It is to be smarter about how housing numbers are calculated and tap into the incredible wealth of data that already exists on our current and future population, in order to provide the right homes in the right places.”
This article was originally published by CoStar on 22 August 2023 and can be read here in full (behind their paywall).
Releasing 1.4% of greenbelt could deliver 1m homes – Matthew Evans quoted in Property Week
25 August 2023
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Planning Counsel, Matthew Evans, has been quoted by Property Week reacting to a recent report that has revealed that building on just 1.4% of the green belt, would accommodate the government’s target of 1m homes before the next general election.
The research, conducted by Wood Harwick, claims that only 8.7% of England’s land area is of development use, compared to 12.5% which is designated as green belt. They therefore believe that building on the green belt is a solution that has been largely overlooked.
In response to this, Matthew commented ‘We need to be looking at land across the board, considering and balancing its relative value and the potential contribution it can make to housing our growing population. Not all green belt is created equal, and we need to move to a place where the quality of greenbelt is graded.’
This article was first published in Property Week on 24 August 2023 and is available to read in full here, behind their paywall.
Experts call for Crooked House to be restored to former glory – Matthew Evans speaks to Property Week
24 August 2023
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Planning Counsel, Matthew Evans, has been quoted in Property Week’s latest piece on the ‘iconic’ Crooked House in Dudley following its recent demolition.
The demolition of the quirky British pub following a fire earlier this month has ignited public outrage and calls for it to be rebuilt. An investigation into arson in ongoing however locals want to know if it can ever stand again, and what a rebuild may look like.
Property Week noted that the solution may lie 120 miles away at a pub in Maida Vale, London. The Carlton Tavern was re-built following its demolition after locals campaigned for it to be reinstated. Matthew provided commentary on the options available to the local planning authority to try and ensure the Crooked House is rebuilt as quickly as possible – likely through the issue of an enforcement notice giving a definitive timescale for its reprovision. Although such notices can be appealed, it is assumed that with this level of public and political pressure, such an appeal should be determined swiftly.
This article was first published in Property Week on 24 August 2023 and is available to read in full here, behind their paywall.
Developers get ready for BNG – Sophie Smith quoted in Property Week
24 August 2023
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Planning Associate, Sophie Smith, has been quoted in Property Week’s latest piece addressing biodiversity net gain (BNG) and the November deadline for developers.
From November, developers in England will have to ensure any projects they undertake produce a BNG of at least 10% – and put a plan in place to ensure the gain is maintained for 30 years or more.
Property Week highlighted that some developers will already have experience dealing with this as some councils have implemented such policies in local plans. However, for many others, BNG will be entirely new.
Sophie Smith shared her thoughts on the new guidance acknowledging that it does seem to indicate that the Government is ‘moving in the right direction’ to meet the November target but notes that there are still significant gaps in the regulation and that time is running out.
She goes on to comment “There are still fairly material points that remain to be dealt with via secondary legislation, particularly, for example, in relation to outline schemes or phased developments.”
“Where this information is not clear and local planning authorities are not prepared in advance for the requirements, this will inevitably lead to confusion in the planning system from all sides and delays to applications being progressed.”
“This will particularly be the case if the November target remains and the legislation is published fairly last minute.”
This article was first published in Property Week on 24 August 2023 and is available to read in full here, behind their paywall.
A blend of features in vineyard planning – Victoria Du Croz writes for EG
16 August 2023
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Head of Planning, Victoria Du Croz, has written a piece for Estates Gazette on the important planning implications of the supply network involved in the UK’s wine production.
Many vineyards and wineries operate through a network of supply contracts. Grapes may be grown at one vineyard and processed on site. More commonly, grapes will be grown at a variety of locations and processed by a single winery, or a specific vineyard might contract with a winery to process their grapes. Many vineyards in the South East, for example, will grow their grapes, send them to be processed elsewhere, then bring the bottled wine back on site for tours, tastings, refreshments and sales. Furthermore, many vineyards and wineries are continuing to diversify, offering a range of experiences, including tours, tastings, overnight stays and the hosting of weddings and corporate events.
The practical realities of commercial operations of vineyards and wineries’ commercial operations means industry experience is needed to advise on the planning position and experience is critical. A vineyard with a commercial winery, tastings and tours, etc can look like a different business in each month of the year – the shape of the business will differ from season to season, much more than a traditional arable farm may do.
It is essential to understand what is actually happening on the ground when the year is viewed in the round and to map this on to the current planning framework. Many vineyards are located in designated areas of outstanding natural beauty, which have particular planning restrictions for their preservation. Most of these vineyards will be agricultural in nature, but can stray into commercial use classes if the commercial activity is not directly ancillary to the viticulture, leaving them open to enforcement action if they do not have the correct consents in place.
Full-bodied case
In a recent appeal in respect of the Cuxton Winery, in Kent, an inspector had to grapple with whether there was a material change in use at the vineyard if the grapes were taken off-site for wine production and then returned for storage and sale. Previously, Medway Council had granted a certificate of lawfulness for agricultural use that expressly permitted wine to be produced, stored and sold on site. The certificate made no express mention of the lawfulness of providing tours, tastings and refreshments, nor for selling wine produced elsewhere. The appellant sought revised wording in a certificate of lawfulness to cover these two points.
As noted by the inspector, in such applications the onus is on the applicant to provide sufficient evidence and accordingly the decision is fact-specific. However, it does raise an interesting point about what is “incidental” to the growing of grapes to produce wine, which is accepted as an agricultural activity. The inspector considered that wine production is a lengthy process to make a different product and is therefore akin to an industrial process (in contrast to simply crushing grapes). Previously, case law has held that the on-site production of wine is incidental to the primary use of that site for the growing of grapes.
The inspector considered that, based on the information before him, the appellant had failed to demonstrate that it would be ordinarily incidental and reasonably necessary to process up to 20,000 bottles of wine annually off-site as part of the primary agricultural use of the site. The inspector accepted that some off-site production could be regarded as incidental but, in this case, it appeared all the wine would be produced off site. While not entirely clear from the decision, it seems to be the return of the entirely different product from the off-site industrial process, ie the wine, for the subsequent storage and sale which meant there was a material change in use from the main agricultural use of the site.
The inspector also rejected the proposed wording in the certificate for the tours, tastings and refreshments, which did not seek to quantify the frequency and extent of such activities. The inspector considered that if the wine were to be produced on site, the scope and quantity of tours would potentially broaden, which may mean the tours, etc would cease to be incidental. Again, the inspector did not consider that the appellant had discharged the necessary burden of proof. Accordingly, the appeal was refused.
Endnote
The decision serves to highlight the importance of applicants discharging the burden of proof for certificates of lawfulness by providing sufficient evidence. It also demonstrates the potential pitfalls in seeking to diversify agricultural land against the backdrop of our historic and restrictive planning use class system.
The decision is one of many recent planning decisions affecting this industry. With WineGB reporting there are more than 940 vineyards and over 200 wineries in Britain and, as the industry is still expanding, there are likely to be more.
The matter is not helped by broader planning policy. Although the National Planning Policy Framework supports a prosperous rural economy, each local planning authority has its own local plan and it is rare for these to address diversification of vineyards and wineries adequately. Advice should be sought at the earliest opportunity on the scale and scope of any diversification plan including whether and what planning applications need to be made.
The diversification of vineyards is becoming increasingly important from a commercial standpoint and for the future-proofing of such businesses. Although seemingly welcomed in the UK, it requires careful thought and consideration from a planning perspective.
This article was originally published by EG on 15 August 2023 and can be read here in full (behind their paywall).
Logistics needs to reach a more diverse talent pool – Victoria Towers writes to Property Week Editor
4 August 2023
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Commercial Real Estate Partner and Co-Head of the Industrial and Logistics group, Victoria Towers, has written to the Editor of Property Week on how “the recent announcement that the Generation Logistics campaign, which aims to improve recruitment and retention in the logistics workforce, securing another year of government funding is welcome news for the sector, where there remains a critical need to expand the labour pool.”
Towers writes: “Based on independent research we recently commissioned, investors and developers active in industrial and logistics real estate cite availability of labour as the third most significant factor – close on the heels of connectivity and value – in deciding where to invest.
“Encouragingly, this year’s Department for Transport funding is to focus on raising the profile of logistics in schools and colleges, which chimes with the wishes of investors and developers, who responded to our survey calling for careers advice alongside talks in schools and the promotion of training.
“Our study found potential for the sector to make itself more attractive to a diverse talent pool, highlighting that the rise in last-mile logistics should support more part-time roles in daytime hours for those with family commitments. Automation was thought likely to lead to a gradual change in the nature of careers, increasing the need for engineers and technicians.
“The sector needs to both demystify its operations, promote the diversity of opportunities and reach a more diverse talent pool. Youngsters need to understand this isn’t simply an industry of long-distance lorry drivers, away from their families for days at a time.
“This is a truly nationwide sector, looking to be in easy reach of every home and business in the UK. The industry needs to reach a lot of schools and colleges. Even with contributions from industry, this year’s government funding of £300,000 will be stretched thin and more needs to be done to tackle the issue.”
To explore more of our ‘Outside the Box’ research, please click here.
This letter was first published by Property Week on 3 August 2023 and can be read here (behind their paywall).
Bryan Shacklady quoted in Law 360 article – Forex Ruling Signals ‘Permissive’ Approach to Class Actions
27 July 2023
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Dispute Resolution Counsel, Bryan Shacklady was quoted in Law 360’s recent article on the Court of Appeal’s recent decision to allow a £2.7 billion forex rigging claim to proceed as an opt-out collective action.
Appellate judges on Tuesday reversed a ruling by the Competition Appeal Tribunal, finding the specialist tribunal was too quick to block opt-out claims that would automatically enroll thousands of companies into mass litigation against a group of banks.
Bryan stated that “The Court of Appeal decided the CAT was wrong to take a view on the strength of that case because by definition, any view it took could only ever be provisional because the class representatives haven’t pleaded their final case.”
The full article can be read here, behind a paywall.
When can a creditor get a piece of the pie? – Patricia Boon and Maryam Oghanna write for ThoughtLeaders4 Private Client Magazine
21 July 2023
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In an article entitled La Dolce Vita – When can a creditor get a piece of the pie? Private Client Partner, Patricia Boon and CTE Senior Associate, Maryam Oghanna examine the recent case of La Dolce Vita Fine Dining v Zhang Lan and others, where the High Court of Singapore held that funds in bank accounts within a family trust structure were the property of the settlor, and therefore capable of being recovered by creditors of the settlor. Patricia and Maryam consider the potential impact on trust establishment and management and what conclusions practitioners can draw from this case.
The article was first published in issue 11 of ThoughtLeaders4 Private Client Magazine – Offshore Edition and can be read in full below. A PDF version of the article can be found here.
La Dolce Vita – when can a creditor get a piece of the pie?
In the recent case of La Dolce Vita Fine Dining v Zhang Lan and others [2022] SGHC 278, the General Division of the High Court of Singapore (the ‘Court’) held that funds in bank accounts within a family trust structure were the property of the settlor, and therefore capable of being recovered by creditors of the settlor.
Understandably, any decision of a court to lift the curtain on a trust structure and allow creditors to access trust assets will raise concerns for private wealth practitioners and their clients. This article examines the Court’s decision in La Dolce Vita and considers the potential impact on trust establishment and management and what conclusions practitioners can draw from this case.
Background
The first defendant, Mdm Zhang Lan (‘Mdm Zhang’), was a highly successful businesswoman and founder of the South Beauty restaurant chain. She had sold a majority stake (83%) of the South Beauty business to CVC Capital in 2013 for the sum of US$254,419,156. These funds had been paid into Mdm Zhang’s personal account at Bank Safra Sarasin Hong Kong.
The fourth defendant, Success Elegant Trading Limited (‘SETL’), is a BVI company which had been wholly owned by Mdm Zhang until June 2014. At that point, Mdm Zhang established the Success Elegant Trust (the ‘Trust’), an irrevocable Cook Islands family trust that she settled for the benefit of her son, grandchildren and remoter issue. She then immediately transferred the sole share of SETL to the trustee of the Trust. She also transferred US$142,051,618 from her personal Safra Sarasin account to two bank accounts held in the name of SETL at Credit Suisse and Deutsche Bank (the ‘SETL Banks Accounts’).
Since then, Mdm Zhang has been embroiled in arbitration proceedings with La Dolce Vita Fine Dining Co Ltd (‘LDVL’), an investment vehicle of CVC Capital and the plaintiff in this case, over claims of fraudulent and negligent misrepresentation. In March 2015, LDVL was successful in obtaining a freezing order against Mdm Zhang in her personal capacity. Although the freezing order only named Mdm Zhang, Credit Suisse and Deutsche Bank froze the respective SETL Bank Accounts upon being served with the order.
In May 2020, LDVL succeeded in registering arbitral awards in its favour in the Hong Kong and Singapore courts. LDVL then proceeded to enforce its judgment debts, including through an application to the Court to appoint a receiver over the SETL Bank Accounts.
The Role of Receivers
The purpose of a receiver is to stand in the shoes of a debtor and do what the debtor should have done, in good conscience, to discharge the debt. In common law jurisdictions, the court has the power to appoint a receiver when it is just and equitable to do so.
Receivers usually appear in cases where alternative enforcement methods are ineffective or not possible. For example, receivers can be appointed to preserve property at risk of dissipation, such as in the high profile English Supreme Court case of JSC BTA Bank v Ablyazov [2015] UKSC 64, where a freezing order was thought to be inadequate in circumstances where the defendant’s disclosure of assets had been incomplete.
Further, a creditor may seek appointment of a receiver to pursue the equitable interests of a debtor, as seen in a few previous English High Court decisions. These include JSC VTB Bank v Pavel Skurikhin & Others [2015] EWHC 2131 (Comm), where the High Court appointed a receiver over trust assets over which the settlor had de facto control.
The Court’s Decision
LDVL sought an order from the Court appointing receivers over the SETL Bank Accounts on the basis that, notwithstanding SETL’s legal ownership of the funds within those accounts, either (i) Mdm Zhang was the beneficial owner of the funds in the SETL Bank Accounts by way of resulting trust; or (ii) Mdm Zhang exercised a level of control over the assets tantamount to ownership.
Mdm Zhang opposed the appointment, contending that the funds in the SETL Bank Accounts were held for the benefit of her son and his issue once they had been transferred from her Safra Sarasin account.
The Court was required to determine two issues:
Could receivers be appointed over property in which the debtor has effective control but no equitable interest; and
Were the funds in the SETL Bank Accounts beneficially owned by Mdm Zhang (by way of resulting trust or otherwise)?
On the first issue, the Court drew a distinction between the notion of de facto control and beneficial interest. The key point made by the Court was that even if a debtor had de facto control over an asset, the actions that a receiver may take would be limited by the rights of the debtor. Receivers are not able to compel third parties (such as trustees) to take certain actions if those third parties are not obliged to comply with the debtor’s instructions. If, as a matter of fact, that third party would have complied in any event, this is tantamount to a factual control which may not be reflected in the actual rights of the debtor. As LDVL did not contend that Mdm Zhang had rights over the SETL Bank Accounts other than via her beneficial ownership, the Court turned to the second issue.
On the second issue, the Court noted that a resulting trust arises where one party transfers property to another without the intention to benefit the other, and that it was required to assess Mdm Zhang’s intention at the time of transfer to the SETL Bank Accounts. The evidence before the Court included instances of Mdm Zhang interfering with the SETL Bank Accounts (such as the transfer of funds in November 2014 to purchase a property in New York) and a letter from her lawyers stating that she ‘maintained’ the Deutsche Bank account. The Court inferred that Mdm Zhang was motivated by a desire to protect her funds from potential claims by LDVL without giving up her ability to use those funds for her own benefit and held that she therefore retained a beneficial interest. The court subsequently made the order for appointment of receivers over the SETL Bank Accounts.
Comment
The judgment in favour of the plaintiff, whilst somewhat alarming to trust lawyers at first sight, is not particularly surprising in light of the facts of the case.. Rather than lifting the curtain on a trust, the decision held that the funds were not truly trust assets as they were still beneficially retained by the settlor. Therefore, it is our view that this case should not raise significant concerns about the viability of trusts in Singapore, or elsewhere.
Nevertheless, there are some practical points arising from this case which practitioners should bear in mind:
how much control a settlor may have over trust assets – as we have seen in recent years, courts are willing to find that a settlor’s beneficial interest has not been effectively alienated if they have retained too much control over a trust structure or its assets (see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch)). While certain jurisdictions have reserved powers legislation which permits the reservation of certain powers to the settlor, La Dolce Vita is another reminder that it is always prudent to assess and limit the amount of control that a settlor has over the trust assets, particularly where the settlor is concerned about asset protection risks.
role of the trustee – the trustee of the trust should ensure that it exercises its powers and duties properly and independently and that it does not slavishly follow the wishes of the settlor.
ensuring that the settlor understands the purpose and function of the trust – it is important that the settlor should be properly advised when setting up a trust structure, so that they understand that they are relinquishing control and ownership of the assets to the trustee.
property comprised in the trust – as a matter of best practice, the trustee and settlor should keep an appropriate record of the property that is comprised in the trust and, if there is involvement from a third party in dealing with trust assets, there should be clarity over the capacity in which that third party is acting.
Trusts are still important vehicles for asset protection and wealth and succession planning. The judgment in La Dolce Vita is a salutary reminder of the importance of respecting the integrity of the trust and operating the trust appropriately to ensure that it offers robust protection to the settlor and beneficiaries.
Jo Edwards quoted in the FT on the Government’s proposal to introduce mandatory mediation in family cases
14 July 2023
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Head of Family, Jo Edwards, has been quoted in the FT on her response to the UK government’s proposal to mandate mediation for separating couples before being able to make a court application, in an effort to ease the pressure on the justice system.
In the article, entitled ‘Plans to force separating couples into mediation in England and Wales attacked’, Jo explains that couples who plan to go to court face “horrific” waits for cases to conclude.
This was confirmed by the official data published last week which showed that the average duration of private law children cases has more than doubled since 2016 to 47 weeks. However, despite these statistics family justice professionals do not agree that mandating mediation is the solution.
A key area of concern is the risk this would pose for victims of domestic abuse. The Ministry of Justice have stressed that they would not be obliged to attend sessions with their former partner, but Jo questions whether the system would have enough resources to triage effectively.
People working in the family justice system make a broader case for public funding of advice and counselling at an early stage of separations. Such a system would make it “far less likely that agreements will break down later” and end in court, said Jo. More limited reforms may be more likely, however.
Jo gave oral evidence to the Justice Select Committee on 19 June about the Ministry of Justice’s recently concluded consultation on supporting earlier resolution of private family law arrangements. Read more here.
Progress on energy use is essential – Edward Glass responds to Property Week Editor
14 July 2023
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Commercial Real Estate Senior Associate and member of our Sustainability group, Edward Glass, has written to the Editor of Property Week, Lem Bingley, agreeing with his latest leader column that the Climate Change Committee’s negative assessment of progress in decarbonising buildings is deeply worrying.
Glass says: “We need to see progress on the ground, where it really counts. Regulation has a role to play here and the Minimum Energy Efficiency Standards (MEES) regime, in which it is now unlawful to continue to let a commercial property with an ‘F’ or ‘G’ Energy Performance Certificate (EPC) rating (subject to exemptions), has focused attention.
“However, as the report identifies, we have not seen progress on occupational energy ratings or regulatory certainty on anticipated uplifts to MEES thresholds.
“Many are calling for mandatory disclosures on an annual basis, using the updated NABERS 2.0 rating, potentially with fiscal incentives resulting from achieving a top score. Surely this is the next logical legislative step to drive actual change on the ground. The relevant government consultation seems to be on the backburner and while the report identifies this, a response is not a key priority recommendation, in contrast to that on the ‘EPC C by 2028’ consultation for privately rented homes.
“There is no question that onsite renewable provision is acknowledged as an open goal in terms of opportunity for the industry. Owner and occupier collaboration is on the increase, but again, surely we need more legislative weight, for example mandatory photovoltaic panels on larger commercial buildings, as well as more attractive fiscal incentives? Plus of course, there is a notable limiting factor: grid capacity. Plenty of progress is surely needed here to realise the full potential.
“The committee’s chair Lord Deben has said that one of the government’s biggest failures was not putting net zero at the heart of the UK’s planning system. He will, no doubt, approve of the recent initiative from the UK Green Building Council, which organised for 100-plus companies, including Landsec, Grosvenor Property and Rockwool, to sign an open letter urging prime minister Rishi Sunak to make planning decisions take account of climate change by law.
“With the tide of green regulation turning the screws on the current building stock, it’s a natural next step to boost sustainability standards of new development from conception.”
This letter was originally published on 13 July 2023 by Property Week and can be read here (behind their paywall).
The challenge faced by the Older People’s Housing Taskforce – Amy France writes for Property Week
11 July 2023
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Commercial Real Estate Partner and Head of Later Living, Amy France, has written for Property Week on how the Older People’s Housing Taskforce will fare in tackling one of the UK’s biggest challenges: How can suitable housing options be provided for later life?
France notes that “Housing has always been intrinsically linked to life chances, and this is no different in later life. Housing that provides the right kind of support and adequate care, if required, can help people live well for longer.”
France writes how a lack of suitable later living options has had a significant impact on the NHS, resulting in a bottleneck whereby patients who no longer need treatment cannot be discharged as they don’t have a home which is suitable to be discharged to. As a result, in January 2023 “more than 19 in 20 beds were occupied across adult general and acute hospital wards, and more than 14,000 of these beds were taken up by patients who no longer required hospital care.”
With the Taskforce’s recommendations due in 12 months, the key message will be around the delivery of new homes, with France asking: “How else will the taskforce meet one of its central aims – providing older people with access to the right homes in the right places?”
This will be a significant challenge when viewed against the government’s scrapping of mandatory housing targets and the prediction of net additional homes each year dropping to 140,000. France writes that local authorities must commit to ensuring a certain proportion of these homes are suitable for older people.
The government has also proposed an increase in planning fees, which has industry support provided that it does actually result in a swifter approval of planning applications. “At the current pace, though, applications and the homes they propose to deliver will take months to materialise, while our population continues to age and our NHS and care system continue to buckle under the pressure.”
France concludes by writing: “Older people don’t want to have to move miles away from their existing home so that they can access retirement communities or sheltered housing. In later life, people want to have the option of moving to a more suitable type of accommodation close to their existing home – the only way that we can ensure this is possible is to support the development of later-living schemes all over the country, and in all different sorts of settings.
“The taskforce needs to take a truly holistic view of the solutions, and cross-department working will be essential in delivering these solutions. Let’s hope that this once-in-a-generation opportunity for meaningful and significant change in delivering housing for older people is seized and much positive change emerges from it.”
This article was originally published by Property Week on 6 July 2023 and can be read here in full (behind their paywall).
Labelled “the godfather of Asian Family Governance work” in the Chambers HNW 2022 Guide, Nick has unparalleled experience advising high net worth clients on putting together plans that provide for family succession, the protection of the family business, the avoidance of family disputes, and all aspects of international family governance.
In a video call with Singapore’s The Business Times Nick shared his experience of working with HNW family businesses in Asia and the challenges these families must face.
In the article, Nick emphasises the importance for heads of family businesses to address conversations around succession planning earlier to preserve their dynasty for more than a generation.
He reflects on a particular case, where the client regrettably passed before finalising his succession plan, resulting in the split of the family business and a significant loss in the value of a business the client spent his entire life building. “If he had bitten the bullet 10 years earlier, it is quite possible that the business could have been saved”.
Nick explains that many families are now realising the pressures of time and describes a “definite shift from a decade ago”. Clients are now approaching him earlier than before and preparing for a “gradual changing of the guard”. He notes that “while more than half of his clients used to reject the idea of passing on elements of control, including their voting shares in the company, only one in four still take such a stand today.
He recommends that “the heads of families should have succession plans by the time they are 70 at the latest. The patriarch will be seen to have enough influence, that he will not allow himself to lose face, or will not allow himself to be demoted to second division, and the family respects that”.
The article also features interviews with the founder and executive chairman of the Banyan Tree Group, Ho Kwon Ping and other prominent advisors in the industry.
To find out more about International Succession Planning and Family Governance you can read Nick’s article here. Please do get in touch with Nick to discuss the issues raised in these articles.
Are film studios about to go Back to the Future? – Owen Spencer writes for EG
21 June 2023
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Commercial Real Estate Counsel and member of our Film and TV Studios group, Owen Spencer, has written for EG on how hiring production space at film studios differs from other real estate sectors.
He goes on to ask, having seen considerable upheaval to studio bookings in the last 5 years and with 44 new studios planned, if more changes are around the corner.
Quiet on set
Spencer explains that the traditional and longstanding way to hire space at a film studio is by hire agreement, “which is, at its heart, a commercial licence, usually signed on standard terms.”
Principal photography is the most expensive phase of film production – this means that space will only be booked for as long as it is needed. There is no subsequent commitment to use the site again and therefore studios are reliant on reputation to secure the next booking.
“The rate card for a sound stage will generate substantial returns for the studio, but the nature of the short-term commitments means there is an ongoing challenge of attracting and securing the next big production. So maintaining a high level of utilisation is a constant aim for studio management.”
Rise of the streamers
Spencer adds that the rise of streaming services over the last few years popularised the “master lease agreement” (MLA). Essentially a multi-year lease and thus by no means a groundbreaking real estate concept, it creates a long-term financial commitment to the studio.
These services, wanting to make their own content, need to also secure studio space. This emphasised an “undersupply of studio space in the UK [and so] the race for space was on.”
Race for space
With multiple MLAs now signed, many of the UK’s studios are now tied up in terms of upcoming lease agreements. “The sector has responded”, Spencer adds, “with there reportedly being 11.2m sq ft of space in the pipeline.”
What is yet to be seen is whether this increase in studio space will result in the fall-off in popularity of the MLA. “Could the projected increase in capacity mean that productions will go back to the future, comfortable to operate under the old studio hire agreement model?”
“However, very little of the new pipeline space has yet come online. While many of the proposed operators suggest their operations will not need MLAs to flourish, it is likely to require a certain kind of funder or investor to speculatively develop a film studio with a business model built around studio hire agreements alone. This may give hope to both operators and productions that there are one or two more big MLA deals left to do.”
This article was originally published in EG on 16 June 2023 and can be read here (behind their paywall).
BPF leads industry calls to scrap infrastructure levy plans – Victoria Du Croz and Helen Streeton speak to Property Week
13 June 2023
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Partner and Head of Planning Victoria Du Croz, and Partner and Head of Build to Rent Helen Streeton, have featured in Property Week’s latest piece on the BFP’s opposition to government proposed new infrastructure levy plans.
The British Property Federation (BPF) urged the government to abandon the plans for the levy, claiming it would add new challenges and instead called for reform of existing planning contributions.
The BPF highlighted the difficulty it said local authorities would have setting viable levy rates, particularly for brownfield and urban development sites, due to land values and build costs varying site by site and by land use. It also claimed under a single, more rigid levy, the mechanism for calculating affordable housing contribution would raise less as it would not be site-specific.
Victoria Du Croz shared her concerns on the fundamental problems with the government’s proposals, including a failure to focus on securing the actual development of infrastructure.
She states that “Most local opposition to development is due to the perceived adverse impact on existing infrastructure,” she said. “If infrastructure comes forward in a timely manner, it would alleviate this opposition, but local authorities are struggling to deliver infrastructure for new development under the current system due to resourcing constraints.
“The new levy does nothing to remedy this challenge and adds more layers of complexity. It will require viability assessments for types of development that currently don’t require them, including industrial and offices. It is difficult to see how local authorities will have the additional capacity needed to handle the new volume of assessments.”
Helen Streeton echoes these concerns warning that the levy runs the risk of further stifling new home development, increasing developers time securing planning consent.
She adds: “As infrastructure needs to be delivered in advance, or in tandem with new development, the government is proposing to introduce two new routes: delivery agreements for ‘integral infrastructure’, which will work alongside planning conditions for onsite infrastructure, like play areas; and levy-funded infrastructure, which will pay for the community infrastructure.
“It is difficult to see how this approach simplifies matters and is any different from having CIL plus Section 106”.
This article was first published in Property Week on 12 June 2023 and is available to read in full here, behind their paywall.
The year of the great care home revival – Amy France writes for CoStar
6 June 2023
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Commercial Real Estate Partner and Head of Later Living, Amy France, has written for CoStar on how 2023 is seeing a return to full health for the care home sector, following a period of dramatic drop-off in terms of occupancy rates during the pandemic.
France explains that there are several positive factors that have seen the sector return to pre-pandemic occupancy levels (84.3%, Knight Frank 2022). The first reason is that of the significant growth in our ageing population, with the number of over-65s set to reach 17 million by 2040. “The research suggests that the number of older people’s housing units constructed per year to meet this demand will need to rise from 7,000 to 50,000.”
Beyond the need for more units, there is also a need for better quality units; near to 80,000 have been removed from the sector over the last decade due to them being below standard. “Although some of these have been replaced, overall the number of care home beds in the UK are 5,000 less than five years ago.”
“This growing lack of suitable housing for our ageing population represents an opportunity for investors to improve the lives of older generations, generate both social and financial value, and in turn satisfy the social element of ESG metrics. For example, our client Octopus Real Estate recently became a signatory of the Operating Principles for Impact Management, a global standard for managing investments for impact.”
Long-term resilience is also evident within the sector, with an increased demographic demand and fee rises despite a cost-of-living crisis due to the fact that “the older generation [are] generally wealthier, with more money to spend on better quality care homes.”
France highlights how care homes have consistently produced higher returns than other sectors and so asks: “what are we going to see in terms of delivery as the year unfolds?” She describes seeing a sector that “is emboldened by the significance of government and regulatory support in both the short and the long-term.”
France predicts that the incoming announcement of the Older People’s Housing Taskforce and the proposed updates to the National Planning Policy Framework (coupled with market fundamentals) “should see institutional money continue to flood into the sector.” Further to this, she adds, care home investment has also become popular with foreign investors, particularly when they are fully managed and deliver regular income.
“This is a great opportunity for the real estate sector to improve the lives of older people, achieve stable returns and deliver this much-needed aspect of our community infrastructure.”
This article was originally published by CoStar on 23 May 2023 and can be read here in full (behind their paywall).
Shorter, faster, better, stronger – Andrew Crabbie speaks to IREI
1 June 2023
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Partner and Head of Commercial Real Estate, Andrew Crabbie, has featured in Institutional Real Estate, Inc.’s latest piece on how an increase in flexible leases will drive up innovation, rental income and standards across every conceivable metric.
Due to the disruptive and unpredictable nature of the last 25 years, almost all industries have been gripped by a continuous sense of uncertainty.
In relation to real estate, one trend to come from this is the movement towards shorter and more flexible tenancy agreements. Crabbie explains that due to this desire for flexible tenancies (primarily from SMEs), landlords have increased the amount of turnkey space they offer.
“Increasingly, landlords are providing letting deals where the landlord is doing the basic finishing works to the building – and the full cat-b fit-out. So the tenant just walks in. This is 100 percent in line with the tenant requirement for flexibility and the need to transact swiftly.”
The article goes on to clarify how landlords enabling a “plug-in-and-play” solution to tenants also benefits them, allowing them to charge higher rent in exchange for immediate occupancies and landlord responsibility for dilapidations at the end of the tenancy.
This article was originally published by Institutional Real Estate, Inc. on 1 June 2023 and can be read in full here (behind their paywall).
My PRIDE Story: Charles Miéville writes for The Lawyer
1 June 2023
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Residential Property Partner, Charles Miéville, has authored a personal article for The Lawyer entitled ‘My Pride Story: With increased visibility it’s easy to forget that success may not come so easily to some’.
In his article, Charles shares a candid insight to his life growing up as a gay man. He highlights the progress made over the past ten years to support the LGBTQ+ community, particularly in terms of events to raise awareness such as PRIDE, but addresses the prejudice that remains.
Forsters recognises and appreciates that no two people are the same, and encouraging individuality is very much part of the firm’s culture. Forsters is a very welcoming firm, and we are committed to providing an environment which allows everyone to develop and grow regardless of age, sex, sexual orientation, disability, gender reassignment, marriage or civil partnership, maternity or pregnancy, race, religion or belief, and to ensuring that everyone is treated with dignity and respect. For more information, please visit our Diversity and Inclusion page.
Evolving industrial and logistics sector finds reason for optimism – Victoria Towers speaks to Property Week
26 May 2023
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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
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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).
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
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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).
Net zero and the push for a greener tomorrow – Laura Haworth and Louise Irvine write for EG
15 May 2023
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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).
Taking Care: Europe’s (sometimes) controversial later living market – Amy France speaks to Institutional Real Estate, Inc.
2 May 2023
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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
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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.
Analysis of Supreme Court’s decision in Moulsdale v CRC: Elizabeth Small writes for Taxation
28 April 2023
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Corporate Tax Partner, Elizabeth Small touches on the Supreme Court’s decision in Moulsdale v CRC, concluding that taxpayers using anti-avoidance provisions against HMRC and arguing for a wide construction of the anti-avoidance rules are never going to gain much traction with the courts.
Small touches on the fact that Mr Moulsdale thought it was worthwhile going all the way to the Supreme Court (Moulsdale trading as Moulsdale Properties v CRC (Scotland) [2023] UKSC 12) to argue this point (disagreeing with HMRC’s assessment that he should have charged VAT) where he, trading as Moulsdale Properties (Moulsdale):
purchased office property (paying VAT on the purchase price) – the price was over £250,000 so the property was an item subject to the capital goods scheme;
exercised an option to tax over the property (recovering as allowable input VAT most of the VAT paid on the purchase price); and
Government’s proposals to increase planning fees ‘broadly welcomed’ – Matthew Evans speaks to Property Week
27 April 2023
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Planning Counsel, Matthew Evans, has spoken to Property Week’s Ciaran Nerval on how the government’s proposals to “hike up planning fees for developers” have been “broadly welcomed”.
However, industry sources have called for “real change” to planning departments through the provision of additional funding.
Evans agreed that the proposals to increase planning fees (by 35% for major applications and 25% for all others) were “broadly welcomed”.
However, he said these proposals needed to deliver “real change to local authority planning departments and translate effectively into increased resource.
“Local authorities have seen budgets slashed due to austerity-era policies, so to see real change we need to ensure the funds generated from increasing planning fees are ringfenced and spent within the department; without this, any change to the fees won’t deliver genuine results.
“There is no quick solution, but there is an urgent need to establish a long-term plan that boosts resource, improves retention and is closely monitored; otherwise, we run the risk of slowing down economic growth, which is so intrinsically linked to the planning system and new development.”
This article was first published in Property Week on 26 April 2023 and is available to read in full here, behind their paywall.
Government’s older person housing taskforce has its work cut out – Natalie Cameron writes for React News
25 April 2023
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Commercial Real Estate Senior Associate and member of the Later Living team, Natalie Cameron, has written for React News on the Government’s recent progress in establishing an “Older People’s Housing Taskforce” and the appointment of Professor Julienne Meyer as its Chair.
The taskforce was first announced in the February 2022 ‘Levelling Up’ white paper and is being launched by two Government departments – the Department of Health and Social Care (DHSC) and the Department for Levelling Up, Housing and Communities (DLUHC).
Cameron highlights the differential between the UK and countries such as New Zealand, Australia and the USA, in terms of the availability of homes “with on-site care available”, with the UK (0.6% of total units) lacking far behind similar nations (5-6% total units).
Recognising this supply issue, the taskforce’s purpose is “to work across housing, health and care sectors to drive an increase in the volume and range of housing options, with a particular focus on boosting ‘housing with care’ numbers.”
This is an important issue, as highlighted in Professor Les Mayhew’s review for City University, which concluded that to meet demand, one in four new homes must be built with “housing with care” in mind. This equates to 50,000 of such homes built each year.
Cameron goes on to emphasise the significant role of taskforce appointees in delivering the vision of the ‘Levelling Up’ agenda and state how upcoming legislation aimed at enabling sustainable housing options “tailored to the varying needs of older people will be crucial in the integrated provision of facilities and care services.”
An additional focus for the taskforce will be on potential solutions to the supply of adequate later living housing, including providing clarity on the role of “housing with care” in regard to the planning system and leasehold reform.
The taskforce (consisting of 14 members from a variety of sectors within the later living sphere) will run for 12 months and will work independently of both DLUHC and DHSC ministers, with interim findings to be published after six months.
Cameron concludes by writing: “It is clear that the work to be done by the taskforce is both urgent and vital in enabling the required pace of development of later living accommodation.”
This article was originally published by React News on 20 April 2023 and is available here in full (behind their paywall).
Will My Prenup Be Valid When I Move To England? – Simon Blain writes for Abode2
19 April 2023
Views
Prenups are often familiar territory to many HNW and UHNW international couples. Still, careful consideration must take place pre-arrival and once moved, as prenups aren’t automatically enforceable in the English courts.
Once a couple becomes habitually resident in England, any future divorce and financial settlement is likely to be determined according to the law of England and Wales. This means that a prenup is only likely be upheld if it meets certain conditions, including:
the prenup has been entered into freely;
each party has taken independent legal advice;
there has been material financial disclosure by both parties; and
the agreement is fair – crucially this is determined at the point of the divorce, rather than at the time the agreement is signed.
It is important that any existing overseas prenup is reviewed to ensure the above criteria are fulfilled and that it takes account of changed circumstances following the relocation.
For those who don’t have a nuptial agreement in place, investing in property in the UK can act as an ideal segue to negotiate a postnup.
How can cohabiting couples protect their property when moving to England?
It’s often assumed that a couple that cohabitates for an extended period of time will have the same rights as a married couple if they separate. However, in England, there’s no such thing as common law marriage. This doesn’t mean that one party can’t make a claim against the other concerning the property, and in fact, there are several legal means by which they can do this, especially when children are involved.
How does a cohabitation agreement work for international couples?
For international cohabiting couples acquiring property, we always recommend a cohabitation agreement, as it can protect the individuals from any issues should the relationship end and mitigate any long legal battles. An agreement allows both parties to regulate the terms of their cohabitation and provides clarity throughout the relationship and if it breaks down.
An agreement incorporates or is accompanied by a declaration of trust in relation to property, confirming the parties’ respective beneficial interests. It can also help couples to navigate resolution around other issues such as how household expenses are split, what happens if one party wishes to sell the party, but the other doesn’t, financial provision during and after cohabitation as well as living arrangements and financial support for any children.
In our experience, the security and clarity through prenups, postnups or cohabitation agreements offer great relief to couples if the relationship ends in the future.
This article deals with the position in England and specialist advice ought to be taken as necessary regarding the position in Scotland.
This article was first published for the Abode2 luxury property publication, which can be accessed here.
For more information on our services for individuals and families relocating to the UK, see here.
Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.
Avoiding Unwanted Tax Liabilities When Buying a Home in the UK – Xavier Nicholas writes for Abode2
14 April 2023
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Alongside identifying quality support on conveyancing, it is essential that international buyers seek legal advice on the tax implications of acquiring a home in the UK.
Unexpected tax liabilities can surprise the unprepared, while well-advised buyers will have the best chance of limiting their exposure.
The main concern will be inheritance tax (IHT). Non-UK domiciled individuals are subject to IHT at a rate of 40% to the extent that the value of their UK estates exceeds the tax-free ‘nil rate band’ allowance (NRB). At a modest £325,000 (or in some cases, £500,000), the limited scope of the NRB can come as a shock to those relocating from (say) the US, where the amount that can pass free of federal estate tax is currently $12.92m.
Owing to significant changes in legislation over recent years, the options for mitigating IHT are limited. Good advice is needed to navigate the rules successfully and ensure that ownership arrangements are tax efficient. Planning might include securing the exemption that applies to transfers on death between spouses and civil partners, using debt to reduce tax exposure, specialist life insurance, and (in some circumstances) co-ownership of a property with children.
In all cases, buyers should take advice before completing a purchase, as some forms of planning may not be effective if put in place later on.
Special attention is needed for those who will continue to be subject to tax in another jurisdiction. Double taxation agreements and cross-border reporting may add to the need for a pre-purchase check-up. For those with a US connection, acquiring a property in the UK makes specialist advice on US-UK estate planning a must-have.
UK tax legislation, with all its complexity and intricacies, has a habit of leading the way in making the case for fact-specific legal counsel. Pre-purchase tax advice should be at the top of the to-do list for those thinking of acquiring a home in the UK.
This article was first published for the Abode2 luxury property publication, which can be accessed here.
For more information on our services for individuals and families relocating to the UK, see here.
Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.
We need to get the green belt back on the agenda’ – Matthew Evans writes for React News
12 April 2023
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Planning Counsel, Matthew Evans, has written a piece for React News on the need for the government to develop its strategy when it comes to housing delivery by once again focusing on green belt sites, rather than solely brownfields as they are currently.
Evans explains that while the government’s recent emphasis on the redevelopment of brownfield sites has been logical, noting to factors such as location, ecological value and offset considerations. However, many of the straightforward sites have now been developed, meaning only “difficult and constrained sites remain.”
The costly redevelopment of these challenging brownfield sites needs to be understood against the fact that they are better suited to high-density apartments rather than family housing (the latter of which is more greatly needed). While the government has put forward £60m via a new “Brownfield Land Release Fund 2”, this is an insignificant sum when looking at the wider issue.
Evans writes: “If we truly want to build the housing the country needs, green belt reviews need to be put firmly back on the agenda. It is a highly politicised topic, but it is crucial. There needs to be careful consideration of green belt versus protected. No one is advocating for runaway urban sprawl, but there are a lot of poor and allegedly green belt sites that are hardstanding or generally low quality – neither of which deserve the high level of protection that green belt designation affords.”
He goes on to recommend a new, additional categorisation of these sites (akin to the recent proposal for Grade-III buildings) that will differentiate between true green belt land and low-quality land that is suitable for housing developments.
“There are places in the home counties that haven’t reviewed their green belt for a very long time, and with changes to the national planning policy framework stating that green belt reviews will not need to be carried out to meet housing need, there is little chance of this changing now.”
Evans concludes by advocating for the need for greater public awareness of the sort of land that is being (unnecessarily) protected, framed against the trends of dwindling supply and rising house prices.
Without a reconsideration of both a reliance on brownfields and the funds required to do so, “it is hard to see how we are going to deliver on growth ambitions and provide the homes that people want and need.”
This article was originally published by React News on 29 March 2023 and is available here in full (behind their paywall).
International Buyers Continue To Seek UK Homes Despite UK Economy Concerns – Charles Miéville writes for Abode2
11 April 2023
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Despite the UK economy and house prices in many sectors currently falling, prime residential property is a sector of the market which continues to flourish as a popular choice for international HNW and UHNW clients looking to relocate or invest.
Whilst these properties have predominantly been in prime Central London, there’s also a keen interest in trophy assets located outside of the capital, although, through a lack of supply, particularly in the countryside, these transactions are undoubtedly fewer in number.
Why is the UK such an attractive place for international buyers?
There are several reasons for this stable trend. One explanation for those moving from overseas is the UK offers an advantageous time zone, being roughly equidistant between North America and Asia.
For all international buyers, English Law is viewed as a safe, stable and secure system under which to buy and own assets, both from a financial and family perspective. The schooling system is also favoured by many international families who then require a bolt-hole in the UK whilst their children are based here.
One huge attraction for US citizens, in particular, is the property tax benefits. State property taxes in the US, particularly in New York and California, are very high. Compare this to the UK, where acquisition taxes are far higher (in the form of stamp duty land tax), but the holding costs are far lower (being limited to council tax and service charge for flats), meaning if US buyers are holding their UK assets for any length of time, it may prove a cheaper alternative to US real estate.
Will the housing market prices dip for high-value houses?
Having spoken to several agents over the last few days, they are still seeing that there is a healthy appetite from individuals in the Middle East, the States and Asia. It is likely that throughout 2023 we will continue to see premium sales continue apace and valuations continue to hold, particularly while stock remains low.
This article was first published for the Abode2 luxury property publication, which can be accessed here.
For more information on our services for individuals and families relocating to the UK, see here.
Moving to the UK is an exciting life event whether it be a short-term move for work to explore business prospects or a more permanent relocation with the whole family; the UK offers an eclectic range of options to live, work and learn, from the cityscapes of London to vineyards in the English countryside and historic university towns in-between. Setting up life in a new country can feel daunting too and it can be difficult to know where to start.
The Great Freeze UK style – Maryam Oghanna writes for Private Client Business
5 April 2023
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Contentious Trusts and Estates Senior Associate, Maryam Oghanna, together with Richard Dew of Ten Old Square, have authored an article for Private Client Business on the effect of UK sanctions on trusts with a connection to Russia.
This is the second of two linked articles, the first dealing with restrictions imposed by the EU that targeted trusts with a ‘Russian Connection’ as adopted through two EU regulations, and this second instalment undertaking a comparison of the two regimes.
The full article can be read here, behind a paywall.
The first in the series can be read here, behind a paywall.
Richard Dew and Maryam Oghanna, ‘The great freeze: UK style, Private Client Business 2023, 2, 54-59.
Divorces hit ten-year high as financial strains show: Dickon Ceadel quoted in ‘The Times’
3 April 2023
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Family Partner, Dickon Ceadel, has been quoted in ‘The Times’ on the rise in divorce applications as the increased cost of living puts marriages under further strain.
Dickon comments that ‘Soaring interest rates and high inflation will have put many families under enormous pressure’. However, for wealthier individuals, the currently economy may prove advantageous with business valuations falling. Dickon states ‘Some will be lucky enough to see a business worth £10 million valued at £5 million today’. He goes on to add that ‘falling house prices can also make periods of economic stress a good time for financially weaker parties to divorce – they might be able to take the house in the financial settlement at a reduced valuation.’
The full article can be read here (behind a paywall).
Claims against Accessories to breach of trust: Spotlight on dishonest assistance – Maryam Oghanna writes for ThoughtLeaders4 Private Client Magazine
3 April 2023
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Maryam Oghanna, Senior Associate in our Dispute Resolution team, has authored an article for Thought Leaders 4 on the topic of claims against accessories to breach of trust.
The article was first published in ThoughtLeaders4 HNW Divorce Magazine in March 2023 and can be read in full below.
Dishonest assistance is one of a limited number of claims that may be brought against a person, other than a trustee, who has assisted the trustee in committing a breach of trust. Where the remedy against the trustee would be inadequate, accessory claims against a third party (particularly where they involve large financial institutions) can be an appealing prospect. If the claim is successful, the third party is liable to personally account for the breach of trust as if they were the trustee.
In order to bring a successful dishonest assistance claim, a claimant would need to meet the following test:
There is a trust;
There is a breach of trust by the trustee of that trust;
The defendant induces or assists that breach of trust; and
The defendant does so dishonestly.
As we discuss further below, the final test – showing that the defendant acted dishonestly – is the most difficult hurdle for a claimant to overcome. There is no requirement for the trustee to have acted dishonestly in committing the underlying breach of trust. But, given that the accessory defendant is one step removed from the breach of trust, the additional requirement of dishonesty is unsurprising.
Standing
Although the basis of liability is in equitable wrongdoing, a dishonest assistance claim derives from a breach of trust by a trustee. Therefore, the same rules apply in respect of standing to bring the claim. It has been more common for a successor trustee (including administrators) or wronged beneficiaries to bring the claim against the third party, but it is also possible for the trustee who committed the breach of trust to bring the claim.
Untangling the Claim
Requirement 1 – ‘There is a trust’
It must be shown that a trust exists. However, there is no requirement for a formal trust which expressly vests property in a trustee. There need only be a fiduciary duty in relation to that property. For example, a director of a company might be deemed to be a trustee in relation to the company’s property for these purposes, even though the company owns its property.
Requirement 2 – ‘There is a breach of trust by the trustee’
If there is no breach of trust (which includes breach of fiduciary duty), it cannot be shown that the defendant was an accessory. Therefore, it is essential that a breach of trust claim against the relevant trustee has been established prior to the bringing of a dishonest assistance claim.
Requirement 3 – ‘Inducing or assisting the breach of trust’
Whether the defendant induced or assisted the breach of trust will be a matter of fact, and there is no subjective element to this requirement. It must be shown that the defendant’s conduct did, in fact, assist the trustee in committing a breach of trust. The assistance must be more than just of minimal impact, but it need not be shown that it would inevitably lead to the losses that were suffered. Unlike a claim for knowing receipt, the defendant need not have received or handled property.
Requirement 4 – ‘Dishonesty’
The test for dishonesty in a claim of accessory liability for breach of trust is set out in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at [389], and clearly indicates an objective test of honesty which is a question of law. However, this is to be determined in light of the defendant’s knowledge of the breach and dishonesty at the time, creating a subjective element to the test.
The test has since developed to accept that a defendant does not need to be aware that his conduct would be characterised as dishonest by ordinary standards (Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67; [2018] A.C. 391 at [62]). The subjective element extends to the circumstances at the time, and even the defendant’s own experience and intellect (Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 A.C. 164 at [121]).
Further, when considering the defendant’s ‘knowledge’ at the time of the breach, a defendant may be found liable if they suspected that they may be assisting a breach of trust but wilfully took no steps to ascertain either way: referred to as ‘blind-eye knowledge’ (Manifest Shipping & Co Ltd v. UniPolaris Insurance Co Ltd [2003] 1 AC 469 at [112]). Carelessness will not on its own be sufficient to establish knowledge, but it may be deemed to be a contributing factor.
Where the allegations are against a company or legal person, the dishonesty must still be evidenced by reference to one or more natural persons (Stanford International Bank Ltd v HSBC Bank plc [2021] EWCA Civ 535 at [47]).
Comment
Dishonest assistance is a fault-based and serious claim and the test for the dishonesty requirement has, perhaps unsurprisingly, generated much discussion.
Any allegations of fraud or dishonesty must be clearly pleaded in statements of case, which may cause a significant hurdle and additional cost risk for many claimants who may have limited knowledge of the particulars of the dishonesty.
Further, success of the claim will likely hang on the evidence before the court in relation to the defendant’s dishonesty, which, if the defendant is competent in their deception, may well be documentlight. In those circumstances, oral evidence at trial can carry much weight (as seen in the rather surprising decision of the Supreme Court of Gibraltar in Lavarello v Jyske Bank (Gibraltar) Ltd, unreported, May 17, 2017, Gib SC, later overturned by the Court of Appeal for Gibraltar in Lavarello v Jyske Bank (Gibraltar) Ltd 2017/CACIV/006 & 007).
Despite the difficulties in bringing the claim, the benefit of pursuing a remedy against another, potentially more affluent, party in relation to a breach of trust is weighty. This is particularly the case if trust assets have been dissipated as a consequence of the breach of trust. Accessory claims are therefore likely to remain a regular feature in the English and Welsh High Court.
Industry warns of development delays for Infrastructure Levy – Victoria Du Croz speaks to Property Week
27 March 2023
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Partner and Head of Planning, Victoria Du Croz, has spoken to Property Week about the government’s proposed new Infrastructure Levy, the consultation for which launched last week, and the likelihood of it causing delays to future developments.
Designed to replace section 106 contributions and obligate developers to pay a fairer share towards local infrastructure, the levy will give local councils the power to dictate what proportion of it is delivered through affordable housing developments and how much is put toward local infrastructure.
The proposed changes would be introduced through a 10-year ‘test and learn’ period, regarding which Du Croz said that “[it] doesn’t give developers certainty on how the new Levy will work in practice”.
“This could lead to delays in sites coming forward while any teething problems are fixed – It would be better if government spent time getting the new regulations right, rather than rushing them through and looking to address any issues during the transition period.”
The consultation is due to conclude on 9 June 2023.
This article was first published in Property Week on 24 March 2023 and is available to read in full here, behind their paywall.
How to avoid double taxation and UK inheritance tax? Xavier Nicholas answers reader question in the FT
1 March 2023
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Head of Private Client, Xavier Nicholas, answers a reader in the Financial Times who asked how, as US citizens moving to the UK, he and his family could avoid the traps of double taxation and manage exposure to UK inheritance tax.
In his reply, Xavier explains the importance of getting advice before moving, highlights the impact of US worldwide taxation, and draws attention to some of the potential mismatches between the US and UK tax regimes.
The question and answer are available to view here (behind a paywall).
Sharing the Load – Andrew Parker speaks to Construction News
1 March 2023
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Construction Partner, Andrew Parker, has been quoted heavily in Construction News‘ James Wilmore’s latest piece on the role of collaborative risk-sharing in preserving the resilience and capacity of the construction industry in times to come.
Risk-sharing, in the Construction Leadership Council’s (CLC) words, is vital due to a “sustained, high level of construction firm insolvencies, particularly among SME builders and specialist contractors.” Among the culprits for these collapses are “economic uncertainty and the difficulty of reconciling fixed-priced contracts with price inflation and reduced cashflow.”
This, along with expectations of recession and poor demand conditions, as well as inflationary pressures, means confidence in the sector is contracting.
In this context, then, risk-sharing could perhaps be under threat, and so Wilmore’s article explores the kinds of risk-sharing that are already happening and if they are sustainable.
Parker is consistently quoted throughout the piece on factors such as “fluctuation clauses” (enabling clients to take a “pragmatic approach” to their supply chain), a need for “more collaboration” in the face of inflationary and pricing issues, and how despite the various pressures, “if you’re a big strong contractor, you’re becoming bigger and stronger in this market.”
Property sector’s net zero 2050 target ‘will be missed’ – Edward Glass speaks to Property Week
24 February 2023
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Commercial Real Estate Senior Associate, Edward Glass, has contributed to Property Week’s latest commentary on how the majority of senior property industry leaders believe the government will fail to deliver a net zero property sector by 2050.
The British Property Foundation’s (BPF) new report, published in collaboration with JLL, has predicted that “existing net zero carbon policy is not sufficient to achieve the 2050 target.”
The report identifies the primary challenges blocking the industry’s decarbonisation progress, urging government to provide “clear long-term policies”, while a lack of clear financial incentive to support retrofitting was hindering net zero commitments.
Property owners and occupiers surveyed by the BPF also rated poor access to quality data as a major barrier, and the industry body has called on Whitehall to set out new data sharing policies, including mandating data sharing of energy consumption between property owners and occupiers of large commercial buildings.
Edward commented that it was time for government to “give the industry the regulatory certainty it craves.”
He pointed at government consultations on MEES thresholds and a first mandatory performance-based energy rating system which, despite years having passed, have still not progressed.
“Quite rightly, the BPF are calling this out”, he added.
This article was first published in Property Week on 23 February 2023 and is available to read in full here, behind their paywall.
A tale of two halves… – Victoria Towers speaks to Logistics Manager
9 February 2023
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“The disconnect between the industrial logistics investment market and the industrial logistics occupier market seems to be at its greatest, following a tumultuous year but what does this mean for occupiers going forward?”
Partner and Co-Head of Industrial & Logistics, Victoria Towers, has provided expert commentary to Logistics Manager magazine on the growing discrepancy between the sector’s occupier market and investment market; how the former remains strong, but the latter has nosedived.
Towers describes how “We started the year [2022] in a beautiful world of high demand and a buoyant supply pipeline. Focus was on forward fundings, which meant funds were willing to pay handsomely for land in advance of development starting on site. Developments progressed well and contractors were robust. It was a market that seemed to be delivering for developers, funders, and tenants alike.”
The article, which includes additional commentary from other leading figures in the Industrial & Logistics sector, summarises the impact on the market of global factors such as the pandemic and Russia’s invasion of Ukraine, the increased cost of borrowing and the likelihood of a resultant slump in occupier demand. The article concludes with a look to the year ahead; 2023’s forecasted recession and prospective periods of both difficulty and opportunity for occupiers.
This article first appeared in the February 2023 edition of Logistics Manager magazine, it is available here.
The Taxation of Heritage Assets: Rebecca Meade writes for ThoughtLeaders4
9 February 2023
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Private Client Senior Associate, Rebecca Meade, has authored an article for the ThoughtLeaders4 Private Client Tax Magazine entitled ‘Saving heritage assets for the nation whilst saving tax – the taxation of heritage assets’.
In the piece, Rebecca covers the acceptance in lieu (“AIL”) scheme, that allows taxpayers to give ‘pre-eminent’ assets to qualifying public institutions in payment of inheritance tax. She goes on to address what is considered a ‘pre-eminent’ asset, provides an example of the AIL scheme in practice, and explains the various other tax reliefs available for national heritage assets.
Why Family Governance is Important – Patricia Boon speaks to Jersey Finance
23 January 2023
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Private Client Partner, Patricia Boon, speaks to Jersey Finance about what Family Governance means and why it is so important for wealthy families in Asia.
Speaking to Business Development Consultant, Maria McDermott, Patricia explains the concept of family governance and shares why it is so important in succession planning, particularly in times of divorce or conflict.
The later living sector needs a boost – Amy France speaks to Property Week
20 January 2023
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Commercial Real Estate Partner and Head of Later Living, Amy France, has spoken to Property Week about the International Longevity Centre’s research into Later Living and how this can trigger progress by tackling issues that have held back growth and innovation in the sector.
With the number of over-65s set to reach 17 million by 2040, the research suggests that the number of older people’s housing units constructed per year will need to rise from 7,000 to 50,000.
A considerable boost in production is therefore necessary and France outlines several steps that can be taken to facilitate this. She specifically mentions sector-specific legislation, local authority targets and widespread planning exceptions as methods to increase clarity, accountability and viability of developments. She also references flexible tenure options, such as shared ownership agreements and stamp duty land tax removals.
France says: “There is no lack of good ideas for how we can get the sector motoring. We need the public and private sectors to work together to escalate delivery. This means putting some meaningful incentives in place for later-living development to thrive.”
This article was first published in Property Week on 19 January 2023 and is available to read in full here, behind their paywall.
The role of grandparents: Ellen Jones writes for Family Law Journal
17 January 2023
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Family Trainee Solicitor, Ellen Jones, has authored an article for the Family Law Journal entitled ‘The role of grandparents’.
Many grandparents play important roles in the lives of their grandchildren, often devoting significant amounts of time and financial resources to their grandchildren’s upbringing. However, irrespective of the commitments grandparents make, they do not have an automatic right to have contact with their grandchildren. Ellen addresses various topics including the definition of ‘grandparent’, the obligations of grandparents, what happens if a grandparent is denied contact with their grandchild and what would happen if a parent dies.
Reference to the full article can be found below:
Family Law (journal) > 2022 > December > In Practice > The role of grandparents – [2022] Fam Law 1548 (behind a paywall)
For further information on this topic, please contact our Family team.
Mind The Step: Simon Blain and Ellen Jones write for Family Law Journal
16 January 2023
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Family Partner, Simon Blain, and Family Trainee Solicitor, Ellen Jones, have authored an article for the Family Law Journal entitled ‘Mind The Step: rights and obligations of the step-parent.
Despite step-parents being a common feature in modern families, their rights, obligations and legal relationship with the children of the family are often misunderstood. Simon and Ellen discuss various elements including who constitutes a step-parent, whether then can acquire PR, what happens if a step-parent dies and what happens if a parent and step-parent separate.
Reference to the full article can be found below:
Family Law (journal) > 2022 > November > In Practice > Mind The Step: rights and obligations of the step-parent – [2022] Fam Law 1422 (behind a paywall)
For further information on this topic, please contact our Family team.
Design codes: a thing of beauty, or else… – Victoria Du Croz writes for EG
11 January 2023
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Partner and Head of Planning, Victoria Du Croz, has written for EG on Michael Gove’s recent statement to the Centre for Policy Studies that the government will do everything in its power to prevent the development of homes that are “not aesthetically of high quality”.
This includes, Du Croz says, a threat to call in planning applications that are “not beautiful”.
The creation of new design codes is one tool that the government plans to use to prevent “ugliness” being imposed on communities. But there are fundamental issues with design codes, not least that design by its very nature is subjective.
Local authority-wide v granular
The National Planning Policy Framework has outlined that the new design codes should be set at the local authority level. However, borough-wide design codes fail to recognise the different street level vernacular. Walk down three to four roads in most local areas and you will see a mix of architectural styles, from Georgian townhouses to listed 1960s council housing and everything in between.
Borough-wide design codes will either lack enough specific detail, rendering them meaningless, or be so generic that they will contribute to the creation of identikit housing – a criticism already volleyed at new build schemes. If local authorities try to make them more granular to better reflect specific areas, it will be an incredible burden and at considerable cost, at a time when local authority budgets are seeing below inflationary increases over the next two years, before falling further to just 1% real term increases from 2025.
Many London local authorities already consult design review panels – impartial experts including architects and urban designers alongside engineers, sustainability specialists and built heritage experts – who provide advice in relation to the design of new schemes and public realm.
As well as having panels that can be called on to provide guidance, there are standards and policies to ensure new homes are built to a suitable standard in terms of space, light and quality. At the application stage, design and access statements, submitted alongside applications, go into detail on the design response to the local area and reasons for the proposed material palette.
Given that all these existing checks and balances are in place and are factored into a local authority’s decision, why should central government step in to alter that decision? Especially when call-ins can slow down delivery, running counter to the need for new homes.
Community Perspective
Part of the impetus for implementing design codes is to bring communities onboard with new development. And while you can go through planning portals and see people commenting on the design of schemes, most nimbyism stems from concerns about additional strain on public services and infrastructure.
The frequent refrain at public consultations is about the difficulty in getting a doctor’s appointment, concern about securing a place at the local school or the state of the local roads – all things that the community infrastructure levy is supposed to be allocated towards.
The problem with CIL in its current guise is that it is not ringfenced to deliver these improvements in the same part of a town or city as the development is happening in, meaning that local residents cannot see new infrastructure being delivered alongside the new development to alleviate pressure on services in their local area. All they see is new homes and the challenges that come with this.
Reform CIL, force local authorities to spend the money and spend it in the local area where housing is being delivered and you could remove some of these objections. Ultimately, local communities do not rail against new developments just because of how they look, it runs much deeper than that.
Poundbury (pictured, above) – often held up as the exemplar on the use of design codes (the Duchy of Cornwall created a Poundbury Design and Community Code) – not only divides opinion, it also has wider cost implications. Replicating Poundbury fails to recognise the importance of having a range of housing products on the market to cater to different needs.
This does not mean bringing forward sub-standard accommodation, but it does mean recognising that sourcing specific materials and bringing forward a range of housing designs can affect both the price for the buyer and the viability of a scheme – meaning less affordable housing is delivered.
It would also be a mistake to think that Poundbury has “worked” because of the design of the homes, when in fact there is a lot to be learnt from the integration of shops, business and even factories alongside the new homes. It is this interaction between uses that makes for successful development, especially the consideration and incorporation of employment land.
Getting the priorities right
New home delivery continues to be a priority across the country, though the specific mechanism for deciding how many homes we deliver and where is currently a topic of debate. What everyone should be able to agree on is that the priority is delivering a range of high-quality homes.
This can be done while still respecting listed buildings, conservation areas and even local design palettes. What the UK planning system does not need is another layer of complexity adding cost and time to new home applications.
The government can surely use its power and resources to better effect than overturning decisions made by local planning authority committees – especially when beauty is in the eye of the beholder.
This article was originally published in EG (10 January 2023) and is also available to read here behind their paywall.
Now that the sale of Channel 4 is off, what does that mean for its property strategy? – Owen Spencer speaks for React News
10 January 2023
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Commercial Real Estate Senior Associate and member of our Film & TV Studios Group, Owen Spencer, has written for React News on the ongoing ownership saga surrounding Channel 4, and how staying in public ownership – in addition the departure from its role as “publisher-broadcaster” – may result in greater investment in regional production facilities.
In an unexpected change to the Media Bill Channel 4 will for the first time be able to make and own original content itself. “This is a key plank in the strategy to move the broadcaster away from its resilience on advertising revenue: by allowing it to monetise its content.”
With the specifics of these new freedoms yet to be finalised, Channel 4 will be keen to understand this new remit as any money spent on Channel 4 original content instead of on independently produced content “is a conflict of interest that will need to be managed.”
The broadcaster is also to double its regional headcount from 300 to 600 by 2025. While some of these jobs will be based at existing sites, reference to jobs being created ‘potentially elsewhere’ will catch the eye of the property agents.
Any plan to employ staff at new regional sites is in line with the ‘Levelling Up’ agenda, however the government may be missing a trick when it comes to growing the regional studios sector, since the broadcaster’s regional programme-making quota remains unchanged.
“If there are 300 extra jobs going North, does this mean a corresponding reduction in the numbers employed in its recently refitted London office?”
If this is the case, alongside a new statutory duty on the corporation’s board for financial sustainability, the potential sale of its London office – a £100m asset – will be an option. Such a shift would give Channel 4 the chance to become a “national champion” by helping catalyse the dispersal of skilled crews around the country.
This article was originally published by React News on 9 January 2023 and is available here in full (behind their paywall).
Lights, Camera, Action! Film Studios Demand Creating Massive UK Opportunity – Owen Spencer writes for CoStar
5 January 2023
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Commercial Real Estate Senior Associate and member of our Film & TV Studios Group, Owen Spencer, has written for CoStar about how both the government and real estate industry should be alive to a major opportunity which could drive the ‘Levelling Up’ agenda.
With the film and television industry set to require an extra 6 million square feet of space by 2026, Spencer writes how the continued development of sites around London and the M25 may not be possible due to greenbelt protection. As such, the industry could be forced to look to new locations across the country.
What this growth industry also needs is additional crew – all trained and highly skilled. Currently, studio workers tend to live and work around the South East – where the largest studios are located.
The 2023 revaluation list for commercial buildings increased business rates for film studios. Spencer questions if this may also favour regional studios with a lower cost base.
Spencer suggests there is scope for the government to drive its much-publicised ‘Levelling Up’ agenda off the back of the industry’s dispersal across the country by facilitating the training of studio professionals outside of the South East.
He concludes by writing: “While there are many challenges, there is an opportunity for the government to place the UK’s expertise in the studio sector centre stage in its levelling up agenda and give the regions a starring role in this growth industry.”
This article was first published on 4 January 2023 by CoStar and can be read here in full (behind their paywall).
An expert’s guide to…Women and Estate Planning – Rebecca Meade speaks to the Dura Society
20 December 2022
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Trusts and Estates (TTE) Senior Associate, Rebecca Meade, writes for The Dura Society and shares steps to take best advantage of her estate planning advice.
Did you know that, statistically speaking, women are more exposed to inheritance tax (“IHT”) than men?
This may be in part because women have a higher life expectancy and are, therefore, more likely to accumulate wealth.
It may also be because, according to a report published by the Office for National Statistics, despite usually being the ‘planning’ sex, 53% of women actually have no estate planning in place to ensure that their wish that assets pass to loved ones is fulfilled.
Property Week’s Year in Review – Victoria Towers talks ESG
16 December 2022
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Partner and Co-Head of Industrial and Logistics, Victoria Towers, has contributed to Property Week‘s ‘Year in Review’ – a look back on the key legal issues in property over the last year.
“Planning, ESG, the workplace, skills, cladding and building safety were all on the property agenda in 2022”, with Towers offering her insight into how environmental, social and governance (ESG) considerations – and in particular the ‘environmental’ – have risen to greater prominence this year.
Towers says: “Overall, 2022 has seen a more sophisticated approach to analysing the metrics of ESG compliance emerge, certainly from the sustainability side, and no doubt we will see growth from the social value angle over the coming months.
“It is also refreshing to see attention being given to what achieving net zero actually means, with a hard stance being taken in relation to offsetting and what actually counts.”
She says developers have also begun to adopt more widespread ESG credentials in their buildings, even without these being imposed by the government. “The voluntary uptake of [energy efficiency rating system] NABERS has become more widespread, which is hopefully a sign of things to come.”
This article was first published on 16 December 2022 in Property Week and can be read in full here.
Shaking the foundations – Andrew Crabbie Maria Shahid and the Law Society Gazette
9 December 2022
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Head of Commercial Real Estate, Andrew Crabbie, has been extensively quoted in Maria Shahid’s latest piece, originally published by the Law Society Gazette, on how the uncertainty and fragility of the UK’s real estate market is being mitigated by a “wall of capital” from overseas.
The low down
The UK commercial property market is struggling. That is not unprecedented, but the sector’s challenges are much less straightforward than during the boom-bust economic cycles of the past. Property lawyers cite war in Ukraine, Brexit and ‘Trussonomics’ as complicating factors. Lawyers remain hopeful that after months of political turmoil, planning reforms may finally get under way, but geopolitical uncertainty and rising interest rates are twin headaches. Bargains abound for overseas buyers, as distressed assets and a weak pound present big opportunities. Or they would do if owners were not hanging on, apparently in denial about taking a ‘haircut’ on their investments.
Tumbling commercial real estate valuations and sales seem to signal a slump. But talk to commercial property lawyers at the sharp end of transactions and a more complex picture emerges. There is plenty to keep them busy, but often that is not good news for clients. The Gazette canvassed the sector’s specialists on how they are juggling the multiple challenges they face – from war and Covid to the legacy of ‘Trussonomics’.
Problems are multiplying
Crabbie commented: ‘We are only two years into a decade in which we have already experienced Brexit, Covid, the conflict in Ukraine and escalating climate change, which have accelerated political instability and economic downturn.’
Kwasi Kwateng’s notorious ‘mini-budget’ in September had a tangible impact, he adds: ‘After the chaos of “Trussonomics” and the resultant turmoil in the debt and gilt markets, it is unsurprising that major real estate investment deal activity has stalled.’
Kate Topp, partner and head of real estate at Ashfords, concurs: ‘Since the mini-budget we’ve definitely seen what I would call a slowing of transactions,’ she says. ‘I haven’t personally experienced anything becoming abortive but of course residential developers are having to take stock given the rising cost and general availability of mortgage finance.’
Boyes Turner partner Mark Appleton also points to overlapping problems for the real estate sector. ‘The property market has been hit by various factors: the war in Ukraine resulting in increased energy prices, rises in the cost of living and inflation, together with an ill-conceived mini-budget and political instability resulting in interest rate rises and a diminution in the appetite to lend on property transactions,’ he says.
Brexit effect
Can you form a clear picture of events while they are still unfolding? That is difficult, but on Brexit the challenges do not stop people from trying.
Ray Oshry, partner and head of commercial real estate at Harold Benjamin, sees little change in that respect. ‘To be honest, we haven’t noticed much impact at all from Brexit,’ he says. ‘In fact, we as a firm are busier than ever across the board. The reality is that everything in commercial property has been overshadowed by the pandemic, the war in Ukraine and the cost of living crisis, and their impact. This has had a significant impact on certain types of commercial property such as leisure and retail, and we are still experiencing the after-effects of that today.
‘If not for the Covid-19 pandemic, we may have noticed the effects of Brexit to a greater extent. It is likely we will feel some of the effects in the years to come, but it’s currently still a case of let’s wait and see.’
There is a more immediate effect on development work, notes Stephen Hedley, partner and head of real estate at Cripps. ‘The main impacts post-Brexit are supply-chain delays and cost pressures on development projects coupled with labour and skills shortages,’ he explains. ‘The pandemic and other global events compounded these issues and challenges remain, and in many instances are more acute. The significant impact on construction projects continues.’
Irwin Mitchell’s national head of real estate Adrian Barlow also highlights post-Brexit construction challenges. ‘The shortage of materials and labour remains an issue for our developer clients that has been exacerbated by Brexit,’ he says. ‘Developers are looking for flexibility with construction timescales in contracts and the ability to reduce prices to take into account rising construction costs. Interest in advice on drafting contracts has therefore never been higher.’
Topp confirms this: ‘Unfortunately, the availability and cost of mortgages is not the only challenge – the rising price of materials and issues in the planning system continue to impact on all developers, but particularly the SMEs.’
What about commercial tenants’ response to Brexit? Barlow says: ‘We have also found that tenants are looking for more flexibility in response to the rising cost of doing business. The “regearing” of leases to introduce breaks and rent concessions is particularly common – again bread and butter income for property lawyers.’
Post-pandemic bubble has burst
Hedley says: ‘For the wider commercial real estate teams the post-pandemic investment bubble has burst.’ Global and political events have led to a slowdown in these transactions. ‘Although we are still seeing healthy levels of interest in UK property from inward investors from the Middle East, far east and elsewhere in Europe… it’s clear some are holding back in anticipation of further price corrections.’
‘Covid has resulted in poor occupancy rates – about half of the pre-Covid rates,’ Boyes Turner partner Mark Appleton notes. This has led to surplus space which owners and occupiers are trying to sell or let. ‘As a result, investors have sought to take money out of property funds and place it elsewhere. Such funds may be forced to sell assets under value to plug a financial hole.’ It is reported, he notes, that Landsec accepted £809m from Lendlease for the Deutsche Bank building on Moorfields, London, compared with the original price of £1bn. ‘Things do not bode well when the UK property market made its worst ever return [in October],’ he adds.
Covid’s cottage industry
Irwin Mitchell’s Adrian Barlow says dispute resolution remains ‘extremely busy’. He explains: ‘On the disputes side, the statutory moratorium on enforcement action by landlords for commercial rent arrears built up when businesses were forced to close due to the Covid pandemic ended on 23 September. This led to significantly increased instructions from landlords looking for advice on their options to forfeit (terminate) leases for non-payment of previously “protected” arrears and pursue payment through various methods.’
Cripps’ Stephen Hedley says: ‘The pandemic created its own Covid-specific cottage industry for dispute resolution lawyers. There was the emergency legislation restricting landlord enforcement, the developing body of case law relating to the liability to pay rent during lockdowns, and the post-lockdown Covid arbitration scheme. These matters are concluding and Covid-specific litigation will likely soon be a thing of the past.’
Barlow says: ‘Looking forward, current economic conditions suggest more work for investors with defaulting tenants, for tenants looking to reduce their rent or get out of leases, and for the parties affected by delayed or aborted development or investment projects.’
Buyers and sellers: two worldviews
‘From a land-acquisition perspective,’ Topp says, ‘there definitely isn’t the same pre-Christmas rush from a purchasing developer’s point of view to get deals over the line, rather a desire to keep things moving; but see how things pan out in the new year.’
Crabbie highlights the problems arising when buyers and sellers have misaligned expectations – understandable in a market in flux. ‘The big challenge is pricing,’ he says, ‘and the disparity between expectations on both the sellers’ side, who are naturally reluctant to be pushed into a fire sale, and the buyers’ side who are eager to identify so-called distressed assets and scoop a bargain. It is difficult to predict with any degree of certainty where pricing corrections will eventually land but, depending on the sector, values may be down 10-20% from 12 months ago.’
Will sellers accept the ‘haircut’? Robin Grove, divisional managing partner of construction, real estate and disputes at Charles Russell Speechlys, says: ‘The weight of largely private capital seeking opportunities to invest means there will be a transactional market in real estate assets, once assets have been revalued. Those needing to refinance or exit to create liquidity recognise that revaluation to the “new normal” is needed and will do so more quickly than previously.’ Therefore, he says: ‘We expect the transactional market to reboot in early 2023, not least as overseas private capital seeks to take advantage of the weak pound.’
Hedley says: ‘On the occupier side and day-to-day asset management, we see resilience with no significant downturn. This includes office occupiers as we continue to see strong demand for high-grade offices within particular locations. [In London], there is also strong demand from high-end retailers in high-end residential areas such as Chelsea and Shoreditch, but not in traditional locations such as Regent Street.’
Borrowing costs and inflation
Crabbie says the ‘real gamechangers are interest and gilt rates which are driving uncertainty. Interest rates are likely to continue to rise into the early part of next year, and I would expect them to plateau around the second quarter’.
Prices are falling. ‘On one hand we have seen a reduction in property transactions, particularly due to higher borrowing costs, rampant inflation and soaring energy costs resulting in businesses generally having less disposable income for investment,’ Barlow says. ‘Clients are in some cases battening down the hatches and preparing for the impending recession… all of these factors have reduced the demand for commercial property, causing property prices to fall and clients seeking to withdraw from deals or looking to “chip” the price on property acquisitions.’
Conversely, Barlow says, ‘many clients are seeing excellent opportunities. Some businesses are under pressure to dispose of assets due to property corrections in the market. Cash-rich clients that have the money and appetite, and that can move quickly, are therefore identifying opportunities’.
Some developer clients are hanging on to sites until development costs make ‘building out’ more viable. ‘But, in the meantime,’ Barlow says, ‘they are getting income by leasing to tenants in the leisure and agricultural sectors, with breaks that enable them to regain the site when the time is right. Similarly, in the retail sector landlords are starting to rent vacant units for temporary “meanwhile uses” such as arts and creative centres, and in some cases looking to benefit from permitted development rights and converting properties from retail to residential use. We are able to advise on all such activity.’
Attractive assets
There remains a considerable ‘wall of capital particularly from overseas… waiting to be deployed in real estate’, Crabbie says. Such investors are, he adds, ‘benefiting from the weakness of the pound. I think we will see the return of good old-fashioned real estate asset management to create value enhancement as opposed to relying on a low-interest-rate regime. The fundamental of right location with strong tenant demand’.
In an inflationary environment, Crabbie says: ‘Rented residential, hotels and student accommodation will be attractive sectors. With the fundamentals of logistics remaining strong, retail undergoing something of a transformation and offices being at the forefront of the drive to decarbonisation and sustainability, new investor opportunities should arise.’
He remains ‘cautiously optimistic about the overall prospects for 2023 and that real estate will retain the resilience which has been its hallmark over my 30-year career’.
Clients are, Hedley notes, affected differently: ‘Where we see most activity is with clients not exposed to high debt costs.’ Activity, he says, has primarily been industrial and non-fashion retail parks. ‘Mixed-use development in major conurbations appears for now to be holding up. Lack of debt and interest rates seem to be a key issue, alongside price uncertainty. There is also still an element of political uncertainty making investors cautious.’
Jennifer Chappell, real estate counsel at BDB Pitmans, also notes that ‘the outlook for industrial sites, such as warehouses and life science labs, still remains incredibly strong.’
Cash is king
What next? Hedley says: ‘Higher interest rates and an economic downturn will inevitably see a greater focus on cashflow. For landlords this means measures to ensure rents are received. There will be an upturn in insolvency-based advice, whether in connection with CVAs, administrations or liquidations.’ Property-related professional negligence claims, he says, ‘will likely see an upturn, as is often the case in an economic downturn’.
Appleton says: ‘A nervous property market is unhealthy. These factors could easily lead to a downward spiral and ultimately a property recession unless overseas investors and wealthy funds bolster the market. Experts seem to think that any property crisis will not be as bad as the 2008 recession.’
However, he adds: ‘In the near future, there is bound to be a period of increased interest rates, a lack of demand until the economy gets back on its feet and property price readjustments.’
Topp sees a role for the state in improving the market. The planning system in particular, she says, ‘requires a good deal more investment and an increase in the number of experienced planning officers if the government is going to make any significant inroads into its new homes delivery target’.
Ending on a positive note, Grove says: ‘The office market remains an essential sector despite the changing accommodation requirements after Covid, and quality, including sustainability, is becoming ever more critical to protect asset value. Integrated teams of transactional and dispute lawyers close to their opportunistic clients will find their teams remain busy in 2023.’
This article was originally published by The Law Society Gazette on 2 December 2022 and can also be read here.
Electric Dreams – Victoria Towers speaks to Property Week
30 November 2022
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Co-Head of Industrials & Logistics, Victoria Towers, has spoken to Property Week about the aim of warehouse developers to get ahead of the game by installing charging facilities for electric HGVs and vans, as well as investing in solar power.
In light of the statistic that 16% of the UK’s domestic transport emissions come from HGVs, many warehouse developers are looking to increase the current percentage of electric vehicle (EV) charging provision, which currently stands at around 10% of parking spaces.
While the sale of new petrol and diesel cars will be banned by 2030, new petrol or diesel HGVs will not be banned until 2040. Nevertheless, eHGVs are gaining momentum.
Towers commented: “The new shed developments we’re seeing all have EV charging provision for cars and vans and the bigger players are starting to secure warehouses with provision for HGVs. We expect other businesses to follow suit, especially as restrictions and extra charges come into force in towns and city centres to deter the use of petrol and diesel vehicles.”
This article was first published in Property Week on 25 November 2022 and is available to read in full here, behind their paywall.
An Analysis Of The Trends Of Private Equity Investment In Sport – Stuart Hatcher speaks to Law in Sport
29 November 2022
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Private equity has had its eyes on the sports world for a long time says Head of Corporate, Stuart Hatcher, in his latest article recently published on Law In Sport.
In the article, Stuart reveals the high level trends, the current challenges being faced and why sports appeals to private equity.
It is safe to declare that private equity is only just starting with sport, and that perhaps we are at a new round of evolution in sport finance, in sport ownership, in sport overall – a sport investment 2.0 if you will.
The full article was published on Law in Sport on 25 November 2022, and can be found here, behind the paywall.
Cladding disputes: liability – Dan Cudlipp, Emma Forsyth & Phoebe Jackson write for the Property Law Journal
7 November 2022
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Construction Senior Associate, Dan Cudlipp, and trainees Emma Forsyth and Phoebe Jackson, have written for the Property Law Journal, on construction contracts and the implication of the judgment in Martlet Homes v Mulalley.
This article was first published in Property Law Journal 402 (November 2022) and is also available on lawjournals.co.uk.
The case of Martlet Homes v Mulalley [2022] concerns the use of defective cladding in high-rise tower blocks and is of particular significance as it is the first High Court judgement on a cladding system dispute following the Grenfell Tower tragedy.
Cudlipp, Forsyth and Jackson write of the background to the case, the claim judgement, and wider significance and highlight how: “In a construction contract, the question of whether there has been a design or specification breach requires a consideration of professional negligence.”
They summarise that “a holistic approach when considering regulatory framework is essential. Moreover, design and build contractors cannot shy away from their responsibilities as qualified designers by seeking to rely on what others in the industry may be doing.”
Football and Money #2: The property play – Stuart Hatcher spoke to Private Equity News
25 October 2022
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Financiers looking to gain more of a profit from the football clubs and stadiums that they own are turning their sights towards using the land for real estate in a bid to produce more revenue out of the already existing locations.
Corporate Partner, Stuart Hatcher, spoke to Private Equity News on how the increased activity of Football Clubs renting out space to companies whilst the teams are away has generally become more popular. Adding that even lower-league English teams are joining in.
Government sends a clear signal to get on with cladding repairs – Andrew Parker writes for Property Week
20 October 2022
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Construction Partner, Andrew Parker, has spoken to Property Week on the newly redeclared urgency from the government to act on building safety. The new Housing Secretary, Simon Clarke, declaring that it was his “duty” to fix an “ineffective” building safety regime.
While there have been delays in the process, the view is commonly held that the government’s making use of the Building Safety Act (which gained royal assent in April 2022) is a step in the right direction.
Parker commented: “The action being taken is a positive step from the government to make good on its promise to ‘pursue firms that have failed to do the right thing’ as [former housing secretary] Michael Gove put it.
“It shows that the provisions of the Building Safety Act have teeth, such as section 123, which introduces the remediation orders that require landlords to remedy specified defeats within a specified period.
“This government action suggests that the net is closing in on those responsible for fire safety defects… and who are unreasonably delaying carrying out necessary remedial works.”
This article was first published in Property Week on 19 October 2022 and is available to read in full here, behind their paywall.
Considerations for parents of children with additional needs who are separating: Rosie Schumm writes for Able Magazine
17 October 2022
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Family Partner, Rosie Schumm, has authored an article in Able magazine entitled ‘Considerations for parents of children with additional needs who are separating’.
The impact of divorce or separation on a family with a child with additional needs can be profound. Rosie discusses various factors involved including financial provisions, the educational needs of the child, social issues and living arrangements and emotional wellbeing.
The feature explores systemic problems for residential conveyancers stating that the sustained property boom which arose from the SDLT ‘holiday’, for various reasons, has not been a rewarding time.
Robert comments “The general trend of conveyancers requiring every small point to be answered continues with ever more detail being required,” he says. “Sometimes this applies even where the answers are not helpful or even particularly relevant and would have no impact on a buyer’s decision to proceed. Increasingly solicitors are not willing to “take a view” nor to permit their clients to, even if they want to, particularly where there is a mortgage.”
One reason for this, Barham contends, is that “a lot of conveyancing is now done by paralegals with solicitors in a supervisory role. It is more difficult for paralegals to decide what is important and what is not, hence the concentration on small details referred to above which may not be that important either legally or to the client”.
He goes on to comment “Conveyancers have come to recognise that conveyancing is not easy and simply cannot be done at knock-down prices, particularly leasehold property. Therefore, charges have risen over the last few years and are now more realistic”.
This article was first published in the Law Gazette and can be read here in full.
Powering the UK: Renewables and rural affairs – Polly Reeve writes for EG
6 October 2022
Views
Rural landowners would not admit it publicly, but many of them lie awake at night thinking about rows of wind turbines or fields of solar panels.
Renewables appear lucrative and easy compared to the hard slog that is agriculture. They are the Massey Ferguson combine harvester to agriculture’s hand scythe.
First and foremost, the returns on renewables are enormous. Annual rent for a solar farm is around £1,000 per acre, three or four times what the most efficient farmer might generate from the best land. Secondly, they require virtually no looking after, since typically the energy company manages them day to day. Thirdly, everyone involved can hold their head high in the knowledge that they are doing their bit to protect the planet’s future.
Alas, the reality is not always as exciting as the idea. Renewables have their drawbacks, as well as advantages.
Short-term cost
We hear that around 10% of proposals lead to an operational solar farm. The high failure rate is partly due to speculative developers who approach multiple landowners without really considering whether their land is actually suitable.
Partly it is also a reflection of the complicated regulatory landscape. Securing a grid connection and planning consent is hard. Even for the successful minority, from proposal to working wind farm takes years, not months.
Successful or not, landowners need to invest considerable resources – in agents, lawyers, consultants, their own time – in a process that leads to disappointment more often than not. The developer will cover some of these costs, but rarely all of them.
The big money does not come until the turbines are turning or the sun is shining on the panels. In the preparatory stages, where a developer is seeking planning consent and a grid connection, landowners will receive a smaller option fee – perhaps £5,000 for 100 acres – in exchange for quite severe restrictions on the land. The landowner generally cannot negotiate with other energy companies and the chosen developer has wide discretion to enter onto the land to carry out tests and preparatory works and keep equipment on the land. If the land is mortgaged, lender consent is needed and, if the land is let, the farm tenant has to be on board.
There is always an element of trust and a successful project will rely on a good working relationship between a landowner, farm tenants and a developer.
Long-term cost
Where a renewables project actually happens, the term is typically somewhere between 25 and 60 years. Once concrete panels and turbines are in the ground, agreements are legally and logistically hard to back out of. Landowners should know that they are committing their land in the long term and there is an opportunity cost.
While your field is full of solar panels you cannot do much else with it. If you negotiate hard, you might be able to graze a few sheep, but you certainly cannot plant any serious crops because harvesting becomes impossible. You can forget about shooting and may be limiting yourself in terms of environmental land management schemes. The energy company will build roads, fences, chop down trees, erect substations and excavate soil. Some of these rights will extend to your land outside the solar farm too.
While it may seem attractive now, relinquishing land that has always been used for producing food and, in tandem, delivering environmental benefit, could carry with it risk. This kind of land use change currently carries significant economic, social and political support, but landowners are, to some degree, reliant on this continuing to be the case.
The options and leases through which renewables projects are structured are complicated, sophisticated and commercial agreements. Legally, they have much more in common with industrial, urban developments than most rural agreements. Landowners need someone on their side who understands what the developers actually need and what they will concede.
Net zero, biodiversity net gain and food security might all fall in the green category, but they are often mutually exclusive. Policy ebbs and flows with successive governments and we live in what feel like peculiarly unstable political times. Yet landowners are being asked to make changes that will last generations.
Governments, left or right, need to be consistent and support renewables schemes in the long run. If not, they risk messy U-turns as landowners put their property to other uses.
Changing land use takes time (years) and it needs proper consideration for habitats, river and watercourse management and consequent flooding and pollution risks. Land returning to food production also requires careful regeneration. Correct removal of energy generation equipment and infrastructure is critical to mitigate environmental damage. Political U-turns could do great damage not only to the prosperity of landowners, but also to the British countryside that is one of the nation’s great assets.
Decommissioning cost
A 2020 government study suggests that it will cost £60,000 to decommission a single wind turbine at the end of its life. Few renewables projects have reached that stage yet, but everyone agrees that decommissioning will be expensive. Lawyers are alive to this and draft tight covenants in the agreements to ensure that the energy companies tidy up after themselves. The trouble is that energy companies create special purpose vehicles – without any other assets – to enter into the agreements and manage the site. Plus, they like to assign the benefits to other group companies or third parties. Decommissioning bonds – where the energy company pays into a ring-fenced fund – and insurance are other means by which landowners seek to protect themselves against the future liability of a field full of rusty solar panels securely fixed to the ground.
You cannot be certain of enforcing the energy company’s obligations so far in the future. Decommissioning is perhaps the most important point to negotiate.
Tax cost
If you stop growing barley and start growing wind turbines, income will increase substantially, which is a good thing. But inevitably there are tax implications.
Many landowners carefully arrange their affairs to maximise agricultural property relief (APR) and business property relief (BPR), thereby reducing their inheritance tax liability. Replacing sunflowers with solar panels will clearly make that field ineligible for APR. It can upset the overall balance of an estate or farm. Income needs to be 50% trading, as opposed to investment, to qualify for BPR, as set out in Commissioners for HM Revenue and Customs v Brander (as executor of the will of the late fourth Earl of Balfour) [2010] UKUT 300 (TCC).
Although it has not been tested in court, taking rent from renewables will likely count as investment rather than trading income, and harm your Balfour balance. If landowners manage the renewables themselves – which is virtually unheard of – then it might count as trading income. And the 50% figure is likely to increase to 80% soon.
Millions of pounds can rest on these reliefs, so it is vital that these are factored into decision making. Sometimes it also makes sense for the landowner to set up new companies, trusts or partnerships to manage the income or own the land.
Localised cost
Nothing can unite a community like opposition to wind turbines or solar panels. Neighbours will do their best to create a hostile environment.
The physical environment can suffer too. The wider national and global need for renewable energy is clear, but the localised damage it can cause is often overlooked. Sinking tons of steel and concrete into the ground is clearly harmful and, as mentioned above, leaves future liabilities.
Land around turbines and solar panels is hard to farm and cultivate, so it often degenerates to scrub and ragwort, unless properly managed. What constitutes sustainable land use is a contentious subject. Even growing and generating energy from biomass can upset the local eco-systems since the digestate produced and used as fertiliser is still too ammonia-rich and leads to a host of environmental issues.
Great care must be given to land management once the installation is in and the developer has moved on to the next project. This is where the landowner can play a key role and, we believe, there is great scope for renewables and biodiversity to make friends. As the structure of natural capital agreements, environmental grants and biodiversity net gain requirements becomes clearer and with continued support for scientific research and development, more can be done to mitigate the environmental impact of renewable energy generation, while enabling landowners to continue to own and manage their land sustainably.
Tread carefully
The point of this article is not to deny the transformative and positive opportunities renewables present for many landowners and for government net zero targets. Nor is it to question the global importance of generating power in an environmentally sensitive way. Rather, it is to highlight the practical, local considerations that landowners and governments must consider when pressing for the delivery of green energy in rural areas. It should be done with eyes wide open, a full appreciation of the pros and cons and government commitment to renewable energy in the long run.
This article was originally published in EG (5 July 2022) and is also available to read here behind their paywall.
Divorce applications reach decade high: Simon Blain provides comment
6 October 2022
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Simon Blain, Partner in the Family team, has provided comment in a number of news outlets on the rise in divorce applications following the introduction of the no-fault divorce legislation.
Divorce applications are at the highest level for a decade to which Simon comments “Time will tell whether the increase is sustained, which would suggest that, as some feared, a simplified, online, divorce procedure will lead to higher levels of divorce.
Much more likely is that a combination of a return to normal following the pandemic and well-publicised and popular new legislation meant that people waited for the new legislation before commencing divorce proceedings, leading to a spike as this pent-up demand was released after 6 April.
If that premise is correct, one would expect to see levels of new divorce applications returning to normal over the next two to three quarters.”
The full articles can be read using the below links (some behind a paywall):
Construction Focus: A solution to a problem or a problem in itself? – Polly Streather writes for the PLJ
6 October 2022
Views
Construction Associate, Polly Streather, recently wrote for the Property Law Journal on the use and benefit of pre-contract tools, such as letters of intent, in trying to alleviate the strain of increasing construction prices and highlighting the risks that should be considered by employers before entering into such arrangements.
Polly writes: “Once the letter of intent is in place, there is sometimes a temptation for contractors to work outside of the authorised scope or beyond the expiry date so as to keep the project on target. However, this raises problems if the final contract is never entered into and a dispute arises as to payment or such other matter.
“Although it is always advisable to enter into a building contract rather than commence work under a letter of intent or other pre-contract tool, there may be times where this is not possible for the reasons highlighted above. It is important to be aware of the risks of entering into letters of intent and undertaking (and other forms of pre-contract tool), and to weigh these against the benefits. While such letters can often seem like a straightforward solution to the pressures arising from increasing construction prices and long lead times, they may cause unintended issues further down the line if due consideration is not given to their terms.”
UK retail weighs up government’s economic gamble – Andrew Denye speaks to Drapers
5 October 2022
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Head of Retail, Andrew Denye, recently spoke to Drapers about the implications of the UK government’s mini-budget for the fashion retail industry.
While certain elements of the tax-cutting mini-budget have since been reeled back or cancelled, certain elements key to the retail sector remain, such as the scrapped plan to increase corporation tax from 19% to 25%.
Opinion is divided within the fashion industry as to whether such measures are enough to stimulate the economy, with some citing the need for a proper stimulus; free trade with Europe and a windfall tax on energy companies.
Energy prices indeed seem to be the key concern of fashion retailers, with some stating they are expecting up to a four-fold increase in energy prices and others, Denye explains, postponing the opening of new shops because of these fears.
Andrew said: “This is unprecedented, at least not since the 1970s – retailers are pulling out of new leasing deals because they don’t think they can afford the energy bills, not because of rents or business rates.
We’re likely to see shops turn down the temperature, dimmer the light and even reduce opening hours.
The energy cap announcement will have offered some in the retail and hospitality sector a bit of breathing space to trade through the Christmas period. While it does provide some respite, it doesn’t deliver long-term security or enable businesses to plan beyond that timeframe.”
The Occupier View: On leaving Mayfair for Marylebone – Glenn Dunn speaks to EG
28 September 2022
Views
There was a moment – a fleeting, blink-and-you-missed-it moment – in which Forsters could have become a fully remote business. No offices. Zoom and Teams screens only.
This article was originally published by EG on 10 August 2022 and is also available here (behind their paywall).
Head of Corporate Occupiers, Glenn Dunn, says he breathed “a huge sigh of relief” when partners showed “next to no support” for the idea. After all, it would have ended his own project to find Forsters a new headquarters in no uncertain terms. But the fact that the option was discussed, even briefly, shows just how open Corporate Occupiers are becoming to change as they map out their post-pandemic real estate needs.
In June, Forsters confirmed a move to Lazari Investments’ 22 Baker Street, W1. It’s not as radical as going remote, but the relocation still has its surprises. It puts the 500-person firm in Marylebone, leaving its Mayfair home of more than two decades, and it was the only building from a lengthy list of viewings that was not a multi-let. For Dunn, the letting is the culmination of lessons learnt throughout the pandemic.
Early bird
Forsters moved to its current headquarters at 31 Hill Street, W1, in 2005. In the years since, a growing headcount has pushed the firm to take on other offices, at 22 Hill Street, Berkeley Square House and Canary Wharf’s South Quay Plaza. Those have more than doubled its space to 50,000 sq ft, from 23,000 sq ft.
Dunn started looking at options for a move back in 2019. “Every well-advised business will do a stay-versus-go analysis, look at its existing buildings and ask whether, with capital investment, staying put is the right thing – like Slaughter and May, for example,” Dunn says. “But we knew that these buildings were operationally becoming more of a challenge for us, and we were across four sites. We see ourselves as one family and we wanted to be back under one roof, as we were when we moved into this building.”
The lease break at 31 Hill Street wasn’t due until the first quarter of 2023, but Dunn knew that would come around sooner than he and colleagues thought. “The one thing that I learned from my years of acting for occupiers is that the early bird catches the worm,” he says. “You don’t want to leave your search too late because it closes down your options.”
No sooner had the board discussed potential locations and picked CBRE as its adviser, Covid-19 hit. The firm weighed a pause in the search, perhaps with a short-term lease renewal at Hill Street. But Dunn was adamant that the hunt should continue.
“It was clear when you looked at the development pipeline that grade-A stock was going to become a challenge,” he says. “The number of developments starts during Covid really tailed off. Having appointed CBRE to advise us, their predictions – which turned out to be pretty accurate in terms of the huge uptake that was going to come in 2021 – were that there was not going to be the stock available to meet demand.”
Location was a big factor. Forsters’ description of itself on its website is a “Mayfair law firm”. But as the team started to view possible new homes, Dunn knew it had to be open to looking elsewhere and hunted from Paddington in the west to Farringdon in the east.
“We had been considering how much of the brand was tied to Mayfair and how much of it was tied to a differential of not being in the City,” he says. “The advice from CBRE was if you’re going to do an HQ relocation, you have to do a pan-London search because you might just see something that was off of your radar. Moves like Kingsley Napley going to Shoreditch are examples of people thinking outside the box and getting the right building in locations that are not necessarily known for law firms.”
Ahead of the curve
The firm ended up looking at between 12 and 15 buildings, Dunn said – none of which were in Mayfair. All were multi-lets, until an off-market opportunity to take 22 Baker Street appeared. The chance for the firm to have its “own front door and control of reception” was immediately appealing, he adds, and an existing relationship with Lazari helped to swing the deal.
The deal isn’t a downsize – Forsters’ 15-year lease is for 50,000 sq ft, equalling its four existing offices. But that wasn’t always taken for granted – the pandemic shifted how Forsters viewed its requirements in two distinct ways, Dunn says.
“The first one was, how much space did we need?” he says. “That was a difficult question to answer. You’re looking into the crystal ball and you’re trying to work out what growth there might be. Every business has to go through that exercise. You don’t want to end up with extra space that you don’t need on day one.
“The other part of the equation has been the layout of the physical space. So whereas a lot of law firms still are cellular or hybrid, we largely went to open plan back in 2013. We were probably ahead of the curve there because we saw the benefits of people learning by hearing others around them and trying to break down that traditional, cellular, siloed environment. We’ve always been quite economic in terms of how we view space.”
22 Baker Street will undergo a refurbishment once Japanese technology group Fujitsu moves to Lazari’s upcoming Lantern scheme in Euston. Forsters will then move in late next year.
“What we really wanted was something that demonstrated the character of the firm,” Dunn says. “We didn’t want a glass box, something that was ultra-modern. We wanted something with a period feel. But at the same time, we wanted something that has more modern amenities. And that has been a big driver in terms of the accommodation that that we will get at 22 Baker Street.”
Should I buy a home on my own before we get married? Helen Marsh answers the Financial Times reader’s question
21 September 2022
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Residential Property Partner, Helen Marsh, answers a reader’s question in the Financial Times’ article entitled “Should I buy a home on my own before we get married?”
Helen identifies two issues in her response, one relating to tax and the other to joint ownership, and discusses the benefits of entering into a declaration of trust which clarifies respective shares in a property. She also addresses issues around stamp duty and other tax implications if gifted money is shared between a couple in order to purchase a property in which one of the individuals is not a first time buyer.
Google suffers blow in battle against €4bn EU fine: Caroline Harbord comments in The Times
20 September 2022
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Dispute Resolution Partner, Caroline Harbord, has been published in The Times commenting on the recent European Court ruling which saw the owners of Google lose their appeal against a record fine for abusing its dominance of the Android phone system.
Caroline commented that “Not only is the hefty fine bad news for Google in an of itself” but that the ruling “will very likely be used as a foundation for huge follow-on damages claims — potentially running into the billions —from those who have suffered loss as a result of Google’s conduct”.
In a further article for The Times, Caroline followed up by saying that the UK’s competition appeal tribunal’s opt-out group was “becoming increasingly tried and tested and funders and insurers are willing to back them — as demonstrated by the action filed against Google in respect of advertising malpractice”.
Freeports key to hydrogen hubs – Elizabeth Small writes for Property Week
8 September 2022
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Corporate Tax Partner, Elizabeth Small, has written for Property Week’s Legal and Professional section on the benefits of siting “green” hydrogen production plants in Freeports.
Freeport-based green hydrogen sites could serve as accessible international hydrogen exportation points and provide a clean fuel for maritime use, while also benefitting from the various Freeports tax incentives, including an exemption from stamp duty land tax.
In Small’s opinion: “If the freeport status does its job of creating a dynamic high-growth cluster, there is a happy side effect in the attraction of the many experts, investors and innovative businesses that will be vital to the hydrogen ecosystem.”
To read more about the benefits of Freeports and how they may be used for a net zero future, click here.
This article was first published in Property Week on 24 August 2022 and is available to read in full here, behind their paywall.
Passing the Baton – Natasha Rees and Smita Edwards speak to EG
7 September 2022
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As Natasha Rees takes over as Senior Partner from Smita Edwards, the pair speak to EG about Forsters, its future, and the upcoming move from Mayfair to Marylebone.
The Forsters pair were quizzed by EG’s Jess Harrold who touched on a number of important issues such as the global events during Edwards’ 8-year tenure as Senior Partner, and their effects on the real estate market, as well as how the baton is proudly being passed to former Head of Property Litigation Rees ahead of the firm’s move to Marylebone. The article focuses on key issues such as the commitment to maintaining profitability while also maintaining the firm’s unique culture. It also highlights the Forsters partners’ commitment to capitalise on the firm’s reputation for being an inclusive and friendly place to work by designing their new premises with staff wellbeing and sustainability firmly in mind.
The article concludes that “If Brexit and Covid couldn’t throw the firm off course during Edwards’ tenure…the looming clouds of recession on the horizon should hold little fear for Rees.”
“Over to you and have some fun,” Edwards says to Rees, smiling. “It’s a great business.”
This article was first published by EG on 2 August 2022 and can be read in full here, behind their paywall, or here.
When a collateral warranty is a construction contract – Daniel Burr and Sophie Togwell write for the Property Law Journal
6 September 2022
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Construction Senior Associate, Daniel Burr, and Associate, Sophie Togwell, have written for the Property Law Journal, on necessary criteria for defining a collateral warranty as a construction contract.
“It was held that, for a warranty to be a construction contract, it must be an agreement for the carrying out of construction operations, meaning it must relate to the performance of works rather than just the quality of work.”
Their article references the outcome of a recent Court of Appeal decision, which states that a collateral warranty can be a construction contract under s104 of the Housing Grants, Construction and Regeneration Act 1996.
The pair go on to discuss the case, its issues, and the wider practical implications of the ruling.
This article was first published in Property Law Journal 400 (September 2022) and is also available on lawjournals.co.uk.
Powering the UK: Balancing National and Local Agendas – Victoria Du Croz writes for EG
6 September 2022
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In the second article in a three-part series on energy supply, Head of Planning, Victoria Du Croz, discusses national targets, local planning and the importance of biodiversity net gain.
The government’s plan to increase the UK’s energy self-sufficiency is urgently needed, but it doesn’t account for the inherent conflict between national policymaking and local political pressures.
At the local level there is already significant competing demand for land, whether for the delivery of much-needed housing, logistics, social infrastructure or national infrastructure. Now added into the mix is the top-down strategy to move away from a reliance on fossil fuels, increase clean energy sources and decarbonise the economy, resulting in a push for renewable energy projects.
April’s Energy Security Strategy adds urgency to existing energy policy. It was preceded in December 2020 by the government’s energy white paper, Powering our Net Zero Future, which built in turn on existing policy commitments set out in the Ten-Point Plan for a Green Industrial Revolution and the National Infrastructure Strategy. Those documents set out the government’s vision of how the UK would make the transition to net zero by 2050.
While the cost-of-living crisis and increased scrutiny on gas supplies from Russia may have shifted the dial slightly in terms of local sentiment towards energy projects, there is a long way to go to deliver the wind farms, solar farms and supporting infrastructure to make the UK self-sufficient and net zero.
The government’s decision in early June to permit new drilling in Surrey to establish the size of a natural gas field highlights the tensions between local and national sentiment, with Surrey County Council having blocked the project twice in recent years. It also highlights the increasing conflict at national level as the government grapples with decarbonisation at the same time as trying to alleviate cost pressures for consumers amid Russia’s war in Ukraine.
National need and local lobbying
Local decision-making and consultation are a vital part of the planning system. However, there is an inherent tension when the government insists on developments securing local support, while also pushing the delivery of key infrastructure that benefits the wider population.
In response to significant local opposition to onshore wind farms back in the 2010s, the government issued a written ministerial statement in 2015 preventing local planning authorities from granting planning permission for onshore wind farms unless the site was allocated as such in the development plan and local support could be demonstrated.
At the same time, the government also amended the Planning Act 2008 so that applications for onshore wind farms are determined under the Town and Country Planning Act 1990 rather than under the Nationally Significant Infrastructure Planning regime, owing to communities complaining that they felt excluded under the latter regime.
While this effectively killed off the delivery of onshore wind farms in some areas, in other parts of the country this tension has played out by local opposition being overruled and planning permission ultimately being granted. In the Scottish Highlands – albeit under a different consenting regime – local decisions to refuse wind farm applications have been overturned 40 times in the past five years, while secretary of state for business, energy and industrial strategy Kwasi Kwarteng has gone against recommendations from the Planning Inspectorate by granting planning permission for the multi-billion-pound Norfolk Vanguard Offshore Wind Farm.
A Politico poll from earlier this year indicated 72% of people would support new wind farms in their area, but query whether that support included residents located adjacent to such projects.
In the British Energy Security Strategy, the government states it will not amend the current planning regulations for onshore wind, in all likelihood meaning the 2015 written ministerial statement will remain in place. Instead, it will look to develop local partnerships for a limited number of “supportive communities who wish to host new onshore wind infrastructure”, with the incentive for the community of guaranteed lower energy bills. Given the current cost of living crisis, it will be interesting to see if such incentives mean there is competition to be one of the identified communities.
While the tide may be turning a little, objection from local communities is not going to blow over anytime soon.
Biodiversity net gain
Renewable energy, conservation and the environment have historically had a conflicted relationship. Often the sites that are seen as suitable locations for wind turbines and solar panels are those that are also species-rich. There have been cases of endangered birds being affected by wind turbine blades, as well as the ground intrusion and disturbance of building solar and wind installations.
In June 2022, there was a parliamentary debate on the location of solar farms owing to growing concern with them being constructed on greenfield sites. In response to the debate, the government confirmed it will consult on amending planning rules in England to strengthen policy in favour of solar development on non-protected land. However, given the reduction the cost of generating solar energy and the government’s commitment to a fivefold increase in solar energy generation, it is widely accepted that a considerable number (potentially 50%) of solar farms will need to be located on greenfield sites.
In the Environment Act 2021, the government introduced a biodiversity net gain target of 10% as a condition on all new planning applications. It can be considerably harder to deliver this level of net gain on solar developments located on greenfield sites, which are likely to have a higher starting level of biodiversity than brownfield sites.
In addition to the 10% uplift, there is an ongoing 30-year maintenance requirement for the biodiversity, which can be difficult to achieve in often densely packed solar farms. The ability for other developments to deliver biodiversity net gain off-site is likely to further increase competition for sites.
The case for cross-boundary co-operation
Who takes on responsibility for ensuring that sufficient energy projects are brought forward? Will local authorities be prepared to allocate sites for renewable energy projects? Where is the strategic direction to ensure that new wind farms and solar farms are being delivered in the numbers that are required?
The numbers are significant. To meet the government’s ambition for all energy to be from “clean sources” by 2035, offshore and onshore wind capacity would need to quadruple and double respectively. It is highly likely that some areas of the country will need to deliver most of the solar and wind farms the country needs. Wind and solar farms require significant space to generate the level of electricity the UK needs to meet its net zero targets, but sites that are deemed suitable often come up against other land designations, such as preservation of the green belt in the National Planning Policy Framework or areas of outstanding natural beauty.
The current duty to co-operate on local planning authorities when plan-making is set to be abolished through the Levelling-up and Regeneration Bill, and there is a lack of clarity on how it will be replaced to ensure cross-boundary co-operation between local authorities.
Some in the industry have been calling for the return of the controversial regional spatial strategies, revoked in 2010, which aimed to bridge the gap between local planning issues determined by local planning policies and nationally determined policy aspirations.
The Levelling-up and Regeneration Bill introduces “national development management policies”, which essentially aim to take “general” development control policies out of local plans, with these set centrally instead. These national development management policies – expected to include green belt designation and heritage protection – will be given the same weight in decision-making as development plans.
Currently, planning applications under the 1990 Act regime are determined in accordance with the development plan unless material circumstances indicate otherwise. The Bill is proposing to strengthen this so that material circumstances must strongly indicate otherwise before applications can be granted if they depart from the development plan – and, in future, national development management policies. It will be interesting to see whether the nation’s energy security and net zero ambitions will be sufficient material circumstances to support sites not allocated in the development plan.
The resourcing challenge
It is widely recognised that planning departments are severely under-resourced. The government’s latest initiative to increase planning fees, unveiled as part of the Levelling-up and Regeneration Bill, is being billed as one way to help address this. But an uplift in application fees is by no means a panacea for the challenges that local authorities’ planning teams are grappling with owing to funding cuts over the years, including low staff numbers and a huge volume of work. A quick job search highlights the issues, with hundreds of vacancies listed for planning officers at local authorities.
Yet the government has signalled that planning will be sped up for solar, and both on- and offshore wind. Which specific mechanisms will be used to bring forward more sites and achieve quicker determination of planning applications remains to be seen. The government could place an obligation on local planning authorities to allocate sites, but that would need to happen within the local plan process and sites could take years to work their way through the plan-making system, especially given the necessary transition provisions before the Bill’s proposed amendments to development plans.
The wind is definitely blowing in the direction of renewable energy generation, but there is a long way to go before the UK is running on clean sources.
This article was originally published in EG (27 June 2022) and is also available to read here behind their paywall.
It is well-documented that a good number of high-net worth Asian families are on the cusp of a very significant inter-generational transfer of wealth as, over the course of the next decade, we will see the ownership and stewardship of family wealth and family businesses pass from the hands of the wealth generators/creators of Generation 1 to Generations 2 and 3.
The families standing at the precipice of this change will, in some cases, not yet have considered the implications of this inter-generational wealth transfer or, if they have, may be uncertain as to how to deal with them. Family businesses are at their most vulnerable at the point of this transition, particularly when the business founder/wealth creator is still the person at the helm. For such families, family governance planning can enable them to meet the challenges that this transition to the next generation poses.
The main challenges facing families in this position are:
to ensure that the value that has been generated by Generation 1 can be preserved, grown, and perpetuated for the benefit of future generations and/or for philanthropic purposes; and
to equip the next generations to deal with the businesses, assets, or structures that have been passed on to them so as to avoid a diminution in the value of the business or dissipation of the wealth.
There are further sub-sets of challenges within these categories, including the risk of inter-generational and cross-generational conflict, risks to family harmony as the number of family members grows and becomes more disparate, and the risk of divorce.
If these challenges are to be navigated successfully, it is essential for Generation 1 to look carefully at how to involve Generations 2 and 3 in their succession planning and to obtain the next generation’s contribution and buy-in to the philosophy that will shape the family’s management of their businesses and assets for the medium to long-term. However, it is often difficult for Generation 1 to let go of the reins; of the respondents to the PwC Global NextGen Survey 2022, 45% said that they found it difficult to prove themselves as a new leader or board member in the business. In this context, family governance planning has an important role to play, as the implementation of a governance framework for families to manage succession to the business and/or control of family assets is a key way to involve the next gen today and to minimise the risk of dispute and wealth dissipation tomorrow.
Using a Family Governance framework to involve the next gen
The aim of any family governance strategy should be to ensure that there is a robust and flexible succession plan in place for Generations 2 and 3 (and beyond) to play their part as stewards of the family wealth and assets.
Good communication is essential to mitigating the risk of disputes and conflict, as it encourages transparency, minimises suspicion, and offers the opportunity for the stakeholders to have their say.
Where the family is at the start of the governance exercise, it may be helpful to have a third-party, such as the family’s trusted advisor, to co-ordinate the discussion process, meeting together and individually with Generation 1 and members of Generations 2 and 3. This is an important step to flush out areas of frustration, that are ripe to develop into points of conflict between the generations, so that these can be discussed and addressed openly at the outset. It is noteworthy that, in the studies looking at the difficulties inherent in inter-generational wealth transition, many next gens of business families who are surveyed cite their frustration that they are unable to have a voice. Consequently, open dialogue is a crucial part of allowing the next generation to feel involved and engaged.
The creation of a family council can ensure that each family branch has a voice and representation. Where there are family trusts, the family council can act as an interface with the trustees, ensuring a regular flow of information to the family members. The family council can also act as a ‘training ground’ for the next gen, making clear the expectations there will be of any family member who wishes to work in the family business, any requirement to have undertaken particular work experience within or without the family business, and/or setting out criteria that must be met for a family member to be considered eligible to work in the business.
A family council may also allow the next gen to:
observe the workings of the family council before assuming a formal role;
receive training in understanding the family business, responsibilities and duties of office-holders and shareholders, and financial statements.
Such training can help to identify at an early stage the leaders of the future who have the relevant qualities and skills to contribute to the business.
Where there are multiple shareholders, shareholders’ agreements are a valuable tool which can be used to educate the next generation in relation to shareholder co-operation. They are also useful for focusing the attention of Generation 1 as to whom shares should be transferred.
The involvement of experienced and trusted non-family management and advisors has a role to play, as these individuals can offer objectivity and can act as a sounding board to the different generations, as well as assisting in the transition of Generation 1 out of day-today control into an ‘oversight’/advisory role.
There is no ‘one size fits all’ solution to sorting out the myriad issues that business and wealth transfer will bring to the fore between family members.
However, what is self-evident is that a failure to consider succession planning and the involvement of the next generation (and beyond) in a timely fashion will increase the risks of family conflict and fragmentation of wealth to the detriment of all of the family members.
This makes it vital for wealth creators to recognise the value of involving the next generation in their succession plans early on, and to understand the means available to them to achieve this.
Developments in Fiduciaries Powers in Relation to Ethical Investments – Ashleigh Carr and Maryam Oghanna write for ThoughtLeaders4 Private Client Magazine
31 August 2022
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Senior Associates, Ashleigh Carr and Maryam Oghanna, have authored an article for Thought Leaders 4 on the topic of developments in fiduciaries powers in relation to ethical investments.
To what extent can fiduciaries take non-financial considerations into account when exercising their investment powers?
It seems like everyone is talking about ‘ethical investing’. In this article, ethical investing can be read to mean “an investment made not, or not entirely, for commercial reasons but in the belief that social, environmental, political or moral considerations make it, or also make it, appropriate”, (per Lord Wilson in R (Palestine Solidarity Campaign Ltd & Anor) v Secretary of State for Communities and Local Government [2020] UKSC 16).
This may inhabit different forms, including ‘ESG’ (measuring the ethical impact of an investment using Environmental, Social and Governance indicators), Socially Responsible Investing or ‘SRI’ (which goes one
step further, by screening and avoiding investments based solely on ethical considerations) and Impact Investing (investments which aim to create financial returns and measurable social or environmental impact).
Whilst the concept of ethical investing dates back many hundreds of years, it is increasingly becoming a hot topic for private wealth advisors, many of whom are reporting a growing demand, particularly amongst ‘next gens’.
This influence affects trustees and other fiduciaries who must consider whether and what weight to give non-financial factors when performing their fiduciary duties. Whilst the law regarding trustee duties in relation to investments is well established, the bedrock cases significantly predate the growing trend in ethical investing. New law is arguably required to reflect social, economic and environmental developments as the climate crisis and sustainability continue to climb the global agenda.
In this article we look briefly at case law which touches on the tension between ethical investing and prioritising financial reward, and the legal guidance and commentary which is emerging on the topic.
Case law
The starting point when considering the case law on non-financial considerations is Cowan v Scargill [1985] Ch 270. In that case, Sir Robert Megarry V-C held that the board of trustees of a mineworkers’ pension scheme were in breach of their fiduciary duties by blocking overseas investments and investments which were in competition with coal.
He reasoned that, where the purpose of the trust is to provide financial benefits for the beneficiaries, the trustees should exercise their power of investment to yield the best return (judged in relation to the risks of the investments in question). Trustees must exercise their powers in the best interests of the beneficiaries and put aside their own personal interests and views.
However, it was noted that financial benefit would not always be the trustees’ sole concern: “benefit” has a very wide meaning and it may be reasonable to prioritise benefits other than financial ones, where all the beneficiaries are adults and support an alternative policy. However, “such cases are likely to be very rare”, and where the trusts are for the provision of financial benefit, there would be a heavy burden on anyone who asserted that it was for the benefit of the beneficiaries to receive less.
Whilst the impact of Cowan has been debated, it is unlikely to offer much comfort to trustees and beneficiaries who wish to prioritise benefits other than financial ones. This is demonstrated by the recent case McGaughey v Universities Superannuation Scheme Ltd [2022] EWHC 1233 (Ch) which concerned two members of a pension scheme who were unhappy with the trustees’ continued investment in fossil fuels. Instead of alleging that the trustees had a duty to sell its fossil fuel investments for ethical reasons, the claimants pursued a claim on the basis that the pension scheme’s continued investment in fossil fuels represented a breach of their directors’ duties pursuant to sections 171 and 172 of the Companies Act 2006. Their claim ultimately failed.
The Court noted that the claimants had not run the ethical argument “no doubt because the Court rejected such an argument in Cowan v Scargill [1985]” and suggested that the more appropriate claim would have been a breach of trust claim against the company, despite the practical difficulties that would have arisen with that claim.
The position is slightly different for charitable trusts. Cowan was distinguished in Harries v The Church Commissioners for England [1992] 1 WLR 1241 (“the Bishop of Oxford case”) which was, until recently, the only reported case dealing with ethical investments by charities. Here, the Bishop of Oxford was concerned that, by permitting investments in South Africa, the Church Commissioners of England failed to sufficiently take into account the underlying purpose for which the assets were held.
Sir Donald Nicholls V-C held that where the trustees held investments, the starting point (similarly to Cowan) is that the trust will be best served by the trustees seeking to obtain the maximum financial return. However, the decision goes further than Cowan in that he recognised that there were certain exceptions to the general rule: (i) where the nature of the investments would directly conflict with the charity’s purposes; (ii) where the investment may indirectly conflict with the charity’s purposes (such as through alienating certain donors or beneficiaries); and (iii) where there is little or no risk of significant financial detriment to the charity.
It was unclear whether the Bishop of Oxford case created an “absolute prohibition” on making investments that directly conflicted with the charity’s purposes or objects. The High Court recently considered that question in Butler-Sloss v The Charity Commission for England and Wales [2022] EWHC 974 (Ch), in which the trustees of two charities sought the court’s blessing of the adoption of new investment policies which would align the charities’ investments with the Paris Agreement (which aims to limit global warming). The judge concluded that there was no absolute prohibition on directly conflicting investments (a view which seems to have been shared by Charity Commission, as expressed in its current guidance on charity’s investments, CC14, and all of the parties in the case). Instead, the trustees have to perform a discretionary exercise, balancing the potentially conflicting investments against the risk of financial detriment from implementation of that policy. He further held that the trustees were permitted to adopt the proposed
investment policy and that in doing so would discharge their duties in respect of the proper exercise of their powers of investment.
Commentary
There are differing views on the impact of Cowan and the scope of trustees’ duties to consider ethical investing. Some of the legal commentary suggests that Cowan is misunderstood and that the nature of trustees’ fiduciary investment duty has always been sufficiently flexible to allow pension schemes to consider ethical investing. Furthermore, guidance in the charity sector provides greater scope for fiduciaries to take a balanced approach to considering investments and what is in the interests of the charity.
Trust law already acknowledges that ‘benefit’ is not limited to financial returns, yet it remains unclear where to draw the line. Cowan still appears to represent a barrier to ethical investing, at least where the only demonstratable benefit is ethical and not financial. The thrust of much of the emerging legal commentary is that this is an unnecessarily restrictive approach, and there is increasing feeling that financial institutions and other organisations should take non-financial risks into account when exercising fiduciary duties.
This may partly be due to the dichotomy between ethical investing and financial reward becoming outdated, as acknowledged by Lord Sales in a recent lecture paper entitled ‘Directors’ duties and climate change: Keeping pace with environmental Challenges’:
“there is much force in the view that directors may and, increasingly, must take into account and accord significant weight to climate change in their decision-making. This is not least because a failure to act sustainably is more and more likely to have adverse financial impacts on companies who are, or are perceived to be, behind the curve on environmental issues”.
As Lord Sales concluded in the context of company law, there appears to be justification for trust law to be modified to enable trustees to accord greater weight to ethical issues than has previously been possible.
Ethical investing is only set to grow in popularity and can be a significant force for change. Market pressures such as changing societal attitudes and reputational risk are bringing ethical investing to the fore at pace. In this brave new world, trustees and beneficiaries alike would benefit from further direction elaborating on, and arguably supporting, a fiduciary’s ability to prioritise ethical investing.
There is an emerging view that judicial re-examination may prove useful, but that the real solution will be legislation. We are already seeing new legislation, policy and guidance being introduced in other areas (for example, by the Companies Act 2006 and Occupational Pension Schemes (Investment) Regulations 2005, the Charities (Projection and Social Investment) Act 2016 and guidance by both the Law Commission and Charity Commission). However, the Trustee Act 2000 fails to deal with non-financial considerations. A statutory update may provide greater clarity and certainty.
In practice, and at least whilst Cowan remains good law, it seems that the identity of the trustees and, possibly more importantly, beneficiaries will have the biggest impact on the uptake of ethical investing in the context of individual trusts. As next gens increasingly populate the beneficial classes of these structures, we could reasonably expect to see an increasing positive trend towards ethical investing. Whilst legal developments are awaited to support ethical investing, there are practical steps which might usefully be taken to support the consideration of non-financial benefit when exercising fiduciary powers, and for mitigating risk.
If settlors want to provide trustees with the freedom or even an incentive to invest ethically, they should adopt a similar stance as the regulatory and legislative approach in England and Wales in the context of company law, namely, to seek to inject ethical considerations into their decision making processes. When settling new structures, settlors should think carefully about the purpose and aims of the fund, and consider utilising charitable trusts, purpose trusts and/or foundations. Where there is a discretionary trust, careful thought should be given to the terms of the trust, which can record the settlor’s expectations as to the extent to which trustees can, or should, take non-financial benefits into consideration.
By taking this approach, settlors can incorporate sustainability and ethical investing into a trustee’s duty, instead of leaving it as an obstacle, whilst we wait for the law to catch up with the shift in approach to investing that many next gens are already demanding.
Powering the UK: Renewables, Peaks and Troughs, and the Retrofit Revolution – Victoria Du Croz, Polly Montoneri (née Reeve) and Laura Haworth write for EG
The UK’s energy supply is headline news on a daily basis. The climate crisis, coupled with a cost-of-living crisis and Russia’s invasion of Ukraine, has put energy cost and energy creation under ever closer scrutiny. While the UK has moved away from coal-generated power over the past 40 years, it continues to rely on oil and gas for a considerable amount of energy creation. Our households are largely run on gas boilers. According to EDF, around 78% of the energy used to heat our buildings comes from gas and, while the government has brought in legislation to ban gas boilers by 2025, this will only apply to new homes. Even our national grid relies on burning gas to generate power and this is likely to continue in the short-to-medium term.
The UK has historically imported a portion of its gas needs from across the sea through several interconnectors that run from the British coast to France, the Netherlands and Ireland. In eight of the past 10 years, the UK has been a net importer of gas, but so far in 2022 the UK has been a net exporter to Europe as our European neighbours look to replace Russian supply.
The challenge is how the UK weans itself off its reliance on gas, meets its net-zero targets and becomes more self-sufficient in the long term, while remaining environmentally sustainable and improving biodiversity.
Renew the call for renewables
Over the past 30 years the percentage of energy generated via renewable sources – wind, solar and tidal – has increased, accounting for 43% of electricity generation in 2020 and making it the main source of the UK’s electricity over the year. While the statistics in 2020 were promising, the UK generated 14% less electricity from wind in 2021. This is a core issue with wind power generation – the amount that will be generated at any time is hard to predict, and our fallback is gas and nuclear. Prime minister Boris Johnson has asserted that all of the UK’s energy will be from “clean sources” by 2035. To meet this goal, offshore and onshore wind capacity would need to quadruple and double respectively.
A similar story stands for solar; the unpredictability of UK weather means energy supply from solar fluctuates year to year. It is, however, growing, with a combination of commercial and residential rooftop and ground mounts accounting for 4-5% of UK energy supply.
The reality is that 2035 isn’t that many years away and, while the government talks a lot about its green agenda, securing a grid connection and planning consent is hard. Even for the successful minority, moving from proposal to working wind farm takes years, not months.
The big question is: how do we go from renewable sources supporting a small percentage of the UK’s energy creation to 100%? There are several significant challenges to overcome to meet net-zero targets and deliver clean energy. The obvious answer is to build more solar farms and more wind farms, but this is no easy feat and, over a series of three articles, we will be exploring tensions within the planning system, conflicts between local and national policymaking, environmental sustainability and the challenging decisions for landowners.
Peaks and troughs
One of the fundamental challenges with increasing our reliance on renewable energy sources is peaks and troughs in supply. How do we capture surplus energy and store it for the future when the sun isn’t shining and the wind has stopped blowing?
In order to ensure sufficient year-round supply, the UK needs to massively increase its ability to store energy. Battery storage is essential to enabling increased reliance on renewable energy and will be pivotal in facilitating a transition to green energy. Whereas currently fossil fuels are used as back-up to provide a reliable, steady supply of energy, this will no longer be possible due to net-zero targets.
While it has been anticipated that battery storage systems could save the UK energy system £40bn by 2050, ultimately reducing energy bills, battery storage facilities can be contentious. During the planning process, resident groups and the local community object to battery facilities for myriad reasons, including wildlife concerns, visual impact and the requirement for supporting infrastructure.
Permission for battery storage used to be granted through the Nationally Significant Infrastructure Project process, but now permission can be granted under the Town and Country Planning Act 1990. While this makes it slightly easier (and quicker) to navigate, it increases the potential to come up against local opposition.
Another common concern associated with battery storage is safety. As the number of battery storage facilities increase, driven by demand for solutions to deal with intermittent energy creation from renewables, fires have broken out across the world. In addition, these batteries have a limited lifespan and the production of them (and processing of them once they have come to the end of their useful lives) will have its own environmental impact. The lithium used in these batteries is, after all, a finite resource and the technology involved in producing batteries for different purposes is still developing.
The other safety concern is disposal, due to the potential for leaks and contamination – if the chemical contents escape from battery casements this can cause damage to the local environment. While there may be concerns about potential liability for contamination under the Environmental Protection Act 1990, action taken by local authorities under this legislation is relatively rare. By far a greater risk is a claim for private and/or public nuisance by neighbouring landowners due to migrating contamination. The damage can be widespread (especially if nearby waterways are affected), expensive to remedy and can also be a criminal offence. Contamination could also affect the landowner’s use of their own remaining land.
Building storage facilities raises the issue of competing pressure on finite land. Locally, communities want new (normally affordable) homes, while nationally there is a drive for renewable energy creation. This tension is something we will explore in more detail over the coming weeks.
Upgrade the grid
The other challenge is the capacity of the national grid. The grid requires significant upgrades and improved infrastructure to cater to the additional demand that will be placed on it due to our move to increased electricity use – especially in rural areas. It also needs to be adapted to cater for the peaks and troughs associated with renewable energy, the required storage and the new ways that electricity will move though the grid.
Electric vehicles are a clear example of increasing our reliance on electricity. As we transition to EVs, the supporting infrastructure is vital; it is anticipated that, unless the national grid is strengthened, the charging needs from millions of new EVs could result in blackouts across the country.
Retrofit revolution
Moving towards a reality where all of the UK’s energy is provided by renewable sources is laudable, and necessary to meet net-zero targets. However, generating clean energy can only take us so far if the commercial and residential buildings using this energy are wasting it through buildings that are not energy efficient.
Eighty percent of the buildings that exist now will be in place in 2050 when the UK has committed to be net zero. To ensure our commercial buildings and housing stock are operating efficiently it requires a retrofit revolution, but the onus has been placed on consumers and landlords. In many cases, the cost to the private sector is not proportionate to the energy efficiency improvements that are achievable. Some incentives have been offered to encourage upgrades, including zero rating certain energy saving materials in domestic buildings, but this incentive is time bound and will only go so far given it isn’t applicable to commercial buildings.
Currently, legislation prohibits the new letting of buildings with an F or G energy performance certificate rating (including renewals of existing tenancies) unless an exemption applies. The continued letting of residential property is also prohibited if such property has an EPC rating below an E. From 1 April 2023, landlords will also no longer be able to continue to let commercial properties with an EPC rating below an E. Proposed legislation was put forward in a 2020 white paper to change the minimum standard for commercial property to a C rating in 2027 and a B rating in 2030. The suitability of the EPC rating system is a topic for another day, but the proposed legislation highlights the impression that a lot of work needs to be done to get the UK’s current building stock up to scratch.
Around 500,000 buildings in England are protected by statutory listing, while hundreds of thousands more are in conservation areas. Without changing the policy guidance to enable energy efficient upgrades to be made more easily to these buildings, it is an incredibly costly and drawn-out process.
This is the issue; policy is inconsistent and inconsistently applied. This means that, while net-zero ambitions are to be commended, we have a long way to go before they are a reality.
This article was originally published in EG (21 June 2022) and is also available to read here behind their paywall.
An NFT is a non-fungible token that can be used to represent ownership of unique items. In the article, in the context of Art, Rory describes it as “a line of code pointing towards an image. It’s a bit like the title deeds to a house. If you’re going to court to prove ownership of a house, you don’t show the judge round your home, you show them the deeds.”
The piece goes on to investigate the attraction of NFTs and their innovative nature, in which Rory explains that “People are now starting to apply the technology to more artistic endeavours.”
You can read the full article here, behind the paywall.
In one of the latest FT Adviser publications, Stuart gives advice to anyone involved in the asset and wealth management sector as he establishes that private equity is here to stay.
Whilst including a number of hallmarks and factors that make the sector appear appealing from a private equity perspective the article additionally conveys elements to consider for any advisers who may deciding if a private equity exit is right for them. Moreover, the certainty that market will remain active with a continued focus on private equity is expected, with several speculations as to what is to come in the future.
You can read the article in full here, on the FT website.
Climate rules increase pressure to rethink leases – Victoria Towers and Louise Irvine speak to PlaceTech
15 August 2022
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Commercial Real Estate Partner and Co-Head of Logistics, Victoria Towers, and Commercial Real Estate Senior Knowledge Development Lawyer, Louise Irvine, speak to PlaceTech about how the move to make climate reporting mandatory will obligate landlords to include data sharing clauses in future leases.
Since April 2022, the UK’s largest companies and financial institutions have had to disclose their emissions, ensuring they are in line with TCFD recommendations and, as part of the disclosure, report not only their own emissions but those of their value chain. For real estate, that includes tenants’ emissions.
As such, leases will need to evolve to enable data sharing and, as Towers explains, while we are seeing numerous developers take greater interest in the ‘green’ provisions in their leases, the challenge is including clauses that tenants are happy to agree to.
Irvine goes on to explain that in recognition of the incoming requirement to disclose emission data, landlords and tenants are discussing provisions around the energy providers tenants can use – pushing them towards a greener option.
Irvine comments: “I think [it’s] all very much being driven by knowing that they’re going to have to disclose and work towards targets quite quickly.”
You can read the article in full here, on the PlaceTech website.
Victoria Towers is a Partner in the Commercial Real Estate team and leads Forsters client facing ESG offering. Louise Irvine is a Senior Knowledge Development Lawyer in the Commercial Real Estate team.
Attempts to block probate rose to a record level in England and Wales last year. Challenges to the distribution of inherited estates jumped to 9,926 in England and Wales’s courts and tribunals service centres in 2021, up 37 per cent compared with 2019.
On the rise, Fiona commented: “People are becoming more litigious when it comes to wills. Those who might have accepted being left out of a will 10 years ago may now be more likely to challenge it”.
The full article can be read here, behind the paywall.
With a rise in attempts to block probate, it is imperative to seek robust legal advice to avoid disputes. For more information, please contact Private Client Partner, Fiona Smith, or Head of Contentious Trusts and Estates, Roberta Harvey.
Will ground rent legislation deliver positive change in later living? – Amy France writes for EG
10 August 2022
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Commercial Real Estate Partner and Head of Later Living, Amy France, has written for EG, considering how the later living sector may now be viewing the Leasehold Reform (Ground Rent) Act 2022, as an opportunity to deliver positive change.
The article, which was first published on 8 August 2022 on the EG website, is available to read in full here (behind the EG paywall).
Revisiting termination: When to stick or twist? – Richard Spring writes for the Property Law Journal
3 August 2022
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Construction Senior Associate, Richard Spring, has written for the Property Law Journal, about the options available to those who are not happy with the performance of their contractor.
This article was first published in Property Law Journal 399 (July/August 2022) and is also available on lawjournals.co.uk.
“What of a contractor who, put simply, is just not performing? What options are available to an employer who believes its contractor is not holding up its end of the bargain?”
The article gives consideration to the intricacies of terminating a contract’s engagement and providing practical advice on how to safely exercise this inherently risky enterprise.
Spring describes how “a thorough, detailed analysis of the events surrounding the contractor’s non-performance, possibly with expert opinion, should be undertaken to ascertain whether the contractor has indeed failed to proceed regularly and diligently with the works before any decision to terminate is taken.”
He concludes by offering 10 key considerations to note when considering terminating a contractor’s engagement.
Depth and diversification will drive logistics growth – Victoria Towers writes for React News
27 July 2022
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The emergence of a new sub-sector of alternative uses is providing opportunities for investors and developers.
Commercial Real Estate Partner and Co-Head of Logistics, Victoria Towers, has guest written for React News on the rapid growth of the industrial and logistics market, resulting from changes in consumer behaviour thanks to the pandemic, the adoption of new technology, and the inexorable rise of e-commerce.
Contrary to popular belief that Amazon’s apparent reining in of its growing property requirements would curtail market growth, recent research from CBRE demonstrates a 10% growth in take-up of warehouse space between the first half of this year and last, alongside a UK vacancy rate of 1.2% – a new record low.
Towers describes how such growth and confidence in the sector can be attributed to the diversity across its occupier base. Production and distribution, life sciences, and light industry are all sectors worth mentioning, whilst “data centres have [also] become critical pieces of national infrastructure, required to store and process the data by the move to cloud-based computing.”
The lack of supply and high interest in this sector will continue to fuel the meteoric rise of the industrials and logistics market, and the diversification of the occupier base means that the pace of this growth may yet accelerate further. Landlords and developers must be forward-thinking and quick-moving in order to flourish and meet this growing demand from uses which will, over time, emerge from the alternative to the mainstream class.
This article originally appeared in React News on 21 July 2022, available here behind their paywall.
The Great Freeze: the effect of EU sanctions on EU trusts – Maryam Oghanna writes for Private Client Business
27 July 2022
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Contentious Trusts and Estates Senior Associate, Maryam Oghanna, together with Richard Dew of Ten Old Square, have authored an article for Private Client Business on the effect of EU sanctions on trusts with a connection to Russian nationals.
In their article, Maryam and Richard consider the fifth and sixth package of sanctions adopted by the Council of the EU, which prohibited the provision of trust services to any trust with a “Russian connection”, and the impact that they have had on affected trust and service providers.
The full article can be read here, behind the paywall.
Richard Dew and Maryam Oghanna, ‘The great freeze: the effect of EU sanctions on EU trusts’, Private Client Business 2022, 4, 117-123
Leading family lawyers on the future of divorce: Jo Edwards talks to Spear’s
22 July 2022
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Head of Family, Jo Edwards, among leading divorce and family lawyers sharing their thoughts with Spear’s Magazine on the evolution and future of the family law profession.
The Q&A, entitled ‘Leading family lawyers on the future of divorce’, brought together top family lawyers to share their thoughts on how the profession has changed and where it is headed next.
Jo spoke about her experience as a mediator working with high net worth clients, the shift away from clients thinking that litigation is the only way to resolve disagreements on divorce or separation, and the growing prevalence of nuptial agreements.
Divided We Plan: Alastair Laing and James Hamilton write for STEP Journal Plus
20 July 2022
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Partner, Alastair Laing, and Associate, James Hamilton, both in our Corporate department, have authored an article for the STEP Journal Plus entitled ‘Divided We Plan’.
In their article, Alastair and James outline the considerations for succession planning and the division of wealth in family offices.
The article highlights that a vast amount of generational wealth is predicted to be passed down over the next 25 years and includes an in-depth review of details regarding the structuring of assets through generations, the complicated nature that may occur regarding the division of assets, private equity fund investments, property matters and disparities in value.
The Ties that Bind: Roberta Harvey and Rory Carter write for STEP on privity of interest and its implications for enforcement of judgments in foreign jurisdictions.
15 July 2022
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Head of Contentious Trusts and Estates, Roberta Harvey, and Contentious Trusts and Estates Associate, Rory Carter, have authored an article for the STEP Trust Quarterly Review magazine entitled ‘The Ties that Bind’.
In their article, Roberta and Rory review the Mezhprom v Lenux judgment on privity of interest binding trustees in foreign jurisdictions. The article includes:
Background of the Mezhprom v Lenux ruling and application of Rules 43 and 48 of Dicey, Morris & Collins.
Consideration of the estoppel of privity of interest where a judgment against a defendant in one capacity binds him in another capacity, contrasted with where a non-party is bound by a judgment.
Examination of the further complication caused by firewall provisions, the risks to trustees not protected by firewall legislation, and some of the practical issues that arise.
Nine-month warning: Are you ready for looming climate rules?
14 July 2022
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Commercial Real Estate Senior Associate, Edward Glass, speaks to PlaceTech about what exactly landlords need to know about Minimum Energy Efficiency Standards (MEES) and how they can prepare for the April 2023 “crunch point” as a ban on continuing to let commercial buildings with poor energy ratings comes into effect.
Current MEES regulations prevent landlord from granting new leases for commercial real estate (CRE) spaces with an EPC rating below E. Next April, however, this ban will extend to existing leases (and by 2030, the ban is expected to extend to all properties with an EPC rating of below B; currently thought to be 85% of the UK’s CRE space).
Exemptions aside, there will be penalties for non-compliance – monetary and reputational – which inevitably has landlords worried.
As this “crunch point” approaches, and legislative thresholds are set to ramp up, Glass’s key advice for landlords is a must read.
You can read the article in full here, on the PlaceTech website.
Ed is a Senior Associate in the Commercial Real Estate team, with a specialism in ESG matters.
An English appeals court put multinational corporations on notice that they can be held accountable for worldwide operations by reviving a massive class action over dam failures in Brazil, signaling that the country’s courts should not shy away from handling mass claims regardless of where the underlying events took place.
Harbord said this summary “will no doubt cast fear into the hearts of multinationals who use complex group structuring over multiple jurisdictions.”
The article was first published on Law360 UK on 13 July 2022, and is available to read in full here, behind the paywall.
Renters’ Reform Bill: A ‘New Deal’ for Residential Tenants
6 July 2022
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Property Litigation Partner, Natasha Rees, and Associate, Elizabeth Oxendale, consider the Government’s long awaited White Paper published on 16 June, which sets out the 12 point action plan to reform the private rented sector.
While there is currently no indication of when the Bill will become law, it is set to introduce changes which will fundamentally overhaul the existing basis of the Private Rented Sector.
Where have all the good sheds gone… – Victoria Towers writes for Logistics Manager
6 July 2022
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You can’t find a good shed these days for what seems like love nor money – is this going to be the new ‘normal’?
Industrials & Logistics Partner, Victoria Towers, has provided expert commentary to Logistics Manager magazine on the growing supply-demand imbalance of warehouse space and the unsurprising increase in rent levels, highlighting that “we are still in a landlord’s market.”
As a result, speculative space is frequently being let during construction, prior to practical completion.
Towers adds that “with demand still very much outweighing supply, occupiers are also accepting longer leases and thought is being given to rent reviews. Rather than open market rent reviews, developers and landlords are looking at CPI rent reviews, and this is being accepted by tenants.”
The article summarises that due to inefficiencies within councils in relation to planning approvals for new developments, developers and investors are essentially taking a lottery ticket when it comes to getting their planning application approved, regardless of their scale of investment or prior experience with the system.
This article first appeared in the July 2022 edition of Logistics Manager magazine, it is available here.
Taking Off: Drones and real estate in 2022 – Louise Irvine and Andrew McEwan take part in LexisNexis webinar
30 June 2022
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Commercial Real Estate Senior Associate, Andrew McEwan, and Senior Knowledge Development Lawyer, Louise Irvine, recently produced a webinar as part of the LexisNexis Webinar series, covering the interesting topic of drones and how we are seeing them fit into the Real Estate industry at present.
Their conversation delves into topics such as:
the current uses for drones within real estate and beyond;
what the current legal framework is in relation to the ownership and use of airspace;
what landlords might want to consider if thinking of including drones as part of their strategy for their existing/future projects (with a particular focus on drone landing pads for deliveries); and
their view on where we might see increased opportunities for commercial drone use in future, for instance with ‘drone corridors’ across industrial sites and for urgent medical and remote area logistics.
McEwan commented: “As drone technology continues to improve, we are expecting to see more and more landowners start to consider incorporating provision for drones into their new schemes in years to come and we look forward to seeing whether the tight regulations in this area will eventually allow the industry to ‘take off’.”
Supreme Court ruling paves way for 5G coverage expansion in the UK – Anna Mullins speaks to City AM
28 June 2022
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Property Litigation Partner, Anna Mullins, spoke to City AM following the Supreme Court’s ruling that makes it easier for telecommunications firms to deploy 5G infrastructure in the UK.
The judgment, which comes as the government pushes ahead with plans to transform the UK into a “global leader in 5G”, stipulates that telecoms firms have the right to upgrade their existing phone masts, even in the cases where landowners do not grant them permission.
Mullins described the ruling as a “triumph for technology.”
Guy Mawson writes for IFA Magazine on no fault divorce
27 June 2022
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Family Senior Associate, Guy Mawson, has authored an article for IFA magazine entitled ‘No-fault divorce – the end of conflict?’.
On 6 April 2022, the most significant change to divorce laws in a generation came into force. Widely reported as signalling the “end of the blame game”, the importance of no-fault divorce should not be underestimated.
However, Guy highlights that while the change to the law is welcome, spousal conflict will not simply disappear. He explains “the often far more thorny questions of agreeing childcare arrangements and a financial separation still remain as does grappling with the potential damaging impact of conflict, both emotionally and financially”.
An antitrust tribunal has given the go-head for a £2billion claim over a price-fixing cartel, granting the U.K.’s first ever opt-in class action.
Harbord said “while standalone opt-in applications may be made in specific circumstances, such as a trade body with a significant and unusually motivated membership that has signed up for the claim, these circumstances are quite unusual.”
The article was first published on Law360 UK on 17 June 2022, and is available to read in full here, behind the paywall.
The article was first published in EG on 10 May 2022, and can be read in full below.
Some apartment buildings will have resident management companies that deal with the management and maintenance of the building. RMCs may be established by the original developer of the building, or may be set up by leaseholders themselves, either as part of a right-to-manage claim whereby the leaseholders take over the landlord’s management obligations in the leases using a right-to-manage company or following enfranchisement by the leaseholders, whereby they collectively purchase the freehold of the building from the landlord.
RMCs may themselves be party to leases of the apartments, with specific obligations in respect of managing and maintaining the building, or they may instead be responsible for performing all or some of the obligations of the landlord. Managing the building will require keeping the communal areas, structure and exterior of the building properly maintained and in good repair and condition. This will involve entering into service agreements with contractors and other suppliers, as well as employing staff (for example, concierge, security, cleaners and gardeners, etc) and insuring the building in its full reinstatement value. The costs of these services will be charged to leaseholders through their service charge, in accordance with the terms of their leases.
RMCs will usually be responsible for demanding, collecting and recovering service charges from leaseholders, as well as dealing with all accounting matters, such as preparing budgets at the start of each service charge year and final accounts at the end of each year. Where a leaseholder is in breach of their obligations under their lease, the RMC may be responsible for enforcing these obligations (particularly if it has received a complaint from another leaseholder), which could include taking legal action against the leaseholder.
Setting up an RMC
RMCs are English limited companies, and the usual incorporation requirements will apply. Directors will need to be appointed, shares will need to be issued (unless it is a company limited by guarantee) and articles of association (the key constitutional document detailing how the company is to be run) need to be adopted.
Where the RMC is limited by shares, typically each leaseholder will be given a share in the RMC which will be “stapled” to their apartment. This means that on a sale of an apartment, the share automatically transfers to the new owner and prevents a third party without any interest in the property from acquiring an interest in the RMC.
Where a company is limited by guarantee, leaseholders will become members of the company and their details will be noted on the register of members (no share certificates will be issued). On the sale of an apartment, membership automatically transfers and the membership register should be updated accordingly.
Directors’ duties – as established by the Companies Act 2006:
To act within their powers (ie in accordance with the constitution of the RMC)
Promote the success of the company for the benefit of its members as a whole
Exercise independent judgment
Act with reasonable care, skill and diligence
Avoid conflicts of interest
Not to accept benefits from third parties
Declare interests in any proposed transactions or arrangements with the company
While shareholders/members have certain rights as a matter of law and under the articles of the RMC, if leaseholders really want visibility and input into the management of the RMC (and therefore management and maintenance of the building) they need to be appointed as a director.
Individuals may be invited to act as a director (often by reference to a specific set of skills they possess) or, more frequently, they tend to put themselves forward for appointment because they regard it as their contribution to the community of the building.
However, directors of RMCs are not generally paid (although there may be scope for reimbursement of out-of-pocket expenses), and the role can carry some risk.
The role of a director
Directors must ensure that the RMC complies with any legal obligations it is subject to. These will include not only lease terms, but also broader legal obligations under landlord and tenant law.
For example, ensuring that service charges are reasonable and where the RMC intends to carry out works costing more than £250 per leaseholder or they intend to enter into an agreement with a contractor for more than 12 months costing more than £100 per leaseholder in any 12-month period, then they must follow the section 20 consultation procedure prescribed by the Landlord and Tenant Act 1985, including consulting with all leaseholders and obtaining tenders. RMCs will also need to comply with relevant health and safety legislation, including obtaining a fire safety risk assessment for any communal areas, implementing its recommendations and ensuring it is regularly reviewed. Where the RMC is also the landlord, it will need to enforce leaseholder covenants and consider carefully any applications for consent, particularly where granting consent would be a breach of an absolute covenant.
Directors of RMCs, like all directors, are subject to the specific duties set out in the Companies Act 2006 (see above).
Directors can be made personally liable for a breach of these duties, so it is imperative that they have proper regard to them when making decisions. In particular, the obligation to “promote the success of the company for the benefit of its members as a whole” can be very complicated in practice as it requires directors to consider the impact of decisions they make and actions of the RMC on other leaseholders and their tenants.
Directors need to ensure they are able to objectively justify any decision that may appear to benefit some leaseholders (especially themselves) over others – for example, when prioritising maintenance work which might benefit some apartments more than others.
Individuals also need to be aware of the inherent conflict that may exist by virtue of them being a leaseholder, shareholder/member of the RMC and director of the RMC too.
Practical considerations
Acting as a director of an RMC can take up significant time and an individual will need to be comfortable that they can balance the role with any other commitments they have. They will need to be available to attend board meetings, consider papers and issues relating to specific matters and liaise with other leaseholders and third parties. Directors should consider whether it is appropriate to seek external advice or support, such as passing day-to-day responsibility for management to third-party managing agents or seeking input from professional legal advisers.
Directors need to be prepared to be able to make difficult decisions, for example, if the RMC is required to enforce provisions of leases against leaseholders or if there is a dispute between leaseholders. These decisions may mean that directors find themselves in direct conflict with other shareholders/members of the RMC, who are also their neighbours.
Directors will need to be fully up to speed with the articles of association governing how the RMC is to be run (and, most importantly, how decisions of the board of directors are to be made), the leases and any obligations which the RMC is specifically responsible for, and any other legal obligations of the RMC.
If appropriate, advice and support should be sought from lawyers or managing agents. Consideration should be given to any relevant processes and policies if not already clear. These could cover matters such as the protocol to be followed should a leaseholder require consent under their lease for alterations, assignments, underlettings, pets, etc, how to deal with leaseholders who are in breach of their leases or if a dispute has arisen (either between leaseholders or where leaseholders disagree with directors’ decisions), or the establishment of committees for larger projects.
Directors should ensure that any money of the RMC (for example, in respect of its share capital and subscriptions or any income received, for example, from ground rents or lease extensions if the RMC is also the landlord of the building) is held separately from any service charges received, ideally in separate bank accounts. The RMC is required to hold any service charges received on trust for the benefit of leaseholders and to only use such funds as provided for in the leases, so having separate bank accounts should ensure the funds of the company are not mixed with service charges.
Given that directors can be held personally liable for a breach of their duties, RMCs should consider taking out a directors and officers’ insurance policy, which will protect directors from any claim brought against them in respect of actions they may take as a director.
The role of a RMC director can be demanding and stressful but it can also be very rewarding and give those who embrace the responsibility more control and influence on the running of their building.
Robert Barham writes for Property Week on ground rents
21 June 2022
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Residential Property Partner, Robert Barham, has authored an article for Property Week on the abolition of new ground rents.
From 30 June 2022, it will no longer be possible for landlords to reserve ground rents in long residential leases.
Robert explains that while the abolition of ground rents should result in higher prices for properties, in reality this will likely not be the case given that the market never priced ground rents in when assessing the value of new-build properties.
However, he does pose the question on what the change will mean for developments where some units are sold with ground rents reserved and others, yet to be sold, will have no ground rents.
Could building safety legislation derail house building targets? Ella Jones writes for Property Week
17 June 2022
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Planning Associate, Ella Jones, has written for Property Week, on one of the key questions following the investigations carried out in the wake of the Grenfell Tower fire – who pays to remedy defective cladding.
Originally, leaseholders were to be liable, until (housing secretary) Gove’s amendment to the Building Safety Act earlier this year, stipulated that developers would need to contribute to a £4bn national fund to pay for remediation – those failing to contribute, could face planning permission and building control sign-off blocked by the government (effectively preventing developers from building and selling new homes).
Jones said: “The government would be wise to avoid this as it will definitely slow down new homes delivery and conflict with the agenda to deliver 300,000 homes a year. While building safety is a very serious issue that needs to be remedied, there are many unanswered questions that will need addressing if the measures are to work effectively without causing a drop in housing supply.”
How enforcement action will come into play and whose responsibility it will be, is yet to be detailed.
The article was first published in Property Week on 16 June 2022 and is available to read in full here, behind the paywall.
Read further insights from our team on the Building Safety Act here.
Has Grenfell changed the face of Construction? Andrew Parker speaks to Raconteur Magazine
16 June 2022
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Construction Partner, Andrew Parker, recently spoke to Raconteur magazine on the impact that the Grenfell fire has had on both the Construction industry and the resultant legal developments in relation to regulations and safety standards. Andrew said:
“In the five years since the tragedy at Grenfell there have been two significant pieces of legislation. The first is the Fire Safety Act, which received Royal Assent on the 29th April 2021 and the second is the Building Safety Act, which received Royal Assent on the 28th April 2022.
“The Fire Safety Act, which came into force in May 2022, amends the 2005 Fire Safety Order to require updated fire risk assessments for buildings with two or more domestic premises to take account of the structure and external walls of a building and all the doors between the domestic premises and the common parts.
“This is a huge undertaking, essentially requiring updated fire risk assessments for all communal residential buildings and puts significant demand on specialists in the sector to carry out the assessments. To help manage the demand the Government has introduced a ‘fire risk assessment prioritisation tool’ so those buildings with heightened risk are tiered accordingly and can access competent professionals as a priority. The Fire Safety Act also makes it easier to identify the ‘responsible person’ to ensure greater accountability for a buildings fire safety.
“The Fire Safety Act, which came into force in May 2022, amends the 2005 Fire Safety Order to require updated fire risk assessments for buildings with two or more domestic premises to take account of the structure and external walls of a building and all the doors between the domestic premises and the common parts.
“This is a huge undertaking essentially requiring updated fire risk assessments for all communal residential buildings and puts significant demand on specialists in the sector to carry out the assessments. To help manage the demand the Government has introduced a ‘fire risk assessment prioritisation tool’ so those buildings with heightened risk are tiered accordingly and can access competent professionals as a priority. The Fire Safety Act also makes it easier to identify the ‘responsible person’ to ensure greater accountability for a buildings fire safety.
“The Building Safety Act has introduced several new rules and regulations, including a new Building Safety Regulator, Homes Ombudsman Scheme, and a ‘Gateway’ system, which will see greater scrutiny on buildings as they progress through design and construction, but a majority of the provisions in the Act won’t come into effect for another 12-18 months.
“One of the first parts of the Building Safety Act that will be brought in is an extension to the limitation period which will see the limitation period extended from six years to 30 years for retrospective claims, essentially meaning that a whole swathe of buildings constructed since 1992 may now be the subject of new claims from residents against building owners and developers.
“It could be a challenging time with increased demand for suitably qualified and experienced engineers to carry out assessments and remedial work.”
In their article, they explore the facts of Philipp v Barclays, the Court of Appeal’s approach to Quincecare, and the many questions that are currently left unanswered.
“Retail banks will most likely need to revisit their policies and procedures for detecting and preventing APP fraud and/or reversing monies that have been misappropriated by virtue of it.”
The article was first published in the New Law Journal on 10 June 2022. You can read the full article here.
Stepping Stones: Hannah Mantle and Charles Hancock write for the STEP Journal on modern families
8 June 2022
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Contentious Trusts and Estates Senior Associate, Hannah Mantle, and Private Client Associate, Charles Hancock, have authored an article for the STEP Journal entitled ‘Stepping Stones’.
In their article, Hannah and Charles review recent case law in England and Wales that illustrates how the courts are adapting to the modern definition of ‘Family’.
It is widely reported that in recent years the number of people contesting wills has increased dramatically. One reason for this is the complicating factors associated with changes to the traditional family structure. The STEP Report Meeting the Needs of Modern Families (the Report), sponsored by TMF Group and released in November 2021, challenges legislators to adapt and modernise in order to support the needs of modern family structures.
This article focuses on some of the key legal principles surrounding trust, inheritance and succession disputes in England and Wales and considers how current case law is adapting to the changing definition of the ‘family’.
How estates can be challenged
Notwithstanding the long-standing principle of testamentary freedom in England and Wales, there are numerous ways for an aggrieved party to challenge a will, for example:
lack of proper formalities;
lack of capacity or lack of knowledge of approval;
fraud or undue influence; and/or
subsequent revocation.
Of course, different conditions must be satisfied in order to bring a successful claim in the various categories. Although this article cannot examine the types of challenge in detail, it touches on some recent examples that demonstrate that some older wills or deeds containing prescriptive definitions about family members, or the intestacy rules, are not always beneficial for modern family structures.
Additionally, where a person dies domiciled in England and Wales, a claim may be brought under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). The 1975 Act provides a mechanism for various categories of person to bring a claim against the deceased’s estate where they are left without ‘reasonable’ financial provision. This could be a spouse or civil partner, ex-spouse or ex-civil partner, child, ‘child of the family’ or someone maintained by the deceased. The claimant must show that the provision made for them was not sufficient to be reasonable, and for everyone other than spouses or civil partners, the provision made under the 1975 Act will be restricted to maintenance (and balanced against the needs of other beneficiaries or claimants).
How the law is adapting to the definition of ‘Family’ in the modern era
For a long time, the law in England and Wales has tried to evolve with changing norms. An example of this is the introduction of the Legitimacy Act 1976, which broadened the default definition of children to include legitimate, illegitimate, legitimated and adopted children (together ‘child’ or ‘children’). Another example is the 1975 Act, which was amended as recently as 2014, and was preceded by legislation that only allowed spouses and certain children to benefit. As the Report shows, there has been a shift away from the traditional family structure of a heterosexual couple and their biological children, and a rise of blended families (i.e., those brought together over time by new relationships).
To some extent, these changes have been recognised in the UK Human Rights Act 1998 (the 1998 Act) the UK Civil Partnerships Act 2004 and the UK Marriage (Same Sex Couples) Act 2013 (the 2013 Act). However, one of the challenges faced by courts is how to interpret trust deeds created prior to such legislation: trust deeds that may contain restrictive definitions written in the context of a specific culture.
The case law
The recent case of Goodrich v AB is an example of a modern approach to trust interpretation. The trustees of two employee benefit trusts sought direction from the England and Wales High Court (the Court) concerning the construction of the terms ‘spouses’ and ‘children’ contained in a settlement deed dated
April 1990. The Court determined that civil partners and same-sex spouses were included within the definition of ‘spouses’, but stepchildren were excluded from the definition of ‘children’.
The judge held that s.3(1) of the 1998 Act required the Court to interpret the definition of spouse in the 1990 trust deed in accordance with the rights guaranteed under the Convention for the Protection of Human Rights and Fundamental Freedoms. The judge read down sch.4 to the 2013 Act, which usually excludes same-sex couples when interpreting references to marriage in legal instructions drafted before the 2013 Act was in force, therefore removing its discriminatory effect and allowing it to comply with the 1998 Act.
The Court also held there was no impediment to including same-sex spouses in the beneficial class (and that same-sex spouses should be included using traditional textual and contextual construction principles). This is an important decision for those considering the interpretation of older settlements
and the impact of the human rights legislation upon them.
Although the Court considered that to include stepchildren in the definition of ‘children’ would be overly onerous on the trustees, especially in the context of an employee benefit trust, it is nevertheless possible to include stepchildren as beneficiaries of a trust by ensuring, if relevant, that the definition of children expressly includes stepchildren or by including them by name.
In an inheritance context, an obvious (but important) point to remember is that a successful challenge may result in a previous will being admitted to probate; or if there is no previous will, the intestacy rules being applied. This was evident in the recent case of Reeves v Drew and others, where the deceased’s son successfully convinced the Court to uphold his father’s earlier will.
When referring to the deceased’s final will, the judge held that the deceased’s daughter had ‘pulled the wool’ over her father’s eyes and exploited his poor literacy and that the deceased had not understood the terms of his latest will at the date on which he signed it and had not intended to alter his testamentary dispositions so radically.
Conversely, in the recent case of Wilson v Spence, the stepchildren successfully challenged their stepfather’s will, only to have their grant of letters of administration revoked as they had misrepresented their relationship to the deceased by claiming they were his children, as stepchildren do not inherit or have a right to administer an intestate estate.
The recent 1975 Act case concerning the estate of Stewart Higgins shows a relatively modern application of the 1975 Act, which addressed the distinction between children and stepchildren. Higgins died intestate in 2017 and his stepson (the Claimant) claimed on the basis he had not been provided for under the intestacy rules. The Claimant, aged 45, had been nine years old when his mother married Higgins and he and his sister had remained close to Higgins until his death. Further, Higgins had supported the Claimant with his previous divorces and contributed financially towards his weddings. Higgins also promised the Claimant that he would be provided for under his wills, equalising a substantial gift Higgins had given to the Claimant’s sister during his lifetime.
In reaching a decision, the Court considered the difficulties sometimes faced by adult children of the deceased making a 1975 Act claim, who usually require more than simply the qualifying relationship in order to successfully claim against their parent’s estate (stemming from the case of Re Coventry, and confirmed in Illot v Mitson). In the Claimant’s case, the Court confirmed that this applied equally to stepchildren and decided that ‘something more’ had indeed been demonstrated because:
Higgins had expressed that he wished to equalise matters as between the Claimant and his sister when it came to making a will; and
Higgins was close to the Claimant and vice versa, in contrast with the intestacy beneficiaries (seven relatively distant cousins), although Higgins did maintain some contact with them.
The case provides some clarity for the category of 1975 Act claimants who are ‘treated as a child of the family’ and clarifies how the 1975 Act can be used to meet the needs of modern family structures. Although the position is arguably different for minor children and stepchildren, Higgins shows that adult stepchildren can be treated in a similar way to adult children under the 1975 Act. Perhaps, in due course, we will see whether the position would be different if it were necessary to balance a stepchild’s needs against those of a child.
Conclusion
Although the Report found that blended families were on the rise and that their complexity can lead to more conflict, one of the other key conclusions was that ‘communication and early planning is essential’. This is borne out by many of the examples above. In a family trust, children can be defined appropriately to the particular family; and if they are not, then cases such as PQ v RS9 confirm that the difficulties need not be insurmountable.
High Court judgment highlights the complexities of refusing consent: Anna Mullins writes for Property Week
8 June 2022
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Property Litigation Partner, Anna Mullins, has written for Property Week on the recent High Court judgment handed down in Davies-Gilbert v Goacher and Chester [2022] EWHC 969 (Ch).
Part of the claimant’s land benefited from a restrictive covenant, which prevented the defendants from constructing any building without the claimant’s consent. The claimant refused consent but the defendants proceeded to commence building anyway, in the belief that the refusal was unreasonable.
The claimant issued proceedings and, although the refusal was eventually held to be reasonable, the judgment emphasises, not only the importance of the decision-making process when refusing consent, but also the many complexities that practitioners and landowners (and by wider implication landlords and tenants) must consider when refusing consent.
Mullins says: “it is important to remember that the burden of proof for proving that the covenantee’s refusal of consent is unreasonable lies upon the covenantor. It is not up to the covenantee to justify their decision as reasonable”.
The article was first published in Property Week on 7 June 2022 and is available to read in full here, behind the paywall.
Shareholders speaking up – Aaron Morris writes for CGI
7 June 2022
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Corporate Senior Associate, Aaron Morris, writes for CGI’s G and C Digital Magazine, discussing if supply chain challenges and ESG concerns will drive an increase in shareholder activism.
The article, entitled ‘Shareholders speaking up’ was first published in CGI’s G and C Digital Magazine on 19 May 2022.
Will supply chain challenges and ESG concerns drive an increase in shareholder activism?
As the 2022 AGM season kicks-off, the ever-changing global situation means that shareholders are, more than ever, taking a keen interest in the way in which their companies are being run. In turn, businesses are increasingly facing the challenge of balancing the need to increase profits – especially after a tumultuous couple of years for many – while acting in a way that demonstrates that their business is morally and ethically attuned to the world in which we live.
These factors, along with the government opening up the economy after two years of restrictions, mean that we are likely to see a rise in shareholder activism this year; a continuation of a trend seen over recent years, as reported by IR Magazine. At its core, this relates to shareholders exercising the rights attached to their shares or using their position as a key shareholder of a company to influence changes in how the business is run and the policies it pursues. They may do so by, for example, privately exerting pressure on the board, or putting resolutions to or raising other matters at general meetings.
ESG and sustainability issues are becoming more pressing in the minds of shareholders and are increasingly being used by them as a way to hold businesses to account. The number of environment related issues raised at AGMs is likely to go up following the COP26 summit at the end of last year, as investors will want to start seeing clear objectives for implementing longer term environmental strategies. Greater diversity – particularly ethnic diversity – on boards of directors also continues to be an important topic and, while some progress has been made, there is still a long way to go. Other issues, such as employee wages, are also likely to feature, with Legal & General Investment Management joining other shareholders of Sainsbury’s in pursuing wage increases for staff. This will be particularly pertinent in light of the cost of living crisis.
Impact of the war in Ukraine
Investors would have watched on in disbelief as events unfolded around the Russian invasion of Ukraine, and it seems certain that these actions will lead to an increase in shareholder activism – to the extent they have not already done so. Shareholders are likely to be concerned with any activity a company has in Russia and with Russian owned companies, especially following government-imposed sanctions. The impact of failing to cease business in Russia has already been felt by companies such as Coca-Cola who, due to their slow actions, faced calls on social media for a boycott.
Investors will be conscious of the operational implications that ceasing business in a particular country can have, but also the severe reputational damage that can result from not acting quickly enough. This is particularly true in light of the atrocities in Ukraine. However, as Andrew Edgecliffe-Johnson, the US Business Editor for the Financial Times reports, ‘With the exception of the oil and
gas giants with multibillion-dollar ventures in Russia, most companies’ principled statements have so far come at a pretty low cost.’ While a minority have withdrawn from Russia completely, he said ‘most have just suspended operations, halted new investments or curtailed the range of products and services they offer,’ and due to the facts that have come to light, ‘the prospect of a quick resolution that lets western brands feel fine about returning to the shopping malls of Moscow now look increasingly remote.’ It will therefore be interesting to see the extent to which shareholders push for a complete withdrawal from Russia and how this process will be managed.
The conflict in Ukraine, the COVID-19 pandemic and the after-effects of Brexit are affecting supply chains in a number of industries because of problems such as staff absences through illness and a lack of resources. The renewed lockdowns in China have further exacerbated the issue as the country pursues its zero-COVID policy, resulting in non-essential factories having to suspend production and cargo ships having no option but to wait outside ports. In an article published by Reuters, Foxconn – which makes iPhones for Apple – recently reported that its revenue could reduce by up to 3% this year, which it has put down to the cost of resources. Additionally, Russia and Ukraine produce
the majority of the world’s supply of sunflower oil of which we are starting to see a lack; this is having a knock-on effect on the manufacture of products requiring this ingredient.
Supply chains and deglobalisation
During supply chain disruption, the idea of deglobalisation reappears as companies and countries realise how dependent they are on certain suppliers.
In respect of both the supply chain issue and a possible move towards deglobalisation, activist shareholders are likely to be vocal about the increase in costs as a direct result of demand exceeding supply and delays in the worldwide transportation of goods and resources. Deglobalisation is arguably another determinant of the rise in costs and prices as it leads to a decrease in competition. Shareholders will therefore be keen to see directors adopting policies to counteract this to protect distributions and the value of their shares. There may be a push for raw materials to be supplied from different locations where possible, for manufacturing to be moved to regions deemed more stable and dependable, for funding to be invested in research and development in an attempt to find alternatives and for companies to stockpile goods as part of a contingency plan. As an example, the BBC has reported that Edible Oils has started to increase its production of other oils as a replacement for sunflower oil. Where expenses cannot be kept down, we may also see a move towards cost-saving measures which could include redundancies. Management teams who are unable to meet the challenge of offsetting rising operating rates may also find that shareholders refrain from approving directors’ remuneration packages as a result of poor performance; they may even seek to replace them with a new executive team.
Twitter purchase
Finally, in the United States, we have seen a different kind of shareholder activism through Elon Musk’s purchase of Twitter. Musk initially bought a 9.2% stake in the company to become its second largest shareholder. After his first launch of a takeover was met with Twitter passing a ‘poison pill’ provision, he has since had a $44 billion bid accepted. Such shareholder activism is seemingly being undertaken so that Musk can start to effect changes in the way Twitter operates, particularly with regard to free speech. Takeovers of this size are unlikely to be discussed at AGMs in the UK, but there are some examples of investors pushing for the sale of a company following poor performance. For example, the Financial Times reported that Phase 2 Partners, the US-based hedge fund, is applying pressure to the board of TP ICAP to sell, following a drop of 45% in the company share price over the past year and concerns about the existing governance and ownership structure.
This article has highlighted just a few of the areas in which shareholders are likely to apply pressure, but the current global political and economic position is unlike many seen before, it will be interesting to see what issues arise from shareholder activism at this year’s AGMs.
Economic Crime Act – compliance tips for accountants: Bryan Shacklady and Joe May write for Accountancy Daily
25 May 2022
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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.
Construction focus: Oral contracts – Emma Swan writes for Property Law Journal
17 May 2022
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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.
London’s Tall Buildings: The Survey, The Plan and The Master Brewer – Victoria Du Croz writes for NLA
9 May 2022
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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
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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.
The UK Logistics Market, A Gift That Keeps On Giving – Victoria Towers speaks to Logistics Manager
6 May 2022
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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.
Forcing landlords to let empty shops: will it save the high street? – Andrew Denye speaks to React News
6 May 2022
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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.
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:
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.
Axa is suing Santander for £624m, a loss that Axa says it has suffered as a result of successful Financial Ombudsman Service claims concerning Axa payment protection insurance policies allegedly mis-sold by Santander.
“This is why it is important to have robust contractual arrangements in place. These arrangements should make it clear where and with whom liability sits when things go wrong.”
With Axa suing Santander for £624m over its payment protection insurance policies, Caroline Harbord,partner, and Charlie Paddock, trainee solicitor at law firm Forsters, discuss the importance of robust agency arrangements in insurance sales and supply chains.
Axa is suing Santander for £624m, the quantum of loss that Axa says it has suffered asa result of the tsunami of successful Financial Ombudsman Service claims concerning Axa payment protection insurance policies allegedly mis-sold by Santander.
This case provides a salutary lesson for insurance companies regarding the importance of having robust contractual arrangements in place.
For background, Santander was engaged to sell Axa PPI policies to consumers pursuant to the terms of an agency agreement between Axa and Santander. Axa now alleges that Santander mis-sold the PPI in breach of the express terms of the agency agreement and the Association of British Insurers’ code of practice of general insurance. Axa is seeking to recover its significant losses via: the indemnity in the agency agreement, general contractual damages, and the terms of an unexecuted settlement agreement. The status of the settlement agreement is in dispute between the parties and has formed the basis of Santander’s recent strike out application.
What is particularly interesting about the facts of the case is that when the PPI liabilities first started to arise, neither party appears to have been clear about who was responsible for the liabilities. Initially, Santander paid out on all the FOS judgments. Then Axa started to pay out for certain liabilities but was compensated by Santander. That lasted until Santander decided it was no longer happy with that arrangement and asserted that Axa should bear certain liabilities in their entirety.
This is why it is important to have robust contractual arrangements in place. These arrangements should make it clear where and with whom liability sits when things go wrong. This is particularly crucial when it comes to selling insurance and financial products, given the associated regulatory requirements which must be complied with at the point of sale. Agency agreements should, therefore, also contain robust compliance, supervisory and audit provisions, so that the insurer can satisfy itself as to its agent’s continued compliance with regulatory obligations.
Achieving contractual nirvana is, of course, often easier said than done. It is impossible to predict all the ways in which liability might arise and this can be particularly complicated when supply chains are multi-jurisdictional. In cases where unexpected liabilities do arise in a sales and supply chain, the parties would do well to get the lawyers in early to establish and record who is responsible for the losses. Had Axa done this back in 2014, it may have found its bottom line to be better off by the tune of £624m.
Axa is, however, in some ways fortunate that the agent in question is an institution of significant financial standing.This is important because it makes suing Santander worthwhile. If Axa succeeds in the claim, it has a good chance of being able to successfully enforce the judgment and receive the cash back in to its pocket.
The contractual considerations raised in the preceding paragraphs are rendered entirely academic in cases where the party in the supply chain that is contractually liable for losses has no financial substance to meet them. In these cases, the party in the supply chain with the deepest pockets may find itself forced to bear all third-party liabilities irrespective of what any agency or supply chain agreements provide about who should technically bear these liabilities as a matter of contract.
The article was first published on Insurance Post on 15 April 2022. You can read the full article here, behind the paywall.
Helen Marsh quoted in The Telegraph on the cooling of the property market outside the commuter belt
29 April 2022
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Residential Property Partner, Helen Marsh, has been quoted in The Telegraph article, ‘How a property seller overpaid in the pandemic frenzy – then made a £300,000 loss.’
As the post-lockdown rush to leave the capital reverses and buyers look to return to London or more traditional commuter locations, some property owners that are looking to sell their pandemic purchases are finding their rural homes are worth less than they paid for them.
The fall in demand has resulted in the cooling of the property market in more rural locations, further fuelled by rising interest rates and the increased cost of living.
Helen Marsh comments “I’ve definitely seen people who rushed to move out of London and then realised they don’t like it, or that they have to do the commute to the office that they never thought they would need to do.”
The full article can be read here, behind the paywall.
Forced rent auctions: What property and the government need to know about how this will (and won’t) work – Andrew Denye talks to Bisnow
29 April 2022
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Last week, the Government suggested a new plan to rejuvenate the UK’s high streets and tackle the growing issue of empty retail properties: If one such property has stood empty for more than six months, the local authority could force the owner to rent it out.
This idea has been met with scepticism by industry experts, both in reference to its function and its intended effects.
Regarding the key component that local authorities would have the power to upend centuries of private property rights, and the notion of landlords’ autonomy over their own property, Head of Retail, Andrew Denye summarises:
“You are almost saying the local authority would need to have some sort of compulsory purchase order power, but without purchasing the property. If, as being suggested, the landlord is effectively being forced to lease out their property, unless you are talking about changing landlord tenant law, the landlord will still have to enter into some sort of contract or agreement, unless you are taking ownership away from them.”
Andrew shares the view among industry experts that the proposal has an air of political short-termism.
He said: “I keep coming back to this idea of levelling up. For those areas that do need levelling up, I’m not sure they will get anything from this because there isn’t the demand for retail premises in these areas – it doesn’t change the fact that there is just too much retail.”
This article was first published on 27th April 2022 in Bisnow, available here, behind their paywall.
Jo Edwards and Amanda Sandys write for Law In Sport on how to protect athletes when a relationship breaks down
27 April 2022
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Head of Family, Jo Edwards, and Family Counsel, Amanda Sandys, have authored an article for Law In Sport entitled ‘Staying On Track: How To Protect Athletes From The Impact Of Family Breakdown’.
The impact of relationship difficulties or breakdown on the well-being of sports professionals is often overlooked. It can take a significant toll on mental health and, in turn, professional performance, unless carefully managed by agents and those around them.
In their article, Jo and Amanda examine the practical issues for athletes and support teams to be aware of when forming relationships and managing relationship breakdown. Specifically, it looks at:
Awareness of the mental impact
Addressing media intrusion
Dealing with disputes
Legal frameworks for different types of relationship
Relationship agreements and nuptial agreements
Protecting finances and assets
Ongoing maintenance obligations
Choosing a favourable jurisdiction
Children – parenting arrangements
Geographical considerations
Alternatives to court
The full article can be read here, behind the paywall.
Jo and Amanda have acquired quite extensive experience in this field, especially with footballers, and always enjoy working with sports psychologists and reputation management professionals to get the best outcomes for their clients. If you have questions in relation to the topics raised in this article or other family matters, please do get in touch.
No ‘planning panacea’ through Section 106 and CIL abolition: Matthew Evans speaks to Property Week
22 April 2022
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Earlier this month, the government announced its intention to replace Section 106 planning obligations and the tariff-based Community Infrastructure Levy (CIL) with a new, uniform infrastructure levy. Whilst the proposed change is expected to simplify the system, is a uniform levy really the answer?
Planning Counsel Matthew Evans says that the government’s announcement has already started to cause disruption, “many local authorities have paused CIL reviews on the basis that it is pointless to bring forward plans that will possibly change in a few years”. He believes there are difficulties associated with a one-size fits all levy, not least because one of the ideas behind the initial introduction of CIL was that “it was going to do everything that the new levy will”, which he says, didn’t work out because “fundamentally, there are complicated elements that still need these bespoke agreements, one of which is affordable housing”.
Evans stresses the need for greater detail on the government’s proposals (and soon) before development in some areas could either slow or stop altogether.
This article was first published in Property Week on 21 April 2022 and is available to read here, behind the paywall.
Why acting as an RMC director carries some risk: Christine Dubignon and Samantha Tomczyk write for Property Week
21 April 2022
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Corporate Partner, Christine Dubignon, and Residential Property Senior Associate, Samantha Tomczyk, have authored an article for Property Week entitled ‘Why acting as an RMC director carries some risk’.
Resident management companies (RMCs) are owned by leaseholders to deal with their management and maintenance needs.
RMCs are required to have directors, who are responsible for their day-to-day management. Christine and Samantha highlight to readers that acting as a director “is usually an unpaid role and does carry some risk”.
In their article, they explain the key risks one faces when acting as a director, from time commitments to personal liability.
The impact of Croydon LBC v Kalonga on fixed-term tenancies: Sarah Heatley speaks to Property Week
21 April 2022
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Property Litigation Senior Associate, Sarah Heatley, has written for Property Week on the recent judgement handed down by the Supreme Court in Croydon LBC v Kalonga [2022] UKSC and the impact this will have on fixed-term secure tenancies.
Until the Localism Act 2011 came into force, it was relatively straightforward for landlords to obtain possession of their properties (subject to serving the correct notice period and agreement by the courts). The Act and the advent of flexible tenancies changed this, making it unclear how possession could be obtained during the fixed term (usually of at least two years).
In the case of Kalonga, the Supreme Court held that there are two ways of doing so – via a break clause or a forfeiture clause in the tenancy contract – without which, the tenancy would continue until the end of the fixed term.
Heatley says: “The clarity by the Supreme Court on this matter will surely be welcomed by landlords and tenants alike.”
The article was first published on Property Week on 13 April 2022 and is available to read here, behind the paywall.
Landlords under threat as clamour grows for rent controls: Helen Streeton speaks to React News.
19 April 2022
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Scotland and England have vowed to bring in rent controls and mayors in England are lobbying for the same power.
With the long-term effectiveness not yet proven, there are concerns over the impact of such measures on the supply of rental properties if regulation were to increase, and fears that it could result in landlords “voting with their feet”.
Commercial Real Estate Partner and Head of Build To Rent, Helen Streeton, spoke to React News about what this could mean for the Build To Rent sector:
“Build To Rent developers faced with dwindling returns could also decide to shut up shop. It happened with the Buy to Let sector… When the government abolished interest relief on mortgage payments, a lot of people just withdrew from the market”.
Whilst suggesting that the government could “provide a rent subsidy to tenants or incentivise developers to build more houses by giving them a tax break”, Helen admits there would be a “time lag between introducing a tax break and tenants seeing reduced rents”.
Property industry eyes will be firmly fixed on Scotland to see what happens next…
This article was first published in React News on 14 April 2022 and is available to read in full here, behind the paywall.
Commenting that she would firmly focus on increasing funding to local planning authorities, she said “to enable compulsory training to all planning committees so they have a better understanding of the statutory basis for determining planning applications.”
This, Victoria says “would reduce the number of decisions overturned on appeal or through judicial review and would lead to greater faith in the local decision-making process both from members of the public and developers.”
This article was first published in React News on 8 April 2022 and is available to read in full here, behind the paywall.
So, you want to be a non-executive director? Stuart Hatcher writes for ePrivateClient
13 April 2022
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Corporate Partner, Stuart Hatcher, has written for ePrivateClient on what to be aware of when thinking about non-executive directorships for private companies.
In the article, Stuart highlights key questions and matters to be considered by anyone thinking about taking on a non-executive director role, as well as those already undertaking one. He also gives practical insights for how private companies can make best use of non-executive directors in their organisations.
The article was first published on ePrivateClient on 13 April 2022, and is available to read in full here.
The Commercial Rent Bill: A Last Resort for Pandemic-Related Losses – Julia Tobbell writes for CoStar
13 April 2022
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Property Litigation Partner, Julia Tobbell, has written for CoStar News on The Commercial Rent (Coronavirus) Bill and the end of the moratorium on tenant evictions.
Whilst the Act creates a mechanism to address the issue of rent arrears accrued during the pandemic, the length and expense of the arbitration process suggests that the Government intends parties to use it only as a last resort.
Tobbell says, “Ordinarily arbitration is a private process, which is attractive to many commercial parties. However, the Act allows either party to request an oral hearing in public, and awards must be published except for limited confidential information. This could be a powerful disincentive to proceeding down this route, as tenants will have their finances laid bare in a public forum.”
The article was first published in CoStar on April 6 2022 and can be read in full behind the paywall here.
Q&A: Five minutes with Andrew Crabbie, Head of Real Estate at Forsters, speak to Property Week
8 April 2022
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Head of Real Estate, Andrew Crabbie, spoke to Property Week on how he got started in property, his book and podcast recommendations, the celebrity he would most like to meet and his number-one travel destination.
Andrew said “I have spent my career in a fascinating industry that continues to evolve, inspiring and challenging us all – never more so than in present times.”
The article was first published on Property Week on 7 April 2022, and is available to read in full here, behind the paywall.
Jo Edwards appears across primetime TV and radio to discuss the introduction of No Fault Divorce
7 April 2022
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Head of Family, Jo Edwards, has been invited to appear across multiple broadcast channels this week to discuss the introduction of no fault divorce in England and Wales.
From 6 April 2022, no fault divorce comes into force, giving separating couples a less acrimonious divorce process as they no longer need to apportion blame for the breakdown of their marriage. As a long-term campaigner for this legislative change, Jo Edwards appeared on BBC Radio 4, ITV’s Good Morning Britain and Lorraine and GB News, amongst other channels, to explain the change in the law and the benefits for separating couples and their children.
A summary of the Jo’s media appearances, key talking points and links to the recordings can be found below.
Jo, is the former Chair of Resolution and launched Resolution’s Manifesto for Family Law in February 2015 calling for the removal of blame associated with divorce. She has been a leading figure for the movement for over 10 years.
BBC Radio 4’s Money Box
Jo was invited to appear on BBC Radio 4’s Money Box on Saturday 2 April to discuss the advent of no fault divorce, with a particular emphasis on the topic of money on divorce/pensions.
Interviewed by Paul Lewis, Jo explained that the campaign for no fault divorce began three decades ago. She highlighted that the reform is not intended to establish a means for a quick divorce but an ‘end to the blame game’ meaning a kinder process.
“This is about couples who usually think very long and hard about their decision. It is positive that they will be able to petition or to apply now jointly, but whereas you say one person may be applying where the other one doesn’t want it, my expectation would be that there would have been many months of discussion about that before one person took that step”.
In addition, Jo touches on the six month minimum period imposed for those seeking a no fault divorce –
“Six months is a minimum, it’s not how long the divorce and everything related with it is going to take… The hope is that it will be possible during that period to sort out issues to do with finances and children. However, it’s really important that people don’t rush that. Ideally, they need to take proper advice, particularly in relation to pensions. Now, we know that only about 41% of divorcing couples at the moment have any sort of financial order and only about 12% deal with pensions, and that is something which is of particular concern.
“What research shows is that women generally are more likely to have emotional attachments to houses and men to pensions, so women quite often are willing to make what can turn out to be disadvantageous trades and it’s ever so important that people do seek the appropriate actuarial advice to properly value the pensions and what will be a fair outcome in relation to pensions when looking at all of the assets in a particular case and that may well take longer than six months”.
Joined by Ulrika Jonsson and interviewed by Ranvir Singh, Jo focussed on the changes the new law would bring and its impact on children.
Jo explained that the previous law had meant that unless couples had been separated for at least two years, they needed to apportion blame to instigate divorce proceedings, which created a level of acrimony that invariably spilled over into discussions relating to finances, but more importantly in relation to children. She highlighted that “psychiatrists explain it’s how the separation is managed that impacts the children”, rather than the separation itself.
Now, one partner, or both together, can apply for divorce without having to give a reason or apportion blame.
On what this means for people, Jo explained that “this is going to be huge.. sadly and invariably couples drift apart, reflecting long and hard on divorce proceedings, and it was horrifying for them to find out upon seeing me that they have to apportion blame”. The new law aims “to make this a kinder process”.
The full interview can be watched here from 11m27.
The Briefing on GB News with Tom Harwood
Jo’s interview with Tom Harwood on GB News’ The Briefing focussed on the 30 year-long campaign for law reform.
When questioned why it has taken so long, Jo explained that the reform was not regarded as an election vote winner and it was only as a result of the case of Owens in 2018 that the pressure for change grew, once the potential injustice of the previous law was evident to the public. In Owens the court refused an unhappy wife a divorce from her husband, despite his alleged unreasonable behaviour, because it was not adjudged that he had behaved sufficiently badly. On appeal, the Supreme Court made clear that the situation was unfortunate but said that their hands were tied because of the law as it stood, which they encouraged law-makers to address.
Harwood also probed Jo on whether no fault divorce would water down the constitution of marriage. She reassured viewers that will not be the case – “Decisions to divorce are often made ignorant of the law”, with many couples coming to solicitors not knowing the law or their rights and having reflected long and hard on their decision. Jo made clear that we will likely experience a brief increase in the number of divorces due to people waiting for the new law, but this will settle down in the longer term.
LBC News
During her interview with Jim Diamond on LBC News, Jo covered the topic of cost and accessibility.
“The hope is that the [new divorce] procedure is more accessible for members of the public”. Once the decision to divorce has been made, couples can now go online and instigate the process themselves, and it is simpler than it was before.
Jo did warn, however, that legal advice should still be sought to resolve other important aspects surrounding finances and child arrangements.
The full interview can be listened to here from 2:28:20.
Construction Focus – Insolvency in construction: Dan Cudlipp writes for the Property Law Journal
7 April 2022
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Construction Associate, Dan Cudlipp, has written for Property Law Journal, assessing the increasing risk and legal consequences surrounding construction-related insolvencies.
This article was first published in Property Law Journal 396 (April 2022) and is also available on lawjournals.co.uk.
The article, entitled “Construction Focus: Insolvency in Construction” outlines the specific challenges faced by construction companies, the contractual consequences when a main contractor enters insolvency, and the practical next steps for dealing with such issues.
Cudlipp says “there are a number of separate but closely connected factors that are combining to make life tough for construction companies, but all are underpinned by the Covid-19 pandemic, which had an immediate yet lingering impact on a construction industry already seeking to navigate the vagaries of Brexit.”
The challenges faced by the industry show little sign of letting up.
The biggest shake-up of divorce in 50 years: Jo Edwards quoted in The Guardian on no fault divorce
5 April 2022
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Head of Family, Jo Edwards, has been quoted in The Guardian (4 April 2022) on the advent of no fault divorce, which will become law on 6 April. Under the new legislation, either or both parties to the marriage may apply to the court for an order which dissolves the marriage on the ground that it has broken down irretrievably.
In the article, entitled ‘Surge in divorces expected as England and Wales introduce no-fault process this week’, Jo explains an increase in divorce cases is to be expected – “the experience of other countries where they’ve moved to a no-fault system is that there is a spike when the new law comes in – in Scotland, for example, when they changed the law in 2006”.
Faced with a question on whether this will add undue pressure on the courts, Jo highlights that “in the medium to longer term the change would probably reduce the burden on the courts because cases would require less judicial oversight, as there would be no ground for a spouse to contest the divorce”.
Jo has been at the forefront in campaigning for the no fault divorce law reform. She is an avid pioneer in finding less confrontational routes to resolving issues arising on divorce or separation and has dedicated much of her career to championing the modernisation of family law in England and Wales.
Greening Greenwich: Matthew Evans writes for Opportunity London
4 April 2022
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Planning Counsel, Matthew Evans, has written for Opportunity London – New London Architecture’s brand new website, launched in partnership with Mayor of London, City of London Corporation, London Councils and London & Partners.
Contributing to the launch, Matthew shares experience from Knight Dragon’s Greenwich Peninsula (which Forsters has advised on from the outset) as a project that demonstrates ESG value and confirms London’s status as a leading world city for global investment.
In 1994, author and entrepreneur John Elkington coined the phrase the “triple bottom line”. With it he introduced the “3Ps”: people, planet, profit. His vision was that in future, organisations would measure success not solely by profit, but also by reference to the positive or negative effects organisations had on society more broadly.
Over the following decades, the shift away from the supremacy of shareholder value towards stakeholder value has become a defining trend in management thinking and is exemplified in projects like the 150-acre, £8.4bn Knight Dragon Greenwich Peninsula regeneration project in Southeast London.
Forsters LLP has advised on the project from the outset, engaging with a broad group of stakeholders on a vision that prioritises people and planet, but achieves these aspirations through attractive investment opportunities.
The project is among Europe’s largest regeneration schemes, comprising 17,487 new homes, 75,000 sq. ft. of offices, 23,000 sq. ft. of retail and restaurants, and 42,000 sq. ft. of education facilities, serving five new neighbourhoods.
People
Twelve years prior, the Greenwich Peninsula was an industrial wasteland. What has followed is a model of urban transformation in which the economic, social, educational and welfare needs of residents have guided the planning, design, and build. The project is expected to provide 12,000 new jobs and includes three new primary schools (one already provided), a healthcare centre and sports facilities. Among innovative features of the development has been a community fund – calculated on a per-household basis – to which developers contribute as construction begins on different phases. Its purpose is to maximise the social value and community investment and supplements the work of Greenwich Local Labour and Business (GLLaB).
Planet
De-carbonisation has been a dominant theme in the project, which includes sophisticated offset mechanisms, and developer contributions to borough-wide council funds. Each building must not only comply with the UK’s forward-looking building regulations, but also meet ambitious green targets specific to the project. In the event of failure to meet requirements, remedies include re-work or enhanced financial contributions to carbon offsets. Other initiatives include a centralised energy centre providing hot water and heating across the entire site, with the goal of helping decarbonisation.
Profit
The economics of the project, especially job opportunities for residents, have been a high priority. Interests have been carefully balanced between profit maximisation and the need to make this landmark development open and accessible. Most obviously this manifests itself in balancing provision of ‘affordable’ homes with homes at the higher end of the market. By working with stakeholders, it has been agreed that housing developer L&Q Group will deliver a minimum of 60% Affordable Housing (AH) in Brickfields and a minimum of 28% AH will be delivered across the Peninsula as a whole.
Balancing the ever-evolving interests of such diverse stakeholder groups is a phenomenal challenge, but central to achieving the ambitious vision of this project. Its successful completion will transform an over-looked site on the Thames and uplift the lives of resident individuals and communities alike. I’m sure John Elkington would approve.
opportunity.london is the definitive guide to development and investment opportunities in London, investing in London’s communities and promoting sustainable investment into real estate, regeneration and green infrastructure across London’s boroughs and communities.
Thursday saw an antitrust tribunal refuse to allow a £1 billion forex rigging claim to proceed as an opt-out collective action, marking a toughening approach that attorneys say will rein in cases brought under the U.K.’s class action regime.
Harbord said “the court for the first time had to consider whether it could act on its own initiative and gave very strong guidance that it doesn’t like the claim. That is significant.”
The article was first published on Law360 UK on 1 April 2022, and is available to read in full here, behind the paywall.
Government presses on with plans to scrap section 106. Matthew Evans speaks to React News.
31 March 2022
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The government has recommitted to scrapping section 106 and replacing it with a new infrastructure levy, with further details on the long-awaited planning reforms to be revealed in the Queen’s speech on May 10th.
Planning Counsel, Matthew Evans spoke to React News about the government’s plans and whilst applauding the intentions to bring forward a uniform levy to simplify the system, commented that “.. it is difficult to see how this will work in practice. Affordable housing provision is complicated because of the number and variety of stakeholders involved in its delivery. There have been numerous previous attempts to abolish S106 and bring forward a single levy over the years, including Planning Gain Supplement and the Community Infrastructure Levy. However, these were shelved or altered, and s106 prevailed, largely due to the complexity of dealing with the provision of affordable housing. Given the sheer number of affordable housing options and the viability stress testing that already takes place, it is highly unlikely that there is a simple replacement to S106.
“The lack of both clarity on timeframes and detail also makes it difficult for developers and local authorities. We are already seeing cases where Local Plans and Community Infrastructure Levy charging schedules are being paused, affecting local authority budgets and their ability to plan. I suspect that number may increase after this response.”
The article was first published in React News on 30 March 2022 and is available to read in full here, behind the paywall.
What impact will Leasehold Reform Act have? Head of Build To Rent, Helen Streeton, writes for Property Week
29 March 2022
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We anticipate that the Leasehold Reform (Ground Rent) Act 2022 – now law but not yet in force – will be triggered and brought into force within the next six months. Effectively, this abolishes the ability to charge ground rents where developers are selling flats or houses on long leases.
Currently, ground rents have a capital value, and the ability to sell these in a completed development is valuable to developers. Their abolition might also have adverse consequences – there may be less incentive for proper management of and investment in completed developments where landlords are not receiving any ground rent.
It is an unpredictable landscape to navigate. We may see a flurry of deals to sell ground rents off before the legislation is brought in given that yields may start to move out. Alternatively, yields may actually move in, given the short window for creating leases with ground rents.
It is possible, with the build-to-rent (BTR) market still attracting record amounts of investment, that developers/housebuilders might move to a hybrid model that is part BTR, part homes for sale. This hybrid model would require a different and refreshed funding structure – typically, a housebuilder funds in phases through working capital and receipts from earlier phases.
Development of BTR is different and tends to run on a forward-funding model, which is attractive to developers as a funder funds the actual construction and other costs. The profit is typically ‘locked in’ until practical completion of the wider scheme; in other words, until any affordable housing that must be ready before occupation of private units is available.
Increasingly, BTR developers are looking to operate their schemes with economies of scale to keep the gross-to-net ratio on receipts at an attractive level. It will be interesting to see how the sales/rental markets continue to become more sophisticated and adapt to new challenges – be these ground rent abolition, inflationary pressure or the planning system.
This article was first published in Property Week on 24 March 2022, and can be found here.
Stuart Hatcher speaks to the Independent: Chelsea’s new owners could ‘set the tone’ by granting fans golden share
29 March 2022
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Corporate Partner, Stuart Hatcher, has spoken to the Independent about Brentford’s golden share deal, which he drew up in 2012, and how he believes Chelsea’s new bosses should look to do something similar.
Hatcher said “this could be a catalyst for a number of important things that should be coming down the line anyway. I think Chelsea’s new owners giving supporters the golden share would set the tone for other clubs.”
When Tracey Crouch MP published her report on the “fan led” review of football, I was taken by the reference to the intention to “develop proposals…to offer greater protection…through a ‘golden share’ for fans, giving veto powers over reserved items, to be held by a democratic legally constituted fan group”.
UK Courts May Be Signaling A Preference For Mediation: Bryan Shacklady and Joe May write for Law360
23 March 2022
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Attention has recently focused on the Dec. 9, 2021, decision of Master Richard Davison in the Queen’s Bench Division to order compulsory alternative dispute resolution between the parties in a high-value contentious claim under the Civil Liability (Contribution) Act 1978, albeit by consent.
The case was not publicly handed down, and some commentary has focused on the belief that the order is the first of its kind.
History
In fact, orders of this sort are not entirely new. Our own team has been involved in litigation in the Commercial Court where, as long ago as the summer of 2016, the ruling, which was also not publicly reported:
Ordered the parties to exchange lists of neutral individuals available to conduct alternative dispute resolution procedures by a certain date;
Ordered the parties to in good faith endeavor to agree a neutral individual from the lists exchanged;
Provided that in the event of failure to reach agreement on a neutral individual, the case management conference was to be restored;
Ordered the parties to take such serious steps as they might be advised to resolve their disputes by alternative dispute resolution procedures before the neutral individual chosen;
Ordered the parties to inform the court before a certain date what steps towards alternative dispute resolution had been taken and why such steps had failed; and
Provided that in the event of a failure to initiate alternative dispute resolution procedures, the case management conference was to be restored for a further consideration of the case.
Notably, Master Davison’s order differs in mandating mediation as the ADR method and ordering specifically the mediation to be conducted on a without prejudice save as to costs basis. In any event, however storied their provenance, such orders move significantly beyond the language of encouragement that is used in the various court guides.
The Chancery Guide, for example, merely sets out:
Where appropriate the court will, as part of the overriding objective, encourage the parties to use ADR or otherwise help them settle the case or resolve particular issues.
The Commercial Court Guide contains similar provisions, and the Technology and Construction Court Guide has contained such provisions for years.
Implications
How seriously should practitioners and clients regard these developments? There is no doubt that they reflect a willingness on the part of the courts to save scarce court resources by compelling parties to engage in meaningful attempts at settlement. We should assume that such willingness will come with consequences for those who disregard the court’s wishes.
Although represented parties in commercial litigation are unlikely to engage in the kind of blatant disregard of the court’s wishes that could lead to them being found in contempt, the court has a range of other tools at its disposal to see that its wishes are carried into effect.
The court could potentially disallow interest on damages where parties have failed to mediate or engage in other forms of ADR according to a court order. Advisers should remember that courts have discretion as to whether to award interest at all, as to the period for which it should be awarded and as to the rate at which it can be awarded. A cavalier attitude to the court’s order in relation to ADR could well see the court’s discretion being used to reflect the court’s view of that attitude.
Parties should also bear in mind the general rule about the award of costs, set out in Civil Procedure Rule, or CPR, 44.2(1):
The court has discretion as to:
Whether costs are payable by one party to another;
The amount of those costs; and
When they are to be paid.
It is possible that a court could reflect recalcitrance to comply with an order for compulsory ADR by exercising its discretion as to costs other than in accordance with the general principle that the loser pays the winner’s costs. That will be particularly so where the court perceives that the failure to comply has caused court time to be expended unnecessarily.
Remember that the first of the circumstances to which the court may have regard in making an order as to costs is listed by CPR 44.2(4)(a) as the “conduct of the parties.” That must include the parties’ conduct in complying with the wishes of the court as to ADR.
Can the Parties Sit on Their Hands?
Many litigators will have encountered the client who does not wish to mediate and who turns up at the mediation determined not to engage. That has always been a case of shooting oneself in the foot by turning down an opportunity to settle and so prolonging exposure to the inherent — and sometimes unanticipated — risks of litigation.
It has, however, been traditional for such parties to assume that they will remain protected by the confidentiality of the mediation process — and, usually, the mediation agreement.
No longer. The Master Davison order specifically provided that the mediation be conducted without prejudice save as to costs. That leaves open the opportunity for the court to examine what occurred at a later date when considering the question of costs — and so specifically engages the possibility of the court registering displeasure in the form of an unwelcome costs order.
And the 2016 order above specifically provided for the parties to have to explain themselves as to the failure of any ADR process, leaving open the possibility of consequences if any such explanation was deemed unsatisfactory by the court.
Further Considerations
Both orders discussed above were made with the cooperation or consent of the parties. The real test of the court’s willingness to push the issue of compulsory ADR will come when such orders are made against the will of one or more of the parties.
It should also be remembered that although parties may focus on mediation as a form of ADR, there are other options. A recent development has been the introduction of the concept of early neutral evaluation, which the court is given power to order under CPR 3.1(m). This is usually carried out by a judge, retired judge or Queen’s Counsel.
There is conflicting authority on whether the courts have the power to order early neutral evaluation absent the consent of the parties, and it is notable that the Chancery Guide, the Commercial Court Guide and the Technology and Construction Court Guide all envisage the practice as involving the consent of the parties.
Perhaps the next development in the court-ordered ADR saga will be consideration of whether a refusal to consent to such an order is itself unreasonable?
The article was first published on Law360 UK on 22 March 2022, and is available to read in full here, behind the paywall.
Elizabeth Small writes for Taxation: VAT early termination fees and compensation payments
22 March 2022
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Corporate partner, Elizabeth Small, has written for Taxation, looking at the Revenue and Customs Brief 2/2022.
Small sums up the recent brief published by Revenue and Customs: “Fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply..”
Crypto: What trustees need to know about the proposed new civil seizure powers – Caroline Harbord and Joe May write for ePrivateClient
18 March 2022
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Dispute Resolution Senior Associate, Caroline Harbord, and Trainee Solicitor, Joe May, have written for ePrivateClient on the proposed Economic Crime Bill and new civil seizure powers relating to cryptoassets.
The article was first published on ePrivateClient on 17 March 2022, and is available to read in full behind the paywall.
The UK government has announced that it will introduce a further Economic Crime Bill, in addition to the one currently working its way through parliament, to bring in new powers to seize cryptoassets and to extend existing civil forfeiture powers to them.
UK enforcement authorities can currently seize cryptoassets using powers derived from criminal law. For example, HMRC did so when it recently seized three non-fungible tokens as part of a VAT fraud investigation. However, the ability to seize cryptoassets under the civil regime -via the High Court rather than criminal court – is potentially very attractive, at least from the perspective of enforcement authorities.
One of the key benefits of seizing assets through the civil regime is the lower burden of proof required by the civil court. When applying to make use of civil seizure and forfeiture powers, enforcement authorities need to persuade the judge that, “on the balance of probabilities”, the property in question is the proceeds of crime. When applying for equivalent relief from the criminal court, the judge needs to be satisfied of this “beyond all reasonable doubt”. The latter is a much higher evidential threshold for the relevant authority to clear.
In addition, civil recovery proceedings focus on whether the asset in question represents the proceeds of crime, rather than establishing criminality on that part of a specific individual (which is the focus of criminal proceedings). Provided the civil court is satisfied on the balance of probabilities that the asset is the proceeds of crime, it is not necessary for the authority to establish who committed the relevant crime or for there to be simultaneous criminal proceeds on foot.
This is a particularly useful feature of the civil regime when it comes to seizing cryptoassets, given that it is harder to establish who might own a cryptoasset or who might have committed a ransomware attack. The public traceability of blockchain transactions makes this potentially a very powerful tool; in many cases it will be easier to identify proceeds of crime than with non-cryptographic assets. That said, there are techniques which can be used to evade the public traceability of blockchains.
The existing civil seizure and forfeiture tools are widely regarded as having been underutilised. This is largely a product of how expensive the relevant orders are to obtain, and the additional costs incurred if an application fails. The government has, however, taken concurrent steps to mitigate these costs in the extant Economic Crime Bill currently passing through Parliament. This may mean that these powers are used more frequently in the future.
It will be interesting to see how the second Economic Crime Bill (in which the civil seizure powers will be set out) grapples with crypto-specific issues and how enforcement authorities intend to hold (and potentially liquidate) seized cryptoassets. This question is far less straightforward than for tangible assets such as cash and gold, and begs the question as to whether authorities will have their own cryptowallets.
So what are the implication of the new powers for those operating in the private client world? Pending the publication of the draft bill, the fundamental takeaway is how important it is for trustees to be alive to the anti-money laundering risks associated with holding cryptoassets, and to seek advice before dealing with such assets or agreeing to hold them on trust.
The government has expressly stated that there is an increased risk that these assets could constitute the proceeds of crime, such that little sympathy is likely to be afforded if robust source of wealth checks are not undertaken, particularly for clients or assets with links to Russia.
In addition, once the bill is published, trustees would do well to start considering how they would respond to a civil seizure order. This includes details of how they might isolate, secure, and potentially liquidate cryptoassets in compliance with such an order.
Finally, only when the Bill is published will we know if it is to impact trustees further afield than just England. The current civil seizure powers include criminal conduct that occurred outside of England, so it is foreseeable that the new powers will have some extra-territorial effect as well.
Bryan Shacklady spoke to City AM about flight refund claims
17 March 2022
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Senior Solicitor in our Dispute Resolution team, Bryan Shacklady, has spoken to City AM about the recent Supreme Court ruling allowing solicitors to claim any legal costs from clients when claiming refunds for delayed and cancelled flights.
Shacklady explains that solicitors will be emboldened by the ruling: “Firstly, it gives lawyers more certainty they’ll be paid for this kind of work, and secondly it means claims are more likely to be brought”.
The article discusses the recent decisions made by Judge Matthew Nicklin regarding the case against TikTok for allegedly breaching privacy rights of children.
The article was first published on Law360 UK on 8 March 2022, and is available to read in full here, behind the paywall.
Caroline’s full comments regarding this case can be found below.
A glimmer of hope for opt-out representative date protection group claims
The representative claimant in the opt-out data protection group claim against TikTok lives to fight another day, as the High Court (arguably unexpectedly) grants permission for the claim form to be served out of the jurisdiction on the foreign defendants.
The judgment is significant because it represents a departure, albeit a very cautious one, from the Supreme Court’s controversial decision in Lloyd v Google. In Lloyd v Google, the Supreme Court held that a similar (but not identical) opt-out representative group claim for breach of data protection legislation did not constitute a serious issue to be tried, such that the claim fell at the first hurdle.
While the judge in the TikTok claim was non-specific about the factors that empowered him to distinguish the TikTok claim from Lloyd v Google, it is clear that he gave weight to the fact that the claim against TikTok relates to breaches of GDPR, whereas in Lloyd v Google the claim related to the older and now defunct DPA 1998 which made no express provision for recourse arising from non-material damage.
The judge is also likely to have given weight to the claimant’s submission that there is a higher degree of uniformity between the TikTok class members and their associated damages, given that all class members actively signed up to TikTok. By contrast, the claimant class in Lloyd v Google all had their data surreptitiously stolen and commercialised by Google without their knowledge.
While the judgment undoubtedly provides a glimmer of hope for those who feared that all opt-out representative data protection group claims were dead in the water following Lloyd v Google, it is very clear that the representative claimant in the TikTok claim will have a tough battle ahead. As the judge acknowledged, the service out application (which was heard ex-parte such that the Defendants were not afforded the opportunity to state their position) was in many ways a pre-cursor to the forthcoming summary judgment application already issued by the English Defendant. All eyes will now no doubt be on this summary judgment hearing, where the High Court will give much more detailed scrutiny to the submissions highlighted above, including the extent to which it is bound by the Supreme Court’s decision in Lloyd v Google. This will no doubt have implications for all live and future opt-out representative data protection group claims, including their ability to obtain litigation funding.
The Inheritance Act 1975: Hannah Mantle and Maryam Oghanna write for ThoughtLeaders4 Private Client
1 March 2022
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Contentious Trusts and Estates Senior Associates, Hannah Mantle and Maryam Oghanna, write for ThoughtLeaders4 Private Client on the key Inheritance Act 1975 cases from the last year.
As we are all too aware, claims under the Inheritance (Provision for Family and Dependants) Act 1975 (the “Act”) are notoriously discretionary and fact specific. For that reason, many of the claims that reach the Courts (rather than settling) include a novel point, or clarify points which are too often disproportionate to argue; so it can be useful to have a look at the year’s cases in summary.
Unusual claims
Some of the sections of the Act which are less commonly used are sections 9, 10 and 11, namely to enable joint property to be treated as forming part of the estate, to defeat dispositions which were intended to defeat applications under the Act, and to defeat a contract made by the deceased to leave certain property under his will.
Section 9 was considered by the High Court in Beg v Beg [2021] EWHC 2598 Ch. Under the terms of her late husband’s will, Mrs Beg was the principal beneficiary of his estate. However, the matrimonial home had been owned in the joint names of the deceased and his brother. Firstly, the Court had to determine whether the property was owned by the brothers as joint tenants or tenants in common – the surviving brother successfully argued that the property was owned as joint tenants and passed to him by survivorship. However, Mrs Beg had also claimed under the Act (including s9) and was partially successful in arguing that the deceased’s half share of the property should be treated as part of the estate for the purposes of her claim for financial provision. The sum of £80,000 was treated as part of the estate, which was not the full value of the deceased’s half share, but was sufficient to allow Mrs Beg to repay the mortgage on another property in the estate, thereby giving her a different home to live in which provided reasonable financial provision.
Section 11 was also considered last year, for the first time, in the case of Sismey v Salandron [2021] 10 WLUK 372. The claim was brought by the son of the deceased from his third marriage. During the deceased’s divorce from the claimant’s mother, he had agreed by a deed (the terms of which were enshrined in a consent order) to leave his English home to their son. He later married his fourth wife, with whom he also had a child. She was widowed shortly after their marriage, and the estate passed under the intestacy rules. The Court found that the agreement was valid and enforceable (as it complied with the Law of Property (Miscellaneous Provisions) Act 1989 s2), and so went on to consider whether it could effectively be set aside by s11 of the Act. It found that, whilst the agreement was a contract entered into with the intention of defeating a claim (amongst other factors), the condition in s.11(2)(c) was not met as full consideration had been given by his ex-wife, by giving up claims to alternative assets including her share of the property and the deceased’s pension (from which the widow was now due to benefit). The son from the earlier marriage therefore inherited the property, as provided for by the deceased prior to his remarriage.
Minor and vulnerable children
Various reported cases last year considered the position of minor or vulnerable children of the deceased. For example, Re R (Deceased) [2021] EWHC 936 (Ch), where a father had died, leaving his estate to his parents and his new partner, to the exclusion of his two sons. The deceased and the sons’ mother had divorced six years previously, and the deceased had only maintained a very limited relationship with his sons for a short time. The mother and her subsequent husband had borne the costs of raising and educating the claimants privately, as the deceased had paid no maintenance or child support. The Court found that it would be highly unusual for a parent/ minor child relationship to breakdown so significantly that it would be reasonable to make no financial provision, even if someone else had taken on financial responsibility for them. Conversely, it found that the sons (or their mother) could not expect all of their costs to be met from the estate following their father’s death, as a sort of balancing exercise. The Court made an award based on the estate meeting between 50% and 100% of various itemised expenses for each of the sons from the date of death, until a year after they finished university, including accommodation, private school fees, cars, and counselling.
A slightly earlier case where the claimant reached majority after issuing his original claim was Wickham v Riley [2020] EWHC 3711 (Fam). The claimant had originally made a claim under the Act in 2017, after his father died in 2014. He had acted by his litigation friend until he reached adulthood in 2018 and subsequently discontinued the proceedings in 2019. The matter returned to Court in 2020, to address whether the discontinuance had been valid (including whether the claimant had litigation capacity at the time) and request permission under CPR r38.7 to make a new claim. The Court considered the evidence of the claimant’s diagnosis of autism spectrum disorder and expert evidence on his capacity. The Court concluded that, whilst vulnerable, the claimant was and remained capacitous, and (having opened the judgment with a quote from Bleak House) granted permission for him to issue a new claim under the Act.
Adult children and step-children
There were, of course, cases this year which confirmed the view that adult child (or step-child) cases often require an additional element in order to succeed (e.g. Re Mohammed (Deceased) [2021] EWHC 2532 (Ch) where the claimant could not show a maintenance need, or Miles v Shearer [2021] EWHC 1000 (Ch) where the claimants could not show needs for maintenance and had also been told by the deceased not to expect any further provision from him). Nevertheless, there were others where adult children or step-children were noticeably successful.
The Court of Appeal case of Hirachand v Hirachand [2021] EWCA Civ 1498 has been much commented in relation to the decision regarding the cost uplift under a conditional fee agreement, so I do not propose to do so again here. A point which has perhaps been discussed less is the other ground for appeal, namely that the video-link trial did not provide sufficient access to the defendant widow, who was elderly, deaf and living in a care home. The defendant had been debarred from participating in the proceedings, after twice failing to file an acknowledgement of service or evidence, despite having obtained legal advice. She attended the remote hearing following assistance from the claimant’s solicitors and had been provided with all relevant material. The Court of Appeal dismissed the appeal and found that there is no obligation on a court to proactively manage the attendance of a debarred party.
Another case dealing with CFAs and adult claimants was Higgins v Morgan [2021] EWHC 2846 (Ch). In this case, the claimant step-son of the deceased who had died intestate was awarded £55,000, including a contribution of £15,000 towards his CFA success fee (or a total of about 25% of the estate) after successfully making out a need for maintenance. The Court also found it relevant that the deceased had had a close relationship with the claimant and had made various assurances to the claimant about provisions that would be made for him in future. A contribution towards the uplift for the success fee was granted on the basis that it is a factor when considering the claimant’s needs for the purpose of the Act.
Watch this space
When the Law Commission considered the future of the Act in order to develop the Inheritance and Trustee Powers Act 2014 (the “2014 Act”), it considered whether the Act should be broadened to include deceaseds who were not domiciled in England and Wales (whether generally, or, for example, those who had real property here). As the 2014 Act did not, in the end, include any provision for claims on the estates of people not domiciled in this jurisdiction, a gap potentially arises in the law in providing for people who live or have assets here, but do not intend to remain here permanently. This may have contributed to the interesting outcome in the divorce of Hasan v Ul-Hasan [2021] EWHC 1791 (Fam), where the claimant’s matrimonial financial remedy proceedings were (understandably) found to be incapable of continuing following the death of her late husband. If the proposals prior to the 2014 Act had been incorporated into the Act, it is quite possible the Mrs Hasan would have been able to bring a claim under the Act. Instead, the case is being leapfrogged to the Supreme Court to decide whether she can continue her financial remedy proceedings on divorce. It will be interesting to watch the outcome and whether it affects any potential claimants under the Act.
These proposals are the latest in the strategy to resolve the cladding crisis. Among them is the initiative that could see developers and product manufacturers who refuse to bear the cost of removing dangerous cladding having future planning applications or Building Control approvals blocked by the Government.
Losing ground: Robert Barham writes for EG on the Leasehold Reform (Ground Rents) Act 2022
17 February 2022
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Residential Property Partner, Robert Barham, has authored an article for Estates Gazette entitled ‘Losing ground: inside the Act abolishing ground rents in new long resi leases’.
In his article, Robert looks in detail at the Leasehold Reform (Ground Rents) Act 2022 and the impact it will have on developers and landlords.
On 8 February the Leasehold Reform (Ground Rent) Act 2022 received royal assent. The main provisions of the Act are not yet in force, but the government has pledged to bring the Act into full effect within six months, that is by around the beginning of August.
The purpose of the Act is to outlaw the reservation of ground rents in new long leases of residential property.
The full article can be read here, behind the paywall and is published in full below.
On 8 February the Leasehold Reform (Ground Rent) Act 2022 received royal assent. The main provisions of the Act are not yet in force, but the government has pledged to bring the Act into full effect within six months, that is by around the beginning of August. The Act does not, however, abolish ground rents in residential leases retrospectively – a change that Labour had advocated.
What does the Act do?
The purpose of the Act is to outlaw the reservation of ground rents in new long leases of residential property. All such rents will be set to a peppercorn. This mirrors the provisions relating to an extension of leases granted under the Leasehold Reform, Housing and Urban Development Act 1993. When one considers that, it is perhaps surprising that it has taken parliament nearly 30 years to bring in the equivalent provision for leases granted on a voluntary basis.
The Act only applies to new leases granted after the commencement date, and of particular note is that it excludes leases granted after that date which are in pursuance of a contract entered into before the commencement date. Only leases of residential property that are for a term of more than 21 years from the date of grant are affected, thereby excluding shorter arrangements which might be termed “tenancies”. There are limited exceptions to this, including shared-ownership leases, and there is to be a delay in bringing in the parts of the Act that relate to retirement homes, which the government has agreed not to bring in until after 1 April 2023.
Interestingly, from a legal draftsman’s point of view, it seems that the practice of referring to the ground rent as a “peppercorn” is likely to continue. The Act specifically refers to a peppercorn rent being a “permitted rent”. One might have thought that the opportunity could have been taken to abolish ground rent wording from leases in its entirety, but it seems that that is not to be. References to peppercorn rents often leave foreign buyers bemused. For example, we were once given a box of peppercorns by a foreign buyer client to be passed to his new landlord so that he could never be accused of missing his rent.
There is no actual requirement in the Act for wording relating to the payment of ground rents to be excluded from leases, but clearly any wording will be void in so far as it reserves a rent above a peppercorn. The Act provides that it will be an offence to recover ground rent under such a provision, although there is a saving where ground rent is charged but returned within 28 days, presumably to prevent mistaken breaches. The Act puts the duty of enforcement on local weights and measures authorities, and fines of between £500 and £30,000 can be imposed for breaches. Any prohibited ground rent paid can be recovered by the tenant.
Responding to the new provisions
The Act was first published in May 2020, but the intention to bring in legislation to provide for the abolition of ground rents was known well before that. Some developers saw the writing on the wall a while ago and have already reduced rents to a peppercorn. Others, however – and perhaps the majority – continue to demand ground rents and seem to have taken no heed to the impending changes.
One reason for the fact that developers have not supported the idea that legislation was necessary in order to force their hands is presumably that the reservation of a ground rent makes very little, if any, difference to the price that can be charged for a new property. In theory, the right to receive a ground rent throughout the term of a lease has a relatively easily ascertainable value, yet that value does not seem to be taken into account when determining the market price.
In some developments the ground rent is £1,000 a year or more, which must have a capital value in the tens of thousands. In other words, landlords often receive a bonus through creating ground rents, which can be realised when the reversionary interest is sold following the sale of all units in the development. This will be lost. In theory, landlords would be compensated by higher premiums, but it seems unlikely that the market will see it like that.
Now that the writing is on the wall, developers will presumably launch new schemes with zero ground rents. This will avoid the situation where units sold early will reserve a ground rent but those sold after the commencement date of the Act will have no ground rent. However, there are plenty of schemes currently part-sold with ground rents reserved which are going to end up with some flats in the scheme paying ground rents and others not.
A proposed amendment to require landlords to inform prospective tenants of the pending abolition of ground rents prior to the commencement of the Act was not adopted by parliament. Nevertheless, it must be incumbent on solicitors and property advisers to inform their buyer clients of the existence of the legislation, with a view to negotiating ground rent provisions out of leases.
It is likely that the pressure on landlords to abandon ground rents will steadily mount as the commencement date draws nearer to the point at which they have no option once the law comes into effect.
Reducing the graft of drafting: Miri Stickland speaks with Clarilis on the upturn of LegalTech
16 February 2022
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Knowledge Development Lawyer, Miri Stickland, of Forsters’ ‘trailblazing real estate practice’, recently spoke with Clarilis about the dramatic upturn in the use of LegalTech for commercial property transactions.
“The real estate industry itself has been transformed by technology” Miri points out. “We have smart buildings which know when to turn the air-con and lights on, and we’re starting to see tenants pay their rent in crypto-currency. The way in which we provide legal services must keep pace with this. So, although not all the new technology we’ve seen will stay the distance, there are products that really increase speed and efficiency, and which can be flexed to meet changing demands without compromising on quality. These are the ones that are going to stay the course.”
Andrew Parker speaks to the BBC about the latest Building Safety Bill proposals
15 February 2022
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Forsters’ Head of Cladding, Andrew Parker, provided an expert comment to the BBC on the latest proposals relating to the Building Safety Bill put forward by Michael Gove.
The Bill suggests that residential developers who refuse to bear the cost of removing dangerous cladding could have future planning applications or Building Control approvals blocked by the Government.
Moving to the UK – crossing the pond: George Mitchell and Lucie Bennett join Buzzacott’s Stepping Stones podcast
14 February 2022
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Private Client Partner, George Michell, and Associate, Lucie Bennett, were invited to join Buzzacott’s Stepping Stones podcast entitled ‘Moving to the UK – crossing the pond’.
If you’re a US citizen living in the UK or you’re planning to move here, there will be a number of important life stages that you will need to plan for. It is important to ensure you have everything in place to plan tax-efficiently and remain compliant.
In the podcast, Forsters’ US/UK specialists share the key considerations at every step of the journey.
Over the last decade Airbnb has become a booming business, but this increase in rentals has led to a shortage of properties on the normal rental market. As such, the government is considering introducing a requirement for planning permission for use of properties for short-term rentals, to help resolve the lack of availability.
In their article, Charles and Victoria outline the likely effects this will have on the property market and highlight the complexities faced by those tasked with policing the use of properties.
The article was first published on PrimeResi on 9 February 2022, and is available to read in full here, behind the paywall.
Commuter belt crush – Helen Marsh quoted in The Times
11 February 2022
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Residential Property Partner, Helen Marsh, has been quoted in The Times article, ‘Commuter belt crush: why everyone wants to buy in the suburbs’.
With the ending of England’s ‘Plan B’ Covid restrictions, many employees have been called back to their offices and are therefore re-evaluating their pandemic induced moves to locations which now present a lengthy commute.
Sales of homes in traditional commuter locations have risen dramatically since the pandemic began. The huge rise in demand and a shortage of houses has pushed sale prices to boiling point. Record numbers of houses are being sold off-market, and bidding wars have become routine.
Helen explains that “there is lots of gazumping going on”, as lengthy property chains and delays present ample opportunities for other buyers to swoop in.
The full article can be read here, behind the paywall.
First Homes has its challenges – Head of Planning, Victoria Du Croz writes for Property Week
11 February 2022
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First Homes has been lined up as the replacement to the Help to Buy scheme, but unlike Help to Buy, First Homes will count towards a developer’s affordable housing provision as part of a planning application.
With at least 25% of affordable housing being First Homes, there will be a knock-on effect on the amount of affordable/social rented and shared ownership units being delivered, which could further exacerbate supply issues in local areas.
The government has set a minimum discount on First Homes of 30%, but local authorities can stipulate further reductions to 40% or even 50% of open-market value. Additional eligibility criteria – beyond the household income cap of £80,000 (£90,000 in London) and the requirement to be a first-time buyer – such as local connections and being a key worker can also be put in place by local authorities.
In the long term, Local Plans will include policies setting out First Homes eligibility requirements. However, there are transitional arrangements for local authorities mid-way through the Local Plan process and some may issue interim policy statements.
In the meantime, the inclusion of First Homes in the government’s planning guidance means it can be a material consideration when determining planning applications.
However, given the flexibility for local authorities to impose additional price reductions and eligibility criteria, in the absence of clear Local Plan policies it could be difficult for developers to be certain of the local requirements for First Homes. It may also make it harder to determine the viability of a site during the acquisition process.
The scheme puts considerable onus on local authorities at a time when they are already facing resource constraints. First Homes will have a restriction on the title deed to ensure that buyers meet the eligibility criteria, but it will be down to local authorities to carry out the required checks before the dwelling can be sold.
First Homes has the potential to plug a gap in the market and avoid creating price inflation (a criticism levied at Help to Buy), but it does not come without its challenges.
This article was first published in Property Week on 10 February 2022, and can be found here.
For further information on the First Homes Scheme, please contact Head of Planning, Victoria Du Croz.
Robert Barham quoted in The Law Society Gazette on the ground rent reform
11 February 2022
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Residential Property Partner, Robert Barham, has been quoted in The Law Society Gazette article entitled ‘Messy situation: ground rent reform becomes law’.
In the article, Robert shares his views on the Leasehold Reform (Ground Rent) Act, which received Royal assent this week.
The article was first published in The Law Society Gazette and can be read in full here and below.
‘Messy situation’: ground rent reform becomes law
Housing developers could face a ‘messy situation’ now that a bill setting the ground rent for new leasehold properties at ‘one peppercorn’ per year has become law, a residential property solicitor has warned.
Housing minister Eddie Hughes said the Leasehold Reform (Ground Rent) Act, which received Royal assent this week, will set the ground rent to zero on new leases from this summer and save future leaseholders hundreds of pounds a year.
Robert said some developers anticipating the bill have already effectively abolished ground rents. Developers launching new schemes may want to pre-empt the new law by abolishing ground rents ‘but for schemes that are half sold at the time the law comes into force they will face the messy situation where some tenants pay ground rents and others do not’.
Robert added buyers are likely to resist having to pay a ground rent ‘particularly if they can delay their purchase long enough to ensure it becomes illegal. Solicitors and other advisers will no doubt want to advise both their developer and buyer clients of the pending changes’.
The government said ‘tightly defined’ exceptions under the act include applicable community-led housing and certain business leases. Statutory lease extensions for houses and flats are exempt. The ground rent that can continue to be charged on a voluntary lease extension is capped and cannot exceed the amount specified in the lease for the remaining term, before reverting to a peppercorn rent for the extended term. The act will come into force no earlier than 1 April 2023 for retirement homes.
Construction focus: The year ahead – Lauren Hepburn and Beatrix Dyer write for Property Law Journal
7 February 2022
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In the latest Forsters contribution to the Property Law Journal, Construction Associate, Lauren Hepburn, and Trainee Solicitor, Beatrix Dyer, consider what 2022 might hold in store for the UK construction sector.
This article was first published in Property Law Journal 394 (February 2022) and is also available on lawjournals.co.uk.
In their article, entitled ‘Construction focus: The year ahead’, they discuss the Building Safety Bill, unsafe cladding, development tax, retention return, labour and supply shortages, climate change, digital technology, and other legal developments.
Over 2021, the size of construction industries output fell, falling 1.8% in October alone (ONS). Labour shortage is clearly one very important issue the industry will need to tackle in 2022.
The impact of Covid-19 may not yet be behind us, but there promises to be a lot to look out for in 2022, from new building safety legislation, to an increased focus on technologies to promote sustainability and tackle climate change in construction projects.
Dan Cudlipp, Associate in our Construction team, and Hannah Coupe, Trainee Solicitor, spoke to the Property Law Journal to recap a selection of the legal developments of particular interest and importance to construction professionals in 2021.
First, Dan and Hannah discussed three cases relating to suppliers attempting to rely on its own standard terms and conditions (T&Cs) in order to avail themselves of some benefit contained within those terms. For varying reasons, each of those attempts failed, and the travails of the suppliers provide a helpful lesson for the rest of us.
Second, they focused on two decisions from the Supreme Court that deal with two issues that construction professionals will frequently encounter, particularly the latter: limitation and liquidated damages.
Finally, they focus on the legislative changes and guidance in the construction sector. The review and achievement of fire safety remained a central theme of 2021, and their selection focuses on the progression of legislation and guidance on that topic.
Kelly Noel-Smith discusses the sustainability agenda for private clients in Transmission Private’s podcast
4 February 2022
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Head of CSR and Private Client Partner, Kelly Noel-Smith, shares her insights on what is driving the sustainability agenda within the private sector and what it will look like in the year ahead in Transmission Private’s TP Talks podcast, ‘What sustainability means for private clients in 2022’.
Kelly discusses her views on greenwashing, the future of ESG and why some private clients are still reluctant to embrace the ESG agenda. ” I think it’s human nature that some people find change easy, some embrace change, some accept the need for change, and some are reluctant. Part of our job as lawyers is to work with your particular client and help them manage change, and if it’s difficult, you work with them to surmount those difficulties.”
The full podcast and transcript, can be found here.
Kelly Noel-Smith heads up Forsters’ Sustainability Board. To find out more about our firm’s science-based emission reduction target click here.
With a rise in alternative accommodation being sought by renters in place of traditional-style hotel rooms, short-term lettings such as those offered by Airbnb have become a booming business, giving property owners far more flexibility on how they rent their property.
This has particularly been highlighted by the pandemic, as working from home gives more flexibility in terms of how people are choosing to live and how long they stay in one place.
There are recognisable economic benefits to short-term lettings, specifically tourism and income stream for landlords. However, there are genuine concerns that this is leading to a reduced supply of housing stock (longer-terms lets) as properties shift from serving local residents to serving short-term renters, thus impacting neighbourhoods/local residents by raising housing costs.
With this in mind, the government is considering its tourism policies and the possibility of introducing planning requirements in respect of short-term lets. There is already a limit on the number of days (currently 90 days) that landlords can short-let a property in London without obtaining formal planning permission (Deregulation Act 2015). Cornwall led the way in 2016 in places such as St Ives, where a neighbourhood plan was adopted that effectively banned new dwellings being purchased as second/holiday homes.
While inroads may be being made to address the issue, it is not clear who will be enforcing this. There are often regulations contained in mortgages and other legal documents, specifically leases, that will curtail the use of a property from being let on a short-term basis that quite simply get flouted. There is little impetus for banks or superior landlords to enforce these regulations unless there is an issue, such as non-payment of a mortgage or a nuisance in the building. It is likely therefore to fall to local authorities to enforce any measures, and whether they will have the ability to do this (given their infrastructure and financial constraints) is to be seen.
It is clear that there are challenges in balancing both the needs of landlords and the tourism industry, which have both suffered in the pandemic, and the longer-term housing issues that need to be addressed for localised economic recovery. The short-term rental sector is facing a number of changes. It appears likely that tighter controls will be effected and it may encourage some landlords and potential second-home buyers to rethink their rental strategy.
This article was first published in Property Week on 3 February 2022, and can be found here.
Corporate Re-Domiciliation to the UK: Stuart Hatcher and Lianne Baker write for IFA Magazine
19 January 2022
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Corporate Partner, Stuart Hatcher, and Knowledge Development Lawyer, Lianne Baker, have written for IFA Magazine on corporate re-domiciliation to the UK.
In their article, entitled ‘On the Cards? – Corporate Re-Domiciliation to the UK’, Stuart and Lianne discuss the Government’s consultation into whether the UK should effect a corporate re-domiciliation regime, allowing non-UK businesses to relocate to the UK without affecting their legal identity.
“The Government’s aim is to “strengthen the UK’s position as a global business hub” and one way to achieve this is to allow overseas entities to relocate to the UK easily and cheaply. Since Brexit, the UK has no “re-location” process and with other countries, including Canada, Singapore and Australia, permitting corporate re-domiciliation, the UK does not want to risk losing its position as a leading financial centre.
National Security and Investment Act: Stuart Hatcher and Lianne Baker write for Investment Monitor
19 January 2022
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Corporate Partner, Stuart Hatcher, and Knowledge Development Lawyer, Lianne Baker, have written for Investment Monitor on the UK’s National Security and Investment Act.
In their article, entitled Will the UK’s National Security and Investment Act harm dealmaking?’, Stuart and Lianne discuss the newly implemented act, which gives the UK government greater powers to scrutinise takeovers, and explore what the new act will mean for foreign investors.
“The act is broad-reaching, applying to both UK and overseas entities and assets, and will particularly impact overseas investors, although the key factor will be whether the investment is made in a sensitive industry by a party that could be considered a risk to national security.”
For investors, practical advice would be:
Think ahead – create a workstream to consider the act early on
Challenge your lawyers to consider the act as soon as possible
Work out how to best build specific due diligence on the act into your transaction
Engage with the other side early regarding whether the act applies and how to deal with it in the context of deal documentation.
Collective Proceedings Orders: Caroline Harbord and Candice Johnson write for Solicitors Journal
13 January 2022
Views
The last three months have heralded a period of unprecedented excitement in the sphere of collective competition claims, state Dispute Resolution Senior Associate, Caroline Harbord, and Trainee Solicitor, Candice Johnson.
“These long-awaited decisions (considered all the way up to the Supreme Court and back) provide the first glimpses of how the CAT will apply the novel ‘opt out’ group litigation regime in practice, and are welcome judicial guidance in this area.”
“With the judgments coming thick and fast, and numerous further CPO applications being listed, this article provides an overview of the ‘opt out’ regime, and a summary of the key practical takeaways arising from each of the recent CPO decisions from the perspective of claimants, lawyers and litigation funders.”
Who is responsible for fixing a leak in a rental flat?
13 January 2022
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What should I do if there is a leak coming through the floor of my upstairs neighbour’s flat, but I cannot contact them? James Carpenter answers the reader’s question in The Sunday Times.
“I’m unclear on how to tackle this: it seems as if they can get away with damaging my property…”
Property Litigation Associate, James Carpenter, answers the reader’s question in the Home section of The Times on how to deal with a leak from an upstairs neighbour’s flat when you cannot contact them to alert them to the issue.
James outlines that the most effective response would be to take action against the freeholder of the block, as the freeholder is the landlord of both the reader and the neighbour.
The terms of the reader’s lease should oblige the freeholder to enforce covenants in the leases of its other tenants. As such, the reader should write to the freeholder, to demand that they force the neighbour to remedy the leak, or, failing that, carry out the work themselves. If the freeholder fails to take action, they will be liable to the reader in damages.
The reader may also have claims against the neighbour and his subtenant in the tort of nuisance, but as this is a specialist area, the reader should take legal advice.
In the meantime, James advises that the reader continues in their efforts to contact the neighbour and its sub-tenant to alert them to the issue.
Andrew Parker Discusses Announcements from the Government Regarding Cladding Costs
11 January 2022
Views
Forsters’ Head of Cladding, Andrew Parker, appeared on BBC Newsnight discussing what the Housing Minister Michael Gove meant when he stated earlier this week, on 10 January 2022, that he will be “absolutely willing to use legal rules” to make builders pay for the removal of unsafe cladding from buildings between 11-18 metres.
Question: Can Michael Gove actually make the house builders pay, from a legal perspective?
Andrew’s Response:“He hasn’t said how he is going to do it. The plan is to encourage the developers to contribute. If they don’t, there’s an imposition in law which will come their way, though he doesn’t explain what that is.
Developers can easily say in response to these plans that they were entitled to rely on their architects, engineers, and contractors, so if they are being asked to pay, they should be able to expect a contribution from those parties.
A legal issue the government faces is that if the developers are going to participate in this process, they need to feel that they can recover their losses from those parties. A lot of these buildings are of an age that means the time in which you can make a claim has expired. Unless there is a change in legislation to extend that period, developers won’t be able to pass their losses down to said parties and so will remain reluctant to participate.”
Question: How concerned are you that this could end up as a legal battle between either the developers and those that they relied on, or developers and the government, before these necessary changes are made?
Response:“That is where the problem is. As things stand, legislation needs to be introduced for the government to be able to implement this and we all know that that isn’t going to happen particularly quickly.
Whilst I agree that the right noises are being made for these leaseholders, there is still a huge amount to work through, and if we’re not careful the lawyers are going to be the only ones that benefit.”
UK class actions: Caroline Harbord comments in the Financial Times
4 January 2022
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Dispute Resolution Senior Associate, Caroline Harbord, has commented in the Financial Times on UK class actions which look set to have a big year in 2022.
In the article, entitled ‘Stand by for a big year in UK class actions’ (available behind a paywall), Caroline comments on recent Competition Appeal Tribunal judgments in collective claim class actions stating that they have “reduced the evidential threshold to bring cases”.
Learn more about recent collective action rulings:
Residential Property Partner, Robert Barham, has authored an article for Prime Resi entitled ‘Replacing Leasehold: Can the government persuade the market?’.
It is often said within the legal profession that more books have been written about commonhold than actual commonholds have been created and given that only some 20 commonholds were created that statement is probably true. So how can the government persuade the market to adopt commonhold?
In his article, Robert highlights the ways in which the government can act differently to guarantee a greater adoption of commonhold in the residential property market once the new version of commonhold becomes law.
The full article can be read here, behind the paywall.
For more information on commonhold property, please see our recent article or contact Forsters at [email protected].
Helen Marsh quoted in the Daily Telegraph on competitive purchases
21 December 2021
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Residential Property Partner, Helen Marsh, has been quoted in the Daily Telegraph article, ‘Ten ways to win in the cut-throat property market’.
With property stock at a considerable low, buyers are facing vast competition to get their offer accepted. As a result, buyers must begin to think outside the box to set themselves apart from others.
One such method, is the way to approach leasehold extensions. If you are buying a leasehold property and the lease requires extending, you need to have owned the property for two years. Typically, buyers would demand the seller extends the lease, but given the market competition, that is not a luxury the buyer can afford.
Helen recommends, that keen buyers should take the lease as it is and “then ask the seller to serve the lease extension notice in their own name and, at completion, assign the benefit of that notice to the buyer”.
The full article can be read here, behind the paywall.
Private Client Partners provide a UK tax update at the Family Balance Sheet Event
17 December 2021
Views
Forsters hosted two Family Balance Sheet events on 1 and 8 December with Stanhope Capital.
This event was designed to update UK families and their advisers each year on the performance and outlook for the most popular asset classes held on their overall balance sheets.
Each year the key characteristics of each asset class are examined together with its capacity to protect against inflation, its liquidity and execution costs and the UK taxation implications. This year the threat of continuing inflation is at the forefront of families’ concerns.
At this annual event a specialist in each asset class reviewed recent performance and the outlook for returns. Forsters’ Private Client Partners, Catherine Hill and Jeremy Robertson, provided a UK tax update.
The event can be watched in full below, Forsters presentation begins at (1:30).
The nuances of preparing a family business for sale/investment
17 December 2021
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Stuart Hatcher, Partner, and Lianne Baker, Knowledge Development Lawyer, both of our Corporate team, have written for eprivateclient on the nuances of preparing a family business for sale/investment.
One of the big challenges for a family business is reaching the point where it’s determined that the right thing to do is to sell the business.
Clearly, many family businesses aren’t in the market to sell and are true multi-generational dynasties, but others may find that the time has come to move on.
The decision to sell can be extremely difficult but once this hurdle has been overcome, an equally formidable problem is who to sell the business to and it is this last issue which many family businesses will not ever have considered.
Sometimes the starting point for such businesses may be the relatively simple task of deciding who they wouldn’t want to sell to – for example, a sale to a competitor or private equity may not feel the right “fit” (although for many, either of these can be a solution that works) or there are legacy aspirations with the ideal buyer having like-minded views about the long-term vision for the business.
Such aims are leading to an upsurge in the number of family businesses being sold to family offices and other private wealth funds, who are increasingly seen as alternative investors and buyers in the market.
As advisers, one of the questions we are often asked, particularly when a client is interested in non-traditional buyers such as family offices, is “how do we find the right buyer?” On that basis, we thought that it might be helpful to set out some of the factors and considerations that we think are important to take into account when making this decision: A. Identify the alternative buyers and sources of funds. Unlike the more traditional private equity industry and trade buyers, there isn’t an easy way to access and find family offices and wealth funds, primarily because there isn’t a real directory of family offices available and many are private by their very nature so will not advertise publicly. You will therefore need to speak to your advisers who have expertise in this space and as a result, have a good network and can access these types of entities. It’s important to use advisers who are experienced in the family office and private wealth sector and can make use of their connections to make the right introductions and ask pertinent questions regarding interest levels.
B. Remember to tell the story and explain the vision of the business, and emphasise the long-term opportunity. While private equity exit timelines will usually target five to seven years for a return, most family offices and wealth funds don’t have the same imperative to prove track records of return and are happy to hold businesses they like for the long(er) term.
C. Don’t be shy about highlighting the ESG credentials of the business. In our experience, many family businesses don’t appreciate that they are already ahead of the game on ESG. Often, such businesses have been around for a long time and as a consequence, have already thought about their long-term impact, which, in turn, has caused them to consider the business’ long-term sustainability. Too often in other sectors, the focus point is aimed at the figures, business growth (both historic and future) and market trends. However, buyers are increasingly desirous of understanding a wider range of metrics beyond the mere “numbers”. We are finding that many family businesses inherently cover the “S” in ESG without realising, contributing much to the wider community as part of their values and culture. It is all too easy to discount the merits of this and perhaps undersell this element as part of a sales package (it may seem glib, but often the name of the family and the standing in the community means that this is a major focus of a family business).
In our view it has never been a more open environment to sell a business to different, “non-traditional” interested buyers, but against that it has also never been as complicated to navigate and find the right buyer. However, with time and the right advisers, finding the right buyer is in no way an insurmountable challenge. It has also probably never been more apparent that many family businesses are already ahead of the game in some areas of particular interest to buyers, such as ESG, and this can facilitate the process of finding the right buyer, provided that the business’ ESG credentials are highlighted and form a key element of the sales process (rather than assuming that it is just “part of the business” or not something that an investor would be interested in).
The residential property developer tax (RPDT) will be levied at 4% on property development companies with annual profits in excess of £25m.
The tax is planned to operate for ten years – with an estimated £200-250m expected to be raised annually.
The term ‘residential’ for RPDT purposes is broad.
No deduction is allowed for any interest.
The autumn Budget on 27 October 2021 included the important announcement that the residential property developer tax (RPDT) will be levied at 4% on companies or groups of companies undertaking UK residential property development with annual profits in excess of £25m. It is expected to operate for only ten years, although keen historians might note that income tax, when first introduced on 9 January 1799 by William Pitt the Younger, was ‘a temporary measure’ and had a reassuringly low rate of just under 1% on annual incomes of £60 a year (about £7,000 according to the Bank of England’s inflation calculator to 2020) although increasing on a graduating scale for higher incomes.
The policy objective of this new tax is clearly that there are: ‘significant costs associated with the removal of unsafe cladding’ and so ‘the government believes it is right to seek a fair contribution from the largest developers in the residential property development sector to help fund it,’ according to HMRC’s policy paper published on 27 October 2021. The anticipated tax receipts, certified by the Office for Budget Responsibility, are shown in the table in RPDT receipts.
Since I last wrote about this new tax (‘Learning from the past’, Taxation, 10 June 2021, page 17), the draft legislation has been published (see Finance (No 2) Bill 2021-22, clauses 32 to 52) and a number of important points have been clarified.
Who will RPDT apply to?
The RPDT will apply to companies and groups of companies only. So, a group of individuals forming a limited liability partnership or a 1907 limited partnership with a general partner company entitled to only 1% of the profits, would fall outside the new tax.
The company has to be within the charge to UK corporation tax. This means that a company incorporated in the UK, or a company incorporated elsewhere in the world which is centrally managed and controlled in the UK, or which, for example, trades in the UK through a permanent establishment, will each be subject to RPDT if it undertakes ‘residential property development activities’ (residential property developer activities) and will be classified as a ‘residential property developer’.
A residential property developer (or a related company) must have (or have had) an interest in land in the UK and the activities must relate to the development of residential property on, or in connection with, that land. While the definition of relevant activities is non-exhaustive and includes, for example, designing, constructing/adapting, marketing or managing, tying residential property developer activities to having an interest in land means that the independent – nonrelated company – architect, builder, agent and property manager will not be subject to this tax. Most of the time it should be relatively clear whether the property manager is related to the land owner as advisers are very familiar with the ‘group’ concept, although there are nonetheless some nasty bear traps, but it should be remembered that, in the context of RPDT, a relevant joint venture arrangement can be triggered by as little as a 10% shareholding.
The definition of interest in land has several useful exclusions which mean that neither a lending bank with security for its debt, or a builder which has a temporary licence to occupy the premises – to do the construction/conversion – will be within the scope of RPDT.
As useful as these exclusions are, the most important part of the definition of a qualifying interest in land for these purposes is that the interest must form part of the developer’s (or a related company’s) trading stock – typically an interest that is disposed of in the ordinary course of the trade of development. This means that those who develop land for investment, ie build to rent (BTR), are not within the reach of RPDT. Although this clarification is a huge improvement on the initial rules, caution will still be required as the boundary between trading and investing is not as clear cut as it could be. In addition, there is the further vexed issue of appropriation to trading stock that will have to be considered, as well as the question of warranties and indemnities which will be sought when buying or investing in the shares in a BTR company.
2021 to 2022
2022 to 2023
2023 to 2024
2024 to 2025
2025 to 2026
2026 to 2027
–
+200
+215
+225
+235
+250
What is ‘residential’?
The term ‘residential’ for RPDT purposes is wider than may be thought. As such, a further word of caution is required here, as developers in forward funding contracts may well have held an interest in the development property as trading stock and so will be within the RPDT scope (subject of course to their profit levels).
Even if the developer bought the land as a transfer of a going concern (TOGC), for example an office block which it then sells with vacant possession to the funding bank, that land may nonetheless be residential, as ‘residential’ – a chameleon term meaning different things for different taxes – for RPDT purposes. This has an extended meaning, for example ‘land in respect of which planning permission is being sought or has been granted so that it, or a building on, interest in or right over it,’ will be classified as a dwelling or gardens or grounds of a dwelling, according to the proposed paragraph 37(1)(d) of the draft legislation in Finance (No 2) Bill.
It would be easy to glance quickly at the dwelling exclusions for RPDT and assume that they are similar to either the stamp duty land tax rules or the original draft of the RPDT rules, but there are some subtle differences or changes, including the addition of the following two categories – which one suspects are pandemic-related:
residential accommodation for members of the emergency services or persons working in a hospital; and
temporary sheltered accommodation.
Amendments have also been made to the student accommodation exclusion. In my previous article, I referred to the difficulty of defining ‘student accommodation’ so it is interesting to note that the draft legislation drops ‘purpose built’ and instead concentrates on a building designed, adapted or being construed for use as student accommodation where:
the majority of the occupants will be undertaking a course of education (this to include school pupils); and
it is reasonable to expect that such persons will occupy for at least 165 days a year.
In a post-lockdown world, expected occupation is a sensible rule to be embedded up-front in the legislation, although public school terms may need to lengthen.
I had previously been concerned that ‘purpose-designed supported housing with communal facilities providing accommodation with care’ might not have been broad enough to capture the new wave of elderly care homes, but the revised wording of ‘a home or other institution providing residential accommodation with personal care for persons in need of personal care because of old age’ seems more restrictive and providers in this space may need to take bespoke advice.
How much – calculating profit
The draft legislation sets out detailed and prescriptive ways of calculating chargeable profits. As the requirement is now exact amounts attributable to the RPDT activities rather than apportionments as originally suggested, these will necessitate great attention to detail. The most noteworthy computational rule is that no deduction is allowed for any interest (or other debits pursuant to either the loan relationship or derivative contract rules), although admittedly (and fairly), neither are any such credits. But, the loss of interest deductions together with climbing interest rates is going to be a significant factor.
Group relief and internally generated losses may be accessed to the extent that they also relate to RPDT-able activities.
Key events
In a nutshell, here are the key points about the RPDT:
When? April 2022.
Why? To pay for cladding rectification.
How (much)? 4% over £25m profit.
Where? Potentially everywhere. It does not matter where a company is incorporated, it will be liable to UK RPDT if it develops residential land in the UK.
What should businesses likely to be affected by PRDT do next? They should recalculate their business plans, make sure they are compliant and not adopt any ‘rinky-dink’ tax planning because this tax carries with it (in my view) an element of corporate social responsibility having been borne out of the tragedy of Grenfell.
What else may happen?
It is understood that Michael Gove recently suggested that suppliers of products that were installed on Grenfell Tower and similar buildings could be subject to some form of levy. Could we therefore see another form of tax to deal with the cost of repairing cladding? This seems a distinct possibility as Michael Gove confirmed earlier this month that the government will ‘pause’ plans to make leaseholders pay to make cladding safe, questioning why they have to pay ‘at all’.
With many people living in unsafe properties which have devalued and are inherently risky, it is perhaps not surprising that the government seems to favour hypothecated taxes. Ultimately, such taxes promise transparency, accountability and public support. And let’s not forget that we already have a precedent – after all, income tax started in the UK as a bespoke tax to cover the cost of the Napoleonic wars.
What can be done when a property owner is unwilling to cooperate with necessary repairs? Liberty Chappel answers a reader’s question in The Times
14 December 2021
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“Is there nothing we can do if we cannot appeal to his better nature?”
Liberty Chappel, Senior Associate in our Property Litigation team, answers a reader’s question in the Home section of the Sunday Times asking what can be done when a neighbouring property owner appears unwilling to cooperate with necessary repairs.
In her response, Liberty explains that when neighbours share something as fundamental as a roof, the obligations are often recorded by a covenant on the freehold title of each property and it will depend on the wording of the covenant as to whether it is binding on anyone other than the original contracting parties.
She highlights that if no express obligation exists, the position would be that each neighbour is responsible for the part of the roof immediately above their property. However, where wholesale replacement of the roof would be most cost effective, further steps can be taken to try to secure a consensus.
Read the answer in full, here, behind the paywall.
For a variety of reasons, settlors may seek to have their voice heard when trustees exercise discretion, even from beyond the grave. One increasingly common way in which they do so is by appointing a protector, who will typically be granted powers of their own when the trust is settled. What steps are protectors required to take when exercising their power, particularly where they have a discretion in its exercise? 2021 has so far produced two apparently conflicting judgments exploring this issue:
In the Matter of the X Trusts [2021] SC (Bda) 72 Civ (Supreme Court of Bermuda)
In the Matter of the Piedmont Trust & Riviera Trust [2021] JRC 248 (Royal Court of Jersey).
Analysis of The Cases
Both cases concerned protectors with power to consent to, or veto, a trustee’s proposed exercise of power.
The issue is whether protectors should exercise independent discretion and make their own decision when deciding whether to consent, taking into account relevant considerations and disregarding irrelevant considerations (referred to by the Bermudian Court as “the Wider View”)? Or are protectors limited to satisfying themselves that the proposed exercise of the trustee’s power is one that a reasonable body of properly informed trustees could undertake, such that the role of a protector is essentially the same as that of the Court in a blessing application (“the Narrower View”).
In the matter of the Piedmont and Riviera Trusts [2021]
Despite noting that no assistance could be derived from any provision in the trust deed, the Jersey Court had “no hesitation” in rejecting the Narrower View.
They reasoned that a protector is often a longstanding friend or trusted advisor of the settlor, or the settlor themself. This suggested that the protector was appointed in order to exercise their own judgment, not to simply review the trustee’s decision. If the role was limited to judging issues of rationality, the settlor might as well have appointed someone with a legal qualification.
Furthermore, adopting the Narrower View would make the protector’s role almost redundant. It would add nothing to the Court’s role on a blessing application. The Court preferred the analysis that the protector was intended to fulfil a different role to the Court’s role and could therefore properly veto a trustee decision that was rational, which the Court might approve if faced with the same decision.
However, a protector’s power to consent did not equate to a duty to itself take the decision or dictate how a trustee must exercise its powers. A protector’s discretion to consent lies within a “narrower compass” than the decision-making role of a trustee. But a protector is not confined to a yes or no answer, and trustees and protectors should work together, as necessary, to identify an outcome on which they can both agree, in the interests of the beneficiaries. This requires full and open discussion. A trustee should provide all documents and information which may be reasonably necessary for the protector to properly discharge its fiduciary duties to the beneficiaries, which might include detailed reasons for the trustee’s proposed decisions.
Re The X Trusts [2021]
In stark contrast, the Supreme Court of Bermuda ultimately preferred the Narrower View, having considered the same question through the lens of construction principles.
Whilst the Court accepted that, when read literally, the protector provisions suggested a power of veto, it held that other relevant considerations must be taken into account in addition to the literal meaning. Thus the Court concluded that the Narrower View reflected the true construction. The Court considered that it was clear from the terms of the instruments that their dominant purpose was to ensure due exercise of the powers vested in the trustees.
As such, the Court concluded that, unless there is something to the contrary in the trust deed, then the usual role was not to exercise a power “jointly” with the trustees (a characterisation of the Wider View that the Jersey court did not share). Instead, it was an ancillary power that allowed the protector to act as a watchdog (the Narrower View).
In reaching its decision, the Bermudian Court had heard submissions that criticised the leap that the Wider View necessitated i.e. from the proposition that a protector is a fiduciary, to the conclusion that a protector must take its own independent view of whether and how the trustee’s power should be exercised. The Bermudian Court rejected the thesis that the Narrower View defined a protector’s role as a fundamentally limited one. It considered it to be substantial.
Conclusion
Both judgments acknowledged the scant judicial authority on the nature of a protector’s duties, particularly in the context of a requirement for a protector’s consent. It is perhaps unfortunate that although the Jersey judgment was handed down second, the case had been heard and the judgment prepared without the benefit of access to the Bermudian judgment, which was addressed in a postscript. This may explain why the two Courts adopted fundamentally different approaches: whilst the Bermudian Court approached the question as a “construction conundrum”, the Jersey Court (which, as it acknowledged, heard less detailed argument on the point) preferred a more intuitive approach and analysis that arguably promotes settlor influence.
It is also unfortunate that the cases are limited to considering consent powers of protectors that were also fiduciary. This might otherwise provide a clear basis for a distinction.
Whilst the tension remains, trusts practitioners should take a careful approach when advising settlors, trustees and/or protectors, and highlight the conflicting approaches taken by the different courts and the risks this poses. Whilst settlors may gravitate towards the Jersey forum (preferring this jurisdiction to others which would potentially reduce the role of protectors to “mere toothless tigers”), trustees, at least, may prefer the Narrower View (particularly given the reduced opportunity for deadlock).
Care should also be taken when drafting trust instruments to ensure that they best meet the settlor’s objectives and are clear about the nature of the power. As the Bermudian judgment suggests, that could make all the difference.
Lucy Barber quoted in the Daily Mail on buying a freehold
17 November 2021
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Head of Residential Property, Lucy Barber, has contributed to an article for the Daily Mail entitled ‘Buying a Freehold?’.
In the article, Lucy outlines the key steps that leaseholders need to follow in order to complete a freehold transfer.
She highlights the two options available, utilising steps under the Leasehold Reform, Housing and Urban Development Act 1993 or enfranchisement under the Landlord and Tenant Act 1987.
The former option allows tenants to collectively join together and require the landlord to sell them the freehold, subject to the building satisfying the qualifying criteria under the 1993 Act
The latter option is used when a landlord wishes to sell the freehold of a building containing two or more residential flats and the building fulfils the criteria set out under the 1987 Act.
The landlord first has to serve a Section 5 notice upon all the residential tenants offering them the opportunity to purchase the freehold at a price outlined in the notice. The tenants can accept the notice provided that more than 50 per cent of the qualifying tenants all join together and accept the notice.
Caroline Harbord comments on Lloyd V Google Supreme Court Judgment
16 November 2021
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Caroline Harbord, Senior Associate in our Dispute Resolution team, has commented on The Supreme Court’s halt of a massive class action against Google over a data protection breach.
Commenting on the judgment, Caroline states that “Large data controllers will no doubt be taking a massive sigh of relief. The judgment narrows the scope for group claims arising from data breaches where no material damage has been caused by the breach.”
“The practical effect of the judgment means the Supreme Court has deprived the affected class (who have had their data stolen and commercialised by Google) of an effective remedy for this wrong, and puts the English courts at odds with the judicial approach taken by the US, Canadian and Australian courts.”
“It is hard not to feel the Supreme Court has been unduly conservative in its approach, and shied away from an opportunity to impose a new check and balance on large scale data controllers.”
Joe Beeston writes for CampdenFB on employment law for family businesses
9 November 2021
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Employment Counsel, Joe Beeston has authored an article for CampdenFB entitled ‘Get the basics right in family business employment law’.
“Family businesses often grow in an unstructured way, leading to a culture of informality. As a result, basic employment law documents can get overlooked and family members are not issued with employment contracts or subject to formal policies. This can leave the business exposed when issues arise as neither the business nor the family member have a ‘rule book’ to follow”.
In his article, Joe explains how to avoid clashing interests and deal with difficult situations, as well as highlighting best practice for future planning.
The full article can be read here. If you have any questions on topics raised in the article, or wish to seek further guidance, please do contact Joe.
How can I minimise tax when buying a UK house from abroad? Lucy Barber answers the Financial Times reader’s question
9 November 2021
Views
Head of Residential Property, Lucy Barber, answers the reader’s question ‘How can I minimise tax when buying a UK house from abroad?’ for the Financial Times.
In her response, Lucy explains the two taxes likely to have the greatest impact are stamp duty land tax (SDLT) and inheritance tax (IHT).
She highlights that while an additional 2 percent surcharge will be payable on SDLT due to the reader’s non-UK residence, if they were to remain in the UK for at least 183 days in the 12-month following the purchase, a refund may be sought.
In regards to IHT, the reader will be liable to pay this at a rate of 40 percent, however Lucy addresses how the amount of IHT payable can be mitigated.
Ben Barrison comments on rent arrears and new arbitration code in The Telegraph
9 November 2021
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Ben Barrison, Partner in our Property Litigation team, has provided commentary on rent arrears in The Telegraph on the new arbitration code.
Ben stated that “a lot of outstanding rent arrears cases involve situations where landlords have asked for financial information but it has not been provided by tenants.”
The new arbitration code is due to finalised by the Department For Levelling Up in the next few weeks and is intended to reduce the number of cases taken to court between landlords and tenants.
In his comments, Matthew explains that with greater transparency comes a greater need to achieve a balance between allowing the public an enhanced insight into family courts whilst maintaining an individual’s right to privacy.
The full article can be read here, behind the paywall.
Elizabeth Small’s budget commentary published in News on the Block
29 October 2021
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Tax Partner Elizabeth Small’s comments on the Autumn Budget 2021 have been published in News on the Block.
In her comments Elizabeth highlights the two key questions that have been answered in relation to the new Residential Property Developer Tax (RPDT).
Her comments can be read in full on our Insights Page.
Natasha Rees considers the Court of Appeal decision in Aster v Chapman in RICS Property Journal
28 October 2021
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Head of Property Litigation, Natasha Rees, has written an article in the RICS Property Journal on the recent Court of Appeal case, Aster Communities v Kerry Chapman and Others.
The Court of Appeal considered the circumstances in which the First-tier Tribunal (FTT) may grant a landlord dispensation from the consultation requirements prescribed by Section 20 of the Landlord and Tenant Act 1985.
The article was first published by RICS Property Journal and is available on their website here.
The article was first published by Property Wire on 25 October and can be read in full below.
Despite the protracted Brexit process and the undeniable impact that Covid-19 has had on the capital, it is becoming increasingly clear that London’s international popularity is not going anywhere. History, food and dining, education, the arts (particular the return of live performances over recent months) and, of course, the city’s incredible diversity continue to tempt both overseas investors and occupiers to our resilient metropolis and ever more notably to the UK’s other cities such as Manchester and Birmingham.
The London property market, though desirable, has its nuances. Forewarned is forearmed, and this is irrefutably true when looking to purchase in Bonnie Blighty.
Freehold and Leasehold
The majority of flats in the UK are probably leasehold properties. Leasehold seems to be a tenure which is individual to the UK and is unsurprisingly confusing for most buyers (“why do I have a lease if I’m buying the property?”) and particularly for those residents in jurisdictions where leasehold does not exist. Despite the Leasehold Reform we have been promised for years, changes that have been brought in are few and (relatively) minor, the more significant overhaul seems lengthy and tricky to implement and it seems likely that leasehold in some form or another is here to stay for now. Competent property advisors and lawyers will know what to look for and help guide buyers through this minefield.>/p>
SDLT (and UK taxes generally)
Even conveyancers struggle with SDLT (stamp duty land tax) now. We are a world away from the straightforward slab rates from a few years ago. Is it an additional property? Could multiple dwellings relief apply? Is the purchaser a company and if so, does it qualify for business relief? And do remember to add on the extra 2% non-resident SDLT.
The government online calculator can be a helpful starting point but be sure to ask a lawyer or tax advisor to assess the likely SDLT position and any other tax implications. An overseas investor would be wise to use law firms with tax teams so that they can obtain all the relevant advice in one place.
Anti Money Laundering procedure
No one enjoys this process. No one. But with residential property continuing to prove an attractive ruse for money laundering, a rigorous compliance check to establish the person and source of funds behind each property purchase is essential. There is a lot to be said for starting this process before an offer is made and even before the property search begins to ensure there are no unnecessary delays which might impact on the purchase itself.
Planning rules
Savvy investors may well be looking to add value by renovating and/or extending their purchased property. It is worth considering from the outset what (if any) work is intended and taking bespoke advice from surveyors and lawyers as to the relevant planning regulations – these differ depending on the local borough and are frequently amended. In particular, consider whether the property is listed and/or in a conservation area which may restrict or require additional consents and impose further conditions on any planned alterations.
It (almost) goes without saying that instructing a good team is integral to the buying process. In a world where global travel is yet to return to 100% restriction free, it would hardly be surprising that many international investors might not be willing to make the trip to the UK to visit potential properties themselves for fear of changes in traffic light systems, or because (understandably) they do not wish to face weeks of possible quarantine on their return. A trusted team must be assembled to ensure a smooth transaction.
One hugely valuable asset could well be a buying agent. Unlike the US and Southeast Asia where savvy buyers will likely have a broker, estate agents in the UK are appointed by, and therefore primarily act for, the seller. Buying agents provide an independent and experienced insight into the property market, whilst often having access to properties which are not yet listed for sale. Many who instruct buying agents would argue that, as well as the invaluable advice they offer, their fees are often recovered by the discount they are able to negotiate thanks to their expertise and knowledge of the industry.
And of course, experienced, commercial lawyers with a strong knowledge of the local area are a must. The right lawyer should provide a thorough review of the title, searches and information provided by the seller, raise bespoke and relevant enquiries and keep buyers properly informed along the way. Lawyers can make or break a property sale/purchase, so it is worth shopping around and choosing a firm with an excellent reputation, as well as a proactive, solution-based approach.
The purchase or sale of a high value home requires expert legal advice to manage the complexities involved. Our lawyers are dedicated to sharing their knowledge to enable you to navigate the legal practicalities of buying and selling high value assets. We will support you through every stage of the process, and with the largest dedicated Residential Property team in London, we have the strength to do this. Visit our Hub to learn more.
When acquiring UK property, US purchasers should seek advice on the broader tax and legal implications. In this report, Forsters’ partners along with specialists in the industry, share their insights on the current UK market for US buyers and how best to navigate the specific risks for US-connected clients.
“The CMA’s announcement will no doubt be of grave concern to streaming platforms such as Spotify.
If the final report suggests that such platforms have acted anti-competitively, this could lead to a gigantic “opt out” class action against the platforms (in the style of the recent Collective Proceedings Orders (CPOs) granted in Merricks v Mastercard, Le Patourel v BT and Gutmann v London and South Eastern Railway Limited).
Given how ubiquitous streaming platforms are, the potential class of claimants could extend to all individuals who have streamed music over a specified period (potentially since the inception of the platforms), and the damages could run into billions (as was the case in each of Merricks v Mastercard and Le Patourel v BT). This is leaving aside class action that the musicians themselves could also launch.
Le Patourel v BT is of particular relevance here, because the CAT made it clear in that case that a CPO, the order required before an “opt out” group action can proceed, could be granted against BT on the basis of the findings of an Ofcom market review.
As such, the findings of the music streaming market study could themselves provide sufficient evidence for a CPO to be granted against streaming platforms (whereas the more traditional school of thought was that a specific finding of anti-competitive behaviour had to be made by the European Commission or CMA).
The threshold evidential requirement for granting CPOs has therefore been lowered by Le Patourel v BT, and it seems plausible that any findings of the recently announced market study by the CMA could be enough to get an “opt out” group action against the streaming platforms off the ground.”
Joining EG editor, Samantha McClary alongside Katherine were Rasheed Hassan, Head of Global Cross Border Investment at Savills, and James Edwards, Managing Director of Evans Randall Investors.
Discussing London’s continuing attractiveness as an investment hotspot, Katherine, Rasheed and Samantha share their insights on how investor interest may have changed as we start to rebound from the coronavirus pandemic, how ESG are three letters on everyone’s lips and just how confident London can feel for its future prospects.
Discussion points included:
How has investor interest changed after the pandemic?
Overseas investors: how is London’s recovery seen from outside the UK?
Offices: how expectations of occupiers is reshaping the market
Professional indemnity insurance: Emily Holdstock and Oyin Ogunkanmi write for Property Law Journal
8 October 2021
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Emily Holdstock, Partner in our Construction team, and Oyin Ogunkanmi, Associate, have written for Property Law Journal on Professional Indemnity Insurance.
In their article, ‘Construction focus: Professional indemnity insurance’, Emily and Oyin explore the current state of the professional indemnity insurance market and the practical steps that insureds and their clients can take to safeguard their respective interests during development.
The article explores:
The principles of professional indemnity insurance
Why is professional indemnity insurance the subject of so much discussion?
Why has the PI market hardened?
What effects has the hardening of the market had on the construction sector specifically?
Advice for those seeking to take out or renew professional indemnity insurance
The article was first published and is also available on Property Law Journal‘s website.
VAT treatment of dilapidation payments: Elizabeth Small writes for Taxation
8 October 2021
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Tax Partner, Elizabeth Small’s article entitled ‘VAT treatment of dilapidation payments’ was published in Taxation.
Her article covers the following key points:
During or at the end of a tenancy the landlord may serve a terminal schedule of dilapidations on the tenant.
HMRC used to see the dilapidations payment as damages and not subject to VAT.
Revenue and Customs Brief 12/20 suggested that dilapidations would be liable to VAT.
Since then, HMRC has revised its guidance a number of times and now we are back to the position, in most cases, that businesses can continue to treat such payments as not subject to VAT, but this rule may not be applied ubiquitously and proper analysis is required.
In this article, it is assumed that the property is used purely for commercial purposes and has been opted for VAT purposes.
BT collective action ruling “could open the floodgates”: Ben Walton and Caroline Harbord write for The Times and Legal Futures
7 October 2021
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The Competition Appeal Tribunal’s (CAT) approval of a second opt-out collective action is likely to open the floodgates to more applications, claim Head of Commercial Litigation, Benedict Walton and Senior Associate, Caroline Harbord.
In approving a £600m claim against BT, the CAT showed that a collective proceedings order (CPO) can be obtained in claims where primary liability has yet to be established and not just follow-on damages claims.
Commenting on the decision, Caroline Harbord, Senior Associate in our Dispute Resolution team, said the decision was “significant” because it made clear that opt-out CPOs were not limited to “classic follow-on damages claims”, and could also be obtained in claims where primary liability has yet to be established.
The first CPO came in August in the Merricks v Mastercard case, brought after the European Commission made a finding of anti-competitive behaviour.
Caroline continues: “This order – being only the second of its kind issued by the CAT – may well serve to spark an increase in the number of CPO applications going forward…”
“If a class representative can gather together sufficiently compelling evidence of anti-competitive behaviour – so as to render the claim more than ‘fanciful’ – it may be able to successfully obtain an opt-out CPO, even if there hasn’t been a formal finding of anti-competitive behaviour by the European Commission or the Competition and Markets Authority.”
“The case, therefore, arguably opens the floodgates in this area.”
Merricks v Mastercard: Benedict Walton and Caroline Harbord write for FT Adviser on funded group litigation
27 September 2021
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Head of Commercial Dispute Resolution, Benedict Walton, and Dispute Resolution Senior Associate, Caroline Harbord, have written for FT Adviser on funded group litigation.
What it’s really like to live in a build-to-rent flat: Helen Streeton quoted in The Times
20 September 2021
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Commercial Real Estate Partner, Helen Streeton, has recently been quoted in The Times, Bricks & Mortar. The article explores the good and bad of living in a build-to-rent development and Helen comments on what happens to the security deposit if the property is damaged or left in a state of disrepair.
The article explains that a BTR landlord has 30 days to deduct the damage costs from the security deposit, and the tenant has the right to dispute this “within this time frame the deposit is placed ‘on hold’ while a third-party adjudicator makes a final decision about the amount of money to be taken off the deposit.”
To read the full article please click here. You will need a subscription.
Construction focus: Delay damages and termination – Dan Cudlipp and Candice Johnson write for Property Law Journal
9 September 2021
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What happens to an employer’s rights to liquidated damages for delay when a building contract is terminated before practical completion of the works has been achieved? Dan Cudlipp and Candice Johnson discuss a case that made it to the Supreme Court.
The consequence of the Supreme Court’s considerations was that while penalties remain outlawed, that does not necessarily mean that liquidated damages cannot exceed the innocent party’s actual losses arising from the breach, so long as they are proportionate to the innocent party’s legitimate interests in having the contract performed.
How can I stop the smell from my neighbour smoking?: Elizabeth Oxendale features in The Times
9 September 2021
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Elizabeth Oxendale, Associate in the Property Litigation team, has recently featured in The Times. She has advised as to whether an individual has a legal standing in regards to a neighbour reducing the quality of air due to continuously smoking inside. This is a particularly prevalent issue within flats and as she explains, a claim in private nuisance may be available which could lead to an injunction requiring the neighbour to stop causing the inconvenience.
“You have a right to the undisturbed use and enjoyment of your home. If your neighbour is interfering with that right, you may have a claim in private nuisance.”
The Harsh Reality of Shared Ownership. Natasha Rees comments in The Sunday Times
31 August 2021
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Head of Property Litigation, Natasha Rees, sat down with Melissa York of The Times to provide her comments on one of the risks of shared ownership; being able to easily extend a short lease term.
A short lease term should be something that a solicitor would point out to a buyer at the point of purchase but if this goes unchecked at this point it is likely to lead to issues for the shared-owner further on:
“Short leases should be flagged by conveyancing solicitors and mortgage lenders”, says Natasha Rees. “They are retained to advise on the lease and title. I would have thought a good solicitor would have picked up on that.”
Unless shared owners have staircased up to 100 per cent equity they are excluded from the right to a formal lease extension and have to negotiate one informally with their housing provider. This leaves them open to exploitation and unfair terms, says Rees, such as rising ground rents and short leases. “They are made to pay for valuations and legal fees too.”
The article also covers broader issues for a shared-owner; cladding bills, services charges and permission fees with links to resources to help.
Key challenges and the role of the family advisor in facilitating a successful succession plan: Kelly Noel-Smith, Rosie Schumm and Anna Ferster write for Family Law Journal
How best to pass on wealth to the next generation is a challenge for many families, particularly when successive generations have different approaches to wealth management. The article uses Greek mythology to illustrate some of the challenges for the family advisor who has to adopt different perspectives on a client family: from the macro level, when trying to establish the ethos of the family unit; and from the micro level of each family member within each generation.
The challenges explored in the article range from advising families who are struggling with the relinquishment of control to younger generations to advising families who have opposing views as to how the family wealth should be managed. Kelly, Rosie and Anna also discuss their own experiences of these challenges and how they were overcome.
The article seeks to set out practical tips for the family advisor in navigating these scenarios, including providing advice on nuptial agreements and how to facilitate communication successfully between family members.
The full article can be read in the August issue of Family Law, the leading practitioner journal compiled by experts for family law professionals.
Charles Miéville and Emma Gillies write for Bloomberg Tax on SDLT for international buyers
25 August 2021
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Residential Property Partner, Charles Miéville, and Private Client Partner, Emma Gilles (née White), have authored an article for Bloomberg Tax entitled ‘U.K. Property Market—Tax Considerations for International Buyers’.
The article, published on 20 August 2021, has been reproduced with permission from Copyright 2021 The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com.
The Covid-19 pandemic has led to 18 months of changes from a U.K. Stamp Duty Land Tax (SDLT) perspective with mixed (and conflicting) objectives, from kick-starting the property market to improving affordability for the average buyer. On July 8, 2020 an SDLT “holiday” was introduced which is still ongoing, albeit in a reduced way. In April 2021 a 2% non-resident (NRSDLT) charge commenced.
As the tax holiday winds down, we consider what each of these measures was introduced to achieve, what the result was, and how international buyers should now approach any new purchase in light of the current SDLT legislation.
Stamp Duty Land Tax Holiday
The pandemic led to a great deal of uncertainty in the U.K. property market as the government initially advised against moving home; people were also naturally cautious about this in a time of great unpredictability. The U.K. chancellor’s introduction of an SDLT holiday on the first 500,000 pounds ($687,800) of the purchase price aimed at re-opening the market, encouraging buyers to put their SDLT saving into a deposit, and kick-starting the buying process for many would-be buyers.
The SDLT holiday benefits all buyers, whether purchasing a main or additional residence, and whether domestic or international investors. It also had the effect of pushing up prices, as supply dwindled and demand increased, so much so that any SDLT saving may easily have been lost to the significant increase in asking prices, pushing many homes well beyond the affordability of the intended buyers.
In March 2021, the SDLT holiday was extended, so that the market did not fall off a cliff face at a time of great economic uncertainty, and the staggered reduction of the saving, which had been as much as 15,000 pounds, has, from June 30, 2021, been reduced to a maximum saving of 2,500 pounds until September 30, 2021.
Given the high average price of a property in London and the south of England, it is unlikely that many people in this region will be purchasing at under 250,000 pounds and therefore benefiting from the full current exemption. First-time buyer relief on properties up to 500,000 pounds is however still available.
The result of the reduction of the SDLT saving was a flurry of transaction completions before the deadline; our office saw over 200 completions in the final weeks of June. Interestingly, the SDLT holiday was a key factor for clients in all price brackets, rather than just those up to 500,000 pounds who would pay no SDLT at all. The impetus to complete the purchase before September 30, 2021 is now far smaller given the reduced saving.
Non-resident Stamp Duty Land Tax
Against this backdrop, a 2% NRSDLT charge was introduced in April 2021. The aim of the tax, which applies to “non-resident” purchasers only, was to improve affordability of housing against large price increases over the last few years; any funds raised would be used to tackle homelessness.
In order to avoid a NRSDLT charge, a buyer must have been living in the U.K. for 183 continuous days in the calendar year prior to completion of the transaction, otherwise the buyer will be liable to pay the tax. If the buyer can then show a period of 183 continuous days living in the U.K. during a combination of the years immediately prior and post the transaction completion, they will be able to claw back the 2%.
It is important to note that the test for the application of the NRSDLT charge is entirely separate and distinct from the statutory residence test (SRT) that applies when determining tax residence for all other U.K. tax purposes. It is possible for an individual to be tax resident in the U.K. under the SRT while being non-resident for the purposes of NRSDLT, and vice versa.
Unlike the previously introduced 3% surcharge that applies on the acquisition of an “additional residential property”—where a transaction was automatically liable to this charge where one half of a married couple owned another property, even if they were not involved in the purchase—the 2% NRSDLT charge can be avoided where a married couple or couple in a civil partnership buy a property, and only one of them is non-resident for the purposes of the tax; so there is no need to structure to avoid the NRSDLT if one half of a married couple only meets the requirements.
It may therefore be helpful if an international buyer who is considering buying in the U.K. is able to spend the requisite six-month period in the U.K. prior to completion of the property purchase (or immediately afterwards) to avoid the NRSDLT charge. However, such international buyer should not spend this amount of time in the U.K. without seeking advice on the broader U.K. tax consequences of doing so.
This SDLT charge has seen far less interest from international buyers to date, particularly given the majority of sales during lockdown have been to a domestic market, with very few international buyers committing to purchases sight unseen. It will be interesting to observe the impact of the 2% NRSDLT once travel corridors fully reopen. It is questionable whether it will achieve its desired outcome, given the affordability of U.K. property for foreign buyers due to favourable exchange rates, low interest rates for borrowing, and the high holding costs of property in some overseas locations, notably New York and California, where there are significant annual property taxes.
Interpretation can be Complex
A more complex example of the current SDLT position can be seen in the following recent transaction this firm handled which brings into play both the 3% SDLT charge, the 2% NRSDLT charge and the SDLT holiday.
A couple who lived abroad sold their main residence abroad and moved into a U.K. pied-a-terre they owned. They aimed to replace their main residence with a London house purchase, but having just moved to the U.K. are living in their pied-a-terre. They entered into a conditional purchase contract to buy a house. If the contract completion date is prior to September 30, 2021, they will benefit from the 2,500-pound SDLT holiday saving, but due to not having been in the U.K. for 183 continuous days in the year to completion, they would be charged the 2% NRSDLT. They would be able to reclaim this after November 2021, by which point they would have been here for the requisite 183 continuous days.
Alternatively, if the conditions to the contract are not satisfied until after September 30, 2021, they would lose the 2,500-pound SDLT holiday but potentially still be liable for the 2% NRSDLT if completion is any time before November 2021. If completion is in November 2021, they do not benefit from the SDLT holiday, but equally they do not pay the NRSDLT. The position has been further complicated by entry into an option agreement to buy the house, the grant of which triggered an SDLT charge, which is initially based on the NRSDLT calculated charge, but which needs to be revisited once the sale itself completes or at a later date when NRSDLT is not chargeable, which could lead to a refund for the initial option grant.
Planning Points
As is demonstrated by the above example, the SDLT legislation is constantly shifting, and its interpretation can be complex. By moving quickly prior to September 30, 2021 buyers will achieve a small saving in many price brackets, and by structuring their purchase around a six-month U.K. stay may be able to avoid the 2% NRSDLT—although they should be aware of the broader U.K. tax consequences of doing so.
Further planning would be needed to avoid the 3% surcharge on SDLT for additional dwellings, such as selling your former main residence and replacing it with your U.K. main residence, selling or gifting any additional properties prior to purchase of your main residence (but beware any capital gains tax or inheritance tax or foreign tax consequences).
As ever, early structuring advice and legal involvement will be key to minimizing stress and unintended tax consequences.
Meanwhile, the government’s plans to boost the property market on the one hand, and to make it affordable on the other, will continue to have a very mixed effect on market conditions, though it appears our international client base is keen to revisit U.K. acquisitions as soon as travel is easier, and seems undeterred by the myriad possible pitfalls.
Disclaimer
This article reflects the law as of 25 August 2021. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
What is the best way to buy our first UK home? Emma Gillies answers the Financial Times reader’s question from a US connected couple
25 August 2021
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Private Client Partner, Emma Gillies (née White), answers a reader’s question for the Financial Times entitled ‘What is the best way to buy our first UK home?’.
The question seeks to understand whether holding the property as ‘joint tenants’ or ‘tenants in common’ is more suitable for a married couple, where one is British and the other American.
In her response, Emma explains the difference between the two options; highlighting that ‘as joint tenants, you own the whole property together, whereas tenants in common each own a separate and distinct share of the property, which may or may not be equal’.
Although Emma acknowledges that there can be practical advantages to owning property as joint tenants, she goes on to recommend owning the property as tenants in common, as it provides greater flexibility for estate planning. However, she emphasises that US tax advice should also be sought by the reader.
The full answer can be read here, behind the paywall. For further details about purchasing UK property when you have connections to the US please check out our comprehensive guide here.
When acquiring UK property, US purchasers should seek advice on the broader tax and legal implications. In this report, Forsters’ partners along with specialists in the industry, share their insights on the current UK market for US buyers and how best to navigate the specific risks for US-connected clients.
Procuring remedial works under The Building Safety Fund: Emily Holdstock writes for Property Law Journal
20 August 2021
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In a recent Property Law Journal article, Emily Holdstock, Partner in our Construction team, summarises how to make a claim under the Building Safety Fund.
A stamp duty land tax (SDLT) saving may be made if an individual buys a property which includes not only their main home, but also separate and independent accommodation for the mother-in-law, such as a ‘granny’ annexe.
However, the possible reliefs and consequent savings are complex and dependent on the individual facts of any situation.
In her article, Elizabeth answers the following questions:
What is the potential saving?
How can I pay more for a property but pay less SDLT?
HR Issues in the hotel sector – Joe Beeston writes for Boutique Hotel News
6 August 2021
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Joe Beeston, Counsel in Forsters’ Employment team, has written an article for Boutique Hotel News outlining some of the issues faced by hotel HR teams as the hotel sector cautiously begins a return to normality following a turbulent couple of years in the wake of the COVID-19 pandemic.
The coronavirus pandemic has, without a doubt, reshaped our personal and professional lives. All industries and sectors have been affected in one way or another and are responding in different ways. Some areas of the hotel industry have taken steps which no-one could have foreseen just a few months ago. So, how is the hotel industry responding to the crisis, what measures and arrangements are being put in place and what are the longer term considerations for it?
What is divorce mediation? Jo Edwards explains all in Spear’s Magazine
27 July 2021
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Head of Family, Jo Edwards, answers the most common questions about divorce mediation in an interview with Spear’s. Jo explains the process of divorce mediation and how it can help families avoid contention.
The article, entitled ‘What is divorce mediation‘, was first published in Spear’s on 23 July 2021 and can be read in full below.
Innovative dispute resolution is an integral part of Jo’s practice and many HNW clients instruct Jo as a mediator in an attempt to find a tailored solution away from the glare of media attention that court proceedings can bring.
Jo is recognised as an industry leader in Family Mediation as demonstrated by her inclusion in the ‘Spotlight Table’ of the Family/Matrimonial: Mediators list of the latest Chambers HNW Guide.
Family law can involve sensitive issues such as relationship breakdown and children, so the courts are not necessarily the best place to resolve them. Divorce mediation, therefore, is designed to help families come to an amicable agreement outside of the justice system. Forsters’ Jo Edwards explains why the process helps families avoid contention.
What is divorce mediation?
Mediation involves a divorcing couple appointing a third party (a mediator) to intervene in a dispute in order to try and resolve it outside of court. They are seeking to avoid litigation – the process of taking legal action. The issues discussed could be anything that arises from a relationship breakdown, including shared finances and children.
Divorce mediation is a voluntary process – it cannot be ordered by the court (although the court can suggest that a couple explore mediation). It is also, crucially, a confidential and privileged process, says Forsters solicitor Jo Edwards.
‘The couple is effectively coming into a safe space,’ she says. ‘Even if court proceedings are going on in the background and the couple are wary of sharing their hand, thinking [their spouse’s] solicitor is going to rely on this… I can say to them, no, this isn’t up for discussion in solicitor correspondence or in court.’
The ‘safe space’ allows couples to brainstorm solutions to their disputes without fear that anything they say will be held against them in legal proceedings, which in turn allows them to come to agreements that they might not have otherwise been able to.
For example, Edwards is currently conducting mediation with a couple who are having difficulties over children arrangements. There’s litigation ongoing, but through mediation they are exploring the possibility of international relocation.
‘Had they just carried on in litigation, I don’t think that would ever have been explored. In mediation they can be a bit more creative and look at different avenues, knowing that if those avenues come to nothing, they’re not going to be hit with that in the court process.’
The first benefit of mediation is that it provides couples with the freedom and autonomy to be creative in finding solutions, and therefore often yields better outcomes than the court process.
With divorce mediation, you can also ‘road test’ arrangements. For example, if a couple is thinking about having alternative weekends with their child after divorce, or trying to figure out what interim maintenance payments are appropriate, they can try it out before committing to anything.
‘Court is quite a blunt tool,’ says Edwards. ‘A judgment is imposed and that’s it. Through mediation I can say to couples, why don’t you go away for a month and see how this goes on the ground, and then come back to me? And if we need to tweak it, we can tweak it.’
Some people worry that they are legally unsupported through the mediation process, but this is not the case. Lawyer-inclusive mediation is becoming a lot more prevalent, and even if solicitors aren’t physically present, Edwards will always stop her clients and let them know whether they should seek legal advice on a particular point. Plus, crucially, any agreement reached in mediation isn’t binding until the couple wants to be.
Finally, avoiding entering the chronically overstretched court system saves a huge amount of time (and money). ‘The family justice system is absolutely creaking at the seams, and it’s gotten worse with the pandemic,’ says Edwards. ‘I’m seeing my clients having to wait months and months for their first hearing.’
Who should use divorce mediation?
Edwards heartily recommends mediation in almost all cases and wants to remind people that it’s never too late to mediate’ – even if court proceedings are already underway. ‘There was one couple about three weeks away from a contested final hearing, and they came to me for mediation and made significant progress in narrowing issues.’
There are, however, instances where mediation might not be appropriate. For example, mediation would not work in cases where there has been domestic abuse. This is firstly due to concerns about the safety of bringing the couple together, although this is ameliorated slightly in the digital age where mediation is being conducted over video call. But there may still be issues over the imbalance of bargaining power.
Edwards also ‘wouldn’t do mediation where there are issues of children’s welfare and safeguarding’, due to the need for other bodies and agencies to weigh in.
‘On the money side of it,’ Edwards continues, ‘if I had any concerns that [one of the couple] hadn’t been honest in their financial disclosure, I’d consider whether mediation is the right process. Complete transparency and openness are key.’
Within mediation, she explains, there is no power to compel somebody to produce financial disclosure, so if a spouse is unwilling to do this voluntarily, she will not take on that mediation. ‘It’s not an opportunity to try to avoid your duty of full and frank financial disclosure.’
How much does mediation cost?
The cost of divorce mediation depends on how long the process takes. On average, issues will take three to five sessions of 90 minutes to 2 hours hours to resolve. If couples have multiple issues to discuss, like children and finances, then it may take longer.
The length of a mediation will also depend on what stage in proceedings the couple are at when they start. Some may embark upon mediation as their first port of call, whilst others will have spoken to solicitors, done financial disclosure, and ‘really want to get down to the nuts and bolts of negotiations when they come to see me’, says Edwards.
Most mediators charge an hourly rate which, for London law firms serving HNW clients, can range between £350-£550 per hour.
‘But there is a lot of work I do in mediation that I don’t charge clients for, like screening intake calls at the start, routine emails back and forth. I charge for the mediation sessions themselves and any summaries,’ says Edwards.
‘What I can say, hand on heart, is that [mediation] is considerably cheaper than contested litigation, which can run on for over 18 months with all the associated costs, both financial and emotional,’ she continues.
What happens if mediation fails?
Other measures to stay out of court include private FDRs (financial dispute resolution) – these are non-binding indications of what the financial outcome of a case will be should it go to litigation, and can go a long way in informing a couple as to whether it’s worth it.
‘If [mediation] is really not going to work, I will always signpost on to arbitration,’ says Edwards. Arbitration also keeps disputes out of the courts, but is a different process. Both parties put their case to an independent person called an arbitrator, who will then come down on one side or the other.
Coming to a decision to separate or divorce is difficult and often distressing. For many, the process that lies ahead is a mystery and it is assumed that it will be confrontational and drawn-out. However, there is in fact a wide range of forward-thinking, constructive approaches to resolving the issues flowing from your divorce or separation.
The article was first published on Tax Journal on 15 July 2021 and can be read in full below.
FA 2021: SDLT – increased rates for non-residents
After the NRCGT comes the NRSDLT
Once we had NRCGT it seemed inevitable that NRSDLT (the 2% surcharge regime) for non-UK tax residents buying residential property would be introduced. Of course (as we know), NRCGT started off as only being applicable to residential property, but the scope was changed in 2019 to include commercial property, so perhaps it is not totally idle speculation to assume the same might happen with NRSDLT.
Because NRSDLT is a surcharge like the higher rates for additional dwellings (HRAD), it is easy to assume that the rules are similar in their application but there are differences. HRAD does not apply to rent, but NRSDLT does, which means even a modest ground rent on a long lease will attract the 2% surcharge (perhaps not significant in terms of client cashflow, but important for accurate filing of returns).
HRAD may not apply on a mixed purchase of a block of flats with commercial property on the ground floor, but NRSDLT would. HRAD has exceptions including replacement of main home and also on divorce/separation; NRSDLT does not.
NRSDLT requires the taxpayer to consider where they are tax resident for these rules and that places a great burden on conveyancers or the risk of making assumptions that may prove to be inaccurate (especially for company purchasers). The non-resident individual, if they then move to the UK and spend the requisite 183 days in the year after the effective date, can reclaim their SDLT. Timing will be crucial. Many people will have substantially performed their purchase rather than waiting for formal completion to beat the 30 June deadline, so their clock will start ticking early. The clock also starts ticking early where an option fee is paid and the option is exercised more than a year later while the buyer is still non-resident, as in those circumstances whilst NRSDLT may become reclaimable on the exercise price the grant fee will be trapped in the NRSDLT regime. Unlikely to be of significant cashflow importance but irritating and resulting in unnecessarily complicated calculations.
One important concept that NRSDLT shares with HRAD (and other SDLT regime changes) is that of grandfathering of old contracts and the importance of being aware of the transitional rules – so proceed with extreme caution when dealing with old contracts.
The purchase or sale of a high value home requires expert legal advice to manage the complexities involved. Our lawyers are dedicated to sharing their knowledge to enable you to navigate the legal practicalities of buying and selling high value assets.
We will support you through every stage of the process, and with the largest dedicated Residential Property team in London, we have the strength to do this. Visit our Hub to learn more.
Anna Mullins writes for the Property Law Journal on the Telecommunications Infrastructure consultation
26 July 2021
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Property Litigation Senior Associate, Anna Mullins, writes for the Property Law Journal examining the governments recent consultation on the Telecommunications Infrastructure (Leasehold Property) Act.
How Can Family Offices Facilitate A Family Governance Exercise? Nick Jacob writes for IFC Review
7 July 2021
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Private Client Partner, Nick Jacob, has authored an article entitled ‘How Can Family Offices Facilitate A Family Governance Exercise?’.
The article was first published in IFC Review on 23 June 2021 and can be read in full below.
Facilitation is the key word. Family Offices (FOs) come in all shapes and sizes. Many are set up purely for investment purposes, but an increasing number of FOs are set up to carry out a much wider array of tasks for the family. A family that fails to plan puts at risk the business and wealth that often has been created with great diligence.
There is a good deal of confusion over what “Family Office Services” really are, compared with “Family Governance” (FG). Family Office Services relate to the services provided by FOs to the family for whom they work. Many do provide services to the business but that is not generally the function of an FO, save perhaps for seeking and co-ordinating external advice for the business. FG is the process whereby planned succession of the family business and wealth is transitioned from generation to generation in a structured and organised manner and in a manner that is likely to hold the family together rather than split it apart. The two are very different, yet strongly connected.
The fundamental problem that exists in the FG arena is the time and commitment needed by family members. One of the early questions I ask families is whether they have the appetite to give the time and commitment the process needs. If they don’t, they will find the process unsatisfactory as it is the process itself that is so important to the family. Most entrepreneurs are busy people with a great determination to succeed. However, when you question them as to what they are succeeding for, it is often clear that they wish to leave a legacy. However, they often don’t give that wish the time it needs to plan that legacy. That is where the FO can come in to facilitate that process.
That’s the theory, at least. Can it work in practice? Let’s ask a few questions:
Will the officers in the FO have the skills to manage a Family Governance (FG) exercise with external advisers?
Will they prevent the external adviser getting “under the skin” of the family members, which is crucial to do a meaningful exercise?
How aware of the psychological aspects of FG will the FO officers be?
How helpful can they be in supplying information to the external adviser?
Will they actually “get in the way” of the external adviser conveying important messages to the family members?
Can they facilitate the involvement of the younger generation?
Can they co-ordinate arrangements with family members scattered around the world?
What are the answers?
The aggregate effect of these questions is that, in my view, the FO officers can be an enormous help to the family and the external advisers, but the family should ideally not hide behind them as their own involvement is crucial. The ability of the FG external adviser to understand the psychology of the family is often not recognised adequately but that, too, is crucial.
I was once asked by an FO if I could provide my “template” for them to implement an FG arrangement. There was a fundamental misunderstanding as to what FG was, and it took them six more years to realise where they went wrong with that question and see the benefit of a proper tailor-made solution involving all adult members of the family.
Purpose Of The FO
The FO is rarely intended to be a governance vehicle itself. It is there to facilitate the FG by providing informational and organisational support, but not “passing on the messages”. Just like “Chinese whispers” it is inevitable that messages and nuances will be lost if the FO officer is acting as an intermediary or go-between. It cannot and should not be seen to be the mechanism for the decision making on FG issues. However well known or trusted by the family, they simply cannot convey the most important aspect of FG – the psychological interaction with the family.
What they may be able to do, however, is when the preliminary work is completed and there is an agreed structure to be set up – if, indeed, that is the case – they can be involved with the tax and regulatory advice required to set it up and the setting up itself. However, there will still be the need for interaction with the family for fine tuning structural aspects, not only to ensure that they understand it and are comfortable with it but also to ensure it is properly tailored to the requirements of that family. In my experience of doing this for over 25 years, no two arrangements for any family are the same or even similar.
Selection Of The External FG Adviser
Families often delegate the selection of the FG external adviser to the FO. That may work but at the end of the day, the family must be totally comfortable with the external adviser and see them as a totally “trusted adviser”. If they are not satisfied of that, or if they have not been part of that selection process, then they are far less likely to “buy in” to the FG process. By all means delegate the process of finding potential candidates, but it is imperative to bring the family into the final selection process.
In Whose Pocket Is The FO?
The FO needs to be clear as to whose instructions are paramount. If the senior generation is dictating the agenda, the FO can help to get buy-in from the other generations. Of course, they may be unable to do so but they can at least act as some sort of a sounding board for the first gen. If the influencing person is the second gen where the first gen is still alive and active, then the first gen may feel that the second gen is utilising the FO to take up their agenda for the planning and it may be resisted. This needs to be handled very delicately.
Once an FG arrangement is in place, it should be the FO’s role to oil the wheels of the arrangement by ensuring that all parties are doing their job and making sure that everything is properly co-ordinated. This may include family members themselves, trustees, external service providers and foundations. If a Private Trust Company (PTC) has been set up, it will be important that the FO oversees the trust company normally administering the PTC to ensure that it is acting as a proper trust company and not just a nominee.
Dealing With Difficult Issues
Whilst I do not advocate the FO to deal directly on all aspects of the FG exercise with the external adviser, there is a definite role for them to play. In my view it is essential to extract from all family members any potentially contentious or difficult issues. If part of the rationale of the FG exercise is to plan for an effective and successful succession, that will be undermined by a failure to recognise difficult issues before they become impossible to deal with because views have become too entrenched and polarised. The FO has a real part to play here in that it will usually be able to help deal with these difficult issues as it is likely to understand them better then the external adviser. If it can facilitate the resolution, or at least understanding of those issues, it will have achieved a great deal towards making the FG process work effectively.
The FO may well be able to mediate to some degree when there is a family dispute and take on specific projects which may be difficult for outsiders to do so.
Technology
There is no doubt that the embracing of technology is an imperative in today’s world. In this area, the FO has a significant part to play. In my view, this is a key area where the younger generation can justifiably find a “way in” to the family environment and, indeed, provide added value. I have recently been involved in advising a family with a very large logistics business. The older generation really had no idea that if this business did not embrace technology, and fast, then it would be left behind. I suggested that the third gen, in their late teens and early twenties, worked together on a project to how the business needed to develop (after we gave them a few hours of education as to what the business really was all about). The FO organised the educational seminars and the outline of the project. Almost magically, they came up with an amazing set of ideas which were immediately embraced by the older gens and this was a way in for seven of the nine third gens. FOs can and should have a big part to play in businesses looking in to the future.
Immortality
There seems to be a particular type of businessman where great success gives rise to a feeling of immortality. Maybe the COVID pandemic has put paid to that. But here again, the FO can provide a significant contribution. Many family members find it difficult to raise the issue of succession with the Patriarch or Matriarch. FOs can – and probably should – help the successive generations on a pro-active basis. If that does not facilitate FG, then I am not sure what will.
A Pro-Active Family Office
Many FOs are too reactive to the requirements of the senior family members but a good and thoroughly trusted FO will be a bit detached from the family and be able to make suggestions regarding things that should be done. This includes Corporate Governance for the family’s operating companies, overseeing education and mentoring, and ensuring that agendas for Family Council and/or Assembly meetings are drawn up well in advance, with careful thought as to relevance and to ensure engagement by family members.
FO Governance
Even if the FO does not control the FG, in order to make sure there is continuing support of the family the FO’s own governance is important to ensure succession, accountability and relevance.
Conclusion
While it is imperative that the FO facilitates the FG, it must ensure that family members actually engage in the FG and not stand in their way or simply act as a conduit. That is a recipe for failure. Yet without a good FO, the FG exercise in the broader sense is unlikely to be effective. The co-ordination of implementation, working and ongoing reviews is a crucial function of the FO.
Head of Commercial Real Estate interviewed by Estates Gazette
5 July 2021
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Forsters’ Head of Commercial Real Estate, Andrew Crabbie, has been interviewed by Estates Gazette on his views of supporting clients through the pandemic, how clients needs have changed during it and what the team are focusing on in 2021.
1. When working with your clients in such challenging times, what would you say are the top three things that your team are focused on to support your clients?
“First, I would say that having the right IT software to support our clients has been crucial. Having robust software in place has ensured that there have been no dips in service and that transactions have closed on time. We already had HighQ, a cloud-based platform for document sharing, in place prior to the pandemic but it has really come into its own during the crisis and I think it will continue to do so, as we hopefully make our way out of it. We’ve obviously made use of both Microsoft Teams and Zoom and have found that being able to easily share screens has significantly reduced negotiation time. Being able to use digital signatures through DocuSign has also been massively helpful, although again, this was in place for us before the pandemic.
Secondly, I think showing empathy has been really important; the pandemic has been a humbling experience for us all.
Thirdly, and this has always been a focus of the team, putting ourselves in the shoes of our clients, understanding and anticipating issues for them to make their lives easier.”
2. What are the lessons/trends that Forsters have taken from this crisis and how has your business changed as a result in the past 12 months?
“I think we’ve gone full circle since the first lockdown was announced and we are now looking forward to getting back to many things that we used to take for granted, such as being in the office, however frequently, seeing our colleagues, clients and friends face-to-face. A lesson, which is one I think we all knew anyway, is that there are no short cuts to building strong business relationships and meeting and collaborating in the real world play a huge part. Many of our best client relationships have developed over decades and been built on by successive lawyers and client teams; video calls do not really compare to being able to celebrate the closing of a transaction or other milestone in person or even just having a chat in the same room. I’ve certainly felt the difference in not being able to do those things and I think this goes to the heart of what makes the property market such a compelling sector; it is really the people and relationships you build up across the industry which, for me, make it so interesting and enjoyable and gives it vibrancy.”
3. How have your clients’ needs changed and how has your team adapted?
“Our clients’ needs haven’t changed during the course of the pandemic but we have seen significant adjustments to the legalities that underpin the property sector, in particular in relation to landlord and tenant relationships. The team has had to stay ahead of these developments so that we can advise our clients of the changes which impact them and how such changes can be managed. Over the last 15 months or so, we’ve focussed on providing webinars, client briefings, digital content and podcasts to cover these new developments, as well, of course, as having regular chats with clients.”
4. Is there anything that Forsters is focussing on in 2021 that you can share with our readers?
“For us, together with many across the industry, we are focussing on sustainability both for us as a business and also to enable us to keep our occupier, landlord, investor and financial services’ clients up-to-speed. Sustainability is such a hot topic at the moment and looks like it will continue to be for the foreseeable future but it’s also a very fast-moving area with ever-changing standards and rules, so our clients tell us it is an area in which they welcome our knowledge and assistance.”
As a business, Forsters has had carbon neutral status since 2007. If you are interested and want to see our latest updates, as well as our own track record in sustainability, you can find these on our Sustainability Hub.
The move to further sustainability within Real Estate is increasingly driven by the increased connection between sustainability and financial viability.
Which asset could help minimise IHT liabilities? Guy Abrahams, Rebecca Meade and Rebecca Welman write for International Adviser
24 June 2021
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Private Client Partner, Guy Abrahams, and Private Client Associate, Rebecca Meade, have authored an article for International Adviser on IHT liabilities.
UK inheritance tax (IHT) is due at a maximum rate of 40% on the value of an individual’s estate over their available IHT nil rate band, currently set at £325,000 ($448,500, â¬378,000).
There are ways to minimise IHT where individuals own what qualifies as a ‘national heritage asset’, which can be a picture, land, buildings, a book or manuscript, work of art or scientific object or a collection, or anything else considered pre-eminent for its national, scientific, historic or artistic interest.
An asset is pre-eminent if:
It has an ‘especially’ close association with the UK’s history and national life;
It is of especial artistic or art-historical interest;
It is of especial importance for the study of a particular form of art, learning or history; and/or,
It has an especially close association with a particular historical setting.
We expect that what amounts to a national heritage asset will change over time and as new art forms develop. It is not limited to stately homes and Old Masters. A letter written by Churchill, a Fred Sandbank sculpture and a collection of fossils are all examples of assets that have qualified.
Following the surge of investment in digital art and non-fungible tokens (NFTs), which saw the digital artist known as Beeple sell an NFT of his work for a record breaking $69m (£50m, â¬58m) earlier this year, it is probably only a matter of time before discussion turns to whether such works can qualify as national heritage assets.
Acceptance in lieu (AIL)
Taxpayers can transfer national heritage assets to public institutions such as museums and galleries in payment of tax. To encourage taxpayers to take advantage of the scheme, instead of selling assets and paying tax with the proceeds, there is a financial inducement, called a ‘douceur’, which is 25% of the tax payable or 10% for land.
Take, for example, an individual who dies owning a pre-eminent sculpture worth £1m. £400,000 of IHT would be due on it.
If the individual’s executors sell the sculpture on the open market and use the proceeds to pay the £400,000 of IHT, the net proceeds would be £600,000. But, if the executors use the AIL scheme, they would secure a douceur of £100,000 – 25% of the £400,000 tax – meaning they would have both paid the IHT on the sculpture and secured a £700,000 tax credit to set against the IHT on the individual’s remaining assets.
As a result, the beneficiaries end up £100,000 better off.
Assets must be offered for an AIL within two years of the relevant taxable event, which is typically a death. The Arts Council’s AIL panel then decides if an asset is pre-eminent and if they agree the value the taxpayer has given for it.
Following the panel’s recommendation, the final decision is made by the secretary of state for digital, culture, media and sport and, if accepted, the asset is allocated to a public institution.
It was recently announced that Stephen Hawking’s scientific and personal papers are the subject of an AIL. As a result, they will be on public display in various English public institutions as early as 2022.
Private treaty sale
Another way to offset some of the IT liabilities is through a private treaty sale.
This is similar to an AIL, except that a pre-eminent asset is sold to a public institution that pays the taxpayer a sum calculated on the same basis.
The price is negotiated between the taxpayer and the institution.
Using the example above, the executors would receive cash proceeds of £700,000.
Conditional exemption
If IHT becomes due on pre-eminent assets, owners can defer the tax indefinitely, provided they undertake to HMRC that they will keep the assets in the UK, preserve them, and allow “reasonable public access” to them.
What is reasonable public access has to be agreed with HMRC and will depend on the type of asset.
It could involve lending an object to a museum or gallery or, if it is to remain in situ, allowing public access for a certain number of days a year.
The exemption is conditional because a breach of the undertakings – a sale, typically – will mean the withdrawal of the exemption and the deferred tax charge falling due.
If the asset passes on death, or as a gift, the owner can renew the undertakings to avoid loss of the exemption.
Elizabeth Small writes for Taxation on Residential Property Developer Tax
11 June 2021
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Tax Partner, Elizabeth Small, has authored an article for Taxation entitled ‘Learning from the past’.
The Grenfell Tower tragedy led the government to announce a £3.5 billion fund to fix dangerous cladding on high-rise buildings and loans to leaseholders in lower-rise buildings.
Elizabeth explains that the government has proposed that the loan scheme be paid for by the residential property industry – partly through a new Residential Property Development Tax (RPDT).
In her article, Elizabeth answers key questions for developers following the announcement, including:
The future of family business in pandemic recovery – Stuart Hatcher and Alastair Laing write for CampdenFB
10 June 2021
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Corporate Partners, Stuart Hatcher and Alastair Laing, have authored an article for CampdenFB entitled ‘The future of family business in pandemic recovery’.
“The current outlook for the UK economy is positive, and for many the financial effects of the pandemic may not be as bad as originally feared. Time will tell if this is the case, but when investors are in a buoyant, positive frame of mind, deal flow and M&A activity usually follow”, Stuart and Alastair explain.
They highlight that the combination of low interest rates and the availability of substantial funds to support investment will further encourage market activity.
However, despite a positive economic outlook, buyers are treading cautiously in terms of structuring consideration.
The article, entitled ‘The cladding crisis: Time is of the essence’ explores the practical steps leaseholders and building owners should take if fire safety defects are identified in a residential high-rise building.
The fire at New Providence Wharf in May 2021, only days after the government’s enactment of the Fire Safety Act 2021, was a shocking reminder – if one was needed – that the cladding crisis is far from over, and that millions of lives across the country remain at risk due to fundamental fire safety defects in residential buildings. Perhaps the most significant issue to have affected the UK housing industry in a generation, it is only now that the implications are being fully realised by the property industry and the general public.
There has been extensive commentary from experts on the financial, legal and regulatory implications of the cladding crisis; yet frequently it is the practical steps for those directly affected which are overlooked and which are most immediately useful as properties remain to be remediated.
Guy Abrahams and Zahava Lever write for FT Adviser on digital assets
22 April 2021
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Private Client Partner, Guy Abrahams, and Associate, Zahava Lever, have co-authored an article for FT Adviser entitled ‘How to protect your digital assets after death’.
In their article, Guy and Zahava explore what happens to one’s digital assets after death and the steps one should take to safeguard against any misdirection of assets. They also consider the distinction between assets and information, and why it’s an important factor in any estate planning strategy.
This article was first published in FT Adviser on 20 April 2021 and can be accessed here.
What happens to your digital assets after your death, and what steps should you take to safeguard against misdirection of assets, or loss of sentimentally or financially valuable materials?
The first thing to consider is: are your digital assets actually assets? The problem with any discussion of ‘digital assets’ is that often one is not referring to ‘assets’ in the strictest sense of the word, but rather to ‘information’. Assets and information are treated very differently on death, and it is important to bear this distinction in mind when considering your estate planning.
Why are traditional assets easier to manage?
When you die, your personal representatives are entitled to deal with your assets under long-established legal principles. They prove their entitlement by obtaining a grant of representation, which can be provided to the custodian (for example, a bank) of the relevant asset. The custodian will then transfer the assets to your PRs who distribute them in accordance with your will. Information held by those custodians tends to be readily provided along with the assets; banks, for example, are usually willing to provide historic statements that will enable the PRs to determine the extent of the estate and to file the last self-assessment tax return.
We have never encountered a situation in which such information has been refused by a bank or asset manager. However, that is in contrast to ‘pure’ information. For example, the General Medical Council will not freely disclose a deceased patient’s files to his PRs on the grounds that the “duty of confidentiality persists after a patient has died”. They will provide disclosure only in a limited number of circumstances, which include “when disclosure is required by law”. If there is a legitimate reason for the disclosure – for example, because the PRs are bringing a medical negligence claim – the law has mechanisms for rendering the information available.
Why is cryptocurrency not dealt with in the same way?
The traditional approach to assets evolves from 20th century law, before the conception of the internet and certainly before the cryptocurrency boom. Cryptocurrencies blur the distinction between information and assets, because the asset can only be accessed through the information of the pass key. The risks of losing a pass key are poignantly illustrated by the example of James Howells who, by throwing away an old computer, unwittingly lost millions.
Leaving cryptocurrency to a beneficiary in your will is a helpful indication of your wishes, but there is no custodian the PRs can wave a grant to in order to access the underlying assets. If you have bitcoin, your PRs will only be able to access it with a pass key. It is therefore vital that the pass key is made available to them, either in a sealed letter to be opened on your death, or during your lifetime.
Sentimental assets
In 2004, 20-year-old marine Justin Ellsworth was killed in combat. His father sought access to his email account, which in effect amounted to a diary. Yahoo declared that it was contrary to the terms of service to release emails. It was not until Ellsworth’s father obtained a court ruling in his favour that Yahoo provided copies of all the emails.
In recent years, Rachel Thompson and Nicholas Scandalios made well-publicised endeavours to obtain photos of their late spouses from Apple. A court order was again required before Apple would release the photographs.
These cases show that cloud-stored photographs are, in the eyes of the relevant service providers, information rather than assets. They do not accept that PRs have any relevant legal rights and rely on their terms and conditions.
When you sign up to Apple you agree that “unless otherwise required by law… your account is non-transferable and that any rights to your Apple ID or content within your account terminate upon your death. Upon receipt of a copy of a death certificate your account may be terminated and all content within your account deleted”. Similarly, Microsoft’s service agreement prevents a user from “[transferring] your Microsoft account credentials to another user or entity”.
We therefore strongly recommend considering the fate of cloud-stored photographs (and other information) when performing a health-check of your estate planning.
Any solution can only be a work-around. You can write down your passwords and give them to your PRs before you die so that they can download photographs, but of course that is a security risk (and invariably a breach of terms and conditions). A password manager may be marginally safer, but it does not deal with the contractual breach issue. But as a slight sweetener, many asset managers provide in-service options, for example Google’s Inactive Account Manager, where the account holder nominates an individual who will have limited access to data after the holder’s death.
It is vital that you keep these up to date and if you change your will you should consider whether you need to change your nominees in any of these in-service options.
What do you need to do?
You cannot assume that non-traditional assets will be treated the same way as bank accounts, shares or jewellery. The inchoate nature of our digital lives has not allowed for the same development in process that makes claiming most traditional assets so simple. A grant to prove your PRs’ entitlement is only useful if there is someone to whom they can furnish the proof, which is not the case with cryptocurrencies. Even when there is a Cerberus, a will may not suffice to obtain access because fundamentally the information is considered by the asset manager to be non-transferrable.
You should by no means disregard your digital information when making plans for the inheritance of your assets. It is vital to consider them in your estate planning and even to include them in your will, albeit with the knowledge that it may not be enough to achieve the desired result. If you have recorded a clear expression of your wishes concerning your digital information, that may prove to carry the day if there is any dispute about who is entitled.
The distinction between information and assets gets more blurred by the year, and so as time passes, the problem will only increase. However, it does not seem to be a current priority for the government.
As more of our daily lives move online, we lose a level of control, often without realising. Until the government introduces legislation to regulate the procedures for claiming information assets after death, it is for the individual and their legal advisers to ensure that suitable planning is undertaken.
We recommend that you review your will regularly and when you do so conduct a health-check of all your assets, both tangible and intangible, and seek advice if you are not sure. If you do not do this, your PRs’ job may prove to be significantly more challenging.
Guy is a Partner and Zahava an Associate, both in our Private Client team.
Cladding fund papers over residents’ concerns: Andrew Parker writes for The Times
18 March 2021
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Construction Partner, Andrew Parker, has authored an article for The Times entitled Cladding fund papers over residents’ concerns.
In his article, Andrew gives context to the announcement from Robert Jenrick that £3.5 billion is being made available to sort the cladding crisis covering ambiguity over the use of the funds, lack of ease to access them and the ability of the construction industry to respond to the increase in demand for cladding related works.
Andrew raises the crucial points that “it is not at all clear from the announcement whether the extra money promised will reach the people that need it” and details the problems in defining buildings which are in scope for government money. “Even the requirement that qualifying buildings be at least 18 metres high is problematic, thanks to an inconsistency in the building regulations, which in one place require the height of the building to be 18 metres, and in another require the floor of the sixth storey to be at least 18 metres.” Furthermore, when it comes to carrying out the remedial works, Andrew points out that “the insurance market is currently running a mile from fire-related cladding works and many professionals are simply unable to obtain any cover at all â where does that leave prospective applications?”
The full article can be accessed here, behind the paywall.
Leaseholders and cladding: Sarah Heatley writes for Property Reporter
8 March 2021
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Sarah Heatley, Senior Associate at Forsters LLP, has written for the Property Reporter online, on the latest updates regarding cladding for leaseholders.
Last week the Housing Secretary, Rt Hon Robert Jenrick MP, pledged a further £3.5 billion in order to fully fund the remediation of unsafe cladding on residential buildings over 18 metres or six storeys high. Leaseholders in low-rise blocks between 11-18m in height will be eligible for a new government loan scheme under which repayments for cladding removal are to be capped at £50 per month. A developer levy to help fund these measures will be imposed on certain high-rise developments and a new tax on the residential property sector is to be introduced in 2022.
This latest announcement brought into sharp focus once again just how many people in the country are being impacted by cladding and associated issues, to date only about 200 out of approximately 12,000 affected buildings have been completely remediated.
“…the key is to get organised and act quickly so that your range of options to recoup or claim the costs of remediation is not diminished.”
Implications of overseas working: Kelly Noel-Smith and Joe Beeston write for Taxation
19 February 2021
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Private Client Partner, Kelly Noel-Smith, and Senior Employment Associate, Joe Beeston’s article entitled ‘Implications for employers of overseas working’ has been published in Taxation.
The pandemic has meant that remote working has become the ‘new normal’ for many worldwide, and with that, some employees are choosing to take this opportunity to spend time working in other jurisdictions.
Kelly and Joe explain that there are specific tax and employment issues to consider in these scenarios, and caution that advice should be taken to mitigate any risks.
In their article, Kelly and Joe discuss the following:
Andrew Parker comments on Government’s ‘Token gesture’ plan to end unsafe cladding
10 February 2021
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Construction Partner, Andrew Parker, was quoted in the Law Society Gazette and Property Week following his comments in the wake of the Government’s announcement of a revised plan to end unsafe cladding in residential buildings across England.
Andrew commented: “Today’s announcement amounts to only a token gesture towards the cladding problems. There is no timescale for many of the measures and in some cases only consultation is promised. There are no retrospective measures in place for those affected in the last couple of years. The measures repeatedly refer to cladding only and we are left unsure of what happens in buildings with no ACM cladding but highly unsafe external wall systems. The money that has been pledged has not been put into any sort of context – how many buildings is it assumed it will fix? How will the construction industry be assisted to cope with the extra demand and extra expertise that is needed? Professional indemnity insurance is mentioned in passing but many insurers currently refuse to cover fire related cladding works – how will the all important design and construction of the remedial works receive sufficient insurance cover? Today’s announcement will sadly not reassure the thousands of leaseholders currently trapped in limbo in unsafe flats.”
Andrew’s comments were picked up in the following articles, including the Law Society Gazette, Property Week, Prime Resi, Inside Conveyancing, News on the Block and New Law Journal:
Well, not enough and not fast enough. Whilst the additional £3.5bn in funding represents a much need injection of cash, it misses the mark in many respects.
What the business interruption case means for clients: Anna Mullins writes for FT Adviser
3 February 2021
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Property Litigation Senior Associate, Anna Mullins’s article entitled ‘What the business interruption case means for clients’ has been published in the FT Adviser.
In her article, Anna describes the consequences of the Supreme Court ruling over business interruption policies, which was handed down last month. Anna also explains some of the situations where a client might be able to claim for losses.
The article was first published on 02 February 2021 by FT Adviser and can be found here.
Disease Clauses
There will be cover under Disease Clauses provided there was at least one occurrence of COVID-19 within the relevant geographical radius by the date of any government measure. These clauses do not, however, cover interruption caused by cases of illness resulting from Covid-19 that occur outside that area.
It is no defence for insurers to claim that it was not this local occurrence but the pandemic across the UK and world that caused the loss.
Prevention of Access and Hybrid Clauses
The action taken by the government or public authority was sufficient to trigger cover under Prevention of Access clauses, even though it was not backed by legislation, that is, it was guidance only.
By way of example, when the prime minister (on 20 March 2020) instructed named businesses to close “tonight”, that was a clear, mandatory instruction given on behalf of the UK Government. It was an instruction that both the named businesses and the public would have reasonably understood had to be complied with without inquiring into the legal basis or anticipated legal basis for the instruction. The Supreme Court found that such an instruction is capable of being a “restriction imposed”, regardless of whether it was legally capable of being enforced. The Supreme Court did not, however, rule on whether each of the government announcements and regulations were “restrictions imposed”. It directed that this should be left over for agreement or further argument.
Altering the decision of the High Court, the Supreme Court also decided that “inability to use” premises may still be satisfied where a policyholder is unable to use the premises for a discrete business activity or is unable to use a discrete part of the premises for its business activities. An example was given by way of a department store. If the store had to close all parts of the premises except its pharmacy, this would potentially be a case of inability to use a discrete part of its business premises.
Similarly, “prevention of access” may include prevention of access to a discrete part of the premises or to the whole or part of the premises for the purpose of carrying on a discrete part of the policyholder’s business activities.
However, policyholders can only claim for losses relating to that part of the business for which the premises cannot be used/accessed.
Trends clauses and pre-trigger losses
In relation to Trends Clauses, the Supreme Court reminded parties that such clauses were to be construed consistently with the insuring clauses in the policy and, to do so, they should be construed so as not to take away the cover provided by the insuring clauses; to do so would transform the quantification machinery into a form of exclusion.
Adjustments to the amount to be paid out to policyholders should only be made to reflect market circumstances affecting the business that are unconnected with the pandemic, that is, would have happened to the particular business regardless of Covid-19. Any pre-trigger losses caused by the pandemic should not be considered.
Orient-Express Hotels Ltd v Assicurazioni Generali SpA
The Supreme Court found that this case authority was wrongly decided and should be overturned. Cover under an insurance policy is not subject to whether the loss would have been suffered anyway by the overall impact of the event in question.
Next steps
This decision is good news for businesses and anyone affected should take a pro-active approach to review their policies and reassess previously rejected claims.
While we understand that the Supreme Court will shortly issue its declarations and the FCA is due to publish a set of questions and answers for policyholders, next steps for businesses include considering:
If any part of the decision is directly (or indirectly) applicable to your policy wording. We understand that the FCA will soon publish a list of policy types that potentially respond to the pandemic based on data that they are gathering from insurers. Contact your insurance broker as soon as possible and they may be able to give some preliminary advice.
What additional factual evidence will need to be gathered to establish and prove a valid claim. The FCA has published draft guidance for policyholders on how to prove the presence of coronavirus. The consultation period closed on 22 January and we anticipate finalised guidance coming shortly from the FCA. However, for now, policyholders might want to collate any relevant government guidance that was relied on and start gathering accounting information to demonstrate the losses suffered. Further, to assist in proving that Covid-19 existed within the relevant radius (and at the relevant time), policyholders should consider finding details of reported cases of the virus in and around your area, death statistics published by the NHS or publicly available data published by the Office of National Statistics.
There will still inevitably be disputes even after the Supreme Court has offered such clarity on matters. For example, the trends clauses still have to be applied to take into account unrelated trends and query how government financial assistance is to be taken into consideration when losses are calculated. In that regard, the FCA has produced a “Dear CEO” Letter that calls for insurers to consider the appropriateness of deducting such sums from claims.
Policyholders should also be asking for interim payment on policies where the claim has been accepted but elements of the calculation or agreement on the final settlement remain outstanding. Query whether policyholders can also pursue insurers for potential damages for late payment. Whether such claims will be successful remains to be seen.
In any event, the decision will be welcomed by many policyholders and, as there is no right to appeal from the Supreme Court, the question now is what further cases will be brought by the FCA, action groups, or policyholders in relation to other types of policies, such as wedding insurance or building insurance policies covering loss of rent where there is a Notifiable Disease within a certain radius of the premises. It will also be interesting to see whether any current policy wording gets amended on renewal. Watch this space.
Anna Mullins is a Senior Associate in the Property Litigation team.
