Costs of Proceeding

We are finding that some of our clients are shocked by the recent radical changes to the system of court fees. The changes have made larger claims much more expensive to commence. As a result, landlords may lose the settlement leverage that used to be exerted through the issue of a claim and genuine claims may be stifled, due to the up-front cost.

From 6 April 2015, court fees to issue a claim have been set at 5% of the value of any claim over £10,000, up to a maximum court fee of £10,000. Any claim worth over £200,000 will cost £10,000 to issue.

At the higher end of this spectrum, this represents an increase of over 600% in court fees. Many property related claims, particularly dilapidations claims are at this higher end and the prospect of paying out a fee of £10,000 as part of a strategy to get the other side to the settlement table will not be welcomed by many of our investor clients. There is a danger that either the up-front fee will be too high to get the necessary internal approvals to proceed or the payment of the fee will make the issuing party more intransigent and less likely to settle, unless the court fee is taken into account in the settlement. Drawn out litigation could be an unintended consequence.

Either way, the cost could therefore act as a very real deterrent to settlement: the recalcitrant paying party will view threats to issue proceedings as less of a concern and one of the weapons in the litigator’s armoury could be lost. We understand the Law Society will be lobbying the new government to review the charges, but for the time being, you should factor them in to your strategy for recovery.

Knowing How to Quit

The Deregulation Act 2015 (the “Act”) is an eclectic mix of legislative tinkering. However, amongst the measures relating to sellers of knitting yarn and trustees of child trust funds are some key provisions that will affect residential landlords.

We have already commented in an earlier blog on the provisions contained in the Deregulation Bill intended to clarify the law on protection of tenancy deposits and s.21 notices to quit. However, the Act itself contains further provisions that will affect the validity of these notices.

Service of a valid notice to quit is, of course, a pre-requisite to successfully obtaining vacant possession. Sections 33-40 of the Act will make it easier in some respects for a landlord to serve a valid s.21 notice to quit and harder in others.  These provisions are not yet in force and will not come into force until a relevant statutory instrument is made, but the implications will be significant.

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Now the EPC Really Matters

We posted in 2013 on the Regulations that will make it unlawful from 01 April 2018 to let properties with an F or a G EPC rating. These are now in force. There are some time limited exemptions and a few exclusions but now is the time for investors to plan on how they can avoid a lot of the tedious consequences of the Regulations as it is estimated that up to 35% of the commercial premises in the UK are likely to be affected by the Regulations

Known to many lawyers as the MEES Regs (minimum energy efficiency standards) the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 have already been passed along with similar Regulations for domestic property. This post focuses on the commercial sector.

What is the Impact of the Regulations?

The Regulations apply to the non-domestic private rented properties (defined as any property let on a tenancy (including sub-lets) which is not a dwelling – but see the exclusions below).

From 01 April 2018

Landlords of commercial properties must upgrade the energy efficiency of their properties to at least band ‘E’ -

  1. before the property can be leased to an existing tenant (where the property already has an EPC) or a new tenant; or
  2. within 6 months of a sale where the obligation to improve the property is on the new landlord; and
  3. within 6 months from the date they became a landlord, where a tenancy is granted by operation of law.

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(US) Banks Face Steep Learning Curve In Targeting Senior Housing

In an article published on titled “Banks Face Steep Learning Curve In Targeting Senior Housing,” Simon Adams of Reed Smith’s Real Estate Practice Group comments on the complexities banks face with senior housing project lending, a financing area new to major banks. The article addresses issues specific to senior housing, triggered by an announcement by Wells Fargo that it is forming a unit dedicated to this market segment.

“It is very encouraging to see a major lender take the approach and develop a team to support the senior housing market by creation of a specialist business group,” Simon T. Adams of Reed Smith LLP states. “There should be benefits to lenders that develop a good understanding and train a team that can provide a seamless solution to developers and operators of senior housing to capitalize upon a growing market that has continued strength.”

The full article can be read here.

(US) Is your Letter of Intent binding in Maryland? It might be.

You may want to use caution in drafting a Letter of Intent because a court may find it binding even if that was not your intent. On January 27, 2015, the Court of Appeals of Maryland entered a finding that a letter of intent could in fact be enforceable if it was inclusive and definite as to all material terms, without requiring the execution of a subsequent agreement.[1] The determination depends on the intent of the parties and the definiteness of the terms. An enforceable letter of intent may exist in those situations where (i) the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters that are not essential and (ii) in those cases where there is an express intention to be bound.[2]

In the Falls Garden case, the parties executed a letter of intent with respect to a 99 year lease of twenty-four parking spaces and settlement of the pending case. When additional issues arose, Falls Homeowners Association, Inc. filed a Motion to Enforce Settlement Agreement to implement the letter of intent. In ruling on the Homeowners’ Association’s motion, the Court found that the letter of intent in question did not specify whether or not the parties intended to be bound. The Court therefore looked at the specifics of the agreement to determine if all material terms had been addressed. The Circuit Court Judge and the Court of Special Appeals both agreed that the letter of intent included all material terms and that they were definite.

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(UK) The latest thinking on lease guarantees

The dust has now settled on the recent cases involving discussion on the continuing AGA, GAGA situation and its inter play with section 25 of the Landlord and Tenant (Covenants) Act 1995.

The second case has given us just a little bit more certainty about how lease guarantees on an assignment can be made to work whilst not introducing anything radically new. (See our previous post on the first case here).

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Delay to registration under the Heat Network Regulations

In our post on 20 March we explained the implications of the Heat Network (Metering and Billing) Regulations 2014 and in particular the need for heat suppliers to register before 30 April 2015. In amendment regulations of yesterday the date for registration has now, thankfully, been put back to 31 December 2015. Minor tidying up amendments have also been made to the regulations and we will report on these if they are significant. For now, it is good news.

(US) Are Small Business Administration 504 Loans Exempt from High Volatility Commercial Real Estate Regulations?

As discussed in a prior blog , Basel III regulations governing high volatility commercial real estate (HVCRE) went into effect. The HVCRE rules require lenders to assign a higher risk weighting to loans for the acquisition, development or construction (ADC) of commercial real estate. The higher risk weighting may be avoided if:

  • the loan-to-value ratio (LTV) is equal to or less than 80%,
  • the borrower contributes capital to the project in the form of cash or unencumbered readily marketable assets (or has paid development costs out of pocket) of at least 15% of the real estate project’s “as completed” appraised value, and
  • the borrower’s 15% is contributed to the project before the lender advances any funds under the loan and remains in the project until the loan is converted to a permanent loan or paid off.

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(UK) CDM Regulations are Changing

The construction industry is preparing itself for new health and safety practices as a result of the CDM Regulations 2015 which will come into force on 1 April 2015. Developers of big projects will undoubtedly be affected but the Regulations also affect much smaller construction projects too.

Developers will need to be aware that the role of the client is being extended and the CDM Co-Coordinator role is being replaced with that of the “principal designer” so developments in the planning stage now will have to operate under the new Regulations.

Our construction team has written an alert which sets out some of the key changes and points to be aware of particularly in the transitional period.

View the full alert here.