(UK) Business Rates and Compensation for Tenants

Following our recent update on business rates, we are warning developers to look at their budgets for statutory compensation that may be due at the end of a 1954 Act protected tenancy because of the VOA’s reassessment of rateable values, which comes into force next April 2017.  The timing of the notices served to end the lease could change the amounts to be paid very substantially.

Key Business Rates Changes

  • On 1 April 2017, the rateable value of properties will be reassessed for the first time since 2010.
  • Some occupiers know they are facing a substantial increase in rateable value.
  • The Valuation Office Agency published its draft revised valuation list on 30 September 2016 and the government’s business rates calculator can now be used to check what the rateable value for specific properties will be from 1 April 2017.

Effect on Statutory Compensation Payments

  • 1954 Act statutory compensation payments are calculated based on the rateable value of the relevant property at the date of the relevant landlord’s notice (more on this below).


  • The rateable value used to calculate the statutory compensation due to a tenant is based on the valuation list in force at the date either of the following is served:
    • The landlord’s notice ending the tenancy (section 25 notice); or
    • The landlord’s counter-notice opposing the tenant’s request for a new tenancy.
  • 31 March 2017 is the last day on which the old valuation list will be in force and so the timing of service of either of the above notices could have a significant impact on the amount of statutory compensation due to some 1954 Act protected tenants.
  • The service of the section 25 notice by the landlord can, of course, only take place during the last 6-12 months of the lease term.


(US) Guarantor Services can help you land the dream New York City apartment

Finding an apartment in New York City is a journey in stress management. You’ve done your internet research. You’ve climbed a thousand steps. Now, you’ve found the place of your dreams. Is it too good to be true?

It might. Why? Because the financial standing to qualify for that apartment is an entirely different matter.

Landlords in New York City typically demand that prospective tenants have an annual income of up to at least 40 times one month’s rent and a credit score of at least 700. In a market where increases in rent outpace increases in income, it is often difficult for prospective tenants to meet these high thresholds.

To help prospective tenants overcome qualification difficulties, companies like Insurent and TheGuarantors offer rental payment insurance on behalf of tenants  that provides landlords with a guarantee that the landlord will be made whole in rental payments if the tenant defaults under the lease. Companies like Insurent and TheGuarantors have capitalized on strict landlord requirements by offering tenants less stringent financial standards than typical New York City landlords. TheGuarantors, for example, insures tenants with incomes as little as 27 times one month’s rent and who have credit scores as low as 630. The company also considers liquid assets and income earned outside of the country, a benefit for international tenants. The premiums for TheGuarantors’ policies range from 5 to 7% of the annual rent, depending on how risky the tenant profile.

Companies like Insurent and TheGuarantors fill an important niche by helping prospective tenants who would otherwise never qualify for many quality apartments while reducing landlord exposure to default risk and vacancies. Developers of new construction are also provided protection in high cost markets where the prospective applicant pool of qualified renters may be smaller, allowing for a larger number of applicants to qualify as tenants.

In markets with rising rents, Landlords now have a new guarantor option. It will be interesting to see if similar services make their way into the world of corporate real estate.


Town and Village Greens Update October 2016

Since we last posted on common land and town and village greens, there have been new cases.  Given the impact common land can have on developments, applications to register land as a town or village green are often appealed so it can take a long time for clear legal principles to emerge.  We have pulled together the latest in this post. Continue Reading

(UK) Rentcharges: beasts of burden or burdensome beasts?

Rentcharges are, in theory, a very useful way of securing a positive obligation to pay against freehold land owners. They are  mainly now created to cover estate service charges to ensure freeholders will pay common expenses incurred in looking after communal areas of a development and to help ensure positive covenants are enforced which is otherwise very difficult to achieve.  However, the recent case of Roberts v Lawton suggests that rentcharges will come under greater scrutiny.

Roberts v Lawton dealt with historic rentcharges of the type used in the late nineteenth and early twentieth century to secure continuing payments to the original seller of freehold land after the land was sold. The fixed sums reserved by these rentcharges are often reduced by inflation to nominal amounts barely worth collecting and rarely demanded and so modern property lawyers tend not to pay much attention to them.  We expect that to change.

We now know from Roberts v Lawton of at least one company which owns around 15,000 historic rentcharges and is seeking to profit from those rentcharges.  It does so by using an enforcement right designed to cover arrears and so grants and registers rentcharge leases over the charged freehold properties and then demands fees for the surrender of those leases.  Arrears in this case were between £6 and £15 and the sum demanded to surrender the leases was £650 per lease.

Once a rentcharge lease is granted the current understanding of the law is that it can only be ended by surrender which naturally requires the parties to agree and for which a fee can be charged.

For so long as the rentcharge lease subsists, the freehold owner may no longer be entitled to possession and the freehold is likely to be unmortgageable and difficult to sell. The freeholder is therefore at significant risk of being held to ransom by the rentcharge owner.

The statutory remedies only apply if there is no contrary intention in the document creating the rentcharge – so what the rentcharge deed says is significant.

The good news is that all Roberts v Lawton considered was the question of whether or not the rentcharge leases could be registered at the Land Registry (and the outcome was they could).  There may still be a forum (should a freehold owner emerge who is brave enough to take the issue back to court) for considering other issues, particularly the position of the trustees taking the rentcharge leases and potential objections to the leases, in particular whether the rentcharge was extinguished, and other remedies for the unfortunate freeholder.

Practical steps for owners of property affected by a historic rentcharge include –

  • Read the rentcharge deed to check what the remedies for non-payment will be.
  • Find out when the rentcharge was last paid (if the rentcharge has not been paid or paid to an incorrect party or acknowledged within the last 12 years it should be possible to prove it has been extinguished).
  • If the rentcharge hasn’t been extinguished, find the rentcharge owner and pay.
  • Offer payment if an owner emerges. Don’t dispute small sums and if there is any doubt pay and state you will require a refund if the amount deemed is not validly due.
  • Start negotiations to redeem the rentcharge and use the new statutory formula for redemption. If you can’t negotiate apply to the rentcharges unit at DCLG for a redemption certificate – guidance and forms here 
  • Investigate whether to put title insurance in place.


(UK) Business Rates Update

There have been a number of developments on business rates which affect investment management and lettings to corporate occupiers. Exactly what use qualifies as charitable and benefits from reduced rates is clearer, as is what qualifies as a business unit in a multi-let building plus there is disturbing news on rates appeals.


(US) Driverless Cars Mean Endless Possibilities for Real Estate

Companies like Uber, Tesla, and Google are racing to bring driverless cars to the public. Uber is utilizing its experience as a service provider and its knowledge of demand patterns and customer behavior to compete with carmakers.  Starting this week, Uber is offering riders in Pittsburgh the chance to hail a driverless car (though a human will be on hand to take back the wheel if needed).  Uber is also branching out into new areas, such as food delivery and long-distance cargo haulage using autonomous trucks.

Will driverless cars eliminate the need for parking lots, parking garages, or even your driveway? Analysts predict that driverless cars will have a sweeping influence on all facets of the real estate industry. Driverless cars may cause people to opt out of car ownership altogether.  Shared driverless cars could reduce the number of automobiles needed by 80-90%.  As car ownership declines, the enormous amount of space devoted to parking – as much as 25% of the area of some American cities – could free up for other more productive uses.  Freeing up parking would mean possible room for low-rise or high-rise residential developments, urban gardens, new retail or commercial uses – the possibilities are endless.  In addition, municipalities may be able to sell off municipal parking lots to raise capital or to provide supportive housing, parks and recreational areas, or other uses of public benefit.

Remaining parking lots and garages might need an overhaul. A driverless car parking itself without the need to open the door may translate into a reduced size of individual parking spaces.  Buildings may need to create more designated areas for pickup and drop off.  Cities and municipalities may plan for new lanes dedicated to driverless cars as well as new zoning and traffic laws.  If driverless cars lie in our near future, the real estate industry is in for a big shakeup – for better or worse.

Those who plan, design and build now to meet this eventuality may be the big winners.

Pubs & Planning Update

Wandsworth Council has just taken the unprecedented step of issuing a non-immediate Article 4 Direction to withdraw permitted development rights relating to demolition, alteration and changes of use from 120 pub and bar sites in Wandsworth “due to their historic or architectural value or because they make a positive contribution to their community”. Unlike an immediate direction however, it will not take effect until 14 August 2017 at the earliest.  The Council have to confirm the Direction and this cannot take place until after public consultation.  The consultation period runs until 12 September 2016 and the Council is required to take any representations into account. You can reply to the consultation at www.wandsworth.gov.uk/article4.  Also, the proposed Direction must be referred to the Secretary of State so it may yet be modified or varied.  The cynics among us believe this 12 month stay has more to do with avoiding the requirement to pay compensation for loss or damage attributable to the withdrawal of the rights than allowing the Council a period of reflection.

Wandsworth, and many other Councils, have issued individual article 4 directions to protect specific pub sites, but this is the first blanket direction, and is an attempt by the Council to stop “the relentless spread of mini-supermarkets and estate agents”. With pubs closing at a rate of 21 a week (according to CAMRA), 3 of which are in London, we may see more of these directions in the future.

Watch out for Councils beefing up planning policies to protect pubs – they need to do this first in order to be able to justify refusals for the planning applications which will have to be submitted once the Article 4 Direction is effective and permitted development rights are withdrawn.

Pubs do of course already have other protections such as listing as an asset of community value (ACV). Permitted development rights for changes of use and demolition have already been withdrawn from ACV-listed pubs (although a listing only lasts for 5 years).  Even where the pub is not currently listed owners/developers have to submit a written request to the local planning authority to ask whether the building is the subject of an ACV nomination and cannot carry out any work for 56 days (by which time a nomination may well have been triggered) and the permitted development rights must then be used within a year of the request.  This is where the would-be developers of the Carlton pub in Maida Vale slipped up – they demolished the pub 2 days after this new requirement had been introduced and were ordered by the Council to rebuild it brick by brick, an order which was upheld last month by the Planning Inspectorate.

Changes to UK Insurance Law

Major changes to insurance law came into force on 12 August 2016 by virtue of the Insurance Act 2015.

Some of the changes will be of benefit to those who have to insure UK real estate and this could provide comfort to mortgagees. The headlines are –

  • New concept of ‘fair disclosure’ by policy holders which replaces the more onerous ‘full disclosure’. Under the old law, failure to disclose fully meant that the policy was avoided even if the breach was minor. This was always an issue in looking at defective title policies taken out by a previous owner when the disclosure materials from the time the policy was taken out are not available. Now there is a proportionate remedy for a failure to disclose;
  • Updates to remedies for breach of warranty – meaning that in some cases, a breach of warranty by a policyholder merely suspends cover, rather than terminates the insurance contract altogether. Again a real improvement for the policy holders especially for minor breaches;
  • Changes apply to all UK policies after 12 August 2016 including amendments, renewals and endorsements to existing contracts.

The real estate sector should benefit from the changes and for more information read our expert insurance recovery team’s alert here

We can also see from a recent court case that even under the old law insurers could not avoid a claim despite a lie being told when the claim was made. This lie was irrelevant so in effect the policy holder was treated as if the new law applied. Not all liars will get such an outcome. Policies may change to deal with this issue so new policies need to be checked carefully. You can see an analysis of the case here


Partitions and Vacant Possession

We are often asked by landlords whether tenants need to completely strip out premises including partitioning when they are required to deliver up vacant possession. This is most common when break clauses are conditional on delivering vacant possession.

What does vacant possession mean?

In the leading case (NYK Logistics Limited –v– Ibrend Estates), it was decided that –

  • the property must be empty of people
  • the person needing vacant possession must be able to take immediate and exclusive possession, occupation and control of the property
  • The property must be empty of chattels and Ibrend made it clear that this element of the test is only breached if the chattels remaining are significant so that they substantially prevent or interfere with the enjoyment of the right to possess a substantial part of the property

How are partitions relevant to VP?

The recent case of Riverside Park Limited –v- NHS Property Services Limited had to decide whether the substantial amount of demountable partitioning left by the tenant on the premises frustrated the break notice.  This was another case where the break notice was only effective if vacant possession was delivered on the break date.

In the Riverside case, the partitions had been constructed by the tenant on top of a raised floor and reached up to the underside of the suspended ceiling and were only fixed by screw fixings.  They were not affixed to the structure.  They were clearly regarded by the expert witness as demountable.  The tenant had turned open plan space into a rabbit warren of small offices.

The Judge held that these partitions were an impediment which substantially prevented and interfered with the right of possession. He also held that he was not concerned that the landlord had no evidence that it could not let the property to anyone else.  The landlord’s unchallenged evidence was that it was clear that the rabbit warren configuration was not the attractive proposition it needed to be for its future lessees.

Are partitions always chattels?

This is awkward and the answer will depend on the facts in each case (and there are a lot of conflicting cases on chattels and fixtures) In Riverside the lightly affixed and demountable, partitions intended to benefit the tenant, rather than improve the premises and were chattels.

It will be possible that some partitions will have been annexed to the structure and become fixtures. Then the questions will be complex and will depend on the lease and any licence to alter before it becomes clear whether they would have to be removed at the end of the term.

Future effect

Whilst this looks like a hard decision for tenants, it is consistent with the basic principle that there has to be strict compliance with options and that as break clauses are a species of option tenants must work to achieve strict compliance (or negotiate clearer leases and licences to alter).

This case was based on its very specific facts and it is only a High Court case but landlords may be able to use the argument about demountable partitions being chattels to frustrate conditional break clauses. At present we are resisting drawing too many firm conclusions from this case and it will always be a question of fact and degree in every case.

As ever, tenants really need to consider the work they need to do to secure the effective break of their lease at a very early stage and make sure that they have taken out everything necessary (and anything they have any doubt about) before the break date. Damage caused by removal can be dealt with in a dilapidations claim but failing to remove may leave the tenant with a continuing lease liability.



(US) Give Me Some (Tax) Credit

The Texas Historic Preservation Tax Credit (THPTC) is a little known incentive program established through Texas House Bill 500 during the 83rd Texas Legislative Session. With the goal of making historic preservation projects more economically viable and feasible in the state, the THPTC offers a 25 percent franchise tax credit for eligible rehabilitation costs for buildings listed in the National Register of Historic Places, as well as in the Recorded Texas Historic Landmarks and Texas State Antiquities Landmarks.

The THPTC went into effect on January 1, 2015 and mirrors the Federal Historic Preservation Tax Incentive Program (which offers a 20 percent income tax credit for the rehabilitation of historic buildings) with its three-part application process:

(1) Part A: Evaluation of Significance

(2) Part B: Description of Rehabilitation

(3) Part C: Request for Certification of Completed Work

Applicants must apply for the THPTC before commencing on a project or while a project is still underway. Unless completed between September 1, 2013 and January 1, 2015, in which case the THPTC may be applied retroactively,[1] any major portion of a project that is completed and paid for is not eligible for the THPTC.  In order to qualify, an applicant will need to spend a minimum of $5,000.00 on building rehabilitation, which must conform to the Secretary of Interior’s Standards for Rehabilitation.

The THPTC  includes several features that are likely to appeal to a broad base of investors, such as being a fully transferable (by sale or assignment) certificated credit with a five-year carry forward, carrying a dollar-for-dollar reduction on Texas franchise tax, being uncapped, and having no recapture.

Applicants also have the option of taking the THPTC concurrent with or independent of the federal credit, but applicants are well-advised to take advantage of both financial incentives when possible and apply to both programs together.

For more information on the application process of the THPTC, Administrative rules for implementation of the program can be found in the Texas Administrative Code, Title 13, Part II, Chapter 13. The program is administered jointly by the Texas Historical Commission in cooperation with the Texas Comptroller of Public Accounts.

[1] Contact a representative at the Texas Historical Commission for more information about retroactive application.