(US) With new laws, it just got easier to demolish blighted properties in Pennsylvania

Blighted residential and commercial properties are a major impediment to rehabilitation and redevelopment efforts in cities and towns throughout Pennsylvania. However, late in the 2016 legislative term, the Pennsylvania House and Senate enacted new laws that will change the rehabilitation and redevelopment landscape.

On November 4th, 2016 Governor Tom Wolf signed into law Senate Bill 486, amending the Recorder of Deeds Fee Law. The bill, introduced by Senator David Argall (R, West Chester), is a response to the difficulty many Pennsylvania counties face in dealing with blighted properties. These troubled buildings often affect the value of surrounding properties and, in some instances, are health and safety hazards.

The new law authorizes each county to charge a fee, up to fifteen dollars ($15), for each deed and mortgage recorded. The funds generated by this fee will be used solely for the demolition of blighted properties within the county where the deed and mortgage was recorded.

Many properties are beyond repair, requiring total removal of the building before the property can be repurposed. Advocates of this legislation believe that lack of funding is the central obstacle to rehabilitating blighted properties and neighborhoods. This law will substantially increase the funding available for demolition. The PA Department of Revenue estimates that the fees would have generated $14 million in 2013 and almost $12 million last year.[1]

Critics of the bill believe that homeowners and homebuyers should not be the primary source of funds for demolishing these blighted properties, but rather the entire affected community should contribute to blight remediation.[2] Some counties impose an even greater burden on homeowners and buyers. For example, the city of Reading, in Berks County, applies a four percent (4%) local realty transfer tax, in addition to the one percent (1%) state realty transfer tax.

Senate Bill 486 was the second of two bills signed into law by the Governor on consecutive days that address the problem of blighted properties. On November 3rd, Governor Wolf also signed House Bill 1437, which amended the act of December 20, 2000 (P.L.724, No.99), known as the Municipal Code and Ordinance Compliance Act, giving property owners only one year after the purchase date to remedy code violations. The prior law gave property owners eighteen (18) months. Failure to make the necessary changes could result in the demolition of the property that is in violation of the code at the purchaser’s expense.

Of course, these changes are not a complete cure to the difficulties surrounding the rehabilitation of blighted properties. Ownership determination, liens and overall community redevelopment planning still present significant challenges in the rehabilitation and redevelopment arena. Still, both bills are positive steps in efforts to correct years of delays in the process of redeveloping blighted homes and neighborhoods.

No Pennsylvania county has yet to impose the recording fee authorized by Senate Bill 486. Look for a follow-up blog as counties begin to adopt this fee.

 

[1] Emily Previti, Pa. Counties on Track to get Millions for Blight Demolition, Keystone Crossroads (Nov. 1, 2016), http://crossroads.newsworks.org/index.php/local/keystone-crossroads/98412-pa-counties-on-track-to-get-100m-for-blight-demolition.

[2] Kim Shindle, PAR Urges Legislators to Stop Adding Fees to Real Estate Transaction, JustListed PA Association of Realtors (Aug. 5, 2016),  https://www.parjustlisted.com/par-urges-legislators-stop-adding-fees-real-estate-transaction/.

So is this the time for developers to think big and build big?

On Monday 28 November 2016 the City of London’s Planning and Transport Committee approved (19 votes in favour, 2 against) a resolution to grant permission for the development known as 1 Undershaft which at 73 storeys will be the tallest building in the City of London (that is 304.94m or a little over 1,000ft for the imperial brigade).

So is this the time for developers to think big and build big?

The proposed development is (self-evidently) a “tall building”. It will deliver a gross floor area of 154,100m2 (GEA), including 131,937m2 of office space and a 2,930m2 public viewing gallery on Levels 71 and 72.  The Undershaft scheme appears to have many similarities with another recently debated “tall building”, the Pinnacle.  Like the Pinnacle, if the benefits of a scheme and the delivery of objectives in line with planning policy guidelines can be demonstrated, planning permission is more likely to follow.  See our previous post on the Pinnacle.

The City of London commented that “the proposal accords to the development plan as a whole”. Further 1 Undershaft will deliver 7% of the additional office floor space sought in the London Local Plan, which aims to increase City employment by 35.6% by 2036, and is also in line with “strategic objective 1 in The City of London Local Plan 2015” which is “to maintain the City’s position as the world’s leading international financial and business centre”.  1 Undershaft may eventually house up to 10,000 workers.

This Decision could further be seen as a rubber stamping of the Government’s comments that “London is open for business”. Chris Hayward, the chairman of the City Planning Committee, said: “This development shows the high levels of investor confidence in London’s status as a global city following our decision to leave the European Union.”

We now expect a period of negotiation to begin between the landowner/developer and affected neighbouring land owners whose rights to light may be infringed by the development of 1 Undershaft. These discussions will be set against the new powers that can be used to extinguish neighbours’ rights to light under s203 of the Housing and Planning Act 2016.  When the Pinnacle was in difficulties with rights to light the City used s237 Town & Country Planning Act powers to extinguish such rights.

We therefore wait to see how this matter unfolds and whether this may be a “test case” for the new legislation.

Remember, developers, if you can think big and justify that the benefits of the scheme outweigh the burdens and rights deprived, the sky might just be the limit…

(UK) Welsh Residential Private Rented Sector – Key New Regulations in Force

As we mentioned in an earlier post Regulations for dealing with private rented housing in Wales are increasing. From 23 November 2016 all properties need to be registered and anybody undertaking, letting or management work has to go further and be licensed.

FOR FURTHER DETAILS CONTINUE READING

1. Registration by all landlords

  • Why register? The Welsh Government is creating a centralised comprehensive register of the private rented sector. All properties must be registered.
  • Who has to register? All landlords operating in Wales have been required registered with the relevant authority for nearly a year.
  • What is the deadline for registration? The final deadline is 23 November 2016.
  • How do you register? Cardiff County Council administers the registration process for the whole of Wales through a new service called ‘Rent Smart Wales’. Applications to register can be made online.
  • How long will the registration last? 5 years and then it will need to be renewed. There is an ongoing requirement to keep the information on the register up to date, so if contact details or personal circumstances change the register must be updated.

2. Licensing – landlords and agents

  • Why? The intention behind the prosed licensing system is that it will enable landlords and agents who undertake letting and management tasks to be better informed of their obligations in view of the compulsory training they will be required to undertake in order to become licensed.
  • Who? All landlords and agents who carry out defined letting and management activities/work at a rental property in Wales are required to be licensed with the relevant licensing authority. To get a licence the applicants and their staff will be required to undertake approved training and to adhere to a Code of Practice.
  • What if the landlord does not carry out letting and management activities? If a landlord decides not to carry out any letting or management activities at its properties because it employs an agent to do this work, it will not need a licence but the management or lettings activities at those properties must then only be carried out by an agent who is licensed. Regardless of this however that landlord must still register itself and its properties with Rent Smart Wales. The obligations to register and be licensed are entirely separate.
  • What if the landlord shares the letting and management activities with an agent? Where letting/management activities are shared with a licensed agent, then that landlord must also be licensed.
  • How to apply for a licence? Cardiff County Council administers the licensing process. The applicant must be deemed ‘fit and proper’ (which defined in section 20 of the Act) and be appropriately trained before a licence will be granted. There is also an ongoing requirement on a licence holder to keep the information held by the licensing authority up to date similar to the register.
  • Will there be conditions on the licence? – Cardiff County Council will place conditions on the licence, one of which will be the requirement that the licence holder must comply with a Welsh Minister approved Code of Practice setting out letting and management standards in relation to rental properties. Other conditions may also be imposed as the licensing authority may feel appropriate
  • Can the licences be revoked? Licences can be revoked if a licence holder breaches a licence condition or is no longer ‘fit and proper’.
  • How long will the licence remain valid? Again 5 years after which date it will need to be renewed.      
  • Do I need a licence for each property? No. The licences are awarded to the person who applies. Therefore if a landlord has 20 properties they only need obtain a single licence. Similarly, a person acting on behalf of a landlord will apply for a single licence regardless of how many properties they act in relation to.

3. What Happens if these Regulations are Ignored

There are a range of penalties that can be enforced either by the licensing authority or a local authority should someone not comply with the provisions. These include Rent Repayment Orders, Fixed Penalty Notices, Rent Stopping Orders and summary convictions (with fines).

Investors with portfolios should check compliance by their professional agents.

 

 

(US) A parking garage today, but what about tomorrow?

In a recent Law360.com article written by Andrew McIntyre, the author addresses three issues in converting parking to accommodate the growing need for E-commerce delivery space and the future effects of driverless vehicles:

  • Zoning
  • Market unpredictability
  • Cost

The article discusses the efforts some developers are making to build flexibility into today’s parking space construction to allow repurposing of these assets in the future.

One of the hurdles facing developers are zoning codes that are centered on today’s parking requirements. Zoning regulations often trail changing market trends by years, if not decades. “Lots of zoning ordinances require more parking than is necessary,” says Dusty Elias Kirk of Reed Smith’s Global Real Estate Practice Group. “Zoning ordinances have not changed…They haven’t gotten there yet.”

A complete discussion of the three issues can be found here.

(UK) A Construction Industry Scheme Is Taxing For Both Landlords And Tenants

It is all too easy for landlords and tenants not to realise that their deal can fall foul of the Construction Industry Scheme (CIS) requiring contractors to withhold tax from sub-contractors, designed to make sure that sub-contractors income tax is paid.

How does this happen? – A landlord can be deemed to be a contractor when they spend over an average of £1,000,000 a year for three consecutive years on construction operations.

What constitutes a construction operation? – This is quite wide and includes all usual construction works and even painting and decorating etc.

What are the implications for landlords and tenants? – Where an agreement for lease provides for the tenant to carry out works at the landlord’s cost, the arrangement could fall within the CIS if the landlord is a contractor (e.g. because of its history of spending money on construction operations). In those circumstances, the tenant would be a sub-contractor for the purposes of the CIS.  For the tenant to receive its money gross the parties need to comply with the CIS, and we have written a longer client alert on this which you can read by following this link

(US) Does your condo insurance really insure you?

In a recent Washington Post article titled “Don’t be confused when it comes to condo insurance,” Robert Diamond of Reed Smith’s Tyson office offered his observations on the complexities of condominium insurance coverage.

In some jurisdictions, when a unit owner is found to be negligent — such as when a bathtub overflows or there is a kitchen fire, and other units or common areas are damaged — the owner can be held responsible for paying the entire association deductible. However, that’s not always the case. In Maryland and the District, said Robert M. Diamond, a partner at the Reed Smith law firm in McLean, “there is a limit or cap of $5,000 on the master policy deductible that owners — who may or may not be negligent — could be required to pay.”

Mr. Diamond also considered the difficulties of finding knowledgeable insurance advice.  “You can’t expect your personal insurance agent to read through the association documents, but you can expect him or her to call the property manager and request a copy of the certificate of insurance for the master policy and then make a determination as to the insurance coverage you should have.”

The complete article can be found here.

 

(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).

Timing

  • 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.

 

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