(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.

 

(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.

FOR FURTHER INFORMATION CONTINUE READING Continue Reading

(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.

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