Autumn Statement 2013: Round-up of property-related measures

The Chancellor’s Autumn Statement 2013 aims to support a ‘responsible recovery’ by maintaining a balance between the need for economic growth and the need to reduce the public deficit. As such there are winners and losers within the property world. For example, while smaller high street businesses may welcome help with business rates, accidental landlords in the residential sector may feel the sharper end of the Chancellor’s stick due to changes to the capital gains tax regime.
A brief ‘heads-up’ on some of the more imminent changes is given here. Other measures, of interest to house-builders in particular, remain in the pipeline, such as changes to the planning regime and infrastructure funding.
Capital Gains Tax
A highly publicised change to the CGT regime aimed at correcting a perceived unfairness in the tax system, means that from April 2015 foreign investors in UK residential property will face a charge to CGT upon disposal. This will apply to increases in value accruing from April 2015, giving investors time to evaluate their portfolios. The comparative ability of overseas investors to absorb the tax means it is unclear how much this will affect the high end market. A consultation on how to introduce this change is expected soon.
Another significant change intended to discourage ‘flipping’ of homes to avoid CGT, is an amendment to private residence relief (PRR). Currently, if someone sells a property that was once their main home, the last three years of ownership are disregarded for CGT purposes. From 6 April 2014, this grace period will be cut to 18 months. Those moving but unable to sell their home in time or at the right price before buying elsewhere, and not wishing to invest long term, may wish to think carefully before letting their property as a ‘stop gap’ measure. They may wish to seek tax advice to assess the extent to which the annual exemption may help them, for example, and in case they run out of time. This change may, depending on circumstances, also affect those who leave a home due to divorce and buy a new home while waiting for the first to be sold.
Bear in mind:
a) The change will apply where contracts are exchanged on or after 6 April 2014. The consultation states that it ‘will not have effect where contracts .... are exchanged on or before 5 April 2014 and completed on or before 5 April 2015’.
b) The current three year grace period remains if the seller, their spouse or civil partner is disabled or resident in a care home for at least three months if certain conditions are met.
c) The annual exemption is to be set at £11,000 for 2014-15 and £11,100 for 2015-16.
Business Rates
Businesses, especially small businesses, and by implication their landlords may be cheered by the following changes to business rates which apply from 1 April 2014:
 The RPI increase in business rates will be capped at 2% for one year (rather than rising by 3.2% in line with the September 2013 index).
 To assist cash flow business rates bills can be spread across 12 months rather than 10.
 In recognition of the challenges faced by the high street, an annual discount of up to £1,000 will be available to businesses with retail premises for which the rateable value is up to £50,000 in 2014-15 and 2015-16. This includes pubs, cafes, restaurants and charity shops.
 The doubling of Small Business Rate Relief (SBRR) introduced by Autumn Statement 2012 will be extended to April 2015.
 To help with expansion costs, if a business already receiving SBRR takes on a second property, they can keep this relief for one year rather than losing the relief immediately.
 Last but not least and good news for landlords struggling to fill empty space, businesses moving into retail premises on or after 1 April 2014 and on or before 31 March 2016 and where those premises have been empty for a year or more will be entitled to 50% relief for 18 months up to state aid limits. It is not clear if this includes A3 use and guidance on this will be welcome.
Charities and SDLT
The Finance Act 2014 will enable a charity purchasing property jointly (as tenants in common) with a non-charity to claim relief from SDLT. The relief will be based on the lower of the proportion of the chargeable consideration paid or the proportion of the interest held by the charity. Certain conditions apply. The relevant consultation proposes a sting in the tail for the non charitable purchaser who will pay SDLT on their share at the rate applicable to the total consideration.
Business premises renovation allowance (BPRA)
Business premises renovation allowance is to be simplified with effect from April 2014.
Current consultations on draft legislation for inclusion in the Finance Bill 2014 relating to SDLT relief for charities, PRR, the CGT annual exemption and BPRA are available on the following Government webpage - https://www.gov.uk/government/collections/finance-bill-2014

Changes to TUPE arrive but employers disappointed

Employers hoping for a complete overhaul and greater flexibility in the transfer of employee rights following a company sale or change of contractor, under what is known as TUPE legislation, are likely to be disappointed when the new regulations come into force at the end of the month.
The new Collective Redundancies & Transfer of Undertakings (Protection of Employment) Regulations 2013 will be live from 31 January.
Long-regarded by employers as over-bureaucratic and inflexible, it was hoped that reforms would liberalise the TUPE process, which is based on EU legislation to protect employee rights when a business, or the undertaking that employs them, is transferred to a new employer.
It has had far reaching effects since its introduction in 2006, extending to even the smallest business and to include teams employed by one company to work on a particular client contract being transferred to another company if they take over the contract, in what is known as a ‘Service Provision Change’.
“TUPE has been under attack for being a ‘gold plated’ version of the original EU legislation, and employers had hoped for a significant watering-down in this new form, but the final result is likely to leave many disappointed,” explained Brendan O’Brien Managing Director of Breeze & Wyles Solicitors LLP.
“The Government had proposed repealing the service provision change rules - which apply when a client outsources activities to a contractor and then replaces them with a different contractor or takes the work in-house - but instead has opted for an amendment, saying that a service must be fundamentally the same for TUPE to apply. It’s less than hoped for, but it will give incoming contractors more scope.”
The other main changes for employers under the new TUPE legislation include:
• A change in the place of employment will now be classed as a justifiable economic, technical or organisational reason to terminate employment, allowing for redundancy and will not lead to automatic unfair dismissal
• The dismissal of an employee under Regulation 7 of TUPE 2006 will now only be automatically unfair if the reason for the dismissal is the transfer itself
• Where there are less than 10 employees and no recognised independent union or existing representatives, employers can consult directly with employees, a move designed to ease the burden on micro businesses
• Pre–transfer consultation can be counted when calculating collective redundancy timelines
• A tightening up on the timeframe in which current employers must provide employee liability information – this will have to be provided at least 28 days before transfer instead of the current 14 days
• Collective agreements will be allowed to be varied by the new employer after one year as long as it does not result in variations that are less favourable to employees
ENDS
Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues.

More talk time is priority for splitting couples

Hard on the heels of Britain’s longest-running and most bitter divorce, the Government has said it will be pushing more couples towards mediation, whilst the price of applying for a divorce is likely to treble, to more accurately reflect the court cost.
The multi-million pound divorce case of Young v Young was, according to the judge, “extraordinary even by the standards of the most bitter of matrimonial breakdowns”. The seven-year court battle between the couple has cost millions and notched up 65 hearings in court before the wife finally secured a £20m financial award last month. And the case may yet return to court to deal with costs and enforcing the award.
The millions spent in the financial battle fought by the Youngs may come from another world, but the cost of divorce is set to rise for everyone under plans being considered by the Ministry of Justice, the consultation for which ended this week. As part of a move to make people pay the true cost of the court’s time, from Spring this year couples may be are likely to be asked to pay £750 in court fees for an uncontested divorce, almost treble the cost to the court of processing administratively the divorce at current fee of £270. The court fee for the divorce petition is currently £410 having only recently increased in July last year from £340. n would remain unchanged at £410 and Exemptions and part exemptions discounts would continue to be available for those for those who qualify, on limited income. for example being on maximum benefits.
Its estimated that if the new court fee is brought in it will generate a £30 million per annum in profit for the government.
Contrasted against the proposed fee rise for divorce, the fees for victims of domestic violence seeking protection are set to be abolished under the proposals; currently £75, this would see the end of victims being further penalised financially.
But alongside these financial proposals, the Government is also pushing ahead with plans intended to reduce the emotional and financial burden of the whole process, with the announcement of more mediation for couples who are splitting up.
Under proposed measures in the Children and Families Bill, which is in its final stages of going through Parliament, couples who are separating and want to apply for a court order about children or financial matters must first attend a meeting with an approved mediator what is being called a “mediation information and assessment meeting”. This measure gives teeth to the existing Family Proceedings Rules 2010. Some exemptions will still apply, such as; evidence of domestic violence, distance from mediator is in excess of 15 miles, whereabouts of other party is unknown or it is an emergency. .
Although some 120,000 couples in England and Wales separate every year, previous efforts by the Government to encourage couples into mediation have not seen good take-up, even though the results of mediation show that it is faster and cheaper than going to court – the average time for a mediated case is 110 days compared to 435 days for non-mediated cases.
Family law expert Olive McCarthy MCIArb of Hertfordshire /North London based Breze & Wyles Solicitors LLP Name of Town-based solicitors Name of Firm explained: “In a court case, the judge will have much wider discretion, but it’s not the job of the judge to arrange a compromise that both sides can live with. That’s where mediation can assist, it will allow the parties to take ownership of the decisions made which directly impact them and their children . comes in, as it gives both sides much more control over the outcome . Mediation is not legally binding until the parties’ respective lawyers have ratified the same within a Court Order for approval by a Judge. as they can refuse to accept the mediator’s proposals at any stage and keep on parleying, and there’s more room for compromise.
“People often reject the idea of mediation because they’re worried about being bullied or can’t face seeing their ex, but you don’t have to sit in the same room (shuttle mediation) and it doesn’t stop you having a legal advice between mediation sessionsser at your side to help put your case.”
The remaining stages of the Children and Families Bill are expected to be completed in the next few months, but in the meantime January continues to be the peak period for couples deciding to separate, with official figures showing that internet searches for ‘divorce’ on Government sites such as www.justice.gov.uk peak in January.
And there are increasing numbers of older couples splitting up. Statistics show a 73% increase between 1991 to 2011 in the number of men aged 60+ who are divorcing.
Sshe added: “If a couple make that tough decision and decide to endcall time on their marriage, it’s important they don’t overlook the alternatives available such as mediation, collaborative law and family Arbitration, this will save money and in most cases reduce animosity and the feeling of being out of control that often exists when going through court proceedings. Extremely important when embarking upon the process of dissolving your marriage is updating yourtheir wills. If you have an existing will leaving everything to your spouse, that will become invalid once the decree absolute is grantedconfirmed, but until that time it is still valid even if you have separated or received your decree nisi.”
Breeze & Wyles Solicitors LLP Conflict Resolution Services department offers all forms of alternatives to Court proceedings; mediation, negotiation, collaborative law and family Arbitration – finding a better way through an often painful process!,
ENDS
Young v Young [2013] EWHC 3637 (Fam)
Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues.

Landlords: what to do (or not to do) if your tenant abandons the premises?

In the current economic climate, an increasing number of landlords are faced with tenants who vacate premises and stop paying rent with little or no warning.
How a landlord should react in this situation depends on what they hope to achieve. From the moment a landlord realises that the premises have been abandoned, their actions can have important and potentially costly consequences for that landlord. Before deciding how to react, the landlord should consider whether it is worth ‘keeping the tenant on the hook’ for ongoing rent and other liabilities under the lease. This may depend on whether the tenant is solvent. There may well not be much point in the cost and time involved in pursuing an insolvent tenant for outstanding and ongoing liabilities.
If the tenant is solvent and worth pursuing for breach of contract or for rent arrears and future rent payments, then the landlord will wish to avoid behaving in a way which could (together with the tenant’s actions) be taken to be a surrender of the lease ‘by operation of law’, thus letting the tenant off the hook for ongoing liability. The landlord may wish to ensure they behave in a way consistent with the continuance of the lease and thus preserve the right to pursue the tenant for rent payments until another suitable tenant is found.
Consequences of surrender of a lease by operation of law
The consequences of a surrender by operation of law include the following:
1. The tenant is released from its obligation to pay future rent.
2. Many leases provide for the payment of a service charge estimate by the tenant, to be followed by a ‘balancing’ payment at the end of each service charge year should the actual service charge due be higher. The landlord will not be able to recover a balancing payment that falls due after the date of surrender, unless the lease provides otherwise.
3. The parties do however remain liable for any breach of covenant and arrears prior to the surrender date.
How a surrender by operation of law comes about
A surrender by operation of law will take place only if the tenant and the landlord both behave in a way towards each other that is clearly and unequivocally inconsistent with the continuation of a lease. A surrender by operation of law cannot be one sided. The tenant must be seen to have surrendered the lease, and the landlord to have accepted the surrender. After such behaviour either party would be ‘estopped’ from then arguing that the lease continues.
By abandoning premises, taking their fixtures and fittings and handing or posting the keys back to the landlord, the tenant could, depending on the overall circumstances, be deemed to have behaved in a way that is inconsistent with the continuance of their lease. This is especially so if, for example, the tenant writes to the landlord confirming that it can no longer pay rent and no longer wishes to remain at the premises. However, this is not enough by itself to result in a surrender by operation of law.
It is what the landlord does in response to this that is critical.
It is the parties’ behaviour that is important, not their intent. A surrender by operation of law can occur irrespective of, or even despite, the intention of the parties. So landlords must be especially careful not to inadvertently accept a surrender where they have no intention of doing so.
Does it matter?
The landlord should consider at the outset what it wants to achieve, and what it is realistic to expect to achieve.
The landlord may want the tenant’s liability to continue, and so he can sue the tenant for future rents. This is more likely where the lettings market is weak and the prospect of finding a new tenant quickly and at the same rent is poor. This can matter more where the tenant vacates early in the lease term.
The landlord may have committed to carrying out extensive maintenance and repair works to the building or estate containing the premises. Therefore, it will want to be able to recover the balance of the service charge due from the tenant for the remaining part of the service charge year.
However, the most practical point to consider is whether the tenant is worth pursuing for any arrears in rent, service charge and any other monies due under the lease. They may have become insolvent, or have applied to the court for an administration order which would automatically restrict the landlord’s ability to bring a claim. Or a corporate tenant may simply have been dissolved. In these cases the landlord may decide that the loss of entitlement to make a claim is irrelevant, and that it is preferable to accept the surrender, regain possession of the property and deal with it freely.
If, on the other hand, the landlord does wish to preserve its claim against the tenant for future rents and liability for other obligations under the lease, it should take care not to act in a way which would constitute acceptance of a surrender.
How easy is it to prove surrender by operation of law?
Case law has confirmed that the threshold for confirming that the landlord has accepted a surrender by operation of law is high. In other words, the fact that his behaviour in this respect must be unequivocable means that usually it is not easy for a party to prove a surrender has been accepted.
This has been highlighted in a case heard by the Court of Appeal case in June this year. The landlords let a builders yard to a company (Co 1) that became insolvent and ceased operating from the yard. Another company (Co 2) took occupation, started paying rent and began negotiating a new lease with the landlord. Negotiations broke down and the administrative receivers for Co 1 agreed to assign their lease to Co 2. The landlord argued that Co 1’s lease had been surrendered by operation of law, Co 2 occupied under a tenancy at will and that the tenancy at will was now terminated. The Court of Appeal ruled that Co 1’s conduct was not “unequivocally inconsistent with the continuance of the lease” and that there was no surrender by operation of law. This was despite Co 1 making it clear that they wanted nothing more to do with the lease, ceasing to pay rent and knowing a third party was negotiating a new lease, and despite the landlord acknowledging this by negotiating a new lease with Co 2.
Even though this and other cases have shown that the test for surrender by operation of law is a difficult one to prove, landlords still need to be careful. They would do well to have in mind the distinction between actions which are likely to constitute acceptance of surrender and those which are not. Examples of behaviour which could apply in either case are set out below.
Actions which are likely to amount to an acceptance of a surrender
• Taking possession of the premises. A landlord can do this by moving into the property and occupying it for the landlord’s own purposes.
• Redecorating the property to its own taste and allowing family members or friends to occupy the premises for their own purposes.
• Moving items into the property for storage.
• Re-letting to someone else with the tenant’s consent.
Actions which when TAKEN ALONE in each case are unlikely to amount to an acceptance of a surrender
• Receiving the keys back without demanding them, for example, where delivered in the post or by hand through a letter box.
• Entering the premises to inspect and repair. This is consistent with the rights the landlord would already have during the lease term.
• Carrying out repairs and taking security measures to protect the property against intruders and to preserve the value of the landlord’s interest.
• Failing to demand rent and service charge when the landlord knew the tenant no longer wants the lease. Mere inaction alone is usually not enough to constitute unequivocal acceptance of a surrender.
• Case law suggests that the landlord could reasonably be entitled to mitigate his losses by , in addition to any of the above actions, preparing to relet the property without this necessarily amounting to an acceptance of a surrender. However, it is not clear to what extent remarketing and finding a new tenant would jeopardise the landlord’s claim against the tenant. A court would consider each case on its facts, and advice should be sought before reletting as to whether this may affect the landlord’s claim for future rents.
A court will consider all of the landlord’s actions taken together in deciding whether the landlord has accepted the surrender. The landlord should therefore try to do only what is necessary to secure, repair and protect the property and then, subject to seeking appropriate advice, to try to find a new tenant if needs be. The key thing is not to be seen to be taking back possession of the property.
An example of this risk is illustrated by a 2009 case where the Court of Appeal confirmed a surrender by operation of law had occurred when after a tenant had abandoned premises, the landlord took back the keys, redecorated and occupied the property for six weeks.
Merely writing to the tenant asserting that the lease continues and that rent remains due, is not enough to prevent a surrender by operation of law, especially if accompanied by an action which is likely to constitute an unequivocal acceptance of surrender.
One point that does not appear in its own right to have been clearly settled in case law, but which is in our view could matter, is the timing of a landlord’s claim in tandem with other action it takes. If the landlord makes a claim against the errant tenant for future rent and service charge or other breach, whilst or before taking steps to protect the property, it may be easier for him to argue that he has not accepted a surrender than if he waits until after taking those steps. However, this is not guaranteed, and any case argued in court will be taken on its own facts.
Hannah Collins

Solicitor

Commercial Property