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Friday, 8 April 2016

Rare Planning Power Used to Permit City of London’s Tallest Building

In a rare decision, the City of London has resolved to use its powers under Section 237 of the Town & Country Planning Act 1990 to allow the development of 22 Bishopsgate, report CMS.

Originally a scheme known as the Pinnacle was proposed for this site, but that was abandoned in 2012.

In November 2015 planning permission was granted for a new 62 storey tower, which led to multiple rights to light claims from adjoining owners.

The planning committee’s report says there were as many as 61 outstanding light claims, of which only 19% had approached settlement.

So the City of London stepped in on 5 April 2016 to use its powers under s237 to acquire the land for planning purposes.

This removes the risk of injunction by any neighbouring owners whose rights to light are affected. Instead, they will be entitled to compensation if their rights to light have been infringed.

This move will avoid delays in the development process due to injunctions.

The final decision has been delegated to the Town Clerk, and may be open to challenge.

CMS comment: “The use of s237 is often talked about and threatened in development projects in London. However, it is very rare for a decision to be made to exercise the powers. The last time the City actually did was in relation to the Walkie Talkie building.”

Not perhaps the happiest precedent.

Thursday, 24 March 2016

High Court Rules Against Lease Assignment to Guarantor

In a recent decision*, the High Court has ruled that a tenant may not assign its lease to its guarantor.

Any agreement that seeks to give effect to an assignment to a guarantor is void under Section 25 (1) of the Landlord and Tenant Covenants Act 1995 because it frustrates the purpose of the 1995 Act.

In short, the 1995 Act provides that on an assignment by a tenant the tenant is released from its covenants.

The guarantor is released from the tenant covenants when the tenant is released.

But, by assigning the lease to the guarantor, the guarantor (as incoming tenant) becomes bound by the tenant covenants – so in reality there is no release of the guarantor because it has re-assumed those liabilities as assignee, which frustrates the operation of the 1995 Act.

There may be legal logic in this, but the commercial effects are absurd where all parties, the landlord, the tenant and the guarantor, as in this latest case, want the transaction to take effect.

The High Court’s reasoning stems from comments made obiter by Lord Neuberger in K/S Victoria Street.

The landlord tried to argue that these were sequential events – first the guarantor was released and then, secondly, it became liable as assignee.

The problem is the 1995 Act did not provide for this situation – it treats everything as happening at the same time which therefore permits an argument that assigning to a guarantor frustrates the purpose of the Act.

The effect of this judgement is that assignments to guarantors are void.

This may have provided clarity (for now) on whether such assignments are permitted -  and many leases now prohibit assignments to guarantors - but it begs a number of important questions concerning assignments that have already taken place.

Such as what about assignments that occurred in the past where the assignee has gone on to assign the lease to someone else? It now seems they did not have title to do so.

Or what about assignments to guarantors that have been registered at the Land Registry, which is supposed to be a guarantee of title? If those assignments are now void, what is the status of the registered title?

Or where subleases or charges have been granted by such an assignee?

These questions may result in further litigation down the line. Perhaps it’s time for the 1995 Act to be amended.

It’s too early to know whether there’ll be an appeal in this latest case.

Thursday, 17 March 2016

What are the Effects of the Stamp Duty Changes on Commercial Property?

In his March 2016 Budget the Chancellor announced changes in Stamp Duty Land Tax (SDLT) for commercial property that took effect from midnight on 16 March 2016.

Commercial property has been left alone in recent years as the reform of stamp duty has focused instead on residential property.

The new SDLT rates on the purchase of commercial property (and new commercial lease premiums) are to be charged in slices (as with residential property and different from the "slab" approach used for commercial property to date) and the new rates that apply to the price payable for a property are:

Up to £150,000 – zero

The next £100,000 (the portion from £150,001 to £250,000) - 2%

The remaining portion above £250,000 - 5%

This means that transactions with a non-rent consideration of over £1.05 million will be subject to more SDLT under the new system than they were under the old system; whereas the buyers of lower- priced commercial properties will benefit from a saving resulting from the sliced calculation.

Here are some examples based on figures worked through the Government’s SDLT calculator

On a purchase price of £500,000 the new SDLT payable will be £14,500. The old SDLT payable was £15,000. A saving of £500.

On a purchase price of £1,000,000 the new SDLT payable will be £39,500. The old SDLT payable was £40,000. A saving of £500.

On a purchase price of £3,000,000 the new SDLT payable will be £139,500. The old SDLT payable was £120,000. An increase of £19,500.

On a purchase price of £15,000,000 the new SDLT payable will be £739.500. The old SDLT payable was £600,000. An increase of £139,000.

On a purchase price of £25,000,000 the new SDLT payable will be £1,239.500. The old SDLT payable was £1,000,000. An increase of £239,000.

As you can see, the effect of the change rises dramatically as you move up the scale of prices.

Old rates of SDLT will continue to be payable where contracts were exchanged before midnight on 16 March 2016.

For new commercial property leases you pay SDLT on the purchase price of the lease (the “lease premium”) using the rates above, and on the value of the annual rent you pay (the “net present value” (NPV)).

If you buy an existing (assigned) lease you only pay SDLT on the price.

The SDLT payable on the NPV has also changed.

The NPV is based on the total rent over the life of the lease. You don’t pay SDLT on the rent if the NPV is less than £150,000.

Net present value of rent
SDLT rate
£0 to £150,000
The portion from £150,001 to £5,000,000
The portion above £5,000,000

The Government website calculator will calculate these values for you.

At present there is a 30 days’ period of grace for paying SDLT following completion. From 1 April 2017 this period will be reduced to within 14 days of completion.

Wednesday, 2 December 2015

Supreme Court Rules on M&S Break Clause

The Supreme Court has today issued an important judgment* and rejected an appeal by Marks & Spencer, who was seeking to recover from its former landlord rent relating to the period between the break date in its lease and the end of the rental quarter within which it fell.

The break date was 24 January 2012 and the right to terminate the lease could be exercised by M&S giving 6 months’ prior written notice.

The break clause had required M&S to pay a full quarter’s rent in advance (and a further fixed sum) for it to be validly exercised. 

M&S duly paid the full quarter’s rent and the fixed sum, and the lease terminated on 24 January 2012.

M&S subsequently brought a claim for the return of the apportioned rent for the period from 25 January to 24 March 2012, contending that there should be implied into the Lease a term that it should be entitled to a refund from the landlord of the proportion of the rent paid in respect of the period from the date of termination up to and including 24 March 2012.

Similar claims were made by M&S in respect of the car park licence fee, the insurance rent and the service charge.

There was no express clause in the lease entitling M&S to a reimbursement of the amount paid in respect of the period beginning on the break date and ending at the end of the quarter.

The Supreme Court unanimously dismissed M&S’ appeal.

Here’s a summary of the reasons:

The judicial approach to the implication of contractual terms represents a clear, consistent and principled approach. A term will only be implied if it satisfies the test of business necessity or it is so obvious that it goes without saying; it will be a rare case where only one of those two requirements are met.

The implication of a term is not critically dependent on proof of the actual intention of the parties.

If one approaches the question by reference to what the parties would have agreed, one is concerned with the hypothetical answer of notional reasonable people in the position of the parties at the time they were contracting.

It is a necessary but not sufficient condition for implying a term that it appears fair or that one considers that the parties would have agreed it if it had been suggested to them.

Applying that reasoning to the facts, the Court said it was well-established that rent payable in advance is not apportionable in time in common law or by statute.

The Court reasoned:

Given the clear, general understanding that neither the common law nor statute apportion rent payable in advance on a time basis, it would be wrong, save in a very clear case, to attribute to a landlord and a tenant, particularly where they have entered into a full and professionally drafted lease, an intention that the tenant should receive back an apportioned part of rent payable and paid in advance.

The same conclusion applied to the car park licence fee and the insurance rent, but not to the service charge, in respect of which there is a specific provision which contemplates repayment.

The best advice remains that where a break date falls in the middle of a quarter and the lease does not provide for part payment, pay the full quarter's rent as there's no common law right to apportion it.

Sacrificing the balance of the quarter's rent, in most cases, will be a price worth paying for effectively bringing the lease to an end.

Tenants negotiating a break date in a new lease should ensure, where the break date has to be inside a quarter, that there’s specific obligation on the landlord in the lease to reimburse the balance of the rent if the break right is exercised.