HMRC Targets the Tax Dodgers

HMRC has tax avoidance firmly in its sights.

The big story today of course involves moves by the government to close retrospectively two tax avoidance schemes which, in a press release from the Treasury, it claims “a bank” used to try to avoid £500m in tax.

The BBC and other news outlets, less coyly, allege that Barclays Bank has been ordered by the Treasury to pay half-a-billion pounds in tax which it had tried to avoid, although at the time of writing the details are not clear – here’s some commentary from Robert Peston.

The Banking Code of Practice on Taxation, signed by all the big banks, contains a commitment not to engage in activities designed to achieve tax results that are “contrary to the intentions of Parliament.”

Tax avoidance has been a hot topic in the property world for some time now – especially schemes designed to avoid paying Stamp Duty Land Tax (SDLT).

In my post HMRC Sticks the Boot In last year I mentioned that HMRC had produced a guidance note outlining a number of ineffective tax avoidance (or evasion) schemes, and the Law Society drew solicitors’ attention to the note to help protect them and challenge requests from clients or third parties to become involved in such schemes.

The guidance note shows how these schemes range in design and complexity. 

One method (not in that note) still at large involves the use of offshore corporations or SPV’s (special purpose vehicle companies).

Stamp duty on the purchase of shares stands at 0.5%, rather than the higher rate levied on property (5% for residential properties costing over £1M). If the company is based offshore, the purchase of shares is exempt from stamp duty entirely.

However, in late 2011 law firm Boodle Hatfield urged caution.

Ian Montgomery, a solicitor at the firm, said:

“There is a growing belief that it is possible to avoid paying stamp duty on the purchase of a property or land, but unless particularly aggressive tax planning is undertaken that is just not the case...It is a common misconception that it is possible to purchase a property using a company and avoid stamp duty...When a property is purchased through a company, whether based offshore or in the UK, it pays the same rate as if it were an individual. SDLT may be avoided by future purchasers when the company decides to sell the property...This is done by the owner selling shares in the company rather than the property itself, but SDLT will be paid on the initial purchase.”

I have heard it said anecdotally (no names, no pack drill), that at least one highly respected large London firm refuses to get involved in such schemes.

In the parallel universe where I am suddenly super rich, I think I'd prefer to pony up the SDLT so I could own my £25 million gaff directly, rather than owning shares in a company registered overseas, subject to who knows what law in the future (I don’t know, start talking megabucks and it all goes Arthur Daley).

Strictly speaking, this use of companies is taking advantage of a statutory exemption rather than a tax avoidance scheme.

Still, a loophole is a loophole and, to borrow the phrase from the Banking Code of Practice on Taxation, who knows whether it could turn out to be “contrary to the intentions of Parliament”?

Will HMRC move to close down this loophole? Could they do so retrospectively?

Anyone participating in such a “scheme” is gambling that they won’t.

Perhaps they can afford to, but (to mix two inland waterway metaphors), punters might be best advised to keep their bargepoles well away.

UPDATE 6/3/12

The Solicitors Regulation Authority (SRA) has reiterated the advice given by the Law Society to solicitors last year (which I refer to above), advising, in its latest update "Beware of SDLT Schemes":

"Take care not to get involved in any schemes which exploit perceived loopholes in tax laws to reduce, or negate, buyers' charge to paying stamp duty land tax at the risk of breaching the Code of Conduct and incurring HMRC penalties.

You should think twice before becoming involved in these schemes—the HMRC has warned it is actively challenging property sales transactions which have been structured to avoid paying the correct stamp duty."

The SRA has said it will look very closely at the conduct of any firm actively involved in "these schemes".

That seems to me broad enough to include the use of offshore companies.

Here is a link to the SRA's full bulletin for more information. 

UPDATE 7/3/12

The BPF has issued a statement warning the Chancellor to tread carefully in implementing any stamp duty reform so as to avoid any "collateral damage" to the commercial property market.

The BPF says it can see the case for introducing targeted measures to ensure purchasers of high value residential property pay their fair share of SDLT, but it warned that any such changes should not be applied indiscriminately across UK property markets because, unlike high value housing, the commercial investment market is fragile.

The BPF suggests that any changes to the stamp duty treatment of property holding structures affecting the commercial investment market should only be made after thorough consultation with the industry, because they could have a dramatic impact on transaction activity, investment volumes and, ultimately, asset values.

Update 21/3/2012

See my post Stamp Duty: Smoking Out the Morally Repugnant for a post budget summary.

Photo by garyknight via flickr

Occupy London and the Right to Protest on Public Land

On Wednesday, the Court of Appeal dismissed applications made on behalf of the Occupy London protesters at St Paul’s Cathedral for permission to appeal against the eviction order granted in the High Court last month by Justice Lindblom.

Here is a link to the Court of Appeal’s judgment.

Most of the area occupied by the camp consists of a piece of highway land owned by the City of London Corporation, but the occupied area also includes other open land which is owned by the Church.

Caroline Delaney wrote in The Lawyer on Wednesday:

“It is easy to forget that for all the media coverage of anti-capitalism, tent heat detectors and Vivienne Westwood’s support, this case when distilled is simply a claim for possession of land. “

The Occupy London protestors entered and remained on the land without the consent of the City of London Corporation as highway authority, and so “all the necessary ingredients of a sound claim for possession of highway are present”.

However, the issues involved and the high profile of the case made it rather more complicated than most possession claims, to say the least.

As well as considering the Highways Act 1980 and planning legislation, the court took care to analyse the protestors’ rights under the Human Rights Act 1998 and the European Convention on Human Rights, specifically rights of freedom of expression (article 10), freedom of assembly (article 11).

Those human rights were weighed up against the right to worship (freedom of religion, article 9) and the rights of the public to go about their daily business. 

On balance, the court concluded that permanent occupation of the highway went too far, and did not allow an appeal against the possession order, which will now be enforced. 

One interesting part the judgement is that the court said the right to protest could be strengthened by the nature of the arguments raised by activists.

"It can be appropriate to take into account the general character of the views whose expression the convention is being invoked to protect. For instance, political and economic views are at the top end of the scale, and pornography and vapid tittle-tattle is towards the bottom...However, it cannot be a factor which trumps all others, and indeed it is unlikely to be a particularly weighty factor: otherwise judges would find themselves according greater protection to views which they think important, or with which they agree.”

So not strengthened by much, it seems.

The Guardian reported that, following the decision, Michael Paget, acting for one of the Occupy camp members named in the court case, said:

"Throughout this process the seriousness of Occupy's message has never been questioned. It was recognised by the trial judge and the court of appeal...The Occupy message has been heard and will continue to be heard. It has made a difference and it will continue to make a difference."

John Cooper QC, working pro bono for Occupy, said in a statement:

"The five day trial and the hearing last week in front of one of the most influential courts in the country has firmly established Occupy as a leading and influential force in public debate.”

A lot of people felt an affinity or even common cause with what many of the protesters were trying to say, although the protest as a whole often seemed to lack coherency or clarity of purpose.

Perhaps the protesters’ targets were simply too broad and too numerous.

Here, for example, is the summary of the Occupy Movement’s concerns given by the judge at first instance:

“largely centr[ing] on, but … far from being confined to, the crisis – or perceived crisis – of capitalism, and of the banking industry, and the inability – or perceived inability – of traditional democratic institutions to cope with many of the world's most pressing problems. They encompass climate change, social and economic injustice, the iniquitous use of tax havens, the culpability of western governments in a number of conflicts, and many more issues besides. All of these topics, clearly, are of very great political importance, and are to do with what they perceive as the excesses of capitalism. They say that the protest is part of a worldwide movement (extending inter alia to cities in North America, the UK and mainland Europe). The protest also includes those concerned about the Arab spring.”

It is also, to drag things back to the more prosaic, not the typical background to most possession claims.

Protestors on private land, for instance, don’t have the protection of the Human Rights Act.

Is this the end of the road in the protracted battle between tent city and The City?

John Cooper QC again:

"My clients will now be urgently considering their next legal steps with their legal team and will, we anticipate, be bringing their case to the European Court of Human Rights to give that Court the opportunity to consider the state of public protest law in Britain.”

However, Caroline Delaney points out that at last count the ECHR had a backlog of approximately 155,000 cases, meaning that non-priority cases will not be heard until 2022. 

By which time your algorithmically controlled automaton doppelganger will be able to go out and pretend to work all day in the New Capitalism so you don’t have to.

Meanwhile, the eviction is likely to happen very soon, and legal advice has been distributed to those protesters who remain, warning them to think carefully about how any knee-jerk reaction might impact on their lives in whatever really is the future.

UPDATE 28/2/12

The BBC reports  that police and bailiffs have moved in to remove the tents. The operation, which began just after midnight in the early hours of 28 February, was mostly peaceful but there were reportedly 20 arrests.

Lease Break Clauses: Banana Skins & Humpty Dumpty - Time to Take a Commercial View?

Break clauses are, for tenants, the banana skins of the commercial lease; slip up when trying to get out of a lease and you’ll find yourself locked in for the duration, with no reprieve.

That’s because many break clauses come with conditions attached to them.

If you fail to comply with those conditions to the letter, you risk losing your right to end the lease altogether (see these earlier posts for examples).

It’s not hard to see why landlords might want to impose some conditions. After all, why should a tenant be able to walk away from its obligations if it owes the landlord a lot of money, or if it’s still making use of the premises?

Well-advised tenants will however seek to limit those conditions at the outset (see this post from last year for the recommendations of the Lease Code, for example).

The hard cases come when a tenant loses its right to end its lease because of a trivial breach.

By agreeing to a break clause in the first place, the landlord has already conceded to a degree of commercial flexibility, for which the tenant is likely to have paid extra, both in its initial rent and possibly also on open market rent review.

Is it right that the landlord should be able to refuse the break because of a minor slip up, and thereby profit disproportionately from it?

Take for example a recent case decided on 19 December 2011, Avocet Industrial Estates LLP –v- Merol Ltd [2011] EWHC 3422 (Ch), described in my post Skating on Thin Ice.

Here, a tenant lost the right to end its lease because it owed a mere £130 in interest that the landlord had not even asked for; thereby sentencing the tenant to another 5 years in premises it no longer wanted at a rent in excess of £300,000.

Where's the commercial common sense or fairness in that?

The judge in that case did at least acknowledge the severity of the outcome.

“I consider that the result in this case is a harsh one but, applying legal principle, it is one which I am obliged to reach.”

It might just be possible, however, for the courts to adopt a different approach when interpreting break clause conditions.

This is an argument persuasively made by Guy Fetherstonhaugh QC, of Falcon Chambers, in an interesting article in the Estates Gazette (“Humpty Dumpty and break clauses”, 21 January 2012), which is only available to EG subscribers so I'm unable to link to it.

Back in the middle of the 19^th Century, the “golden rule” of construing (interpreting) contracts in general was that courts should strive to “adhere as rigidly as possible to the express words that are found and to give those words their natural and ordinary meaning”.

We have, says Guy Fetherstonhaugh QC, travelled some distance from that rule in the intervening century and a half, so that where there is ambiguity, the court is entitled to prefer the construction (interpretation) which is consistent with business common sense, emphasising the “perceived commercial purpose” of the agreement.

He argues that this approach could allow greater flexibility in ruling on disputes over break clauses.

Landlords have a commercial interest in not allowing a tenant to get out of its contract. Conversely, tenants will say that provided the breaches (such as they may be) do not prejudice the landlord, there is no harm in interpreting the break clause flexibly.

So far, the courts have tended to side with the landlord, favouring certainty over flexibility.

Guy Fetherstonhaugh QC says that arguably this approach is not sustainable under modern rules of interpretation.

“…it is difficult to see why break clauses should be singled out for special treatment.”

And I suspect Guy’s article was written before the extreme example of Avocet was reported, as he does not mention it.

Now, you might not believe judges to be the best arbiters of commercial common sense (I couldn’t possibly comment).

Or you might prefer the clarity and certainty of literal interpretation over judges acting like Humpty Dumpty in Lewis Carroll’s Through the Looking Glass, in which His Eggcellency declares:

“When I use a word...it means just what I choose it to mean – neither more nor less.”

But the price for certainty should not be absurdity.

In cases where common sense will tell you that a literal interpretation will lead to unfairness, it ought to be possible for the courts to spot an injustice and rule accordingly.

Photo by Fire At Will via Flickr

Contaminated Land Regime Gets a Spring Clean

The regime for dealing with contaminated land in England & Wales has been in place for over 10 years now, so it's about to get a spring clean.

How does the regime work?

All local authorities have a duty to identify any contaminated land in their area which poses an unacceptable risk to human health or the environment, and to ensure it is properly cleaned up.

Most contaminated land is cleaned up as part of the planning process. Where this has not happened, the regulators will try to find someone liable to clean it up.

Contaminated land regulations are based on the “polluter pays” principle, meaning that liability for clean up rests primarily with those who polluted or caused the contamination. 

Unfortunately, with historic pollution, it is often very difficult or impossible to trace the original polluters or they may no longer exist. 

If the original polluters cannot be found, liability for cleaning up the site passes to the current owners and occupiers of the land, whether or not they know about the contamination. 

The rules seek to encourage voluntary clean up through agreement between the local authorities and the person responsible; however, local authorities have powers to issue a remediation notice if agreement is not possible.

You can be fined if you don’t comply with a remediation notice.

If you are thinking of buying or leasing land that because of past uses might be contaminated, take specialist advice and make sure you carry out environmental investigations; that you are satisfied with the advice given in the environmental reports; and that any recommended remediation action is taken as a result. 

A high profile topical example of clean-up in action is the Olympic park in Stratford, East London.

Last week in the Guardian, Andrew O’Hagan wrote how it was until recently:

“...a site of old warehouses and weedy dereliction. It smelled of the oil and paint and chemical effluent that had leached for years into the land around the Hackney Marshes.”

Today, Andrew writes, the soil has been cleaned in giant machines like twin-tubs, to neutralise the toxic elements left behind by 200 years of industrial adventure.

“Never, in the fields of leisure and national prestige, has so much dirt been scrubbed so expensively and with so much hope invested in the particles. You could almost eat the soil now.”

So that’s the Greco-Roman wrestlers sorted.

In what way are the regulations now being changed?

The Department for Environment Food and Rural Affairs (Defra) wants to simplify, or at least fine-tune, the guidance which accompanies the contaminated land regime (technically Part 2A of the Environmental Protection Act 1990).

Revised statutory guidance, intended to replace the existing guidelines, was put before Parliament on 7 February 2012, and will come into force on 6 April 2012 unless Parliament rejects it.

Revised regulations, the Contaminated Land (England) (Amendment) Regulations 2012, have also been put before Parliament and (again, unless Parliament rejects them) will come into force on 6 April 2012. [UPDATE APRIL 2012 - the regulations are now in force.]

The new guidance is designed to be more user-friendly; to reduce uncertainty over what constitutes contaminated land; and to avoid unnecessary remediation. 

Defra wants to speed up the process that determines whether or not land is regarded as contaminated and reduce unnecessary property blight by helping to focus only on land that poses significant risk.

The policy aims to make the regime target higher risk land more efficiently. The intention is that efforts will be focused on high risk sites, with faster decision-making produced by helping local authorities dismiss low risk sites more easily.

If the new guidelines work according to plan, this ought to have a positive impact both on land values and remediation costs.

Founding EEDO – New Energy Saving Offensive Targets Real Estate

A new offensive on cutting energy waste was launched by Energy and Climate Change Secretary Edward Davey on 8 February 2012, with the creation of the Energy Efficiency Deployment Office (EEDO) to “spearhead energy efficiency policy” and make it more relevant to people’s everyday lives.

The DECC press release says EEDO staff will support the delivery of the Green Deal, the rollout of smart meters and the increase in renewable heat, as well as developing a new energy efficiency strategy to identify the potential for further energy efficiency across the economy.

EEDO got straight down to business and on the day it launched published a Call for Evidence on energy efficiency.

EEDO regards real estate as one of the areas with the highest potential for energy saving.

Not only that, but it has also identified, as one of the key barriers to change, the presence, in the real estate world, of “split incentives”.

Commercial property investment often sees the interests of the landlord pitted against those of the tenant – a stand-off that is encapsulated in the workings of the institutional commercial lease, which has led some people even to question whether the model is fit for purpose.

The Call for Evidence document says:

“Such financing issues are amplified if those funding the energy efficiency improvements do not see the benefits of their investment, as in the case of the landlord tenant split.”

Substantial retrofit works might be necessary to improve a building’s energy efficiency.

The standard commercial lease is put under strain when issues arise such as the timing, nature, expense and scope of those works; who should carry them out; and the responsibility for their reinstatement, if necessary.

Depending on the circumstances, either the landlord will feel it does not see the benefit from the improvements because the tenant reaps the reward through savings on its energy bill; or the tenant feels it won’t benefit from them because it has a short term lease and the benefits are only realised over a long time.

The trend towards shorter lease terms brought about by the recession has made this even more of a challenge, and one that is difficult to overcome even by the use of so-called “green” leases which seek to set out parameters for dealing with environmental matters.

The cost of achieving a more energy efficient building can often take a long time to recoup, which is likely to be longer than a lot of the lease terms now being granted.

The Green Deal might be one way to try to tackle this.

The Green Deal is set to be available in late 2012 and will provide the opportunity for consumers to install money saving energy efficiency measures without the upfront cost, which will instead be repaid through future energy bills.

That might work if the premises remain let with a tenant paying the energy bill; but for the landlord there is still the danger that if there’s a void period, the landlord will be left to pick up the tab, further increasing the cost of empty properties which have already been hit by the steep rise in empty business rates.

For more on the Green Deal, see these posts.

Besides the Green Deal, the other energy related policies identified by EEDO as being relevant to both the domestic and non-domestic building sectors include:-

·         The use of Smart Meters, due to be rolled out to homes and small businesses in Britain by 2019. Around 53 million gas and electricity meters are going to be replaced. Smart meters are designed to provide consumers with near real-time information about energy use, and more accurate bills. 

·         Building Regulations, such as those introduced in 2010 (Part L8) that improve energy efficiency standards for new homes and buildings by 25%. In January, the government launched a consultation on changes to Part L of the regulations due to be implemented in October 2012, which, amongst other things, will set challenging CO2 targets for non-domestic buildings and require improved energy efficiency. The new regulations include examples and analyses of the use of more energy efficient building fabrics and integrated solar panels. The consultation ends on 27 March 2012.

·         The Renewable Heat Incentive (RHI), which offers guaranteed payments for the heat generated using certain low carbon technologies. For more on RHI, see these posts.

·         Salix finance, which is an interest-free loan scheme for public sector organisations,

·         The CRC Energy Efficiency Scheme (CRC) , which requires large organisations that use more than 6,000MWh electricity per year to measure and report carbon emissions. For more on CRC, see these posts.

EEDO welcomes responses to the call for evidence by 4 April 2012.

Government Splashes the Cash on Flood Defences

The Department for the Environment Food and Rural Affairs (Defra) and the Environment Agency (EA) have today announced a host of new flood defence schemes to begin construction from April.

Defra and the EA say over 25,000 more homes will be better protected from the devastating effects of flooding by 60 new defence schemes due to start construction in the next financial year - for a full list see the EA website.

Defra says that thanks to the new partnership funding approach, which encourages funding from external sources such as councils and businesses, over £72 million of contributions have been secured to help fund flood and coastal erosion schemes on top of the £2.17 billion Defra is investing in preventing flooding during this spending period to 2015.

For an example of this funding in action at a local level, see this report from the BBC of flood defences to be built to protect 500 homes in the Cambridgeshire town of Godmanchester on the River Great Ouse that came close to being flooded in 1998.

Defra’s announcement says that as well as the flood schemes that will progress as a result of this year’s funding, the allocation for 2012/13 also covers maintenance of existing defences.

The EA has also committed to increasing the number of households receiving free flood warnings to over 1.1 million.

This all comes in the wake of criticism from the Public Accounts Committee that Defra “could not tell us what the scale of the long-term funding gap would be” in the face of budget reductions and it “did not accept ultimate responsibility for managing the risk of floods” – for more see my post Flood Defence Deficit Could Sink Economy.

Will Government’s New FITs Proposals Make Solar Industry See Red?

The government has today announced plans to improve the Feed-in-Tariffs (FITs) scheme which provides a subsidy, paid for by all consumers through their energy bills, enabling small scale renewable and low carbon technologies to compete against higher carbon forms of electricity generation.

Climate Change Minister Greg Barker said:

“Our new plans will see almost two and a half times more installations than originally projected by 2015 which is good news for the sustainable growth of the industry. “

A tariff of 21p/kWh will take effect from 1st April this year for domestic-size solar panels with an eligibility date on or after 3rd March 2012. Other tariff reductions will apply for larger installations.

Embarrassingly for the government, it cannot yet confirm the rate of incentives for installations completed between 12 December 2011 and 4 March 2012, because it has lodged an appeal to the Supreme Court against two court rulings branding plans to cut rates for installations from 12 December 2011 as unlawful.

The government has relaxed controversial plans to limit feed-in tariff eligibility to those buildings that have the highest energy efficiency ratings.

Properties installing solar panels on or after 1st April this year will be required to produce an Energy Performance Certificate rating of ‘D’ or above  to qualify for a full FIT. The previous proposals for a ‘C’ rating or a commitment for all Green Deal measures to be installed was seen as impractical at this stage. DECC estimate that about half of all properties are already eligible for a ‘D’ rating.

There was also relaxation of rules governing community or corporate solar projects with the government announcing that individuals or businesses installing 25 or fewer installations do not qualify as "multi-installation" and therefore will enjoy the standard tariff rate, avoiding an additional 20 per cent cut that will be imposed on larger group installations.

There will now be a further consultation on proposals for an ambitious programme of six monthly degression (literally decreasing by stages) for solar PV tariffs, ending 3 April 2012 and another consultation on changes to the tariffs of the four non PV tariffs (Wind, Hydro, Anaerobic Digestion and micro-CHP), ending 26 April 2012 – which is all a bit technical, so follow the links if you want more....or watch new Climate Change Supremo Ed Davey explain all on YouTube!

Will the solar industry be happy?

Not according to business green:

“ ...ministers have also risked further angering the solar industry, after setting out proposals that could see incentives for installations with less than 4kW of capacity cut by 35 per cent to 13.6p/kWh - a level that industry insiders fear will lead to a significant contraction of the sector.”

They also quote Howard Johns of the Solar Trade Association writing on twitter that the government had unveiled "ambitious new plans for destroying the UK solar industry", and that the scale of the proposed cuts were a "disaster" for the previously expanding industry.

Business green comment that the changes will also again raise the prospect of a surge of installations as households and businesses attempt to deploy new systems before the further “deep cuts” are imposed.

Can the solar industry continue to grow, as the government predicts, notwithstanding these cuts; or will it begin to disappear over the yardarm?

UPDATE 10/2/12

The Guardian reports today that climate minister Greg Barker has told the industry to "get real", saying  electricity consumers could not be expected to foot the bill for some households to enjoy large returns on their capital for investing in solar panels.

Cuts in subsidy, rightly or wrongly, are bound to make people think twice about installing them.

LDC Report Reveals More High Street Blues

The latest report from the Local Data Company (LDC) – End of year Vacancy Report 2011 – is out today, sub-titled “Good and bad news!”

Many of the eye-catching statistics will be well trailed in the general media, such as this Guardian report into the north-south divide. Follow the link above to download a summary of the report itself from LDC.

The end of a bleak year for retailers saw 183 falling into administration in 2011, up significantly on the 165 in 2010.

The Portas Review comes in for some criticism; the suggestion that the Secretary of State should have an “exceptional sign-off” for all new out-of-town developments and require all large new developments to have a quota of “affordable shops” is described in the report as “draconian”.

LDC say Portas fails to identify any structural failure on the high street, particularly with respect to the number of shops.

The report states that whilst out-of-town retailing is often cited as the main culprit, the fastest growing competitor to the high street (and out-of-town too for that matter) is, no prizes for guessing, the internet.

Of interest to property lawyers will be the estimate by Jones Lang Lasalle that 50% of retail leases are due to expire by 2015.

It would be a tad optimistic (or even delusional), however, to expect that to translate into a bonanza of lease renewal work.

The report concludes:

“All these trends point to less expenditure being available to High Streets in the future which, in turn, indicates that there will be, if not already, too many shops on the High Street.”

The British Property Federation (BPF) hosted a seminar on the future of the high street this morning.

As is the way nowadays, many were tweeting from the event. The BPF’s CEO, @lizpeaceBPF tweeted:

“Towns need to focus on finding new form and future, not necessarily retail”.

Another interesting statistic being bandied (if you can bandy a tweet) around was that 65% of all shops are independents.

From a legal perspective, as a way to mitigate empty rates liability, I posted last year on the value of temporary lets to the not-for-profit-sector, sometimes called “meanwhile use”. Here is a link to those posts.

It may not be a permanent solution but it might help from day-to-day.

Photo by ztephen via flickr.

England Submerged: Surface Water Flooding & New Drainage Proposals

The massive flooding of 2007 led to insurance claims totalling £3 billion and doubts about whether insurers would cover flooding at all in future.

Those doubts remain as the pact (mentioned in my post Flood Defence Deficit Could Sink Economy) between the government and the insurance industry, known as the Statement of Principles, ends in 2013.

The pact currently guarantees cover to small businesses (although not commercial premises in general) and households (but not new builds) at risk of flooding.

Contrary to what you might think, flooding doesn’t just happen to properties close to rivers or the sea; in fact 70% of the property damage caused by the 2007 floods was caused by surface water.

Surface water flooding occurs when heavy rainfall overwhelms the drainage capacity of the local area.

It can be severe in areas with impermeable surfaces, for example in urban areas, where drainage systems may struggle to cope; as well as when heavy rain falls on already saturated ground.

This flooding often takes place miles away from recognised flood plains.

The 2009 report, “Flooding in England”, from the Environment Agency (EA), showed for the first time that more properties are at risk from surface water flooding than flooding caused by rivers or the sea.

The EA's website, which has a lot of useful information on flooding generally, says surface water floods are difficult to predict and pinpoint; much more so than river or coastal flooding.

The EA’s own flood map doesn’t even show the risk of flooding from surface water.

Flood consultants, however, have built digital terrain maps to model and record the risk of surface water flooding, and this is where insurers get most of their information. The two leading consultants are JBA Consulting and Risk Management Solutions.

Sophisticated modelling by flood consultants helps to assess the risk from surface water flooding. At the moment, however, this information is not freely available on the EA website.

Landowners, or potential buyers or tenants, can access similar information by paying for a flood search and there are several available on the open market.

On a practical level, the campaign Know Your Flood Risk has a mission to help raise awareness of the issue of flooding and encourage practical guidance and support to help protect homeowners and property professionals against the risks.

However, the availability (or not) of flood insurance has important implications for those with an interest in property, not just for obvious reasons; for example it may well determine whether or not a property is mortgageable.

And with leasehold property, as I explained in my previous flooding post, landlords and tenants need to anticipate what would happen if their property became damaged by flooding and flood insurance were no longer available.

Is it right that the future availability of cover for such a widespread risk should in future be left to the vagaries of the open market?

Given the risk that flood insurance will become harder to obtain, greater thought may need to be given to flood prevention.

The Public Accounts Committee, as I mentioned in my previous post on flooding, is concerned that in the matter of flood defences generally, there is no clarity about where the buck stops and who is ultimately responsible for managing the risk.

On the question of surface water however, the Department for Environment, Food and Rural Affairs (DEFRA) is consulting on proposals for compulsory sustainable drainage systems (SuDS) in new and redeveloped sites in England, which it wants to introduce from 1 October 2012.

SuDs aim to reduce the rate and volume of surface runoff from developments.

DEFRA’s proposals follow the Flood and Water Management Act 2010 which requires certain drainage systems for managing surface runoff (including rainwater, snow and other precipitation) to be approved before any construction begins.

A SuDS Approving Body (“SAB”) will be set up to approve and ultimately adopt SuDS, which will have to be designed, built and operated in accordance with National Standards (the consultation asks for views on these), and there will be a requirement for drainage systems to be approved by the SAB before they can be connected to public sewers. 

The consultation ends on 13 March 2012; for more information follow the link.

Snow Way!

It’s a belated winter wonderland here in London, as today sees the first snow fall this year.

Lame by the standards of much of the world, but 6 inches of snow here is always an event of sorts.

Some public-spirited souls were already out clearing their front paths by 8-00am this morning, which is impressive for a Sunday.

Can being public-spirited land you in trouble and what are you meant to do?

Whilst you might enjoy lobbing snowballs at your neighbour, when it comes to clearing paths and drives etc, try not to brush too much snow from your property on to the public pavement or highway.

The kiljoy legal position is it could amount to a public nuisance and blocking the pavement or road by sweeping snow on to it from your property might even amount to negligence.

As an owner or occupier, you also owe a duty of care to avoid injury to anyone who might foreseeably suffer as a result of your actions.

So if you try and clear the public pavement outside your property, but don’t do it very well and as a result someone slips and is injured, in theory at least you could be liable for the failure to take reasonable care to prevent injury.

As a private landowner, you are not obliged to clear snow or ice from the public highway, even if the road or pavement passes over your land - although of course it might be the nice thing to do.

On your own land however, it’s a different matter.

You owe visitors a duty under the Occupiers Liability Act 1984 to take reasonable care to ensure that they are reasonably safe.

This means that if you know someone (such as the milkman, or your neighbour coming to get his own back) is likely to walk up your garden path, and you also know that the garden path is slippery, you must take reasonable steps to clear the path of snow and grit it, if necessary.

So those people out clearing their paths this morning were right to do so, provided they were doing it properly.

If they get carried away with the snow plough that’s been languishing in the cupboard for 18 months and move on to clearing the public pavement as well, technically they are taking a legal risk, no matter how noble their intentions.

But official government advice is:

“...don’t believe the myths - it's unlikely you'll be sued or held legally responsible for any injuries if you have cleared the path carefully.”

And if you want to know how to do it “carefully” – the government is on hand with advice here on YouGov.

Anyway, coffee break over, back to lobbing snow balls...