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Saturday, 30 June 2012

No More Swimming in Old Father Thames

If you’re thinking of taking a dip in the eddies and whirlpools of raw effluent that make up London’s dirty old river, then there’s now a further disincentive.

From tomorrow, as well as being at risk of contracting e-coli and all manner of other nastiness, if you swim in the Thames (well, the tidal bit of it anyway) you’ll also be committing a crime.

The new Port of London Authority (PLA) Thames Byelaws 2012 will come into effect on Sunday 1 July 2012 after a five-year process of review and consultation with river users.

The byelaws that have been revised or added cover areas including diving, local knowledge requirements, speed limits, carriage of Thames AIS (Automatic Identification Systems), swimming and protection of the foreshore.

The byelaws were last changed in 1978.

PLA chief harbour master, David Phillips, comments:

“And if you want to get a feel for how much things have changed, just remember in 1978, commercial activity in the port was declining, there were no mobile phones, the Bee Gees were topping the charts and the Ford Cortina was the best selling car.”

Truly a golden age.

And Britain was on the verge of bankruptcy then too...just to add a note of familiarity.

Back on the river, in the 34 years since the byelaws were last changed, Phillips says:

“ we now have growing commercial activity in the estuary and sea reaches, with ships becoming bigger and bigger, London Gateway due to start up next year, busy commuter ferry services and increasing use of the river by leisure vessels, combined with the established use for moving freight through London.”

Not everyone’s happy with the new law though.

Matthew Parris, who’s been known to take a dip in the Thames himself, on BBC 4’s Today programme this morning called the PLA “the vortex of all evil” and said just because it’s dangerous, like swimming in the sea, that’s no reason to make it illegal – given most of the deaths in the Thames are suicides.

Friday, 29 June 2012

CRC Energy Efficiency Scheme – Stiff Penalties for Failure to Comply

Civil penalties totalling £99,000 for non compliance with the CRC Energy Efficiency Scheme (CRC) have been imposed on 4 errant companies, reports CMS Cameron McKenna.

The companies, who are participants in the CRC, failed to provide prescribed reports on time.

You might not end up in the Tower, but the penalties for non-compliance might take some people by surprise (even if, by and large, they are likely to be borne by big corporations who can probably afford it).

The highest penalty was £41,000 and the lowest was £10,000.

Failure to provide a report attracts a fixed penalty of £5,000 and publication of the failure.

Where the report is provided less than 40 days after the due date, a penalty of £500 can be levied for each working day the report is late.

After 40 days a financial penalty of £40,000 may be applied.

For annual reports, where the report is provided more than 40 days after the due date (or not at all), further penalties may be levied including a doubling of CRC emissions (which then increases the allowances that have to be purchased).

Camerons report that on this occasion the highest penalty was £41,000 and the lowest was £10,000.

Penalties are applied by the administrators of CRC (the Environment Agency, SEPA and NIEA respectively).

The administrators have discretion to waive or modify a civil penalty, such as when an offender takes all reasonable steps to comply, or to rectify the failure as soon as it came to its notice.

Some discretion was apparently exercised in the latest cases.

Annual reports must be submitted by 31 July 2012 for the reporting year 2011/12 and participants must also surrender adequate allowances.

Camerons say that participants will be treated as compliant with their 2011/12 surrender obligation providing the Environment Agency receives a valid order for sufficient allowances including payment of cleared funds by 31 July 2012 and sufficient allowances are surrendered by 28 September 2012.

Wednesday, 27 June 2012

Finance Does Your Head In!

If you’re trying to get your head around the huge problems facing the global banking system, probably the most sensible advice is don’t bother...stay happy!

However, if you really want to know there’s an interesting piece from Robert Peston on the BBC today, who writes about why “encumbrance” and “forbearance” are crippling banks and the economy.

Forbearance is when creditors relax their normal lending criteria and conditions, so that their debtors don't go bust.

In the commercial property market, he says the lending terms on some £50bn of troubled loans have been waived so far.

Anyway, the headline, or the bottom line, is apparently:

“...the fundamental problem of the eurozone banking system is that it is seriously insolvent in parts. And until the requisite capital is raised, the eurozone will continue to live dangerously on the brink of potential catastrophe.”

Told you not to bother!

Monday, 25 June 2012

June Quarter Day Could See Writing on the Wall for More Retailers

Yesterday, 24 June, was another quarter day.

Or in other words, rent day for the majority of commercial tenants who pay their rent quarterly in advance.

Having to stump up a quarter’s rent in advance can have a disastrous effect on a company’s cash-flow.

The Guardian reports Lee Manning, the president of the insolvency industry's trade body, R3 warning that a new batch of retailers could be forced into administration as the high street attempts to trade through one of the most financially stressful weeks of the year.

He says, somewhat controversially I suspect, that creditors usually prefer a retailer to go into administration when there is stock in the business that can quickly be converted into cash, meaning that Christmastime is often the most popular period to call in insolvency experts, followed by the end of June, when summer stock needs offloading. 

Administrators appointed today could potentially trade for the whole of this quarter rent free following a recent decision in the High Court.

Paying rent quarterly in advance has been the traditional way of structuring rent payments in England & Wales for a great many years and underpins the classic commercial property investment model.

The English Quarter days are traditionally 25 March (Lady Day), 24 June (Midsummer Day), 29 September (Michaelmas) and 25 December (Christmas Day).

Some leases now use instead the so-called “modern” quarter days of 1 January, 1 April, 1 July and 1 October, although they haven’t really caught on.

Many retailers are seeking a relaxation of their requirement to pay quarterly and would prefer to pay their rent monthly instead.

Their case for doing so has been strengthened by the High Court's decision on administration expenses.

All this grimness may make you want to jet off somewhere else, if you can afford to do so.

Davinder Jhamat, Head of Research and Education at BCSC writing in the Estates Gazette, however questions whether Heathrow is being left behind by its European competitors.

By the turn of the decade Heathrow will lose its competitive position as the top global airport.

COMAC, China's biggest aerospace company is choosing to base its European headquarters in Paris rather than London because of the French capital's better air links.

Davinder says London has a lot to think about.

Better to seek refuge in the past then.

The BBC reports the release a wonderful set of historic photos showing what Britain used to look like from the air.

More than 10,000 images from one of the earliest collections of aerial photography, the Aeorofilms Collection, are being made freely available on the web.

Chocs away!

Thursday, 21 June 2012

Getting Fit Again - Landlords Approve CVA as Alternative to Administration

Fitness First has been saved from administration after landlords approved a deal to reduce their rents by more than 70%, reports the Guardian today.

The country's biggest gym chain will also shed nearly half its sites and have about £600m of its debts wiped out.

Could this set a precedent that sees fewer retailers slip into administration?

It’s reported that Fitness First has agreed to a company voluntary arrangement (CVA) through KPMG, which will allow it to pay between 23p and 28p for every £1 it owes, compared with 0.5p if it were to fall into administration (nice to see the humble ha'penny making a comeback - we'll all be paid in farthings soon...mark my words...).

CVAs have been used before by struggling companies, but only to negotiate rents on empty sites.

The deal struck by Fitness First might mean struggling retailers could impose rent reductions on all landlords in future, rather than having to negotiate with landlords individually.

Barry Gross of law firm Berwin Leighton Paisner (who also blogs as UK Legal Eagle) said:

"This is good news for the high street and gives more options to retailers to help them avoid administration. The biggest issue facing the retail market generally is that rents are high and in difficult trading conditions there is nothing they can do because it is a fixed cost. But if more retailers use these kind of CVAs, which is likely after its success at Fitness First, it should avoid future administrations – which are far more costly."

The Fitness First deal will see it selling off 67 of its UK gyms.

A further 79 gyms will get rent reductions and in return some of the biggest landlords will receive a stake in the business.

Some landlords will no doubt feel aggrieved, whatever the pragmatism of the overall deal.

If any of them want to do so, they have 28 days to appeal against the decision.

Wednesday, 20 June 2012

Can’t Afford a Mansion? Get a Hut!

In my previous post I asked whether the new stamp duty proposals to clobber the rich would also hammer the investment market.

In this year’s budget there was an immediate increase in the Stamp Duty Land Tax (SDLT) rate applied to residential properties over £2 million bought by a company - the new rate is 15%.

The government is now consulting on two further measures announced in the budget:

·         The introduction of a new annual charge on residential properties worth more than £2 million held through companies, to commence in April 2013.

·         Charging capital gains tax (CGT) at the usual rate on residential property held by overseas companies (at the moment non-UK residents don’t pay CGT at all), also to commence in April 2013.

For a more considered view of all this, there’s an interesting piece from Helen Ratcliffe at Bircham Dyson Bell.

She writes that the Consultation Document is so short (the substance is a scant 20 pages), time is needed to tease out implications that are not immediately obvious, and to identify the significance of things that are not said. 

There may be a need to make changes in current ownership structures, but they should not be rushed into.

Anyway, if all this has put you off buying a mansion, you could always buy a beach hut instead.

The Guardian reported yesterday that a 5.6 by 3.2 metre timber cabin on the south coast near Bournemouth (not the one in my photo – that’s in Brighton!) may have become the UK’s most expensive beach hut, fetching £170,000 after a mere two days on the market.

It has running water and, if you’re worried about sustainability, insulation, double glazing and solar panels.

No toilet though - if you’re caught short you have to go to a residents block nearby.

Could save you a fortune in toilet paper, and tax advice.

Friday, 15 June 2012

Stamp Duty: Who Wants to Buy a £20m House?

Will clobbering the rich also hammer the property investment market?

In the budget earlier this year, the government set out to close the now well-known stamp duty loophole of holding expensive property in overseas companies.

It was part of George Osborne’s attack on “morally repugnant” tax evasion and aggressive tax avoidance.

There was an immediate increase in the Stamp Duty Land Tax (SDLT) rate applied to residential properties over £2 million bought by a company - the new rate is 15%.

 The government is now consulting on two further measures announced in the budget:

·         The introduction of a new annual charge on residential properties worth more than £2 million held through companies, to commence in April 2013.

·         Charging capital gains tax (CGT) at the usual rate on residential property held by overseas companies (at the moment non-UK residents don’t pay CGT at all), also to commence in April 2013.

If you want more detail or are having trouble sleeping, have a look at the consultation document – “Ensuring the fair taxation of residential property transactions”.

One issue however has been raised by many in the property world since the budget.

The 15% rate doesn’t just hit property bought by overseas companies for the purpose of minimising SDLT, but hits other companies too.

So for example this imposes a potentially huge stamp duty liability on property investment companies when they buy expensive residential properties, mostly in and around London.

It also hits property development companies who have not been trading long enough (currently two years) to qualify for exclusion from the new rules – so damages new entrants to the market and impedes setting up special purpose joint venture companies.

On the face of it the proposed new annual charge would hit these companies too.

The government has now acknowledged this in the consultation (in paragraphs 1.9 and 1.10 and chapter 2.).

It says its aim is “to target the 15% SDLT rate and the annual charge at those circumstances where tax avoidance may be a significant factor... whilst minimising where possible the wider impact for bona fide businesses.”

But this won’t give any comfort to companies buying residential property now.

The 15% rate was introduced in the budget immediately and applies whether or not tax avoidance is a factor.

The government is asking for views on how to address the concerns of bona fide residential development and investment businesses without undermining the “core policy intent” of addressing tax avoidance.

So it will be interesting to see what comes out of the consultation, which closes on 23 August 2012.

What will the annual charge amount to?

The government says it will be £15,000 per year for houses just over the £2m threshold, rising to £140,000 per year for houses valued over £20m, to be increased annually in line with the increase in the Consumer Prices Index.

Merryn Somerset Webb writes on Money Week – “Why £20m really is too much to pay for a London House” – that Baker Tilly has run some numbers.

“Say you buy a £5m house via a non-resident company. Then assume that you hold it for five years and it grows in value by 5% a year. The initial stamp duty will come to £750,000. The annual charges would be almost £200,000 and the CGT would come to nearly £400,000 making a total tax charge of £1.35m – roughly the same as the rise in value of the property. There’s more than just money for the holders of houses held through companies to think about too: a good many of them have never had to engage with our tax authorities at all. Now they will have to. Good bye anonymity. “

If you were about to buy a £20m pound house in the UK now, she wonders who might take it off your hands at any sort of similar price should you want to sell it in 2013.

I’m guessing however that this is not a problem that will lose many readers of this blog much sleep - but if I’m wrong you can always try reading the consultation document.

Thursday, 14 June 2012

Lease Break Clauses: Leave No Stone Unturned

Lease break clauses – the gift that keeps on giving for lawyers, landlords and, yes, blog writers.

The latest case to come to my attention, decided in March 2012, is a reminder to tenants that when seeking to exercise a break clause:

·         Check all the property’s title deeds, not just the lease.

·         If you reach agreement with your landlord to vary the break clause in some way, comply strictly with the conditions and remember that to satisfy the new conditions, time is likely to be of the essence.

A couple of years after entering into the main lease of its premises, the tenant had taken a supplemental lease of more space next door.

The main lease had a break clause.

When the tenant entered into the supplemental lease, the break clause in the main lease was varied to include a further condition that if the break clause were ever exercised, the tenant must also give vacant possession of the next-door premises at the same time.

The supplemental lease also contained a corresponding break right.

The tenant served its break notice under the main lease but didn’t serve a notice at the same time to end the supplemental lease.

The main lease gave the tenant, as an alternative, an option to carry out separation works between the two premises – but it wasn’t possible to complete those works before the break date.

The landlord and tenant then agreed, in a letter, that the landlord would accept that the break would be effective, provided the tenant paid the landlord an agreed sum on or before the break date.

The amount agreed reflected the cost of the separation works and liability for dilapidations on the main premises.

Due to an administrative error in the tenant's accounts department, the tenant didn’t make payment by the break date.

The court decided, interpreting the wording of the letter, that the tenant’s failure to pay the money on time meant it couldn’t operate the break - time was of the essence for that payment.

It looks as though, at the outset, the tenant had overlooked the supplemental lease and the variation of the break clause in the main lease when serving its break notice – which set in train the need for it to negotiate a way out, which it then unfortunately missed.

The case was Intergraph (UK) Ltd v Wolfson Microelectronics plc [2012] EWHC 528 (Ch) (no link yet).

Here’s a link to other posts on this blog looking at break clauses.

Monday, 11 June 2012

Across the Universe: Notes on Sustainability from SIAM LLP

To celebrate its 3rd birthday, SIAM LLP has produced a summary – Across the Universe - of its findings during that period spent analysing the sustainability of several major property portfolios covering all the main property sectors.

It reveals some interesting trends in the resilience and sensitivity of properties to sustainability issues.

SIAM has analysed property portfolios with a combined value of £3.2 billion – 265 properties, including 56 office buildings, 67 distribution warehouses and industrial estates and 27 retail warehouse parks, together comprising the “SIAM universe” of the review.

SIAM has looked at 2,000 commercial occupiers, to identify the relative strength of their environmental policies or CO2 reduction targets and to forecast the pace at which different types of occupiers will begin to reflect sustainability in their future property decisions.

SIAM has also scrutinised over 1,300 “institutional” leases to assess their continuing fitness for purpose.

Here are some of the stand-out findings from the review:

·         The total proportion of the SIAM universe, by capital value, which is at significant risk from sustainability-related risks is 13%.

·         The proportion of total rental value in the SIAM universe attributable to tenants who have already made public statements about their approach to sustainability issues is 57%. 40% have set measurable CO2 reduction targets.

·         The proportion of the SIAM universe, by rental value, where the landlord has retained a significant degree of control over the environmental performance of assets “mid-tenancy” is 28% and the proportion of leases which fail to allow landlords to recover statutory compliance costs in the common parts and for shared building services is 17%.

·         The proportion of income from the SIAM universe that has F and G rated Energy Performance Certificates (EPCs) is 13%. The Energy Act 2011 paves the way for secondary legislation making it unlawful to let F and G rated buildings after April 2018 and the government has suggested as many as 18% of all buildings with EPCs are F and G rated.

·         The proportion of capital in the SIAM universe invested in properties whose value is at significant risk from flood-related issues is 12%.

SIAM considers the two greatest sources of risk are government interventions and the threat to future income as tenants begin to implement published environmental policies, ultimately discarding some of their least "sustainable" operational properties.

The main issue is not necessarily the existing environmental performance of assets but the relative affordability of future improvements and the timing of any works that need to be carried out.

For more explanation of these findings, the report can be downloaded from the SIAM website or by following the links above.

SIAM is a specialist advisor to owners and occupiers on the likely impact of sustainability on the future performance of commercial properties as an investment class and an operational resource – and I should declare an interest here as I occasionally provide consultancy services to SIAM!

Photo by Argonne National Laboratory via flickr

Thursday, 7 June 2012

Liquid Investments - Streamlining Commercial Property Transactions

It’s another attempt to deal with the problem of liquidity in real estate investment – how quickly properties can be bought and sold.

Whilst trading in shares can take place in seconds, or even fractions of a second, property transactions by comparison can seem like wading through treacle, with days and weeks of due diligence and contract negotiation.

The IPF Guide, published in May 2012, is the second edition of the guide first produced in 1996.

The earlier guide was an attempt to reduce the delays that bedevil property transactions by recommending the preparation of a pack for sale incorporating all legal and management information at the outset.

When preparing the pack, advisors should be able to flush out problems such as missing deeds; inadequate or unavailable management information; unanticipated title defects; and physical deficiencies in the property, to name just a few.

Those issues can then be dealt with promptly, rather than waiting for problems to be raised down the line in a transaction by a buyer’s advisor.

The IPF says property in the UK continues to represent approximately 7%-8% of the total investment market (by value).

Ensuring a property is “ready for sale” is even more crucial in challenging economic times as prices are often renegotiated and funders become increasingly selective on assets and their sponsors.

The use of online data sites, or “deal rooms”, the biggest advance since the 1996 edition, is welcomed in the new guide, which contains recommendations on how best to run such sites.

The new edition of the guide also contains a key steps flowchart for both an asset and a corporate acquisition and a list of documents to be provided for the complete commercial property information package.

There’s also a readiness for sale checklist and even a checklist spreadsheet.

These charts and lists are very useful for anyone involved in property transactions and also for anyone starting out who wants to get an overview of the key stages involved.

Wednesday, 6 June 2012

Green Investment Bank Scheduled for Take-Off

The Green Investment Bank (GIB) is expected to be up and running this autumn, once legislation has been passed and the European Commission has approved it.

The draft Enterprise and Regulatory Reform Bill had its first reading in Parliament on 25 May 2012.

When enacted, the Bill will give power to the government to set up and provide financial assistance to the GIB and to secure its operational independence from the government.

UK Green Investment Bank plc has already been incorporated for this purpose.

The BBC reported recently that the GIB will be chaired by Lord Smith of Kelvin (the chairman of energy supplier SSE and engineering firm Weir Group) and its headquarters will be based in Edinburgh after the city beat off competition from 31 other bids.

The main transaction team however will be based in London.

The GIB’s constitution will only allow it to participate in investments for “green purposes” in the UK.

The proposed green purposes are:-

·         Reduction of greenhouse gas emissions;

·         Advancement of efficiency in the use of natural resources;

·         Protection or enhancement of the natural environment;

·         Protection or enhancement of biodiversity; and

·         Promotion of environmental sustainability.

The second reading of the Bill is scheduled for 11 June 2012.

The GIB will initially have no powers to borrow (it will have to wait until 2015 to do that).

Damien Carrington, writing in the Guardian, recently contrasted the GIB with the German development bank, KfW, which borrows freely and has half a trillion Euros of assets, making it roughly twice the size of the World Bank.

There’s an interesting debate in the comments section following that article.

More official information on the GIB is available on the BIS website.

Anyone taking a gloomier long-term view of the planet’s chances of survival might take some comfort from another government proposal that caught my eye – reform of the Outer Space Act 1986.

There’s currently unlimited liability on UK organisations undertaking space exploration, which the government is seeking to cap at 60 million Euros per mission, with the government sharing the risk - which is what happens in other countries.

The UK space industry is a rare success story, growing at about 10% per year, and the reforms are designed to reduce insurance costs and encourage more investment.

I’m not going to dwell too much on this though – after all, it is rocket science.

Friday, 1 June 2012

The Shard – Attack of the Klingons!

Not having a good head for heights myself, I was more than a little impressed by the bravery of these intrepid Klingons, spotted as I walked past The Shard at London Bridge today.

Not sure what they were doing, but I’m sure it was legit – unlike the trespassers who made it to the summit in April, although they went up the stairs (pah!).

Perhaps it’s a brutal form of vertigo aversion therapy.

As I mentioned in my recent post on the possible letting to Al-Jazeera, The Shard became the tallest building in Europe in January this year, at 310m (1,016 ft), with 72 habitable floors.

Update 6/7/12

Well, I never did find out what they were up to (The Shard bods ignored my tweet - and who can blame them!). Here's a more recent post about the opening.