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Wednesday, 26 September 2012

Running on Empty – Reducing the Burden of Empty Rates



Can the government be persuaded to do away with, or at least reduce the burden of, empty rates?

There’s an interesting article by Nick Whitten in the 22 September edition of the Estates Gazette (£) which tells of his recent appearance before a select committee of MP’s to be given a “robust” (but at least not hostile) hearing on the subject.

Nick has carried out a great deal of research into empty rates which he says have caused jobs to be lost, businesses to fail and thousands of perfectly good properties to be flattened.

The “Bombsite Britain” tax is, he says, “quite simply a tax on failure”.

It’s a view supported by the British Property Federation, amongst others.

Owners of empty commercial properties don’t have to pay business rates for the first 3 months the property is empty (6 months for industrial and warehouse properties) - after that period, business rates become payable again in full.

In contrast, before April 2008, offices and shops benefitted from a 50% relief after the 3 month period of grace, and empty industrial property was permanently exempt.

The government is reluctant to forego this tax take, but nevertheless seems unclear as to its value.

Nick’s suggests that not only does the government not actually know how much it takes in empty rates, but it also doesn’t seem to know (set against that) what its own liability is – a liability that’s increasing as it streamlines its own estate.

His research shows empty rates actually cost central and local government £50M (2012) rising to £70M (2013) and that this isn’t the whole story as it doesn’t include the vast NHS estate, quangos and other publicly-owned property.

Many are hoping for change in the upcoming Autumn Statement.

Advocates of scrapping or reducing empty rates won’t however find much comfort north of the border.

CMS Cameron Mckenna reports that the Scottish government are planning to reduce the amount of rate relief that empty non-domestic buildings currently attract – they currently have a 50% relief after a 3 month exempt period and the proposal is to reduce that relief to 10%.

Scotland however is proposing to retain its exemptions for industrial properties, listed buildings, properties with a rateable value below £1,700 per annum and unoccupied parts of otherwise occupied premises.

The Scottish government believes the reform will reduce the number of empty commercial properties in town centres by reducing the appeal of not using a commercial property.

But that doesn’t appear to have happened in England.

The Scottish Property Federation claims that the number of vacant commercial properties in England stood at 3% before the 2008 change, rising to 14% as at 27 March 2012.

Would current vacancy rates be even higher without the increased burden of empty rates?

Or is it rather a question of lack of demand?

The governments north and south of the border may be about to reach different conclusions if Westminster decides to return to a system of higher reliefs.

Back in England, the MPs on the committee are currently seeking examples of how empty rates are damaging business.

If you have a story, email it to nick.whitten@estatesgazette.com



UPDATE 25/10/12

The government has recently announced that the usual five-yearly revaluation of all commercial properties in England for setting business rates will be postponed from 2015 to 2017. 

This is bad news for businesses, as it won’t allow an adjustment to rateable values to reflect current difficult market conditions.

Current assessments (based on a rating list set in 2010) are based on rental values in April 2008, before the downturn had really done its worst.

The revaluation that had been due to take place in 2015 would have been based on rental values in April 2013. 

Postponing the revaluation by two years will lead to the continuation of high rateable values until April 2017.


Photo by AtomDocs via Flickr

Monday, 24 September 2012

Illegal Squatting & Adverse Possession



You can apply to the Land Registry to be registered as the owner of land if you’ve been squatting on it for 10 years (if the land is registered) or 12 years (if it’s not).

To succeed, you have to be able to prove various facts about how you’ve been occupying the land and follow certain procedures, which are summarised on this DirectGov page and set out in more detail in Land Registry Practice Guide 4 and Practice Guide 5.

Since 1 September 2012 however squatting in a residential building has been a criminal offence (see Squatting Now a Crime for more).

So can you base a claim to title by adverse possession on what is now a criminal activity?

The matter is untested in court, although as a matter of public policy you would expect the answer to be no and that seems to be the view the Land Registry is taking.

Alan Riley on PropertyPSL says the Land Registry is in the process of updating its adverse possession practice guides. He adds:


“It states that it will not proceed with an application for registration based on adverse possession unless, from the evidence presented to it, it is satisfied that the factual possession relied upon in support of the application did not constitute a criminal offence under section 144 Legal Aid, Sentencing and Punishment of Offenders Act 2012. However, it points out that the offence under section 144 is not retrospective, so that applications based exclusively on adverse possession before 1 September 2012 will be unaffected.”


An offence is committed under the new law if a person is in a residential building as a trespasser having entered it as a trespasser, the person knows or ought to know that he or she is a trespasser, and the person is living in the building or intends to live there for any period.

A building is “residential” if it is designed or adapted, before the time of entry, for use as a place to live.

What effect might this have on adverse possession claims based on occupation of a part of someone’s garden, for example caused by a moved boundary over many years?

Has any crime been committed?

Presumably not, provided no building has been occupied.

It’ll be interesting to see the revised Land Registry Practice Guides when they are issued and, over time, how these arguments are played out in adverse possession claims.

Tuesday, 18 September 2012

Chancel Repair Liability – One Foot in the Grave



Chancel repair liability is a rare financial liability for owners of some land in England & Wales to pay for repairs to the chancel of their local medieval Anglican parish church.

The days of it being a nasty surprise for unsuspecting buyers are numbered due to a change in the law due to take effect on 13 October 2013, but for now the liability itself lives on and in some circumstances will continue doing so even after that date.

Historically, rectors were responsible for chancel repairs; a liability that passed to the monasteries when they bought up rectorships and then eventually passed to laymen when that land was sold and subdivided following Henry VIII’s dissolution of the monasteries.

Chancel repair liability is now governed by the Chancel Repairs Act 1932 ; collected by the Parochial Church Council (PCC); and those who are potentially liable are referred to as “lay rectors”.

It only applies to pre-Reformation churches (dating from before the 1530s) and it only relates to repair of the chancel, not the whole church (broadly speaking the chancel is the bit by the altar where the choir sit, but there’s no generally accepted definition).

There’s an excellent summary on Paul Hayek’s Clutton Cox blog and more information on the Church of England website.

Now I appreciate that, even if you’ve managed to read this far without bouncing off to Youtube, unless you harbour a particular fondness for ecclesiastical history, the story of this medieval hangover might, to paraphrase The Thick of It, leave you thinking the bailiffs are coming to take away your will to live.

That’s how most property lawyers felt about it too until 2003 when, after a protracted legal battle, the House of Lords ordered landowners Andrew and Gail Wallbank to pay a repair bill of around £350,000 after legal costs when they contested a demand for nearly £100,000 to fund the repair of their parish’s medieval church.

The case received considerable media attention at the time and led to the creation of a chancel search and insurance industry that’s since done rather well out of this peculiar anachronism.

Nicky Richmond, on her saysitstraight blog, says the bulk and fairly automatic purchase of insurance policies to cover the risk is a business that may now be worth at least £20m a year.

The problem for property buyers is it’s difficult to know whether or not there really is a risk of incurring this liability.

Chancel repair liability is currently classed as an “overriding interest”, which means it doesn’t have to be recorded at the Land Registry to be enforceable.

Records may be very difficult to find.

There are roughly 15,000 ecclesiastical parishes in England & Wales.

No diocese will have a complete register of parishes where lay rectors were responsible for chancel repairs and there’s never been any requirement for new landowners to be notified of the liability when land changes hands.

The land might not even be very near the church - any land in a parish with a medieval church (whether in a town or in a rural location) could potentially carry this liability, so location doesn’t always provide a clue.

The chancel searches commonly used don’t give you a definitive answer either – they just show if the property has a potential risk or not and, if it does, that’s usually when insurance is bought.

There may be some clues if the property has a name, such as “Rectory”, “Glebe”, “Parsons” and “Vicarage” (the name of the Wallbanks’ farm was “Glebe Farm”).

The only way of actually finding out more is to ask the Diocesan Registrar to carry out an extensive search of diocesan records and to undertake a search in person at the National Archives at Kew – a time consuming and costly exercise that’s rarely undertaken in most property transactions.

Hence the need for insurance, especially if the property is being mortgaged.  

The insurance itself is relatively cheap – but is it adequate?

Insurance is rarely as good as it seems (or ought) to be and a glance at the small print (see again Nicky Richmond’s blog) shows policies differ in what they cover – the ones she looked at restricted the additional costs that can be recovered without the underwriter’s prior consent.

What actually constitutes the “chancel” is open to debate too, so when policies are limited to cover only repair of the chancel, the lack of an accepted definition could be problematic.

I wonder how much, if anything, has either been sought or paid out under such policies over the last decade?

The issue has been in the media again recently though , this time involving villagers in Gloucestershire where up to 30 households had received letters saying they were liable for church repairs. Luckily for them, the PCC decided in August to drop the claim after advice from the Charity Commission (although they insist it’s not a precedent).

The good news is that from 13 October 2013 the right to enforce chancel repair liability will only be capable of protection by registration of a notice against the property title at the Land Registry – so it won’t be an overriding interest any more.

If you’re buying land after that date, you won’t be at risk of chancel repair liability unless it’s been registered on the title – so there’ll be no need for a chancel search, just the usual investigation of title.

The bad news is that if chancel liability has been registered on the title, it will permanently affect the land.

The other bad news is that land acquired before 13 October 2013 will continue potentially to be bound by chancel repair liability until it’s sold.

Insurance may therefore still be advisable in some circumstances even after 2013.

The Court of Appeal in the Wallbanks’ case described chancel repair liability as arbitrary and unjustifiably discriminatory.

I’m inclined to agree.

They also held that it contravened the European Convention on Human Rights and was therefore unenforceable – but the House of Lords disagreed on appeal.

The government has no plans to abolish it – in 2008 the previous government, responding to an online petition, said it was sufficient just to make the liability more discoverable.

The law requiring registration of chancel repair liability was actually passed in 2002 (Land Registration Act 2002), but Parish Councils were given a little over 10 years to get their ecclesiastical records in order and determine which land was affected and register accordingly.

I don’t know the extent to which they are doing so, although in this piece from the Telegraph in July, Tory MP Peter Luff warns the Gloucestershire case could be the “tip of an iceburg”.

The Charity Commission has warned that they if they don't register in time, individual members of the PCC could be liable for the repairs or even found to be in breach of their legal duties as trustees.

So are Parish Councils now busily registering their rights before it’s too late?

And will the next 12 months see more claims being made against unsuspecting lay rectors?

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UPDATE

There’s a piece by me on Chancel Repair Liability – “One foot in the grave” – in the Property Law Journal (£) Issue Number 299 dated 5 November 2012.