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Thursday, 28 February 2013

Light Years

The Law Commission's consultation on reforming rights to light law, launched on 18 February, has been welcomed by most in the industry and has already sparked an interesting debate.

I can't help wondering though, will anything actually happen at the end of it?

The consultation document, which runs to 132 pages, is an impressive analysis and explanation of the current law and serves as a useful primer on the subject.

It also makes very cleverly argued suggestions for reform, particularly setting out clearly in chapter 3 the arguments for and against the recommended abolition of the creation of rights to light by prescription (the enjoyment of light through a window without interruption for a period of 20 years).

We've been here before though with easements.

The Law Commission reviewed the general law of easements and other rights over land in 2008 and produced another impressive report and draft bill in June 2011, this time running to 257 pages (which included rights to light, although it acknowledged at the time they needed looking at again separately in more detail, which is where the current consultation comes in).

The 2011 report and draft bill now gather dust somewhere in a dimly lit Whitehall building.

The Law Commission says in its latest consultation: "We are currently awaiting Government's response to the recommendations made in that Report".

I hope they're not holding their breath.

The current consultation, which closes on 16 May 2013, is probably a once in a lifetime opportunity for a full discussion of these ancient rights to light.

Anyone with an interest in these things should try and respond.

The law relating to rights to light is a mess, making it very difficult to advise anyone (landowners and developers) with, ironically, any clarity.

That goes for the ways rights to light might be acquired when they are not expressly documented, such as by prescription or the surreal imagination of lost modern grant; and for the ways they might be enforced - by injunction or damages.

As Nicky Richmond comments on her Saying it Straight blog, developers now often have to design two schemes at the same time, one that interferes with these rights, and one that doesn't.

The mainstream press however has adopted a different angle - for example the Telegraph  on 19 February had the story on its front page - "Historic laws which guarantee householders the right to enjoy the light which comes into their homes could be scrapped to encourage the building of large developments".

The Law Commission is actually taking a more nuanced approach, and expressly states that the primary aim of the consultation is to investigate whether the current law provides an appropriate balance between the important interests of landowners and the need to facilitate appropriate development of land.

The government is keen to help developers, but what happens after the consultation and the Law Commission's final report is anyone's guess.

At the moment they'd probably rubber stamp anything that hinted at promoting growth.

Without any political will and parliamentary time however, this could end up being an academic debate, in more ways than one, with the next report on light joining the 2011 report on easements - on the shelf.

Monday, 25 February 2013

Rent Deposits: Clock Ticking on Requirement to Register at Companies House

A change in regulations affecting companies and limited liability partnerships is in the offing which will mean that from 6 April 2013 charges created over rent deposit deeds will no longer need to be registered at Companies House.

The draft regulations*, introduced in September 2012 and amended in January 2013, are still only in draft form and so the clock is ticking to get them passed in final form in time for April. [Update 20/3/13 - they have now been passed, see the end of this post.]

The regulations introduce changes to the whole system for registering UK company charges - one that's been with us for over 100 years.

I'm not going to look at the whole system for registering charges in this post (here are some notes from BIS) - but briefly there'll be a single UK-wide registration system for charges created by UK companies and LLPs - so it'll apply to England and Wales, Scotland and Northern Ireland.

The 21-day limit for registering charges (that well-known and much-feared negligence trap which the Law Commission had wanted to abolish) remains (so failure to register still leaves a charge at risk of being invalid against a liquidator, administrator or creditor of the security provider), although criminal sanctions for failure to comply will be removed.

The system will be modernised too by enabling a new e-system for electronic registration of charges, although a certified copy of the whole charge will have to be lodged rather than the statutory form (MG01) currently used.

So what about rent deposits?

All charges must be registered at Companies House, unless exempt, and one of the exemptions is “cash taken or held by a landlord as security for the due performance and observance of a tenant’s obligations under a lease of land.”

So a charge in a rent deposit deed created after 6 April 2013 (assuming the regulations are in force by then) will be exempt from the requirement to register.

What will this mean?

The change doesn't mean a charge in a rent deposit won't be effective security, but it does mean it won't be either discoverable or open to inspection in a public register.

So it won't be immediately clear to third parties whether a charged rent deposit exists.

How will it affect landlords?

Registration used to offer some protection if the tenant became insolvent, as it would put the tenant's insolvency practitioners on notice that the charge over the money existed. Landlords usually want control over a rent deposit account, but they are now likely to insist that the account is also held in their name, rather than the tenant's name.

How will it affect tenants?

If the account is in the landlord's name, it may be vulnerable if the landlord becomes insolvent. The landlord's insolvency practitioners may not be aware of the nature of the money being held in the landlord's account.

The rent deposit is also one of the tenant's assets, which might be more difficult to spot if the tenant itself becomes insolvent.

How will it affect buyers?

It makes due diligence more difficult, as you won't be able to search for the charges at Companies House. A buyer will therefore be more reliant on replies to enquiries, which might be non-existent if you're buying from receivers or other insolvency practitioners.

It's not clear at present when these regulations will be given parliamentary approval.

The latest mention I've found in Hansard is of a House of Lords Grand Committee on 6 February, when Lord Popat moved on behalf of the government that the regulations be supported.

Although broadly welcomed by all sides, there seem to be some concerns on the regulations in general (not specifically with regard to rent deposits), especially how they will be applied in Scotland.

It doesn't look like there's going to be much time for practitioners to get used to the new regime.

*The Companies Act 2006 (Amendment of Part 25) Regulations 2012 and the Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2012.

UPDATE 20/3/2013 - the regulations have now been passed and are known as The Companies Act 2006 (Amendment of Part 25) Regulations 2013.

Thank you to the anonymous reader who commented on this post for letting me know.

Monday, 18 February 2013

Rights to Light Consultation

The Law Commission's consultation on reforming rights to light law starts today - it's been long awaited.

A "right to light" is an easement that gives landowners the right to receive light through their windows.

The owners of land that's burdened by the right cannot substantially interfere with it – for example by erecting a building in a way that blocks the light – without the consent of the person who benefits from the right to light.

Rights to light are valuable: they give landowners certainty that natural light will continue to be enjoyed by a property – increasing its utility, value and amenity.

The right may enable landowners to get an injunction - to prevent construction that would interfere with their rights or, in some circumstances, to have a building demolished.

Where a development has taken place, but a court does not order its demolition, the court may award substantial damages. 

It may not be clear which remedy the court will order - injunction or damages -  and landowners may succeed in preventing development even if they raise their concerns after building has commenced.

The consultation is designed to assist the Law Commission's project investigating whether the law by which rights to light are acquired and enforced provides an appropriate balance between the important interests of landowners and the need to facilitate the appropriate development of land.

It considers the interrelationship of rights to light with the planning system, and examines whether the remedies available to the courts where rights to light are infringed are reasonable, sufficient and proportionate.

The consultation paper considers the law relating to the entire life-cycle of a right to light, from creation to extinguishment - it's a useful summary of the existing law.

It asks for comments on the following main proposals: 

  • that the creation of rights to light by prescription (the enjoyment of light through a window without interruption for a period of 20 years) should be abolished; 

  • a statutory test for when damages might be a more appropriate remedy than an injunction; 

  • the introduction of a new statutory notice period for notifying someone that rights of light are about to be infringed; and

  • a proposal for the Lands Chamber of the Upper Tribunal to have the ability to extinguish rights to light that are obsolete (like it can do now with restrictive covenants).

The consultation closes on 16 May 2013.

It'll take years to change the law though, whatever the outcome. 

19/2/13 UPDATE the proposals have kicked up a storm in the Telegraph today - "Historic laws which guarantee householders the right to enjoy the light which comes into their homes could be scrapped to encourage the building of large developments."

Monday, 11 February 2013

RPI Still on the Road - Its Number's Not Up Yet

In my post last October -  Bean-Counting - Changing RPI & Index-Linked Rent Reviews - I wrote about the consultation being conducted at the time by the Office of National Statistics on whether to change the formula for calculating the Retail Prices Index (RPI).

Reports of the imminent demise of RPI turned out to have been exaggerated.

I'm a little late with this, but in case you missed it in January the ONS concluded that although they wouldn't use existing formula for RPI if they were inventing it now (it "doesn't meet international standards"), there shouldn't be any major changes to the method for compiling the index.

The ONS says there's significant benefit to users in maintaining continuity of the current formula.

That's good news for property investors with RPI rent review clauses.

There were concerns that the changes being put forward would have made the RPI move more slowly in line with the Consumer Prices Index (CPI).

One of the CPI’s key differences from the RPI is that it doesn’t reflect the cost of buying and owning a home.

There's actually a range of different inflation indices used by statisticians for different purposes (CPI, RPI, PPI, HPI...etc...), as explained by the ONS.

However, to address the concerns raised by ONS with the formula used to calculate RPI, there will now be added to this alphabet soup a new index based on an international standard to be published from March 2013 - the Retail Price Indexes Jevons (RPIJ) - "Jevons" being the formula used to calculate the new index. 

It's not clear at the moment what the point of this new index will be.

However, I've seen comment (for example this Eversheds briefing) that it might produce a lower rate of increase than RPI, so from a landlord's perspective it looks like it will be better to stick with RPI for index-based rent reviews.

Index-based rent reviews carry a risk however, no matter what index is used.

An index can be manipulated for reasons that are remote from questions of property valuation – political ones for example.

Professional Pensions (£) reports Aon Hewitt partner Lynda Whitney saying the creation of an RPIJ index will “only please statisticians” and fuel speculation that RPI could be altered in future, without addressing the current gap between measures

It’s hard to draft around this uncertainty in a rent review clause in ways that will be effective over a long period.

And more generally, although indexation may be a convenient way of trying to preserve the purchasing power of the rent a landlord receives, it doesn't reflect the trend in rental values – which is, arguably, what a rent review clause is really meant to do.

Then again, with average lease-lengths currently below 5 years with no rent review at all, any kind of rent review looks like a bonus...for the landlord.

Photo by Teosaurio via Flickr