Leasehold Reform (Ground Rent) Act and what it means for you
In an attempt to make the leasehold system fairer, Royal assent was granted for the Leasehold Reform (Ground Rent) Act 2022 on 8th February 2022.
On the 23rd June 2022 Government Guidance published the following:
“The Act will make home ownership fairer and more transparent for millions of future leaseholders. The reputation of the leasehold system has been damaged by unfair practices that have seen some leaseholders contractually obligated to pay onerous and escalating ground rents, with no clear service in return. The Act will prevent this from happening in future, tackling significant ambiguity and unfairness for future leaseholders.”
For the Act to apply, and the lease to be defined as a “regulated lease”, certain criteria must be satisfied. The lease must:
- Be a long lease (more than 21 years) of a single dwelling
- Be granted for a premium (purchase price)
- Be granted on or after the commencement date, which in most cases is regarded as the 30th June 2022 (the date the Act was brought into force)
- Not be considered as an “excepted lease”
If the above is satisfied the landlord must not require a leaseholder to make a payment of prohibited rent (which includes ground rents) nor can the landlord charge an administration fee for collecting rents.
As far as the Act is concerned a permitted rent is a peppercorn rent which has been defined by the Act for the first time as “an annual rent of one peppercorn”.
As well as the Act reducing ground rents to a peppercorn it also protects leaseholders against landlords charging an administrative fee for collecting peppercorn ground rents so as to ensure leasehold properties are more affordable and further to reduce the incentive to charge a leaseholder an actual peppercorn ground rent.
So what does this mean for leaseholders/future leaseholders/you?
The Act does not currently apply to existing leases however, should there be a surrender and re-grant of a lease which extends the term or adds additional property to the demise, there is a possibility the Act may apply subject to the qualifying criterial being met.
There are however, certain leases to which the Act does not apply. These include:
- Business leases
- Statutory Lease extensions
- Community Housing Leases
- Home Finance Plan Leases
- Retirement homes up until 1st April 2023 after which it is proposed the Act will apply
Should Landlords fail to comply with the Act, they could face penalties from £500 to £30,000.
Buying Real Estate in the UK
The first stage for an investor or owner occupier will be ascertaining the area to invest in and ultimately locating the property to purchase.
When viewing properties in the UK, you should be aware of the legal way in which you are able to hold a property. You will either obtain the freehold of the property, which includes the whole of the building and will allow you the freedom (subject to any landed estate retaining restrictions over the property and any local council requirements) to make alterations and improvements as you so wish.
The alternative way of holding a property by way of leasehold interest, either a new lease will be granted to you (usually on a new build property) or assigned over to you from the existing owner. The terms of leases are usually 99 years, 125 years or 999 years and the balance of the term will be transferred to you. This will mean that although you have a long-term interest in the property, you do have a landlord who owns the freehold building. You will be subject to service charges and ground rents, paid to the landlord and it is imperative that your advisor provides you with such details of not only current expenditure but planned future expenditure. These are additional charges that should be borne in mind, particularly when viewing an up market and exclusive development with shared facilities such as a gymnasium or swimming pool. You also need to investigate whether the building is properly managed.
If you are purchasing a leasehold property, when you view the property you need to look out for any improvement works required to the building as a whole, as you will be responsible via your service charges to contribute towards the cost of these items. If the internal elements of the property require internal upgrading, then depending on the terms of the lease, landlord’s consent may be required. In addition, the alteration works will require consent from the local council.
Tax advice should be obtained at the outset, to consider the most tax efficient purchasing vehicle due to the additional SDLT and ATED charges in place. Consideration of personal tax structures and whether the individual is to be based offshore will be required.
It is prudent to consider any requirements in respect of timings and when a seller will require you to commit to a contract and then legally complete. It is increasingly the norm for exchange to be required quickly and a non-refundable deposit payable to ensure exclusivity, with completion to take place soon thereafter. This may impact on financing arrangements and the speed of which funds can be transferred and lending facilities put in place.
What is clear is the greater the value of the asset, the greater the need for sound real estate and tax advice. Please do contact us so that we can assist you with your needs in the UK residential market.
To find out more, click here to speak to Residential Property Partner Caroline Vernon.
Property questions: How to combat property fraud
Unsurprisingly, properties are also at risk when they are tenanted, and where there are no mortgages registered. Add to this the general rise in identity theft and owner occupiers should be extra vigilant and look for ways to protect themselves and their property.
There are several simple tools available to combat fraud:
Address for Service
Did you know you can add up to three addresses for service on the property register?
At least one of these must be a postal address, in the UK or Internationally. The other two addresses can be either a DX address, a UK or overseas postal address or an email address. By having more than one address for service, you limit the chances of any important correspondence from the Land Registry being intercepted.
How to add additional addresses on to the property register?
Click on this link to see more www.gov.uk/government/publications/updating-registered-owners-contact-address. Form reference COG1.
Property Alert Service
A free service offered by Land Registry is the Property Alert Service. You can register up to ten properties. Email alerts will be sent to you when certain activity occurs on your monitored properties. Setting up an account takes as little as 5 minutes and requires a few simple steps:
- Your name
- Your contact details
- Your contact address
- Setting a password
- Activating the account with the link sent to your provided email address
It is very quick and easy to set up alerts and can take as little as five minutes! All Land Registry requires to create an account is your name, contact address, email address and password. An email is then sent to you containing a link to activate the account.
For further information see https://propertyalert.landregistry.gov.uk/.
You can add a restriction to the title of your property. There is no fee for this service if the restriction is placed at the time of the purchase, otherwise it is an additional £20.00.
By adding the restriction, additional responsibilities will be placed on the Solicitor acting on a sale as the title will contain the following clause – “No disposition of the registered estate by the proprietor of the registered estate is to be registered without a certificate signed by a Conveyancer that the Conveyancer is satisfied that the person who executed the document submitted for registration as disponor is the same person as the proprietor.”
For helpful information, follow: https://www.gov.uk/government/publications/restriction-by-owner-not-living-at-property-request-registration-rq.
To find our more, click here to speak with Gill Talbot.
To answer more of your property questions, click here for the second article in the series.
Property Questions: What are deeds?
Essentially, Deeds are the trail of legal documents that prove or record the ownership of a property. Since 1990, on the sale of a property, it has been mandatory to register the ownership at Land Registry. When Land Registry complete the registration process, they provide an Official Copy of the Registry and an Official Copy of the Title Plan together known as the Official Copies of Title. These were historically on paper but are now mostly digital and these are what are considered to be the “Deeds”. However, there are additional documents that make up the “Deeds Pack” or “Title Deeds” that will be required when you come to sell the property. The Deeds Pack will vary depending on the type of property.
For Freehold properties, the Land Registry Official Copies of Title are usually the only relevant documents to retain and these are electronic so can be readily obtained from Land Registry.
Leasehold properties will require the addition of the original signed and dated Lease to be retained as Deeds, although an Official Copy of the Lease is also held digitally by Land Registry alongside the Register and Plan. There may also be further documents to add to the Deeds such as an original Share Certificate or an original Membership Certificate, if relevant. For new build Leasehold Properties, you should also retain your 10-year NHBC Certificate (or equivalent such as LABC or Premier Guarantee) along with the Building Regulations Completion Certificate.
Other general documents to keep with the Deeds include any indemnity policy or Declaration of Trust.
In preparing for the sale of a property, the Deeds Pack will be required alongside documents such as the Energy Performance Certificate, Electric and Gas Safety Certificates, FENSA certificates, building regulations and planning permissions for any alterations, party wall notices, listed building documents, guarantees/warranties for a new boiler/new roof/damp proofing, water bill, service charge and ground rent statements, mortgage details etc, so it may be advisable to retain these documents and keep them up to date as and when they expire. Having these documents to hand will save delays when it comes to selling your property.
It is also worth noting that if you have a mortgage then your Title Deeds may be kept by the Lender, although this is increasingly rare for UK Banks, but not so for overseas Lenders.
To find out more, click here to speak to Gill Talbot.
To find out more about your property questions, click here to read another article in the series.
Top tips when buying property
Here are our top five tips to help you:
Whether or not finance is needed, speak to a broker early on in a transaction and preferably before your agent agrees the main elements of the purchase. Raising finance once exchange has taken place, makes for a fraught completion experience for both you and your lawyer.
2. Planning the completion date
If you are selling a property to raise money for your purchase, ensure that the completion date of the sale is on or before the completion of the purchase. This may sound obvious but it will avoid surcharged rates of SDLT being paid at 3% above the standard rates. These rates are paid even where your main residence is being replaced with the Revenue requiring you to claim a rebate once the additional main residence is sold.
You can also avoid the need to use your cash reserves for a deposit, as a deposit held on your sale can be used for your purchase where the property is in England and Wales.
3. Surveyor’s appointment
Appoint a surveyor. He or she will flag items that you may not necessarily have spotted on your brief viewing and may even give some bargaining power and leverage on the price.
4. Your lawyer
Make and keep a relationship with a lawyer and update them on your transaction. This is particularly important where you are marketing a property for sale, to ensure that deadlines, that you or your agent impose, can be met by buyers. A full sales pack with all title deeds, up-to-date searches, planning and building information can be pulled together in advance.
Plan for exchange well in advance. Weeks of delay can be avoided if all the fact finding has been completed in advance. Attended exchanges do still occur so be prepared.If there are any title difficulties, these can be addressed in advance.
5. Your accountant
Take tax advice. You may not be resident in the UK, you may own other properties worldwide or hold a portfolio of investment property. Early tax advice will be required to work out your CGT (Capital Gains Tax) liability on sale and IHT (Inheritance Tax) liability on death.
SDLT matters will be more complicated, where other property is held and often a detailed assessment is required to determine the SDLT rates payable by you. Where your company owns the title to the property, ATED (Annual Tax on Enveloped Dwellings) charges will be made annually and your accountant will need to claim any exemptions in your annual tax return.
You may have very specific requirements which must be conveyed to all parties. You may want to access the property you are buying between exchange and completion with architects and builders to obtain quotes or for interior designers to start planning works. The seller may even agree to you commencing limited works to help you move forward quickly with your plans.
Where you are buying a bolt hole which is a leasehold property, a landed estate owner may own the freehold, for example the Grosvenor or Portman Estate. Do not be surprised when you are asked for onerous references to obtain the landlord’s consent, in lieu of a rent or service charge deposit.
If you are buying a turn key, consider if there are any service charges for the shared estate roads and whether building warranties for any building works are available.
Where you are buying expensive items of furniture, artwork, electrical items, to be left at the property, a full inventory of those items with costings will need to be included. Such items do not attract SDLT but they must be justifiable in their costings.
Sherrards Residential Real Estate team complete £5.4m London purchase
The team advised on a statutory lease extension request, with retrospective licence for alterations as well as other leasehold complexities. They also dealt with a third-party lender’s solicitors which was all dealt with and exchanged in a narrow timeframe for our client.
Mr and Mrs K said “A Great Move. The residential team worked very effectively to unwind a difficult set of circumstances to complete a tricky house purchase”.
He has a great understanding for client needs whether you are first time buyer or an investor. His commitment to his clients is second to none providing our clients with straightforward and honest advice each time, his efficiency and level of communication are never compromised.
Masood has built-up vast experience in residential conveyancing and has great ambition and a constant desire to build strong long-standing relationships with his clients as he understands the importance of client relationships.
With his years of experience and knowledge Masood tailors his methods of working to tailor his client needs taking a pragmatic approach each time. He is always willing to take your call to put your mind at ease or to run through your matter and queries.
Don’t believe us? Take a look at some of Masood’s reviews on Review Solicitor.
Enough said about Masood, now over to you.
Claire deals with a wide range of matters including Freehold and Leasehold Sales and Purchases, Transfers of Equity, Re-Mortgages, and New Build Development Site Set-Ups.
She is motivated by building strong relationships with clients and helping them to achieve their property goals. She ensures clients receive the best possible service, and is approachable and proactive in her approach.
To hear more about Claire, check out here reviews on Review Solicitor.
The crash of a retail giant: What is left to be said about House of Fraser’s concessions
Online shopping is growing faster than ever and retailers must find a sustainable way to compete. The collapse of House of Fraser is raising serious questions about viability for traditional and internet businesses relying on concessions to promote their products in malls and shopping centres.
There are key issues to consider if you find yourself caught in the middle.
What is a concession
The concession model involves a designated space in one or more department stores (local or national with multiple locations, such as House of Fraser, Debenhams or Westfield) that operates largely autonomously. The concession brand often benefits from a physical separation, with its own signage, walls, furniture and displays and own staff. It may also be operated independently, although more often than not the store has in place legal and operation controls over distribution, profits and reporting. The benefit of a concession model is that it is moving away from the wholesale model of a distribution, by selling products direct to consumers. Most concessions are subject to written agreements but if you do not have an agreement with a store in writing, then you should contact us.
From a legal standpoint, the concession relationship falls somewhere between a landlord-tenant relationship and a supplier-retail distributor relationship. Contracts can be as long as 200 pages (including annexes). The concession agreement has certain leasing aspects, employment issues, co-branding, intellectual property and privacy matters to address. The relationship between brand and store is not purely legal of course.
With online retail, brands are trying to move away from the traditional distribution model in order to put their products directly in the consumer’s hands more quickly and efficiently, and to maintain better control. This trend is getting even more more popular as desirable brick-and-mortar real estate has become very costly. As a result, landlords are continuing to look for long-term commitments from brands.
Sometimes the interdependency between landlords/stores and their concession is such that if the mall or store collapses, then the concession (which can sometimes be nationwide) and their staff suffer.
Brands should carefully assess how a concession may be terminated in the event of the collapse or the repurchase and change of control of the store business and the rights and obligations arising on either party.
Particular consideration is needed if the brand agreed to exclude the effect of the Landlord and Tenant Act 1954 which, in certain circumstances, protects tenants at the end of the lease by allowing them to remain in occupation and request a new lease. These rights are usually excluded in concession agreements. The agreement may also provide that the area allocated to the concession holder may be changed at any time. This means that a brand may have to relocate with its staff in an area which no one agreed to go to.
You should also read the contract carefully regarding contribution regarding dilapidation costs and other effects of termination (for example on your stock). This means that you will need to consider relocating the stock on termination of the concession.
Consequence on employees and staffing
Staff working in concessions are generally employed by the brand, rather than the store itself. Even though the store may require the brand’s staff to read and abide by the policies and procedures of the store and attend certain training carried out by the store, the brand remains primarily (and legally) responsible as the employer of the staff of the concession.
There are circumstances in which the store is held responsible for the costs of a breach of employment rights, such as discrimination, but the concession agreement should have anticipated such circumstances by putting in place indemnities for their benefit, should one of the brand’s employees bring a claim against them. Generally, however, any employment claims would be enforced against the brand.
The holder of concessions should therefore consider how to approach small or large scale redundancies, particularly where a large store such as House of Fraser goes bust. If redundancies are necessary, employees with more than two years’ service are entitled to receive a statutory redundancy payment and for their redundancy to be handled fairly. Failure to follow a fair procedure could result in an unfair dismissal claim. In addition, if the store is a big one and more than 20 redundancies are necessary, then the employer must undertake collective consultation and cannot make redundancies for a period of at least 30 days. Specialist legal advice is always advisable in these circumstances.
You should consider whether or not you are insured for business interruption and contact your insurer to find out what steps are required to benefit from the cover.
Bad debts and goodwill
Generally, there will be a provision in the concession agreement to the effect that a store will bear bad debts provided that you observe control procedures. However, you may be asked to indemnify stores from any bad debts incurred as a result of non-compliance with such control procedures.
Some stores expressly state that any goodwill that accrues as a result of your operation of the concession will belong to the department store. However, if this is not stated in the concession agreement, then it is likely that you will own any goodwill that you accrue.
If the store is in breach of the concession agreement, then your chances of obtaining damages will depend on your record keeping of sales, complaints, changes to commission rates, introductions of new lines, footfall, marketing efforts and events, publicity, including on your efforts and success in developing the brand.
When to seek legal advice
On the employment law side, we recommend that the concession seeks legal advice early as part of its plan to reorganise its work force and its business.
For the other cases where there is a potential dispute with the store, it will depend on the type of dispute and whether it is likely to escalate into something which will cause harm to the concessions business. It is very much a question of judgment. Something which starts out small can soon turn into a serious dispute.
Contact Mike for more information.