Overriding
Interest
Highlighting developments and
issues in the real estate industry
Fifth Anniversary of SDLT
Some SDLT obligations on tenants of leases to re-notify HMRC are linked to the 5th
anniversary of the grant of their lease. For example, where the rent payable in the first
Winter 2008
five years of the term of a lease is uncertain or variable, a reasonable estimate of the rent
In this issue:
payable is made. Tenants calculate the net present value of the rent, and their SDLT, on the
basis of that reasonable estimate.
Fifth Anniversary of SDLT ………...... 1
However, if the rent becomes certain during the first five years, or otherwise at the end of
Integral Features ........................... 2
the first five years, the tenant has to recalculate its SDLT liability and pay any additional
SDLT which becomes due (or claim repayment of any amount overpaid). If the rent for the
New Cap and Trade Scheme ..........2
New Team Members ..................... 3
first five years is uncertain after five years, a return is required and then a further return may
be needed when the rent is finalised.
The obligation on tenants to recalculate and pay or reclaim SDLT is therefore approaching
Changes to VAT and
for all those leases with uncertain or variable rents that were granted shortly after the time
the Option to Tax ..................……. 4
SDLT was introduced in December 2003, and where the rent has not become certain in
the meantime.
PLA Dilapidations Protocol and
RICS Dilapidations Guidance Note.. 5
Deals …………………...........…..... 6
This obligation applies to both the original tenants and the assignees of leases. The
assignee of a lease generally picks up the continuing responsibilities which would have
fallen on the original tenant to adjust the original land transaction return that was submitted
when the lease was granted. The assignee must therefore make sure that it has the right to
Legal Cases ................................. 7
obtain all the information from the assignor which it will need to do this.
It may be easy to overlook the requirement to recalculate SDLT, given that land transaction
returns in respect of the leases will have already been submitted to HMRC at the time of
grant and especially if the rent remains uncertain or variable. Please speak to us if you are
unsure whether you may have any obligation to recalculate your SDLT liability and would
like further advice.
K&L Gates LLP
110 Cannon Street
London EC4N 6AR
www.klgates.com
T: +44 (0)20 7648 9000
F: +44 (0)20 7648 9001
Integral Features
Budget 2008 saw the introduction of
Some of the categories of integral features
seller will not necessarily mean that the same
integral features and a separate 10% pool
will have previously qualified for plant
allowances will be available to the buyer). In
to which expenditure incurred on them (on
and machinery allowances, and some will
general, however, these changes are likely to
or after 1 April 2008 for corporation tax
not. For those that did qualify, allowances
make claiming allowances in relation to land
or 6 April 2008 for income tax) should be
at 20% may continue for unrelieved
less beneficial than previously.
added for capital allowances purposes.
expenditure incurred before 1 April
The rate of allowances available for plant
2008 (for corporation tax purposes) or
and machinery, other than integral features,
6 April 2008 (for income tax purposes).
has also been reduced from 25% to 20%.
Buyers of property will have to consider
This new rate applies to chargeable
carefully what assets they are acquiring
periods ending on or after 1 April 2008
and what allowances will be available to
for corporation tax and 6 April 2008 for
them (particularly since an analysis of the
income tax.
allowances that were available to the
New Cap and Trade Scheme will affect Offices,
Shops and Light Industrial Premises
The UK Climate Change Bill is expected to become law before the end of this
year. The provisions of the Bill include the Carbon Reduction Commitment (CRC), a
mandatory auction-based emissions trading scheme for non-intensive energy users.
The CRC focuses on businesses that have not previously been directly targeted by
climate change legislation. These businesses include the retail industry; all businesses
occupying offices including banks, law and accountancy firms and other professional
services; hotels; and transport operators. The CRC will also affect public buildings.
Recent late amendments to the Bill raise the UK carbon reduction target from 60% to 80% below 1990 levels by 2050, achieving
a reduction of between 26% and 32% below 1990 levels by 2020. The Bill was voted through the House of Commons by 463
votes to 3, illustrating the cross-party support for action to combat climate change.
At current energy prices, the CRC will impact businesses with electricity bills of approximately £500,000 per annum. The
technical threshold for inclusion within the scheme is a half-hourly electricity meter and annual electricity use in excess of 6,000
MWh. The provisions of the Bill are complex when applied to multi-tenanted properties and are likely to capture tenants with
energy bills below the 6,000 MWh threshold.
2
Overriding Interest
New Team Members
Neil Logan Green is a partner in the firm’s London office. He
focuses his practice on advising clients involved in property development,
investment and infrastructure projects with a particular emphasis on acting
for public bodies, local authorities and RDAs in delivering major schemes
structured to procure comprehensive redevelopment. Prior to joining the
firm, Neil practised as a partner with a large London firm where he acted
as head of their real estate development and regeneration team.
Tansy Leeke
recently qualified into the real estate department, having
trained with K&L Gates. Tansy handles a variety of real estate work.
Feroze Abbas
(“Fez”) is an assistant in the Planning and Environment
group. He is highly experienced in working on Section 106 negotiations
and providing planning advice on a range of issues, and has, for
example, recently worked on a complex 106 Agreement for a landmark
office building in London.
Amandeep Samra has recently qualified into the real estate
department, having trained with K&L Gates. Amandeep is a member
of the K&L Gates Pro Bono team, Diversity Committee and co-ordinator
of the firm’s Indian sub-practice group in London.
Rajeev Joshi
(“Josh”) is an assistant in the real estate department.
He has extensive experience in working on a broad range of real
estate matters for high profile national and international clients. Josh
was previously involved with Nottinghamshire Pro-Help a free legal
representation initiative run by Business in the Community as a legal
adviser on real estate matters.
Paul Thompson is an assistant in the firm’s real estate department.
Paul practices in planning law and has recently been working on the
regeneration of a town in Essex and the development of a major mixed
development in Staines. He is also active in pro bono work.
Winter 2008
3
Changes to VAT and
the Option to Tax
The VAT rules relating to the option to tax
2. The revocation of an option to tax can be
also lead to irrecoverable input tax so
have been rewritten and take effect for
made within 6 months after the date on
the implications of revoking should be
transactions carried out on or after 1 June
which the option has effect (this cooling
carefully considered and professional
2008. Although the substance of the old
off period used to be 3 months). This can
advice taken before revocation.
provisions has not materially changed, the
be without the prior permission of HMRC
new version incorporates several new rules.
as long as certain conditions are met
1. A landowner can now make a real
estate election. The result of making
an election is that the landowner and
any member of its VAT group will be
or occupied the property). Otherwise prior
permission from HMRC will be needed.
3. An option to tax will be automatically
automatically treated as having opted to
revoked where the landowner has held
tax every property which it acquires after
no interest in the property for 6 years.
making the election. They won’t need to
This revocation will help groups of
exercise the option to tax and notify HM
companies re-acquiring land many years
Revenue & Customs each time. This real
after it was sold. Previously, an option
estate election can only be revoked by
made by a group member would bind
HMRC and not the landowner (broadly
the group indefinitely, even after the
HMRC will withdraw the election if the
opted property had been sold.
landowner fails to comply with requests
for information from HMRC). However,
since the election is treated as applying
the option to tax to each property
individually, there seems to be scope for
the landowner to revoke the option in
respect of an individual property. In other
words, the landowner has to choose
positively to disapply the option, rather
than positively choose to apply it, in
respect of any property it acquires after
making a real estate election.
4
(principally that the landowner has not let
Overriding Interest
4. Landowners can revoke an option after
20 years in certain circumstances.
Since the option to tax was introduced
in August 1989, the first opportunity
that landowners will have to revoke
those first options that were entered
into will be 1 August 2009. However,
a number of conditions have to be met
which may make revocation difficult in
practice. Revocation of an option may
5. An option over land will now, with some
exceptions, apply to any building already
on or constructed on the land subject to
the ability to exclude a new building by
notifying HMRC.
Please speak to your contact at K&L Gates
if you would like to discuss any of these
changes in more detail.
PLA Dilapidations Protocol and
RICS Dilapidations Guidance Note
Two important reference documents in the
The third edition of the Protocol, while still
It emphasises the need for dilapidations
area of dilapidations have recently been
making clear that a landlord can only claim
surveyors to act professionally and
revised and surveyors and other practitioners
its loss, no longer requires surveyors to
with objectivity and to guard against
in the area will need to note the changes.
endorse the overall claim. The Protocol now
exaggeration or understatement. Appended
provides that the surveyor preparing the
to new fifth edition of the Guidance Note is
dilapidations schedule should endorse that
the third edition of the PLA’s Protocol which
the works in the schedule are reasonably
it endorses. In respect of disputes to which
required by the lease, that any costs quoted
the Protocol does not apply, the Guidance
for works are reasonable and that full
Note directs surveyors to consider the
account has been taken of the landlord’s
CPR Practice Direction on Protocols which
intentions for the property at, or shortly after,
governs pre-action behaviour generally,
the termination of the tenancy.
and an extract from the Practice Direction
PLA Dilapidations Protocol
The Property Litigation Association’s (PLA’s)
Pre-Action Protocol for Terminal Dilapidations
Claim was first introduced back in 2002
to encourage the early exchange of
information in dilapidations disputes with
the aim of avoiding litigation. The Protocol
was revised in 2006. That second edition
is also appended.
introduced a requirement that a landlord’s
The reaction of the surveying profession
surveyor endorse the overall sum claimed
to this new endorsement has been largely
Compliance with the Guidance Note is
to the effect that it was “a fair assessment
positive and early indications are the level
not compulsory for Chartered Surveyors
of the landlord’s loss”. However, building
of observance of its requirements is high.
but were an allegation of negligence to
surveyors were concerned about giving
be made, account would be likely to be
such an endorsement as the issue of loss
RICS Dilapidations Guidance Note
taken of whether or not the Guidance
often involves valuation considerations. As
The RICS Guidance Note on Dilapidations
Note had been followed on the question
a consequence, very few schedules served
seeks to advise Chartered Surveyors on best
of whether the Surveyor had acted with
contained the endorsement required by the
practice in the area of dilapidations. The
reasonable competence.
second edition.
recently published fifth edition is broader in
coverage than the previous edition. It seeks
The Protocol has now been further revised
to deal particularly with those concerns
regarding the surveyor’s endorsement.
to deal with not only dilapidations claims at
the end of the term, which is as far as the
fourth edition went, but also claims during
the term, forfeiture situations, entry to repair
disputes, break clauses, and disrepair claims
by tenants against landlords.
Winter 2008
5
Deals
Henderson Global Investors
CB Richard Ellis Realty Trust
Henderson Global Investors has completed
CB Richard Ellis Realty Trust has completed
its sale of 40 Marsh Wall in London’s
the purchase of a 144,400 sq ft retail
Docklands to property manager Landview
centre in Peterborough, Cambridgeshire, for
Properties for £11.75m. The building
£30m. Moskew Retail Park, situated north
comprises office and retail accommodation
of Peterborough town centre, is a recently
over six floors and is around 44,000 sq ft.
completed development which is fully leased
The transaction represents a net initial yield
on a long-term basis. Tenants include B&Q,
of 5.82%. K&L Gates real estate partner
Matalan and Argos. Melanie Curtis, a
Wayne Smith and real estate lawyer Robert
partner in the real estate department, led a
Fox acted on the transaction. Tax Partner
multidisciplinary team of lawyers advising
Peter Davis advised on real estate tax issues.
on construction, planning, environment
and tax issues, as well as carrying out due
Henderson Central London
Office Fund
Henderson Central London Office Fund
Cheltenham Office Park Ltd
has completed its sale of 21 Tudor Street,
A team of K&L Gates real estate lawyers
London, EC4, the London home of law
has recently acted for Cheltenham Office
firm Jones Day, to Lanebridge Investment
Park Ltd in connection with a second
Management Limited, a property investment
agreement to purchase nine acres of highly
firm backed by investment bank Rothschild.
contaminated former heavy industrial land.
The 97,000 sq ft office building is held
The purchase price of this tranche was
in a Jersey Property Unit Trust on a long
£3.9m plus VAT and the team included real
lease from the City of London. Lanebridge
estate partner Piers Coleman, environmental
acquired the units in the JPUT for £65
partner Maria Cull, environmental assistant
million, with an initial yield of 4.9% rising
Kelly D’Arcy and tax partner Peter Davis. A
to 6% on a pre-agreed rent review of £50/
large site is being assembled for use as a
sq ft. K&L Gates acted for Henderson, with
light industrial and/or offices but is being
Stuart Borrie leading the corporate aspects
remediated first.
of the transaction and Wayne Smith and
Chris Major leading the real estate aspects.
6
diligence on the title.
Overriding Interest
Legal Cases
Oral Tenancies
Options
Rights of Way
Where a landowner and an occupier orally
A dormant company leased premises but
A landowner had a right of way over
agreed terms for a 3 year lease and the
allowed a related company to occupy and
adjoining land and was entitled to construct
occupier took possession of the property,
to pay the rent on its behalf. The Court said
a road across that adjoining land, subject
it was held that, by virtue of section 54(2)
that, in the circumstances, the occupation of
to obtaining the consent of the adjoining
of the Law of Property Act 1925, the
the related company was not a breach of
landowner. It was held that the adjoining
agreement ripened into a legal lease on
the lease and an option in the lease could
landowner could not unreasonably withhold
possession being taken.
be exercised by the dormant company.
its consent to the construction of the road.
Comment: There was no requirement for the
Comment: The dormant company was
Comment: The implication that consent could
agreement to be in writing under section
achieving performance of the lease through
not be unreasonably withheld was required to
2 the Law of Property (Miscellaneous
the agency of its related company.
make sense of the terms of the right of way.
William Page & Co. - v -
Town Quay Developments - v -
Hutchinson - v - B&DF, ChD
BNP Paribas Security, ChD
Eastleigh Borough Council, ChD
Rent Review Arbitration
Trespass
Dilapidations
A tenant sought an oral hearing in a rent
Where a landlord widened an access
A landlord made a substantial dilapidations
review arbitration but failed to give reasons
road to its estate by laying tarmac on an
claim and issued proceedings but then
for his request. It was found that there had
adjoining landowner’s property, it was held
settled for a sum that was less than 1% of
been no serious irregularity under section
that the landlord was liable for the resultant
its original claim. The Court ordered that
68 of the Arbitration Act 1996 when
acts of trespass of the tenants of the estate
the landlord pay costs to the tenant on an
the arbitrator made his award without
against the adjoining landowner.
indemnity basis.
Comment: A landlord can be liable for the
Comment: The Court was very critical of
Comment: The Arbitrator had properly
torts of its tenants that it permits or authorises
the landlord and penalised it for making a
exercised his discretion under section 34(2)
through its own actions.
claim that it knew or ought to have known
Provisions) Act 1989.
an oral hearing.
of the 1996 Act.
O’Donoghue - v - Enterprise Inns, ChD
Field Common - v Elmbridge Borough Council, ChD
was unsustainable.
Business Environment Bow Lane - v Deanwater Estates, TCC
Winter 2008
7
For further information contact:
Steven Cox
steven.cox@klgates.com
T: +44 (0)20 7360 8213
Milton McIntosh
milton.mcintosh@klgates.com
T: +44 (0)20 7360 8259
Bonny Hedderly
bonny.hedderly@klgates.com
T: +44 (0)20 7360 8192
K&L Gates comprises approximately 1,700 lawyers in 28 offices located in North America, Europe and
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This publication is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied
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