LAWYERS TO THE REAL
ESTATE & CONSTRUCTION
INDUSTRY
www.klng.com
Winter 2006/07
Overriding Interest
REITs Update
REITs will be introduced in the UK
with effect from 1 January 2007. Here
is a reminder of some of the features of
UK REITs:
New type of property investment
vehicle similar to those operating
successfully in the US, Australia,
Japan and France;
Access to property investment for
minimal outlay;
Liquidity - easy to buy/sell;
Lower transaction costs compared
to buying a property - stamp duty
on property of up to 4%, compared
to stamp duty on buying shares in a
UK REIT of 0.5%;
Property companies and groups
wishing to convert to UK REIT
status will pay a conversion charge
of 2% of the market value of their
rental properties; and
An additional tax charge applies
where a distribution is made to a
company that holds an interest of
10% or more in a UK REIT.
Tax transparency;
Welcome to the Winter Edition.
Access to property investment in a
variety of sectors and geographical
locations;
UK REIT must distribute to
shareholders at least 90% of its
profits from tax-exempt property
rental business;
An organisation called Reita has been
set up by 30 of the UK's leading
property financial services companies
to raise awareness and understanding
about REITs, property funds and
investment in quoted property
companies.
An internet portal has also been set up
at www.reita.org providing background
information, knowledge and opinion
and gives the latest news on which
companies are likely to convert and
those which are not.
In this issue we feature, on page 2,
one in an occasional series of articles
by guest contributors; in this case Chris
Taylor of leading environmental
consultants Argyll.
The life of the lawyer might not be
quite so hazardous as his but 2007
looks set to bring a lot of changes.
There is an update on REITs on this
page and the Queen’s Speech
contained a number of measures of
interest including reform of the
planning system and new rules on
forfeiture and distress which we will
review as they progress.
Contents
REITs Update
1
Confessions of an Environmental
Consultant
2
Service Charge Code
2
Winter deals
3
Legal cases
4
Who to contact
4
Overriding Interest
Confessions of an Environmental Consultant
I entered the world of environmental
data straight from university: initially as
a geographic database engineer and
then with a local environmental
consultant. My experiences have been
both challenging and amusing. Here
are some of them:
Once I was supervising the removal
of contaminated soil at a site near
Reading. This was far from
glamorous work and largely
involved monitoring HGVs and also
a large JCB moving contaminated
soil around. The operator having
dug out the soil was marooned on
an island surrounded by a large
hole. He stopped work at noon and
put his feet up so my manager and I
went to lunch at the local pub.
Midway through our pie and chips
we were slightly alarmed when the
lights went out and the locals
started to complain bitterly. It
transpired that our JCB operator
had managed to cut through the
local power cable. We hastened
back to the site.
On being asked to audit a plastics
factory in East Anglia, the site plans
did not match the actual site. The
site manager informed me that the
adjacent site had been acquired for
car parking but without due
diligence so I thought I should
inspect it. Whilst there were no
issues on the operational site, the
car park looked sinister with a
distinct lack of vegetation and some
dead birds. However, it was not
until I had walked to the far end of
the perimeter fence that I saw the
following sign "Contaminated Land
Keep Out!"
Contaminated land can be a
dangerous game. A recent example
has demonstrated the need for
caution even on apparently low risk
sites. Last year I visited an
industrial warehouse in London.
The occupier had been dismantling
print equipment and pouring
chemicals into the ground. I traced
the source of the surface staining in
the car park to an area of pea gravel
which had soaked up the mixture
like a sponge. Despite being several
metres away, I still inhaled enough
acetone (industrial alcohol) to give
me a bad headache and to end up in
A&E at the local hospital.
Despite (or because of) episodes like
these, the life of an environmental
consultant is one that I enjoy very
much, particularly since starting at
Argyll, and I look forward to more
exciting projects in the future.
Chris Taylor, Technical Director,
Argyll Environmental Limited
www.argyllenvironmental.com
Service Charge Code
The new service charge code applies to
all service charges in leases of
commercial premises which come into
effect on or after 1st April 2007. "Value
for money", "communication" and
"transparency" are the key features of
the new Code which has been elevated
to the status of an RICS guidance note.
For chartered surveyors this means that
they must adopt the Code or explain
any departures from it. The Code will
play a relevant part in any claims for
professional negligence as the Court
will have regard to any relevant
guidance notes in assessing the
standard of best practice.
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WINTER 2006/07
The problem does remain however as
to whether the Code has any real
"teeth". The Code is voluntary, so it is
the lease which prevails at the end of
the day to govern the relationship
between the landlord and tenant.
However with the trend in the
commercial sector being towards the
grant of leases of a shorter terms, six
years being the average, it is hoped that
there will be a general move towards
adopting the Code when new leases are
granted. On lease renewals there is the
added problem that the Court is bound
to follow the O'May principles where
the starting point is the old form of
lease, but in practical terms strength of
bargaining position and awareness of
the existence of the Code will be more
important factors.It remains to be seen
how quickly landlords move towards
granting "Code compliant" leases, but
for tenants this must be at the forefront
of any negotiations.
www.klng.com
Winter
deals
Young & Co’s Brewery, P.L.C.
We advised Young & Co.'s
Brewery, P.L.C. on portfolio and
individual acquisitions worth £28.7
million in 2006:
Real Estate associate Liz Shell
advised on the acquisition of two
portfolios together containing 10
public houses at various locations in
Surrey and London from Save
Investments Limited and Spirit
Group.
Henderson Central London
Office Fund
We acted on the £110.1 million
acquisition by Henderson Central
London Office Fund of 133
Houndsditch, London, EC3 from
British Land PLC. Tax partner
Richard Woolich, Real Estate
partner Wayne Smith and Real
Estate associate Chris Major led the
transaction.
Henderson UK Retail
Warehouse Fund
We advised Henderson UK Retail
Warehouse Fund on the purchase
of Island Green Retail Park,
Wrexham from Prudential
Assurance Group Ltd for £47.8
million and Weavers Wharf,
Kidderminster from Highstone
Estates Ltd for £93.8 million. The
K&LNG team was led by Real
Estate partners Wayne Smith,
Melanie Curtis and Neil Rainey.
Real Estate partner Neil Rainey
and Real Estate assistants Anita
Michaelides, Paul Alger and Robert
Fox also advised on these
transactions.
Liz Shell also advised on the
acquisition of three newly built
public houses at riverside locations
in Battersea, Fulham and Vauxhall
from developer St George.
Liz Shell commented “It has been
exciting to be involved and to see
the modern twist on traditional
Young’s establishments as they
open in these prestigious locations.”
Planning & Environment partner
Sebastian Charles advised on
planning aspects assisted by
Planning & Environment assistant
Rebecca Moss.
In addition, Anita Michaelides
advised on the acquisition of the
Hand and Spear in Weybridge from
Mitchells & Butlers and Liz Shell
advised on the acquisition of the
Hollywood Arms in Fulham.
WINTER 2006/07
3
Overriding Interest
Legal cases
Repairs
Right to Light
Repairs
Where a landlord sought to recover
damages in respect of dilapidations but
failed to adduce evidence of the actual
cost of repair, it was held that evidence
put forward of the estimated cost of
repair was sufficient to raise an
inference that the landlord had
suffered a loss for the purposes of
section 18(1) of the Landlord and
Tenant Act 1927.
A developer constructed a building that
infringed the right of light of a
residential neighbour. The court
refused to limit the neighbour's remedy
to damages but awarded a mandatory
injunction requiring the development
to be partly demolished.
A landlord's breach of covenant
resulted in a residential tenant having
first to live with substantial disrepairs
and then to vacate his flat for a period
of time. It was said by the court that a
notional judgement of the resulting
reduction in rental value was likely to
be the most appropriate starting point
for the assessment of damages.
Comment: The Court applied a 60%
discount to reflect uncertainty as to the
level of loss.
Comment: : The decision contains
important guidance on this area of
which developers and their advisers
should take note.
Comment: : Damages of £23,500 were
awarded in respect of a period of four
and a half years.
Regan -v-Paul Properties, CA
Earle -v-Charlambous, CA
Misrepresentation
Latimer -v- Carney, CA
Adverse Possession
Trespassers occupied land and then
created a sham lease to convince third
parties as to their right to occupy. The
court held that the sham lease
represented an acknowledgement of
the landowner's title and therefore time
stopped running under the Limitation
Act 1980.
Comment: The fact that the sham lease
was not binding on the landowner was
not relevant.
Where a vendor corresponded with his
neighbour regarding alleged trespasses
and harassment, but subsequently
stated to the purchaser of his property
in replies to enquiries that there were
no disputes or relevant letters, that
reply was found to be a fraudulent
misrepresentation.
Comment: The purchaser recovered
substantial damages from the vendor in
respect of the reduced value of the
property.
Doe -v- Skegg, ChD
Rehman -v Benfield, CA
Service Charges
Where a landlord covenanted to use all
reasonable endeavours to repair a roof
but failed to do so within a five year
period after which time the tenant's
service charge cap expired, the repair
costs subsequently incurred by the
landlord were held to be irrecoverable
from the tenant.
Comment: The court was scathing in
its comments about the conduct of the
landlord and its managing agents.
Princes House -v- Distinctive Clubs,
ChD
Who to Contact
For further information contact
Steven Cox
scox@klng.com
T: +44 (0)20 7360 8213
Milton McIntosh
mmcintosh@klng.com
T: +44 (0)20 7360 8259
Susan Henning
shenning@klng.com
T: +44 (0)20 7360 8236
Kirkpatrick & Lockhart Nicholson Graham (K&LNG) has approximately 1,000 lawyers and represents entrepreneurs, growth and middle market companies,
capital markets participants, and leading FORTUNE 100 and FTSE 100 global corporations nationally and internationally.
Kirkpatrick & Lockhart
Nicholson Graham LLP
110 Cannon Street
London EC4N 6AR
www.klng.com
T: +44 (0)20 7648 9000
F: +44 (0)20 7648 9001
K&LNG is a combination of two limited liability partnerships, each named Kirkpatrick & Lockhart Nicholson Graham LLP, one qualified in Delaware, U.S.A. and
practicing from offices in Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Palo Alto, Pittsburgh, San Francisco and Washington and one
incorporated in England practicing from the London office.
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WINTER 2006/07
© 2006 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.