My very first post on this blog covered the decisions in Goldacre v Nortel and X Leisure v Luminar. Both cases established that rent accruing during an administration (where the premises were being used for the benefit of the creditors) was to be treated as a 'priority expense' of the administration. This did not apply to rent that accrued prior to the administrators being appointed.
The 2012 case of MK Airlines v Katz (MK) follows these cases. MK concerned the administration of a company and the appointment of provisional liquidators. The provisional liquidators initially used the premises to store the company's assets. It was held that rent was not to be treated as a priority expense during this period. However, once the premises started to be used for the benefit of the liquidators, the payment of rent was to be treated as a liquidation expense. So once the premises started to change use (and thus be of benefit to the liquidators) then the rent was treated as a priority expense.
The conclusion? Landlords should get into contact with the liquidators, as soon as they are appointed, and try to ascertain what use the liquidators will put the premises to. If the liquidators just intend to use the property for storage then rent will not be a liquidation expense. If the liquidators gain from the use of the property then the rent will be a liquidation expense. Landlords- get in touch and talk with the liquidators as soon as they are appointed. This will save both time and money!
Goldacre, X Leisure and MK make one thing clear- Tenants could well have the upper hand in Lease negotiations by insisting on the payment of monthly as opposed to quarterly rents. This will benefit the Landlord too. If a business is put into administration, shortly after a quarterly rent day, the Landlord will have to wait a month for their rent instead of waiting until the next quarter. Monthly rents may also help with Tenant's cashflow- many of whom struggle with quarterly rents (and have demanded an end to this archaic practice). Property Lawyers are well advised to suggest monthly rents to their Landlord/ Tenant clients. Monthly rents may help to alleviate the problems caused by Goldacre etc.
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Monday, 4 February 2013
Ibrend Estates- broken hearts not broken clauses
Today's post concerns something of the utmost importance to both Landlords and Tenants- the operation of break clauses in the commercial Lease. It will examine the 2011 case- Ibrend Estates v NYK Logistics (Ibrend).
In this climate the Landlord will not want an empty, unproductive rates attracting property. The Tenant may want a less onerous Lease or simply to move to a better location. Either way, the Landlord will not let the Tenant get away so easily and will interpret break clauses strictly.
The case of Ibrend concerned a break clause, in a Lease, subject to a pre - condition. The pre -condition was that the Tenant had to give 'vacant possession' in order to break the Lease. When breaking the Lease, the Tenant was carrying out repair works to the property (in order to avoid any dilapidations claims). The Tenant stayed in the property, after it had attempted to break the Lease, carrying out the works. The Tenant believed that the Landlord had waived its obligation to leave the premises immediately. This was not correct. Vacant possession meant that the property was empty (at the moment it was required to be given) and that the purchaser could enjoy immediate and exclusive control of it. Thus, the Landlord was able to successfully argue that the Tenant had not given vacant possession and could not break the Lease.
What does this mean for Tenants? the Tenant must leave the property at the moment he is required to give vacant possession. He cannot assume that the Landlord has waived the obligation on the Tenant to leave the property immediately. Obviously, the Tenant should comply with its repairing obligations throughout the Lease term, but the property should be in the same condition as it was at the start of the Lease. The Tenant should take a set of signed and dated photographs of the property at the start of the Lease (which should then be put into a 'Schedule of Condition' and annexed to the Lease). This should therefore save time and money as the Tenant will know precisely what state the premises should be left in. A failure to leave immediately means that the Tenant will be stuck in a property that s/he does not want. Landlords will treat break clauses strictly. Tenants should save time and money by compiling a Schedule of Condition and by leaving the property immediately (once s/he wishes to break the Lease). Suffice it to say, that the Tenant should have records of all payments s/he has made under the Lease to avoid an Avocet v Merol situation (see earlier post on this case).
Following the above will ensure a broken Lease and not a broken heart!
For more information on the author see my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro
In this climate the Landlord will not want an empty, unproductive rates attracting property. The Tenant may want a less onerous Lease or simply to move to a better location. Either way, the Landlord will not let the Tenant get away so easily and will interpret break clauses strictly.
The case of Ibrend concerned a break clause, in a Lease, subject to a pre - condition. The pre -condition was that the Tenant had to give 'vacant possession' in order to break the Lease. When breaking the Lease, the Tenant was carrying out repair works to the property (in order to avoid any dilapidations claims). The Tenant stayed in the property, after it had attempted to break the Lease, carrying out the works. The Tenant believed that the Landlord had waived its obligation to leave the premises immediately. This was not correct. Vacant possession meant that the property was empty (at the moment it was required to be given) and that the purchaser could enjoy immediate and exclusive control of it. Thus, the Landlord was able to successfully argue that the Tenant had not given vacant possession and could not break the Lease.
What does this mean for Tenants? the Tenant must leave the property at the moment he is required to give vacant possession. He cannot assume that the Landlord has waived the obligation on the Tenant to leave the property immediately. Obviously, the Tenant should comply with its repairing obligations throughout the Lease term, but the property should be in the same condition as it was at the start of the Lease. The Tenant should take a set of signed and dated photographs of the property at the start of the Lease (which should then be put into a 'Schedule of Condition' and annexed to the Lease). This should therefore save time and money as the Tenant will know precisely what state the premises should be left in. A failure to leave immediately means that the Tenant will be stuck in a property that s/he does not want. Landlords will treat break clauses strictly. Tenants should save time and money by compiling a Schedule of Condition and by leaving the property immediately (once s/he wishes to break the Lease). Suffice it to say, that the Tenant should have records of all payments s/he has made under the Lease to avoid an Avocet v Merol situation (see earlier post on this case).
Following the above will ensure a broken Lease and not a broken heart!
For more information on the author see my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro
Sunday, 3 February 2013
High street woes
Most of us are familiar by now with the recent troubles on our high street- HMV, Jessops, Blockbusters. One by one falling prey to the administrator's axe. However, I was interested to read this article in the Daily Telegraph:
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9844112/We-are-fighting-in-the-trenches-says-Blockbuster-administrator.html
The article is an interview with Lee Manning- Accountant at Deloitte and appointed to lead the administration of Blockbusters. He makes the point, rather eloquently, that the mission of administration is that of rescue akin to 'fighting in the trenches and being shot from all sides.' Manning argues that there is a role for businesses like Blockbuster on the high street- albeit in a rather different form. The above businesses have failed to keep pace with 'click and collect' delivery methods. Manning states that different delivery methods (i.e. click and collect) have worked wonders for businesses like Argos who would not survive in its present form without it. Manning also points out that 'John Lewis is very good at using technology to get people into the shop. That way, bricks and mortar shops, still make sense.'
So there is hope for the high street (and of course the Landlords) yet.
However, Manning also takes a swipe at restrictive local authorities whose 'restrictive parking regimes' and 'vulture like ticketing practices have made popping down to the high street in a relaxed way a thing of the past.' He could also have mentioned business rates. As explained before, in an earlier post, business rates are a tax levied on commercial property to fund local services. In some areas they can be higher than rents. The next business rates revaluation is not until 2017. Business rates are a major expense for high street businesses- hence the campaign by high profile business figures to have them cut. That's not likely to happen at any time soon. However, Landlord and Tenant clients should be aware of any available reliefs. I shall summarise the reliefs briefly:
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http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9844112/We-are-fighting-in-the-trenches-says-Blockbuster-administrator.html
The article is an interview with Lee Manning- Accountant at Deloitte and appointed to lead the administration of Blockbusters. He makes the point, rather eloquently, that the mission of administration is that of rescue akin to 'fighting in the trenches and being shot from all sides.' Manning argues that there is a role for businesses like Blockbuster on the high street- albeit in a rather different form. The above businesses have failed to keep pace with 'click and collect' delivery methods. Manning states that different delivery methods (i.e. click and collect) have worked wonders for businesses like Argos who would not survive in its present form without it. Manning also points out that 'John Lewis is very good at using technology to get people into the shop. That way, bricks and mortar shops, still make sense.'
So there is hope for the high street (and of course the Landlords) yet.
However, Manning also takes a swipe at restrictive local authorities whose 'restrictive parking regimes' and 'vulture like ticketing practices have made popping down to the high street in a relaxed way a thing of the past.' He could also have mentioned business rates. As explained before, in an earlier post, business rates are a tax levied on commercial property to fund local services. In some areas they can be higher than rents. The next business rates revaluation is not until 2017. Business rates are a major expense for high street businesses- hence the campaign by high profile business figures to have them cut. That's not likely to happen at any time soon. However, Landlord and Tenant clients should be aware of any available reliefs. I shall summarise the reliefs briefly:
- Small business rate relief- if the rateable value of your business is £6000 or less you are eligible for 100% relief from business rates. This percentage decreases once the value of the property falls between £6001-12,000. You can also get rate relief if you own other properties and the rateable value of each of your other properties is less than £2600. The rateable values of the properties are added together and the relief will be applied to the main property. You should apply to your local council for small business rate relief
- Charitable relief- charities and amateur sports clubs can get up to 80% relief if a property is used for charitable purposes. Landlords and Tenants should check with their local council to see whether or not they are eligible for the relief. Clients should also check whether or not they are eligible for 'discretionary relief'' (up to 100%). This is sometimes provided by local councils to 'top up' certain reliefs to give businesses and charities extra help.
For more information on the author see my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro
Saturday, 2 February 2013
Eurozone Investment- more clouds on the horizon?
A recent article in PropertyWire (see below) has further piqued my interest in property investment. The article mentions a recent survey carried out by the Royal Institute of Chartered Surveyors (RICS). The survey states that European commercial property sectors, especially France, are deteriorating. This is in marked contrast to the so called 'BRIC' economies.
http://www.propertywire.com/news/global-news/global-commercial-property-markets-201302017403.html
Its easy to think that a property Lawyer's work is restricted to dry and archaic principles (like overriding interests!). I would argue that it is equally important to understand wider economic factors. For example, an international investor will only invest in a shopping centre/ retail and leisure complex if it can be sure that the shops in the centre will enjoy high levels of footfall. Frequent footfalls= regular rent paying Tenants. Suffice it so say that strong covenants (i.e. reputable and successful Tenants) will be attractive to both Landlords and investors. This will depend on the wider economy. A country in the depths of recession means that consumers are less likely to go shopping and spend their money!
If you were an international investor (pension fund, sovereign wealth fund etc) would you rather invest in Greece or Brazil?
Ah but the UK seems to be heading towards a triple dip some would argue. They may be right. The economy contracted by 0.3%. Inflation is at 2.7%. Wages are lagging behind prices. However, I would still want to put my money in a large British shopping centre full of reputable Tenants. Why? Because the UK has an independent currency with stable governance.
The same cannot be said of our European neighbours. We have yet to see the colour of their money.
For more information on the author see my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro
http://www.propertywire.com/news/global-news/global-commercial-property-markets-201302017403.html
Its easy to think that a property Lawyer's work is restricted to dry and archaic principles (like overriding interests!). I would argue that it is equally important to understand wider economic factors. For example, an international investor will only invest in a shopping centre/ retail and leisure complex if it can be sure that the shops in the centre will enjoy high levels of footfall. Frequent footfalls= regular rent paying Tenants. Suffice it so say that strong covenants (i.e. reputable and successful Tenants) will be attractive to both Landlords and investors. This will depend on the wider economy. A country in the depths of recession means that consumers are less likely to go shopping and spend their money!
If you were an international investor (pension fund, sovereign wealth fund etc) would you rather invest in Greece or Brazil?
Ah but the UK seems to be heading towards a triple dip some would argue. They may be right. The economy contracted by 0.3%. Inflation is at 2.7%. Wages are lagging behind prices. However, I would still want to put my money in a large British shopping centre full of reputable Tenants. Why? Because the UK has an independent currency with stable governance.
The same cannot be said of our European neighbours. We have yet to see the colour of their money.
For more information on the author see my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro
Overriding interests- time to call it a day?
Today's post will concern something quite archaic but nonetheless of the utmost importance to both property Lawyers and clients. On 13th August 2013, at the stroke of midnight, some rights/interests in land will lose their overriding status.
So what are overriding interests? They sound like a throwback to some bygone era. To an extent they are. Overriding interests are unregistered interests (i.e. those not registered on the title registers at the Land Registry) which survive first registration of property and will bind any subsequent sales, purchases or other dispositions of land. The central purpose of the Land Registration Act (LRA) 2002 was to make the register an accurate version of title as possible. The LRA tries to reduce the number of overriding interests by replacing them with registered entries. On 13th August 2013 the following rights will lose their overriding status:
The LRA seeks to call it a day on these ancient unregistered rights in land by removing their overriding status. About time some would say.
For more information on the author see my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro
So what are overriding interests? They sound like a throwback to some bygone era. To an extent they are. Overriding interests are unregistered interests (i.e. those not registered on the title registers at the Land Registry) which survive first registration of property and will bind any subsequent sales, purchases or other dispositions of land. The central purpose of the Land Registration Act (LRA) 2002 was to make the register an accurate version of title as possible. The LRA tries to reduce the number of overriding interests by replacing them with registered entries. On 13th August 2013 the following rights will lose their overriding status:
- A franchise
- A manorial right
- A right reserved to the crown on the granting of any freehold estate (whether or not the right is still vested in the crown)
- A non - statutory right in respect of an embankment, river or sea wall
- A right to payment in lieu of tithe
- A right in respect of repair of a church chancel
The LRA seeks to call it a day on these ancient unregistered rights in land by removing their overriding status. About time some would say.
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Friday, 1 February 2013
Collective enfranchisement- the Hosebay saga
I did not study collective enfranchisement on the LPC. I understand that the area is something of a speciality (perhaps even an acquired taste) for some property Lawyers. Nevertheless, the Supreme Court's decision in the case of Day v Hosebay (Hosebay), has caught my interest. Hosebay is a 2012 case.
The case concerns the right of Tenants to acquire the Freehold interest in their properties under the Leasehold Reform Act (the Act) 1967. The Tenant must certify certain criteria under the Act. In Hosebay, the court's decision focused on whether the property satisfied the definition of a House under s2 (1) of the Act. That is, whether it was a building 'designed or adapted for living in and reasonably so called.'
This case concerned three properties in Kensington. The properties were originally residential homes but were being used, at the time of the case, to provide holiday accommodation. The case reached the Supreme Court. It was held that the properties were in 100% commercial use. The Tenants did not satisfy s2 (1) of the Act (as above) and could not acquire the Freehold interest in their properties. It was necessary to look at the current nature of the property and whether or not it could be classified as a home and not just a house. The properties did not meet the definition of a 'house' under the Act. The Tenant's enfranchisement claim failed.
What does this mean for Landlords and Tenants? If the property is currently being used, for commercial purposes, any enfranchisement claim will fail.
However, the court did not address the definition of 'commercial use.' No doubt, there will be further cases involving mixed use property. The jury's out as to whether mixed use property will satisfy the provisions of the Act for a successful enfranchisement claim.
No doubt, there will continue to be a string of cases in this interesting area of law. It's funny how words seem to matter a great deal in law...
See my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro for further information on the author.
The case concerns the right of Tenants to acquire the Freehold interest in their properties under the Leasehold Reform Act (the Act) 1967. The Tenant must certify certain criteria under the Act. In Hosebay, the court's decision focused on whether the property satisfied the definition of a House under s2 (1) of the Act. That is, whether it was a building 'designed or adapted for living in and reasonably so called.'
This case concerned three properties in Kensington. The properties were originally residential homes but were being used, at the time of the case, to provide holiday accommodation. The case reached the Supreme Court. It was held that the properties were in 100% commercial use. The Tenants did not satisfy s2 (1) of the Act (as above) and could not acquire the Freehold interest in their properties. It was necessary to look at the current nature of the property and whether or not it could be classified as a home and not just a house. The properties did not meet the definition of a 'house' under the Act. The Tenant's enfranchisement claim failed.
What does this mean for Landlords and Tenants? If the property is currently being used, for commercial purposes, any enfranchisement claim will fail.
However, the court did not address the definition of 'commercial use.' No doubt, there will be further cases involving mixed use property. The jury's out as to whether mixed use property will satisfy the provisions of the Act for a successful enfranchisement claim.
No doubt, there will continue to be a string of cases in this interesting area of law. It's funny how words seem to matter a great deal in law...
See my LinkedIn profile at: http://www.linkedin.com/profile/view?id=46743795&trk=tab_pro for further information on the author.
Planning for change
Well its the start of a new month and what better way to start than to discuss the current changes to make it easier to convert commercial into residential premises.
Just a bit of context- there is a housing shortage in this country. Local authorities are seeing their funding squeezed by central Government. Whilst statistics from the Government's Funding for Lending scheme (FL), have shown an improvement in lending, there still isn't enough money to go around. Whence the changes!
The current changes will mean that a change from class B1 (a) Office to Class C3 Residential will count as 'permitted development.' In other words, you will not need planning permission to convert an office building into a house.
Councils will only be able to resist a change in exceptional circumstances. They will have to show that a change of use would result in a detrimental loss of economic activity for the area and that the negatives far outweigh the positives (in changing from commercial to residential premises).
Thus, Lawyers should be aware of the change. Indeed, they should plan for it! (If you'll excuse the pun...).
In my opinion (which may not count for much in the grand scheme of things!) I think that the change should work both ways. If for whatever reason, there are empty residential premises, then it should be easier to convert them into offices without planning permission.
The Government frequently states that it wants as much flexibility in the planning system as possible. The powers that be have cut more than a few pages. They have made the above change. Now they could go a step further- make it easier to convert empty houses into offices. That would encourage businesses to expand. Business expansion= economic growth. Economic growth= a happy Government.
See my LinkedIn profile at: http://proplawyer.blogspot.co.uk/2013/02/collective-enfranchisement-hosebay-saga.html for further information on the author.
Just a bit of context- there is a housing shortage in this country. Local authorities are seeing their funding squeezed by central Government. Whilst statistics from the Government's Funding for Lending scheme (FL), have shown an improvement in lending, there still isn't enough money to go around. Whence the changes!
The current changes will mean that a change from class B1 (a) Office to Class C3 Residential will count as 'permitted development.' In other words, you will not need planning permission to convert an office building into a house.
Councils will only be able to resist a change in exceptional circumstances. They will have to show that a change of use would result in a detrimental loss of economic activity for the area and that the negatives far outweigh the positives (in changing from commercial to residential premises).
Thus, Lawyers should be aware of the change. Indeed, they should plan for it! (If you'll excuse the pun...).
In my opinion (which may not count for much in the grand scheme of things!) I think that the change should work both ways. If for whatever reason, there are empty residential premises, then it should be easier to convert them into offices without planning permission.
The Government frequently states that it wants as much flexibility in the planning system as possible. The powers that be have cut more than a few pages. They have made the above change. Now they could go a step further- make it easier to convert empty houses into offices. That would encourage businesses to expand. Business expansion= economic growth. Economic growth= a happy Government.
See my LinkedIn profile at: http://proplawyer.blogspot.co.uk/2013/02/collective-enfranchisement-hosebay-saga.html for further information on the author.
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