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Right of first refusal is important to understand.

how does it affect you?

Freehold blocks of flats can be good investment properties, but it is important to be aware of the law surrounding the sales and purchases of these properties.

If you own (or are looking to purchase) the freehold of a block of flats, the Landlord and Tenant Act 1987 (LTA 1987) is an important piece of legislation that affects the rights of the flat owners and will need to be given careful consideration at the time of any sale or purchase.

Likewise, flat owners should be aware of the LTA 1987 and how it can affect them.

What is the right of first refusal?

The LTA 1987 gives qualifying owners of leasehold flats the right of first refusal to purchase the freehold – this means that if the freeholder wishes to sell the building, they must first offer the leaseholders the chance to purchase.

This must be done by way of a formal notice, following certain prescribed steps – and the leaseholders will then have a period of time (usually 2 months) to decide whether they wish to accept the offer and purchase the freehold.

The offer can only be accepted collectively, by a majority of the leaseholders – so if (for example) only 4 out of 10 qualifying flat owners express an interest in buying the freehold, they would not be able to exercise their right of first refusal, and the freeholder would be able to sell the property to a third party (on the same terms as it was offered to the leaseholders).

What are the consequences for not complying with the LTA 1987?

If the owner of a freehold block of flats sells the property without first offering it to the leaseholders as set out above, they may be committing a criminal offence. Careful consideration should therefore be given to the LTA 1987 and whether it applies to the proposed sale; and it is important to take legal advice to ensure the correct steps are taken and the right of first refusal is offered to the qualifying tenants where appropriate.

What do I need to do when selling my freehold property?

When selling the freehold of a block of flats it is important to consider whether the LTA 1987 applies – generally, it will apply to any building consisting of two or more flats held by qualifying tenants.

If your building is caught by the LTA 1987 then you will need to serve valid offer notices on the qualifying tenants, before proceeding with any sale to a third party.

What do I need to do if I am purchasing a freehold block of flats?

The main obligations in the LTA 1987 (and consequences for failing to comply) affect the owner/seller of a freehold block of flats, but a purchaser can also be affected. This is because a sale of the building without following the necessary steps in the LTA 1987 could lead to the leaseholders serving a notice on the new owner and calling for the building to be transferred to them. It is therefore important for anyone considering purchasing a freehold block of flats to take legal advice on this point and ensure that the seller complies with their obligations during the sale process.

What if you think your building has been sold in breach of the LTA 1987.

If you are the owner of a leasehold flat and you believe the freehold has been sold in contravention of the LTA 1987 (for example if you did not receive an offer notice before the building was sold) you may be able to ‘step into the purchaser’s shoes’ and acquire the building from them, at the same price.

This will require careful consideration (and collaboration from the majority of the qualifying leaseholders).

If you have a question relating to the Landlord & Tenant Act or the Right of first refusal…Talk to Tollers on 01604 258558, our experienced Commercial Property team is on hand to guide you through and advise you on your options.

More information can be found by visiting the Leasehold Advisory Service which has helpful guidance – Right of First Refusal – The Leasehold Advisory Service (lease-advice.org)

Commercial Property Acquisition and Disposal | Tollers Solicitors.

Acquiring new commercial premises for your business is exciting.  It can also feel daunting with so many factors to consider, such as how the move may affect your employees and clients and the future development of your company. Tollers are here to assist you in your big move and have collated a list of points to consider when viewing prospective premises.

Location

You will want to find a balance between price and location and think logically about the use of the premises.

Ideally, your commercial premises should be conveniently situated for employees, clients and suppliers with good transport links.

Whilst your premises should be accessible, visibility may not be a priority for your business. For example, if the premises are to be used for storage or if you travel to clients or assist them remotely, there may be other, more cost-effective options for your business.

It would also be sensible to review long-term development plans for areas to assess whether they may help or hinder property values in that location in the future. An increase in value of your premises would increase your business capital.

Liquidity / Cash Flow

It is important not to overspend on commercial premises, in case your business requires a cash injection at a later date.

If you are buying premises, mortgage lenders tend to ask for a deposit of 20% of the value of the property.

If you are renting premises, less capital is invested, but in addition to the rent, insurance rent and service charge, the Landlord may also require payment of a rent deposit upfront.

Stamp Duty Land Tax may also be due on the value of either the purchase price or the annual rent over the term of a lease.

When budgeting, also consider the cost of fitting out and furnishing your new premises, as well as long-term upkeep and ongoing costs. The Seller or Landlord (transaction dependent) should be able to provide you with an estimate of costs such as business rates, service charge and insurance rent.

Leasing or buying

Generally, we would advise that new businesses or start-ups opt for short-term leases and you may even want to negotiate a tenant’s right to break the lease before the term end date.

A short-term lease offers flexibility to restructure your arrangement or to relocate as your business evolves.

A longer-term lease could provide you with more security, but you would want to ensure that there are flexible options for subletting the property or assigning it to another company. Depending on the premises, it may also be worth checking whether there are any restrictions to changes in the use of the premises.

An established business may consider it to be more cost-effective to buy premises within the area where they are recognised, instead of leasing. Buying a property gives you more control over its management and maintenance and gives you complete freedom to adapt the property to suit your needs and compliment your brand. Commercial Property Funding and Finance | Tollers Solicitors

You could even lease part of the property to a third party, which would provide you with an additional stream of revenue and day-to-day running costs would be shared.

You would hopefully also make a profit on selling the property in the future.

Flexibility

Your business will evolve over time, but it is impossible to predict the future. When choosing your premises, you will want to think ahead. Whilst you may need more space in the future, you do not want to pay for lots of space that you do not need now.

If the premises are too big for your business right now, it may be worth taking the lease and subletting part of the property, which would provide you with a source of income and also help cover service costs. If you are considering this option, it would be sensible to inform the landlord from the offset to ensure that subletting of part of the property is permitted.

It would also be sensible to consider how you would fit out the premises, because furniture, stock and equipment all take up valuable space. Health and safety regulations require you to ensure employees have enough space at work, so you should consider those requirements and regulations.

Whether you are looking to buy or let commercial premises, it is important to ensure that you consider all of the options when making your decision, in order that it works for your business now and in the long term.

Tollers Commercial Property team is on hand to guide you through the process and help negotiate a deal to achieve the best outcome for you and your business.

To find out more…Talk to Tollers on 01604 258558 and a member of the team will be happy to assist you.

What is meant by Commercial Property

Reduced rates of stamp duty land tax (SDLT) lasting until 31 March 2021 were announced on 8 July 2020 with immediate effect. The holiday applies to all residential property, whether liable at standard rates or at higher rates, where completion occurs within the period 8 July 2020 to 31 March 2021.

New Rates of SDLT during the Holiday:

There is some guidance from HMRC here.

The table below shows the reduced rates of stamp duty land tax for “standard rate” purchases from 8 July 2020 onwards.

 

Relevant Consideration   Percentage
So much as does not exceed £500,0000%
So much as exceeds £500,000 but does not exceed £925,0005%
So much as exceeds £925,000 but does not exceed £1,500,00010%
o much as exceeds the remainder, if any12%

 

For “higher rates” purchases we have to add an extra 3% of the whole price. This means that the same reduction in the amount of SDLT applies to both kinds of transaction during the SDLT holiday period. The maximum saving for a transaction involving one dwelling is £15,000 and applies where the purchase price is £500,000 or more.

The standard rates apply for example where the buyers have no other properties or where they are selling an existing home and buying a new one.

The higher rates apply for example where a company buys residential property, or where individuals buy when they own another property and do not meet the “replacement of main residence” tests.

What if I had previously exchanged Contracts?

There is nothing to stop the benefit of the saving, so long as completion happens between 8 July 2020 and 31 March 2021. The only problem would be if there was “substantial performance” before 8 July 2020 which could be by taking possession of the property before then.

Does this saving apply to purchases of residential property by Companies?

Yes, these changes apply to higher rate transactions as well; we just add 3% of the price to the SDLT which would be due on the reduced standard rates.

Some buyers of a new home consider transferring their old home into a company so that the purchase of the new home can escape the 3% surcharge.  The company has to pay stamp duty land tax on the prevailing rates on the market value of the property it acquires.

There is still a trap for acquisitions by companies for over £500,000, where the 15% flat rate of SDLT can still apply. Care needs to be taken here to make sure that one of the reliefs from the 15% rate applies to leave the new SDLT rates (with the extra 3%) in place.

Those with buy to let portfolios who have been considering transferring the properties to a limited company will find the SDLT cost is lower than before the rates reduction. The limited company could be special purpose vehicle, perhaps a family investment company.

How does this work for Lease Extensions?

The same principles apply to the payments made for residential lease extensions.  So often there will be no SDLT to pay where the premium payable for the extended lease does not exceed £500,000.  But care needs to be taken in case the 3% surcharge applies.  This could be the case if the lessee (or a spouse / civil partner) has other property interests.

I am buying from a developer and agreed an allowance against the price for Stamp Duty.

If contracts have already been exchanged and the contract contains an allowance / incentive on account of stamp duty for a fixed amount of money, then it might well be that the allowance has to be taken off the amount paid to the developer at completion, even though there is now no (or reduced) SDLT to pay to HMRC. It will depend on the wording in the contract.

If contracts have not yet been exchanged, then the parties might need to renegotiate the allowance. For example they might decide instead to give the equivalent extra value through enhancements to the specification of the property or through a cash incentive.  This change might have to be notified to the lender, though many mortgage lenders have already said a new Disclosure of Incentives Forms will not be needed.

What about ‘Help to Buy’?

Homes England have confirmed that the ‘Help to Buy’ process is not affected by the stamp duty changes.  It is only increases in incentives which would need to be reflected in the Disclosure of Incentives Form required for ‘Help to Buy’ equity loans.  If the incentives switch from one form to another then the disclosure form does not need to be amended; this is only required where the incentives increase.  Incentives still cannot be more than 5% of the full purchase price.

What about First Time Buyers’ Relief?

First time buyers’ relief does not apply for the period of the holiday because the reduced rates are more generous than the rates where first time buyers’ relief applied, which only gave a relief for up to £300,000 of the price.  It is set to revive though after 31 March 2021.

For more information and guidance regarding the reduced rates of stamp duty land tax holiday… talk to Tollers on 01604 258558 and the Conveyancing and Commercial property teams will assist you.

https://www.tollers.co.uk/conveyancing-solicitors/

https://www.tollers.co.uk/commercial-property-law/

If you lease your business premises, do you know if the lease includes a ’Break Option’?  The unprecedented events surrounding Covid-19 are having a profound effect on business. Some businesses may need to close or downsize, some may permanently change the way they work, and a lucky few may be booming and need to expand. What all these situations have in common, is a requirement to close down or move premises.

Most businesses occupy their premises as a tenant under a fixed term lease. They must see out the full term, unless they can negotiate otherwise with the landlord, or find a new tenant to take over the premises. However, some leases provide the tenant with a “break option”, which is a right to end the lease early, provided certain conditions are met.

Conditions of a Typical Break Option:

A typical break option will allow the tenant to end the lease on a specified date only, known as the “break date”. To exercise the option, the tenant will be required to give the landlord written notice, usually at least six months in advance of the break date, although some leases specify even longer notice periods.

Other typical conditions include obligations to:

Where available, a break option is ideal for a tenant that no longer needs its premises. However, the conditions are always interpreted very strictly in favour of the landlord. The tenant must therefore fully comply with every condition, otherwise the lease will not end, and the tenant will remain liable for the rent, and all the other lease obligations, until the end of the term.

If you are a tenant considering exercising a break option in a lease, we recommend that you talk to Tollers… on 01604 258558 as early as possible. A member of the Commercial Property team will be happy to discuss the conditions that need to be complied with, and what needs to be done to ensure that the lease will end on the break date.

https://www.tollers.co.uk/commercial-property-law/

 

 

Much is being written about the General Data Protection Regulation which comes into force in May 2018. Some of that content uses jargon that needs to be explained.

Privacy by design

Is an approach to projects that promotes privacy and data protection compliance from the start. This has always been an implicit requirement of the data protection principles but the GDPR makes it an express legal requirement.

Privacy impact assessments/data privacy impact assessment/PIAs/DPIAs

All terms describe the same thing. A privacy impact assessment is a tool to help an organisation identify the most effective way to comply with its data protection obligations and to meet individual’s expectations of privacy. A PIA is an integral part of taking a privacy by design approach and will enable an organisation to systematically and thoroughly analyse how a project or system will affect the privacy of the individuals involved.

Right to be forgotten

The right of an individual to require that a data controller deletes all information relating to that individual where the data is no longer required; the data has become irrelevant; where the individual withdraws consent to the processing of that information; or where the data is unlawfully processed.

Right to data portability

This is the right of individuals to obtain and reuse their personal data across different services.

Data Protection Officers

The individual responsible for compliance and training and who must be the first point of contact for all matters relating to data privacy. A data protection officer or DPO must be appointed by public authorities; organisations carrying out large scale and systematic monitoring of individuals; or organisations that carry out large scale processing of special categories of data or data relating to criminal convictions and offences.

For more information on the GDPR and how it may affect your business please Talk to Tollers on 01604 258558 and ask to speak to Liz Appleyard in our Commercial Team

Just got engaged and planning your wedding? Congratulations! We know there is a lot to think about when planning for the biggest day in your life so far and we have set out below some guidance to help make the big day run smoothly and your life together more secure.

Contracts and terms and conditions

As you will quickly learn, weddings are expensive and, more likely than not  you will  be required to pay large deposits to secure bookings with your suppliers, for example with your venue. It is vital that you ensure you have a contract in place with each supplier you engage and that you read the terms and conditions that apply to you before you sign any documents and pay the deposit. Having something in writing will ensure that both you and the supplier are clear on the terms agreed which will help avoid any disputes later down the line.

Payments

You should also keep a record of a payment schedule to ensure that you pay various suppliers on time. If you miss payments, the supplier may have the option in their terms and conditions to terminate the contract or suspend their services until they receive payment from you.

Deposits and cancellation rights

As you will be paying big deposits you should check whether the terms and conditions allow you to cancel the contract. You may want to do this if you change your mind about a supplier or you may need to in the event of any unforeseen circumstances such as the death of a family member.

If you have signed the contract away from the supplier’s premises (e.g. online) you are afforded some rights under the Consumer Contracts Regulations 2013 (“Regulations”). The Regulations give consumers a ‘cooling off period’ which is the right to cancel the contract within 14 days (usually from the date of the conclusion of the contract) without giving any reason or incurring any costs. The supplier is also required to give you certain information before you sign the contract, such as their full details and how you can contact them, the prices of the goods/services, their complaint handling policy etc. If the supplier does not provide you with this information, then your right to cancel may be extended to 12 months from the date the contract was signed.

If the contracts are actually signed at the supplier’s premises, you will not have the cooling off period granted by the Regulations but you should still check what the cancellation provisions state as you may need to cancel the contract. Most suppliers will want to recover most of the deposit or a percentage of the full price as compensation for their loss. The closer the date you cancel the contract to the date of your wedding, the more likely you will be required to pay a bigger sum to the supplier. However, suppliers have to be careful and ensure that any sums they retain actually reflects their reasonable loss. If the provisions are considered as a ‘penalty’ under common law, the clause will be unenforceable. We can review the terms and conditions for you and provide you with advice.

Faulty goods/services and dispute management

Once you have booked the goods/services you should follow up in writing with the supplier for every new or amended terms agreed over the phone. This will help avoid any confusion and protect your interests in the event of any disputes.

The Consumer Rights Act 2015 (“CRA”) gives consumers additional rights in respect of faulty goods or services provided by traders (i.e. photographers, venue suppliers etc).

With regard to any goods you purchase (e.g. table centre pieces, decorations, stationery), the CRA says goods must be as described, fit for purpose and of satisfactory quality. During the expected lifespan of the goods you are entitled to the following:

With regards to services you book (e.g. musicians/DJ):

Writing a will

It’s not the most romantic thing to think about but a Will is an important legal document that gives you the opportunity to set out your wishes and determine how your assets (or estate) will be dealt with when you die. If you already have a will in place, you do need to review this after or before your marriage as marriage will automatically revoke an existing will unless that will has been made expressly in contemplation of your impending marriage. Our Trusts and Estates team who would be more than happy to answer any queries you have and to prepare a will for you.

Moving house

Where are you both going to live? You may decide to move homes before or shortly after your wedding. You will need to think how you wish to own the property with your partner. Again, not the most romantic thing to think about but you may need to consider what you wish to happen on the death of you or your partner or in the event of a relationship breakdown.

You may own the property either as joint tenants or as tenants in common. Under a joint tenancy arrangement, you and your partner would own the property jointly and in equal shares and upon the death of one party, the property will automatically vest in the survivor. In this scenario there is no share capable of being left in the will. However, you will need a will to determine what will happen to the property in the event that you both die.

As tenants in common, you and your partner would take distinct fixed shares in the value of the property. This will usually be equal shares unless you specify unequal shares, for example to reflect contributions to the purchase price. Upon the death of one party, the survivor would retain their own share in the property whilst the share of deceased would pass according to their will or pursuant to intestacy rules if there was no will.

Moving homes can be a stressful time especially whilst planning your wedding. Our conveyancing team can advise you of your options and support you through the process so that it runs as smoothly as possible.

We wish you good luck in your planning but if you would like more information about the issues above or any queries you may have, Talk to Tollers on 01604 258558.

Tenants trying to exercise a break clause in their leases before the end of a quarterly rent period should beware trying to pay only a pro rata part of that rent when it is demanded, or risk the break being ruled ineffective by the court.

A tenant’s lease required rent to be paid “yearly and proportionately for any part of a year” in equal quarterly payments. The tenant served notice to end the tenancy under a break clause in the lease – a clause allowing it to get out of the lease at certain points specified in the lease, provided it met certain conditions. As drafted, the break clause was only effective if the tenant had paid:

The effect of a valid break would be that the lease would end on 22 August, before the next full quarter had finished.

The landlord issued an invoice for a full quarter’s rent for the period from 24 June. The tenant paid the sum in the invoice in full, and referenced the invoice number. On the face of it, it seemed the tenant had not paid the sum equivalent to the additional one month’s rent, and the landlord argued the break had not been validly exercised.

The tenant claimed that according to the wording in the break clause it only had to pay rent up to 22 August. It therefore argued it had complied with the break conditions, because the payment it had made was for both rent up to 22 August, and also the extra sum it had to pay (equivalent to one month’s rent).

The High Court disagreed, ruling that the tenant was contractually obliged to pay the full quarter’s rent in advance on the quarterly rent day despite the break notice, as there was no certainty at that point that the break would be successfully exercised. There was an exception if a lease specifically allowed a tenant to apportion rent in anticipation of the successful exercise of a break. But in this case, the words “proportionately for any part of a year”, even read in conjunction with the break clause, did not specifically allow such an apportionment. The tenant had not paid the extra sum equivalent to one month’s rent.

The court went on to say that, even if the tenant had only been liable to pay an apportioned rent it would still have decided the break had not been validly exercised. This was because, by referencing the invoice number when making its payment, it had led the landlord to believe it was only paying the full quarterly rent demanded, but not the extra sum.

Recommendation

Tenants should ensure:

Case ref: Canonical UK Ltd v TST Millbank LLC[2012] EWHC 3710

A scheme introduced in 2012 allowed residential property owners to put a notice on their registered title to the effect that their property cannot be sold, mortgaged or otherwise dealt with unless a solicitor or conveyancer certifies that the real property owner has signed the relevant legal documents.

The scheme has now been extended to owners of business property for a six-month pilot. Business owners can apply for a restriction to be registered against up to three properties free of charge. A restriction entered during the pilot will remain effective after the trial ends unless the business specifically applies to remove it.

The restriction will stop anyone registering a transfer or mortgage unless a solicitor or professional conveyancer provides a certificate that:

The scheme is likely to result in extra enquiries on sale, lease or mortgage of a property. There may also be issues complying with the restriction where a company has become insolvent and a liquidator or administrator is dealing with the transaction. Therefore, companies facing potential insolvency should consider taking advice.

A business tenant successfully exercised a break clause and terminated its lease in March 2010. The tenant had made quarterly payments in advance on account of service charges, based on estimated expenditure in future years, as required by the lease. These included charges of £795k, collected and built up over three years from 2006 to 2009, for proposed major building works. The service charge year ran from 1 January to 31 December.

The major works were not carried out until after termination of the tenant’s lease, and the total costs were over £1m. There were two disputes: the first concerned how much the landlord could charge for services for the year during which the break was effective, and the second concerned whether the landlord should repay the £795k already paid, because none of the works took place (or were paid for) until after the lease had terminated.

As to the first dispute, the court said that the service charge imposed by the landlord for the year in which the break took place (2010) could cover the complete year to 31 December 2010, and not just that part of the year before the break took effect in March.

However, it also ruled that only costs actually incurred in 2010 could be included. As some of the payments to the contractors for the major works had been made in 2011 these could not be included in the outgoing tenant’s service charges for 2010. Nor could the landlord include service charges for remaining major expenditure planned for 2011.

As to the second dispute concerned the £795k, the court ruled that under the terms of the lease, this had to be repaid as none of the works it was collected for had been carried out until after the lease had ended.

The court set off the amount to be paid for 2010 against the £875,000 to be repaid, creating an excess. The court therefore awarded the tenant a percentage of that excess, pro rata its period of occupation of the premises during the 2010 service charge period before termination under the break clause.

Recommendations

Case ref: Friends Life Management Services Ltd v A & A Express Building Ltd [2014] EWHC 1463

A landlord has missed out on an additional 13 months’ rent after its tenant remained in occupation of premises after its lease had ended. The tenant made only desultory attempts to negotiate a new lease, and then gave immediate notice to leave.

The law says that when a tenant stays in occupation after a lease has ended, a periodic tenancy arises unless there is clear evidence the parties are actively negotiating a new lease. If they are, the inference is they intend the continuing occupation to be a tenancy at will, pending agreement (or otherwise) on the new lease.

If there is a periodic tenancy, any notice given by the tenant has to expire on the anniversary date of the new, periodic annual tenancy and the tenant has to pay rent and other charges up to that expiry date. If there is a tenancy at will the tenant can give immediate notice to terminate the tenancy.

In this case, a tenant’s lease of premises ended but the tenant remained in occupation for a further three years. Under the old lease the parties had specifically agreed that the tenant would not have a form of security of tenure which would otherwise have applied under landlord and tenant law. There were occasional attempts to negotiate a new lease with the landlord, but they were ‘desultory’. The tenant then gave three months’ notice to leave.

The landlord claimed that a new, yearly periodic tenancy had been created because of the tenant’s ongoing occupation as the tenant had not been actively negotiating a new lease. It therefore claimed 13 months’ rent, insurance rent and service charge – amounting to some £185,000.

The tenant argued that the new tenancy was a tenancy at will, and could be ended immediately at any time by either of them. The three months’ notice it had given was, in fact, more notice than required.

Originally, the High Court ruled that there was a periodic tenancy. It found that the property was the tenant’s main, fully equipped office, so the tenant must have wanted protection against immediate eviction. There was therefore a strong implication that the tenant intended there to be a periodic tenancy, giving it protection from eviction.

Particularly, the High Court felt that had the tables been turned and the landlord had given the tenant immediate notice to quit, the tenant would not have agreed that there was a tenancy at will in those circumstances. It would, in the court’s view, have argued that there was a periodic tenancy.

The Court of Appeal has now overturned the High Court ruling. It ruled:

Recommendation

Where a tenant remains in occupation of a property after its lease has ended – other than for a short period during which it is clearly and actively negotiating a new lease – landlords should require tenants to sign a new agreement. This should make clear the basis upon which the tenant is occupying the premises, (for example, as tenant at will) or seek vacant possession straight away.

Case refs:     Barclays Bank Wealth Trustees (Jersey) Limited v Erimus Housing Limited (2013) EWHC 2699

Erimus Housing Ltd v Barclays Wealth Trustees (Jersey) Ltd & Ors [2014] EWCA Civ 303

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