By Matthew Owen

Retail Prices Index (RPI) linked rent review clauses have become more common in recent years, adopted in residential long leases following a pushback against fixed ground rent increases and in commercial property leases as a welcome alternative to provide some rental growth.  With Covid19 likely to depress values particularly in the retail sector many landlords will be looking at RPI increases to create some assurance of steady rent increases.  However, this week could spell the end for RPI.

RPI is a measure of inflation utilised throughout the UK.   However, the ongoing Government consultation may mark the beginning of the end of the RPI liked rent review.

A House of Lords report into the RPI highlighted concerns with the way that the UK Statistics Authority (UKSA) calculate RPI, specifically that the divergence in the rates between RPI and Consumer Prices Index was resulting a difference of 1% per annum. The report contained the following proposals:

  • The publication of RPI should cease; and
  • During the period which the legislation is being negotiated RPI should be aligned with the Consumer Prices Index including owner occupiers’ housing costs (CPIH).

In response to the publication of this report, the Government announced a consultation with UKSA, which commenced on 11 March 2020, to review the proposed alignment with the CPIH and other technical matters concerning the implementation of the proposal.  The result of the review is due this week and it is likely that the RPI will be discontinued.

Clearly any changes to the way RPI is calculated would have wide-reaching consequences for property rents potentially reducing the increase in property rents by 1% annually.

Abolishing RPI will cause serious legal concerns potentially resulting  in some rent review clauses becoming redundant.  It is certainly not too early to try and do something about it.

While the implementation for the alignment of RPI with the CPIH index is targeted to take place between 2025 and 2030 it is important to ensure any index linked rent review clauses are drafted with the change in mind. Properly drafted leases should include the replacement of the index where RPI is abolished or a material change in the calculation of the index. Another complimentary approach where an alternative index is going to be adopted would be to introduce a “cap and collar”- which dictates the minimum and maximum increase, which would prevent Landlord losses in the event that RPI is significantly reduced.

Despite the RPI alignment causing apprehension in respect of existing leases, it may well be beneficial in new leases for alternative interest indices, such as CPIH, to be adopted to replace RPI for index-linked rent reviews.

With a first rent review in a commercial lease likely to be five years’ away it is worth paying some attention to the basis of review when negotiating your terms.

Matthew Owen is a solicitor in our Commercial Property team.  If you wish to discuss this article or any aspects of commercial property transactions you can contact Matthew by email or phone (0161 302 8399).  You can download a PDF of this article here.

BBS Law’s commercial property team has recently acted on the sale of a highly sought-after retail parade in Swindon. 

Lead by Senior Associate, Eoin Murphy the team exchanged on the sale of Sussex Place in Swindon within weeks of instruction.  The parade includes units with notable national occupiers including Subway, Barnardo’s and Rowlands and is anchored by a Co-operative convenience store.  PK3 were the agents representing the Seller.

The BBS Law London property team led by Avi Barr and Craig Mullen has acted for (med)24 on its Lease of its flagship facility in Paddington.

(med)24 is a newly established private membership health service which will offer a revolutionary approach to healthcare. Its one-stop shop facility in prime central London will enable its members to receive first class primary medical care, from GP appointments and health assessments to online consultations and specialist referrals. With state-of-the-art technology and an inspiring interior to match, its members will benefit from an unsurpassed customer experience.

Commenting on the Lease transaction itself, Avi Barr, Partner in the BBS London office, said:

”It has been a pleasure working with the management team at (med)24 including Jonathan Kron and Ahmad Al-Hamad. Their aspiration to create a high level of service matched with our desire to provide a similarly specialist approach allowing us the opportunity to add value to (med)24 by working on its behalf to ensure that its objectives for the premises were met in a timely manner”.

By Avi Barr (Property and Secured Lending Partner)

The Government has just introduced new rules allowing blocks of flats to be extended upwards by two storeys to create new homes without the need for planning permission. The changes come into force on 1 August.   With the ability to develop airspace without the need for planning permission, opportunities will arise for many property owners and developers.

This article looks at some of the important elements to be considered when undertaking airspace development.  (You can click here for a downloadable version.)

  • Summary of the recent changes
  • What makes airspace developments different?
  • Planning
  • Construction considerations
  • Thinking about the services
  • Overview of legal issues
  • Checking the lease
  • Tenant’s rights of first refusal
  • Enfranchisement

Airspace development is not simply the domain of institutional property owners, as freehold owners of multi-occupied properties (whether owners of a building subject to long leases, or indeed residents in blocks of flats with shared ownership) are also increasingly finding ways to exploit value in their properties.  Many developers and block owners will be looking at this new opportunity to convert unused airspace above existing blocks into something more valuable.

What are the recent changes?

The rules state that the right is restricted to buildings of three storeys or more in height and the extended building must not be more than 30 metres in total height. Meanwhile, the height of the extension cannot be greater than seven metres compared to the highest part of the existing roof, while any new storeys must be individually no more than three metres in height.

The new homes must also be flats, the instrument states, while the right only applies to buildings built after 1 July 1948 and before 5 March 2018 and excludes those within a site of special scientific interest.

Development is only permitted subject to prior approval. Conditions for local authority consideration include: transport and highways impacts; air traffic and defence asset impacts; contamination and flooding risks.

Airspace development; the same but different

The basic requirements for airspace developments are not that dissimilar to any development: the necessary components of land (or in this case airspace over land), services, funding and the actual construction are all there. However, what makes airspace developments different is the obvious potential design and technical difficulties in building up increased services provision and the actual legalities relating to other occupier or tenant rights, such as access and rights of light, party walls. All these additional considerations may make construction a little more challenging and funding that little bit more difficult to obtain.

Planning

There has been a marked increase in enthusiasm from local authorities towards airspace developments and now with the change to permitted development rights (contained in the The Town and Country Planning (Permitted Development and Miscellaneous Amendments) (England) (Coronavirus) Regulations 2020), opportunities to develop will be increased.  It is worth emphasising that the new PD rights do not apply to all buildings and a Certificate of Lawfulness will still be required.

For those developments, where planning is required, the main opposition is likely to come from long leaseholders within a block who will be concerned about the impact of the building on their own units.

Construction considerations

Each development will be different but when considering whether an airspace development is feasible an obvious first step is a comprehensive assessment of the suitability of the building to be built upon.

The loading capacity of the existing building designated to support the proposed development is the most important consideration when determining the development’s feasibility. It is unlikely the original structure will have been built with a loading capacity for any significant increase and the building’s ultimate capacity to take additional loadings will depend upon the actual type of the structure.

An appraisal will also need to take into account the structural capability of the building but also an assessment of access requirements for the build, fire protection (particularly considering any cladding issues in light of the Grenfell tragedy), maintenance, acoustics, provision of services (including internet sustainable technology) and possible construction methods.

Pre-made, modular structures that are built off-site and installed almost fully formed are a popular construction method for airspace developments, reducing the need for on-site labour as prefabricated units can be constructed virtually entirely off-site before being lifted on-site. Access routes for cranes to deliver the units and crane them on top of the building are therefore fundamental to secure.

Not every roof works financially. The kind of construction required is costly and as a result air space development is so far mainly taking place where values are high and profits can be made. The engineering solution arrived at to accommodate the additional structure will be key to the success of the whole project.

Services

Although the existing building will have the benefit of services and infrastructure, it is vital to consider the actual capacity requirements needed for the increased number of units in the building once it is developed. Capacity checks will therefore be required at an early planning stage to assess the impact of the proposed development and develop a workable solution with each service provider. This may involve separate service facilities or an extension to those existing. If it is possible to extend the use of existing services (in particular for foul water drainage systems) this will lessen the cost but developers will need to be careful not to exceed the capacity for any of the services for the building.

Designing alternative layouts and connections into existing service routes and layouts should be carefully considered as new systems and locations add further complexities, not limited to the siting of such systems potentially outside the building and potentially outside the land title.

As I mention below, many blocks have plant and service equipment including lift equipment sited in roof voids and on the roof itself.  All of this infrastructure will, as a result of any potential build, need to be relocated or re-routed elsewhere.

Although these are all considerations applicable to all developments, often the design requirements and practicalities are more challenging in the case of airspace development.

Legal issues and practical solutions – existing tenants and their leases

Not surprisingly, a roof top development scheme may well be met by resistance from resident tenants and neighbouring property owners who will have concerns as to the noise and disruption caused and possible effect on the enjoyment of their property, availability of amenities such as car parking, and the effect on value.

One of the sweeteners could be the offer of a newly refurbished building exterior and communal areas including lifts and staircases and of course a new roof – all undertaken outside of the service charge regime. Whatever arrangement is arrived at needs to be documented with the party responsible for the maintenance and repair of communal areas, which could be the freeholder, management company or the tenants themselves.

Offering to extend the leases for the existing tenants and even a profit share with the leaseholders are other incentives to leaseholders which a freeholder or developer may be able to offer. Whatever the deal there are legal constraints which need to be understood and correctly dealt with. In the case of neighbours, as with any development, restrictive covenants, rights of light and party wall legislation need to be taken into account and managed at an early stage.

Checking the leases

The starting point is that from a leaseholder’s perspective, the building owner has a right to develop its building unless there are very specific restrictions on development (it is worth having a look at the judgement of judgment of Bernard Livesey QC in Hannon v 169 Queen’s Gate Ltd which involved a challenge to an airspace development).  Similarly, a tenant’s right to quiet enjoyment cannot, so long as the development is undertaken in a considerate manner, be used as an argument to prevent the development taking place (Goldmile Properties Ltd v Lechouritis [2003] was a Court of Appeal case where a tenant ran the quiet enjoyment argument and lost).  Developers would be wise to consider hours of working, the length of time the development takes and even the location of scaffolding to ensure the leaseholders have no opportunity to challenge an airspace development.

It is though important to check the lease carefully as it may create further points to consider, the first being who owns the roof space and air above it? Although a fairly basic point, the fact that the roof space had already been demised to tenants in a building enabled them to stop an airspace development in a 2014 case, H Waites Ltd v Hambledon Court Ltd. Consideration will also need to be given to any rights in favour of the leaseholders (easements) in the leases as these rights can prevent development. Look out for an express or implied right over the roof.

An added factor to consider is that the majority of services are found in roof voids together with things like air conditioning, lift plant, ventilation, chimney shafts and flues, smoke detection systems, aerials and satellite dishes etc, all of which will, as a result of any potential build, need to be relocated or re-routed elsewhere.  Again, the developer will need to be clear on whether it controls those areas and that the lease provides sufficient flexibility for relocating equipment.

Tenants’ rights of first refusal

It is really important that if the freeholder is considering transferring the airspace by way of a lease or a sale of the freehold to another party, that it properly considers whether the transfer is a relevant disposal within Section 4 of the Landlord and Tenant Act 1987.  If it is a relevant disposal, the leaseholders will have a right of first refusal meaning that any proposed lease (or opportunity to buy the freehold) must first be offered to the requisite majority of qualifying tenants (generally long leaseholders) on the same terms and at the same price as it was to be offered to the developer.

A failure to comply with the Act is not only a criminal offence but the anti-avoidance provisions mean that if the landlord fails to comply, the leaseholders can compulsorily acquire the lease from the purchaser direct for the price it paid.

Where the Act applies the qualifying leaseholders need to be given a minimum of two months’ notice prior to any sale which can seriously affect the commercial viability of the development. There are ways of working around the legislation and legal advice can help identify a correct approach but this is certainly not an issue to ignore.

Collective enfranchisement

Whereas the rights of first refusal are triggered on a sale, enfranchisement under the Leasehold Reform, Housing and Urban Development Act 1993 effectively allows the leaseholders to force through a sale at any time. Under the legislation they are required to purchase the whole of the building and the cost normally makes it an unattractive proposition for leaseholders. The legislation states that their entitlement is to a purchase of an ‘interest reasonably necessary for the proper management or maintenance of those common parts’ and this entitlement can therefore often catch roof space. The risk to the developer comes if the tenants are able to argue that the value of the rooftop space is as amenity space rather than potential development space (it will be interesting to see if the relaxation to PD which we discussed earlier will benefit the freeholders in this scenario as the freeholder will be able to argue that the space should be valued based on its development value).

Enfranchisement is another important issue to consider at an early stage to mitigate any risk of losing the block at a price below its value to a developer.

A PDF version of this article is available here.

Avi Barr is a partner in the Property and Secured Lending team at BBS Law.  Avi acts for a number of airspace developers and lenders within this sector and is happy to be contacted if you have would like to discuss anything within this article.

By Kerry Blackhurst

In a word, yes.

The authority of the Executors to deal with the property comes from the Will and then is confirmed by the Grant of Probate. Where there is no Will, or valid appointment of Executors, then the authority comes from the Grant itself.

But there are some important considerations

  • Although you can exchange without the Grant of Probate, you will need the Grant to register at the Land Registry so any exchange should therefore be conditional upon Probate being granted and the contract should stipulate a completion date for a set number of days after the Grant of Probate has been issued.
  • As with all conditional contract situations you should consider other relevant issues. For example, a Grant of Probate may take a lot longer to receive than anticipated so the parties ought to include a suitable backstop date in the contact. The buyer will have considerations about its mortgage expiry and even valuation expiry which need to be factored into any time period provided for the Grant to be obtained.
  • Remember also that where a deposit is paid on exchange, where completion is delayed, that deposit will be tied up and may prevent the buyer being able to pursue other property transactions.
  • Exchanging subject to a Grant of Probate is unlikely to work where the buyer is in a chain as a fixed date for a completion is not going to be achieved.

It is also worth noting that in some limited circumstances there is an exemption for some or all of your SDLT where a property is purchased from Personal Representatives.

So, in summary, yes you can exchange before you receive a Grant of Probate is received, but plan ahead.

Kerry Blackhurst is head of our Private Client team.  Kerry works closely with our property team and provides advice to clients on a variety of estate planning matters.

By Aron Heywood

On 25 March 2020, the Coronavirus Act 2020 received royal assent and was passed into law. The Act alters the notice periods where Landlords are seeking possession of residential property under either Section 8 or Section 21 of the Housing Act 1988.

The new Act takes effect by temporarily amending Sections 8 and 21, so that the notice period, in relation to both, is now three months.

Prior to the new Act, where a Tenant was more than two months’ in arrears of rent, a Landlord could serve a Section 8 Notice giving the Tenant two weeks to pay the arrears, failing which possession proceedings could be issued.

Under the new Act, in relation to Section 8, the date stated in the Notice (as being the earliest date when possession proceedings can be commenced) must now, for all grounds under the Housing Act, must be three months.

In relation to Section 21 Notices (which give a Tenant notice to end the tenancy regardless of any breach), prior to the Act the notice period was two months. This has now also increased to three months.

Landlords should be aware that the new notice period of three months may be increased by statutory instrument, albeit up to a maximum period of six months.

The changes to the Notice periods only affect Notices served during the period 26 March 2020 to 30 September 2020 (the key date being the date of deemed service), however, again this period may be extended.

Whilst the new Act does not affect Notices served prior to 26 March 2020, the Courts have currently adjourned indefinitely all possession hearings including those relating to Notices served prior to that date. Adjourned cases will apparently be relisted as a priority once the restrictions relating to Covid 19 are lifted.

The new Act also makes amendments to the relevant forms that need to be served. The forms are altered to reflect the changes made by the Act and Landlords must now ensure that any Section 8 or Section 21 Notices are prepared on the updated forms, failing which the Notices are deemed invalid – this would significantly delay the time for obtaining a possession order.

All of these changes are going to lead to significant delays for Landlords who wish to recover possession of their properties, even if a Notice had been served prior to the key date of 26 March 2020.

Our Commercial Litigation team have extensive experience in advising Landlords on residential property matters and can provide commercial and up-to-date advice as to how to deal with these matters considering this ever-changing landscape.  Do not hesitate to get in contact with  Andrew Haffner, Roger Rubin, David Bondt or Aron Heywood if you need any help.

 

 

By Matthew Owen

It may seem a lot longer than 10 weeks since you last went to your favourite pub, café and restaurant, but it could be months before you will be able to, or more importantly want to, frequent them again. Social distancing and staff kitted out in some form of PPE will not exactly enhance the social experience and joy of drinks and meals out.

The whole leisure industry is suffering terribly from the Lockdown and is likely to be more adversely affected than most as it is generally a discretionary customer spend and will be last out of Lockdown. Most sympathy must be reserved for the local independent operators.

Thankfully though, we  are starting to see tenative steps towards normality resuming.  This week sees some fast food operators and coffee chains re-opening for drive through customers. There seems to be, understandably, pent up demand, with long queues reported at many well know fried chicken outlets.

The Government is trying to assist the sector by introducing temporary permitted development rights pursuant to the Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2015.

“These rights permit restaurants, cafés and bars/pubs to operate a food takeaway service, without requiring a change to their planning permission. This will run to 23 March 2021, and as with many Coronavirus measures may well be extended.”

The “provision of takeaway food” includes any use within Class A5 and any use for the provision of hot or cold food prepared for collection or delivery to be consumed, reheated, or cooked by consumers off the premises.

There are some simple conditions that need to be observed, including the operator must inform the local authority of which premises are being used or will be used for the provision of takeaway food at any time until the deadline. The use class will revert back to its previous lawful use after 23 March 2021 or, if earlier, when the provision of takeaway food ends.

Important Legal Points to Bear in Mind

For tenants this might be a lifeline, in being able to adapt their businesses and keep custom, showing their customers that they are “open for business”. For many it might not be financially profitable but it might just be the life support the business needs to see it through. However from a legal point of view they should:-

  • Check their leases in relation to user clause. Often takeaway will not be a permitted use and consent from the landlord should be obtained
  • Try and persuade your Landlord to issue the consent in letter form rather than the delay and cost of a formal lease variation
  • Make sure to notify the local planners in writing

We would hope that landlords issue consents as required, albeit in mixed use buildings (ie with apartments above), there may be constraints on them issuing consents, or may be reasons of good estate management as to why they would not want to consent. Of course it is far better for landlords to have a functioning tenant.

Matthew Owen is a solicitor in our Commercial Property team. You can contact Matthew here.

By Daniel Berger

“BBS Law’s service to help landlords struggling with their rent recovery so that they obtain the best possible support from their lenders”

The day before the March 2020 quarter day I wrote an article about how to try and deal with mass non-payment of rent. Since then Landlords have many stories to dine out on (if you could go to a Restaurant) about which tenants have asked for the more outrageous rent concessions.

Clearly all parts of the economy have suffered under the handbrake that has been yanked on by global lockdown, and there are many tenants that deserve sympathy, others less so. We are now mid-way through the quarter and Landlords are looking to the June quarter day with trepidation.

“It is likely that even fewer tenants will pay rent on the June quarter day as the Government has given more green lights to them to stop paying rent.”

The extended measures to protect tenants beyond the three month moratorium brought in during late March include:

  • Before any winding-up petition is made based on claims that the tenant is unable to pay its debts, must first be reviewed by the Court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the tenant’s inability to pay is the result of COVID-19. Which landlord fancies spending time and money getting to the Court to explain that one !
  • Legislation will also be brought forward to prevent landlords using commercial rent arrears recovery (CRAR) unless 90 days or more of unpaid rent is owed
  • The new legislation to protect tenants will be in force until 30 June, and can be extended in line with the moratorium on commercial lease forfeiture. In all likelihood it will be extended

A link to the full Government release is here: https://www.gov.uk/government/news/new-measures-to-protect-uk-high-street-from-aggressive-rent-collection-and-closure

So here you are 7 weeks into lockdown and looking at a significant arrears schedule that is likely to get substantially worse come the end of June. Most commercial landlords will have some loans secured on the now non-income producing property, and whether capital and interest, interest-only, quarterly or monthly it is now impossible to avoid a repayment date passing without having had the rent hit the bank account. Prudent landlords may have left sufficient funds in the rent receivable to service the loans for a few months. It would be rare to find such accounts bulging though.

So you look around and see the Government policy seemingly stacked against landlords and other policies and generous financial help for tenants in terms of furlough for non-working staff, rates relief, business grants and loans on generous terms. Where can the landlord seek help. So far, we can’t find any. Landlords are being encouraged to “talk to your tenants”, “be reasonable”; Communities Secretary, Robert Jenrick, says: “We understand that landlords are facing their own very serious pressures and are concerned about their position with lenders. We are working with banks and investors to seek ways to address these issues and guide the whole sector through the pandemic.”

It seems the only help the landlords are getting is at the discretion of the lenders. When speaking to many commercial property clients we are seeing very mixed responses. Interest holidays are simply not available. Capital repayments can be suspended for 3 or even 6 months if you are with certain banks and you fit their “criteria”. We are seeing some banks giving no leeway at all, and that old phrase of “selling umbrellas when the sun is shining” seems apt.

The retail banking industry providing residential mortgages has given 2 million mortgage holidays providing some temporary relief to squeezed and worried householders. We are not seeing this on the commercial side at all.

BBS Law Ltd can help you in reviewing your banking documentation and assisting you with documenting any arrangements you come to with your lenders. We also feel we are well placed to assist you in direct negotiations with banks, helping you present your position in the most favourable of manners and being able to advise what concessions more helpful and flexible lenders are providing.

Our  commercial property, commercial and secured lending teams at BBS Law Ltd for advice on your situation and how we can help you at this most challenging of times.

Please contact Daniel Berger, Dov Black or Avi Barr if you would like further assistance.