2018 – Is this the year for actual reform of residential leasehold?

Reform of residential leasehold was the subject of much discussion last year with the widely reported ‘ground rent scandal’ fuelling the debate. This year will hopefully herald the start of actual reform.

The Court of Appeal heard the case of The Trustees of the Sloane Stanley Estate -v- Mundy this week after the Upper Tribunal rejected the Parthenia model of valuation for a lease extension (under the Leasehold Reform Housing and Urban Development Act 1993 (‘the 1993 Act’)) put forward by the representatives of the leaseholder Mr. Mundy. Its decision is eagerly anticipated.

The Parthenia model challenged the current graphs which have been relied upon for the last twenty years to calculate the premiums paid by leaseholders to extend their leases. If implemented, it has been suggested that it could reduce those premiums by up to half in some instances. It could also reduce the premiums payable for freeholds.

This would profoundly impact the revenue generated by freeholders and particularly the great estates in London and out. Some might argue that change is needed not least because the current methodology was commissioned by the Grosvenor estate – London’s largest great estate after that of the Crown.

Despite the Upper Tribunal’s decision to reject the Parthenia model, it also criticised the existing graphs and the subject has caught the attention of the Government as part of its review of leasehold generally. Residential Leasehold is one of the topics included in the Law Commission’s 13th Programme of Law Reform whose recommendations would be welcomed by many as soon as possible.

Leaseholders have long felt aggrieved by the premiums they are obliged to pay to extend their leases which in some cases run into several hundreds of thousands of pounds. Whether the Court of Appeal decides to uphold the Upper Tribunal’s decision or overrule it, it may be that the Government, as part of reform, chooses to legislate changes to the methodology for calculating those premiums in any event. No doubt, the great estates will be preparing themselves for the financial effects of possible reform in the valuation process.

It is generally agreed amongst practitioners of leasehold that the legislation should be amended to correct its irregularities and give greater cohesion to what has become a fractured area of law.

The Government has already begun taking action announcing it will impose a ban all new leasehold houses and new ground rents in long residential leases.

Reform might also include:

  • Legislation of a single valuation graph for lease extensions and freehold acquisitions updated at regular intervals to avoid protracted disputes resulting from the numerous graphs in use.
  • Removal of the unnecessary trappings of the 1993 Act. For example, the two years’ ownership requirement for a lease extension (which does not apply to the acquisition of freeholds under the same act).
  • Abolition of Part 1 of the Landlord and Tenant Act 1987 which obliges a freeholder to offer their interest to leaseholders before selling it to a third party (largely viewed as poorly drafted and redundant given leaseholders’ statutory right to acquire the freehold).
  • Protection of residential long leases from falling within the definition of ‘assured tenancy’ under the Housing Act 1988 thereby putting them at risk of forfeiture for only two months’ rent arrears.
  • Re-introduction of Commonhold in an amended and workable form.

The Law Commission’s recommendations will hopefully go some way to resolving the issues and updating an antiquated form of property ownership.

For advice on all aspects of leasehold, please contact Dominic Danvers on 020 7703 5043 or ddanvers@meaby.co.uk

Irish Series: Ireland taking the “8th” step forward

The Irish Constitution, in particular the Eighth Amendment, which equates the right to life of a pregnant woman with that of an embryo or foetus, has come under severe scrutiny and criticism in recent years. This has been compounded by the high profile “Repeal the 8th” campaign, which has seen women and men across the world march and campaign in protest against the offending article.

The campaign, which includes a petition to the Government to repeal the article, on the basis that it infringes on basic human rights, denies access to basic health care, criminalises those who self-administer abortion pills in Ireland and does not reflect present public opinion, has been gathering momentum over the past number of years. So much so that the Irish Government has this week confirmed that the Cabinet has agreed to draft a bill that would allow a referendum on the 1983-enacted Eighth Amendment to take place.

This is a significant step forward in the fight by the Pro-Choice campaign to bring about reform of what appears to many to be an inhumane and draconian piece of legislation. Ireland has been seen in recent years to be a forward thinking and progressive country. This was particularly so after the Referendum in 2015 which saw Ireland become the first country to legalise same sex marriage by popular vote.

The Irish Government will also publish legislation to allow for two more referendums to take place later in 2018, one of which will remove the crime of blasphemy in the Constitution and the other will remove the article which contains a reference to women’s role in the home, if passed.

The hope is that the Referendum in relation to the Eighth Amendment will take place in May 2018.

This is however an area where the Irish Government are proceeding with caution, due to possible difficulties with an ongoing appeal taking place in the Supreme Court, relating to a ruling by the High Court that the Irish Constitution confers significant rights upon the “unborn child” beyond the right to life.

This will be explored in greater detail in our further article in the Irish Legal series. Check back then for further insight or contact Caoimhe Boyce on cboyce@meaby.co.uk

Black Pepper, Sir? Or a Single Red Rose?

If you own a flat, then the lease will stipulate that the leaseholder will have to pay the freeholder a ground rent every year.  In some leases, ground rent will not actually be payable.  However, for the lease to be legally binding, some level of ground rent must be stipulated in the lease.  In these cases, the ground rent will usually be “one peppercorn per annum”.  This is such a small amount that the freeholder does not demand the ground rent in practice.  Although we do like the image of a leaseholder going into their freeholder’s office with a large pepper grinder and sprinkling their arrears of peppercorn ground rent onto their freeholder’s desk.

Sometimes such an arrangement is taken literally.  We have heard a story that the leaseholder of the Old State House in St George’s, Bermuda presents a single peppercorn on a velvet cushion upon a silver platter to the Governor of Bermuda every year in an official ceremony.  We have also heard that the University of Bath present a peppercorn to the Chairman of the local Council every year as payment of their rent in a spirit of goodwill.

Sometimes, a peppercorn rent is given another name.  We have heard that some leasehold properties in Covent Garden have leases which specify that they must pay “one red apple and a posy of flowers” as an annual ground rent.  A National Coastwatch station is also apparently under an obligation to pay a ground rent of “one crab per annum, if demanded” to its landlord.

Near our Camberwell Office, there is a local development called Pilgrims Cloisters, which is a Grade II Listed former Almshouses originally built for “aged Pilgrims” but which now houses City workers.  The leases for these flats stipulate an annual ground rent of “a single red rose”.  We like the idea of the leaseholders all walking to the freeholder’s office once a year in order to each present the delighted freeholder with a red rose.  Alas, that probably does not happen in practice.  Like a peppercorn rent, the single red rose ground rent is just a nominal ground rent which is not usually demanded in practice.  Pilgrim’s Cloisters is also a share of freehold in that the leaseholders in addition to owning their flats, also jointly own the freehold of the building by way of owning shares in the management company who own the freehold title.  So the leaseholders would in effect be paying ground rent to themselves.  Although we like the idea of the leaseholders giving flowers to each other every year at their Annual General Meeting.  That would indeed be a very nice way to run a management company.

An advantage of owning a flat which has a share of freehold is that you can extend the lease to 999 years.  As ground rent provisions in a lease become irrelevant once you buy your freehold (why pay ground rent to yourself?), at the same time as extending your lease you can formally reduce the ground rent to a peppercorn (or a single red rose if you’re more botanically inclined).

If you have a share of freehold flat and you have a short lease, it is a good idea to deal with this before you come to sell in order to avoid any delays if you have to deal with this as part of your sale.  A buyer’s solicitors will usually ask for the lease to be extended as part of a sale if the remaining term of the lease is short and the seller has a share of freehold.  This would particularly be the case if the buyer has a lender as most lenders will not lend on short leases.  Lenders have different specific criteria, requiring different minimum terms.  Some lenders require an unexpired term of 85 years and then the shorter the length of the lease, the fewer the amount of lenders who would be available to lend.  A lease extension can be dealt with at the same time as the sale is running but has the potential to incur delays if, for example, it is difficult to get hold of one of the co-freeholders to sign documentation.  Another option is to instruct us early on (such as when you’re about to put the property on the market) and we could start work on the lease extension in preparation for you finding a buyer.

If you would like your lease extended or if you are planning to sell a share of freehold flat which currently has a short lease, please contact us on 020 7703 5034 or bc@meaby.co.uk.

Feeling the blues: Chelsea pensioner left in the dark by Stamford Bridge redevelopment

Chelsea Football Club have received the green light to proceed with their proposed £1bn redevelopment of their Stamford Bridge home in South West London.

The plans, to demolish the historic old ground and replace it with a 60,000-seater stadium, were first submitted to Hammersmith and Fulham council in November 2015, but have been delayed by challenges from some local residents.  Most of the objections related to the loss of light to the neighbouring properties as a result of the size of the proposed new East Stand which will house the club’s hospitality lounges.

While agreements were reached between the club and most of the 50 affected houses for compensation to be given to the residents in respect of the loss of light, Nicolas Crosthwaite, 69, and his family took out a High Court injunction to try to prevent the redevelopment from proceeding.  The Crosthwaite family are the owners of one of the closest properties to the current Stamford Bridge ground, and the family have stated that the “sunlight and daylight will be seriously affected” to five of their windows should the redevelopment plans go ahead.

A property can acquire an easement of light and air by proving 20 years of continuous use of the light/air.  While the Law Commission have recently (2014) published a paper entitled “Rights To Light”, no statutory changes have yet taken place.

Chelsea Football Club responded via their solicitors by offering the opinion that the entire plans were at risk if this objection was not overcome.  Following this the local authority decided to use their statutory powers to purchase a piece of land between the ground and the Crosthwaites’ cottage from Chelsea, and to lease that land back to the club, which in turn would enable the council to use similar statutory powers to overcome the injunction.

The council’s position appears to be that the benefit to the area of the development outweighs any individual loss that may be suffered by the immediate neighbours.  That said, the property in question sits in the neighbouring borough of Kensington and Chelsea, and that local authority are understood to be opposed to the development.

The most likely option now for the Crosthwaites would be to apply for a judicial review of the process by which the compulsory purchase order was obtained, although it remains to be seen whether they will take that step. A couple of questions that appear to be in need of answers are whether a local authority can use their statutory powers in this way when it negatively impacts a property in another borough, and whether they owe any duty of care to residents in a neighbouring borough.

One thing is for sure – given that the stadium was not expected to be ready until the 2024/2025 football season anyway, this could run and run.

If you require advice regarding “right to light” or similar issues please contact Andy Roscoe at Meaby & Co for advice: andy@meaby.co.uk or call 020 7703 5034.

A warning to commercial landlords to be efficient about the energy efficiency of their properties

Ordinarily the beginning of April signifies the end of the tax year and the beginning of the new but this year commercial landlords will have a different issue on their minds.

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015/962 come in to play on 1 April 2018 and oblige landlords to ensure that any privately rented property must have a band E or higher revealed by their Energy Performance Certificate.

These regulations apply to both commercial and residential property. Prudent landlords will need to:

a) check any existing EPCs to check whether the minimum standard is met (if your current EPC is out of date you will need to carry out a further EPC)

b) in the event that you intend to let, extend or renew a tenancy of a property after April 2018, energy efficiency improvements may need to be met to bring that property up to the minimum standard.

Do also remember that by 1 April 2020 this will also apply to existing residential tenancies granted before that date that are continuing and on or after 1 April 2023 this will also apply to commercial tenancies.

Our advice is to consider the necessity of any repairs in advance and whether the cost of these can be recovered under the service charge provisions of an existing lease.

Meaby & Co Solicitors LLP can advise you on commercial lettings and service charge. Please contact Nicky Cleightonhills (nc@meaby.co.uk) for more details.

Government ban on charges for paying by credit or debit card.

A government crackdown on credit card charges has backfired as HMRC has said it will stop accepting credit cards since, 13 January 2018.

HM Revenue and Customs (HMRC) charged £50m in credit card fees charged to taxpayers that have had to pay their outstanding tax bills on credit over the last five years, according to figures obtained by Telegraph Money.

A HMRC spokesman said: “We will no longer be accepting personal credit card payments from the 13 January as new rules mean that we can no longer pass on what our bank charge for processing a credit card payment.

Joint Tenant or Tenants in Common?

There are two different ways in which you can jointly own a property in England and Wales. As joint tenants or, as tenants in common.

Joint Tenants
A joint tenancy means that each of the co-owners jointly own the whole of the property, rather than a specific share. This is the default position.

Joint tenants inherit the property under the ‘rule of survivorship’. This means that if one of the co-owners dies, the survivor/s will automatically inherit the deceased’s share equally between them, regardless of the terms of the deceased’s will or rules of intestacy.

If the property is sold, the co-owners are each entitled to half the sale proceeds regardless of how much each contributed to the purchase price or any mortgage repayments.

Tenants in Common
Tenancy in common means that each of the co-owners own a specific share interest in the property. If one of the co-owners dies, the survivor/s will not automatically inherit the deceased’s share. The deceased’s share will pass to beneficiaries in accordance with his/her will or intestacy rules.

Co-owners under a tenancy in common can either own the property in equal shares or hold specific share interest in accordance with their specific contributions towards the purchase of the property.

Declaration of Trust
If a property is held as tenants in common, co-owners can draw up a declaration of trust which is a private document to record each co-owner’s share interest in the property. It can also record the contributions each co-owner has made towards the purchase and their responsibilities towards repayment of any mortgage or other outgoings.

Changing from Joint Tenancy to Tenancy in Common
If a property is held by co-owners as joint tenants, they can later decide to hold the property as tenants in common. This is known as severance of the joint tenancy. To severe a joint tenancy, an application can be made to Land Registry.

What is best: a Joint Tenancy or a Tenancy in Common?
There are advantages and disadvantages to both. What is best depends on purchasers individual circumstances. Married couples may choose a joint tenancy as they may not consider it necessary to define separate share interests, especially, if they intend for the property to pass automatically to the surviving spouse if one of them dies.

A tenancy in common may be more suitable for couples who are not married, siblings or business partners purchasing together, or parents purchasing with their children. In these circumstances, one owner may not want the other owner(s) to automatically inherit their share.

It is important to consider the method of ownership which best suits your situation and make a decision on this before you proceed to exchange of contracts.

If you have any queries regarding the two methods of ownership you can contact Varsha Varsani at Meaby & Co: vvarsani@meaby.co.uk or call 0207 703 5034.

Gender Pay Gap Reporting – What is all the fuss about?

Gender Pay Gaps between men and women are currently very newsworthy as Employers are forced to disclose their gender pay gaps in time for the 4 April 2018 deadline.

The Gender Pay gap is the actual pay discrepancy between men and women irrespective of their job or position and is not based on equal hourly rates.  The main problem for many organisations is the lack of female employees in higher paid roles which is fuelling  gender pay gaps.

It has historically  been unlawful to pay men and women differently for the same or broadly similar jobs since the implementation of the Equal Pay Act 1970, however notwithstanding this the average earnings of male employees still exceeds that of female employees by 18.1%.  The Government felt that it was time that action was taken to try and reduce the gender pay gap in society and this has resulted in new legislation which places an obligation on affected employers to publish gender pay disparities.

There are no penalties for employers who have large gender pay gaps, however it could result in adverse publicity and reputational damage and promote the potential for equal pay claims.   It could also affect recruitment initiatives and staff morale and could be a negative factor for those employers who tender for Government contracts.

We have already witnessed adverse publicity and controversy at the BBC with male presenters earning a lot more than female presenters.  This has also led to the resignation earlier this week of Carrie Gracie, the BBC’s China correspondent, who said that she could not ‘collude’ in a policy of ‘unlawful pay discrimination’.   She also refused an offer of an additional £45,000 on the basis that it still left a big gap between her and her male counterparts and that all she wanted was to be ‘made equal’.  The BBC’s overall gender pay gap was 10.7% in favour of male employees.

Other well known Employers have also this week disclosed their gender pay gaps and here are a few of the worst offenders with their gender pay gap percentages shown in favour of male employees:-

Easy Jet   51.7%

Virgin Money  32.5%

The Co-operative Bank 30.3%

NPower Limited 19%

Ladbrokes Coral Group Plc 15%

The Home Office 10.1%

The legal profession is proving to be no better as a couple of firms that have recently disclosed their gender pay gaps show a large disparity.   Female employees for example at CMS Cameron McKenna Nabarro Olswang are paid 32.8% less per hour than male employees.   National law firm Shoesmiths has also disclosed a pay gap disparity of 13% in favour of male employees.

In the case of Easy Jet they explained that only 6% of its pilots are women attracting an annual salary of £92,400 and that 69% of lower paid cabin crew are women on an average annual salary of £24,800.    Easyjet said that it will be tackling their gender pay gap by setting a target of having one in five new entrant female pilots by 2020.

However it isn’t all doom and gloom as there are some model Employers who have addressed or are close to eliminating the gender pay gap.  One Employer who has no gender pay gap is the British Museum and the UK Armed Forces has a gender pay gap of only 0.9%

The law on Gender Pay Gap reporting falls under the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.  It affects all of the public sector, charities and private sector employers that employee more than 250 employees which can also include the self employed and Partners.

The first snapshot date at which the difference in pay between male and female employees must be calculated was 5 April 2017 and this includes regular pay, bonuses, and allowances but does not include overtime pay.

These figures must be made publicly available for example on a Company website with a signed statement from a Senior Manager or Director no later than 4 April 2018 and must be publicised for a period of at least three years.   The data must also be uploaded on to a Government website where the worst offenders are at risk of  being named and shamed.  Affected employers are then legally obliged to report on their gender pay gaps every year thereafter.

There are six pieces of information that must be published.

  1. The difference between the mean hourly rate of pay of male and female full-pay relevant employees.
  2. The difference between the median hourly rate of pay of male and female full-pay relevant employees.
  3. The difference between the mean bonus pay of male and female relevant employees.
  4. The difference between the median bonus of male and female relevant employees.
  5. The proportion of male and female relevant employees who were paid bonus pay during the bonus pay period.
  6. The proportions of male and female full-pay relevant employees in four pay bands as set out in the legislation.

The Equality and Human Rights Commission can also take enforcement action in the event that any stubborn employers fail to comply with their legal obligations in reporting their gender pay gap information.  In the worst case scenario this could result in an unlimited fine and even a conviction.

It is however more likely that employers in breach of the Regulations will be invited by the Commission to enter into a formal agreement rather than face an investigation.

It is therefore recommended that affected employers are proactive in collecting data in good time in order to ensure that they disclose their gender pay gap information before the 4 April deadline each year.  It is also important that employers do everything that they can to offer female employees equality of opportunity to reduce the gender pay gap that is still plaguing our society.

Please contact Steven Eckett at seckett@meaby.co.uk.

Should I transfer my property to my children now?

A common question that arises in the Private Client team is whether or not a client should transfer property to their children now, rather than leaving it to them in their Will. One of the reasons for this is to benefit a child that is struggling to purchase a property in the current market, but other more common reasons that pop up are to avoid potential future care home fees, or to avoid a large Inheritance Tax bill on death.

Whilst such lifetime planning can prove beneficial, there are other factors to consider when thinking about transferring your property to younger generations.

If the primary reason for transferring property is to avoid care home fees, you should be aware that local authorities can see past such transfers and may still include the property in their means testing notwithstanding the fact that you have given it away. It might also mean that you are divesting yourself of a major asset that could potentially fund much needed care in the future.

In addition, if you intend to continue living in the property that you wish to transfer, you may be caught by the Gift With A Reservation Of Benefit Rules. This can result in the Inland Revenue setting the gift aside for Inheritance Tax purposes for failing to fully divest yourself of any interest in the property and thereby making a “sham” gift.

There are also other taxes to take into consideration. There may be a Capital Gains Tax bill to pay if the property you are intending to transfer is not your main residence. In addition, if your child has not owned any property previously and is intending to purchase in the future, they may not be able to take advantage of the recent Stamp Duty benefits for First-Time Buyers.

Rather than giving your property to your children during your lifetime, you may find that structuring your Will in the correct way can achieve the objective of Inheritance Tax efficiency. For example, the Government have recently introduced a main residence nil rate band which currently amounts to £125,000 and will rise to £175,000 by 2020. Accordingly, if your property is left to your surviving spouse, and then to your direct descendants, you can take advantage of a nil rate band (tax free allowance) of up to £775,000. Inheritance Tax would be charged at 40% thereafter.

While lifetime gifts of property may be a very efficient tax-saving exercise, one must consider the implications and weigh up the alternatives first.
Meaby & Co can advise you on lifetime estate planning and Will drafting. Please contact Laura Sentkovsky at laura@meaby.co.uk with any questions.

Don’t leave it late, don’t make them wait…

And most of all… don’t miss the filing date.

Every day businesses and individuals are threatened with legal proceedings. Quite often, that threat is ignored or it is left until a claim has been issued before Lawyers are instructed.

All too frequently, even after a claim has been served, it sits on the edge of a desk or in a pile of papers almost in the hope that ignoring it resolves it. As whimsical as that may seem, the stark reality is quite different.

If there has been a threat of litigation or you have been served with a claim, there is significant value in seeking help as early as possible.

It may be that the matter can be resolved without the need for recourse to court proceedings or it could be resolved without the need to file an Acknowledgement of Service or Defence.

It is not unusual for the costs of seeking legal advice at the outset to be far less than the costs of defending a claim which may have been avoided.

If you decide not to instruct solicitors, you should pay careful attention to the dates by which you must file documents with the court. For example, an Acknowledgement of Service must be filed within 14 days from the date of service. A defence must be filed no later than 14 days thereafter, assuming you are defending the claim.

This in essence gives you a very small window of time in order to instruct a Solicitor, obtain advice, attempt to resolve the matter through negotiation and file a defence if need be.

The consequences of filing late are draconian and could result in Judgement being entered against you.

The sooner you seek help, the most positive the outcome is likely to be.

Contact Chris Waters at Meaby & Co for timely advice: cwaters@meaby.co.uk or call 0207 703 5034.