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Airspace Development Schemes

Airspace Development Schemes

Since August 2020 freeholders have been able to develop the airspace above the roof of the building without full planning permission under permitted development rules.

This new rule allows up to two additional storeys, where the existing building consists of two or more storeys; or one additional storey, where the existing building consists of one storey.

The initial building must have been constructed between 1st July 1948 or after 28th October 2018. For the most part and for comfort, prior approval will be sought first.

Freeholders (which we shall describe as the building owners in this note as that description could include a leaseholder with a pre-existing interest in the rooftop) with appropriate buildings ripe for such development will want to consider how they can maximise the value in their rooftop. If they feel bold or have prior experience then they might look to build the extra storeys themselves.

If not, they will look to other options.

The easiest and cleanest method is to sell their interest to a third party who does have the relevant expertise and financial backing to build the extra storeys. However, this may mean selling the reversion to pre-existing tenancies which will mean a loss of the ground rent income. The benefit of this route is that the building owner does not have to police the development and mediate between a new rooftop leaseholder and the existing leaseholders who may not welcome development. A sale of the building owner’s interest might either mean selling their property or, if the property is held by a company, selling the shares in that company.

Alternatively, rooftop and airspace leases are becoming more common. Coupled with other necessary rights such as licences to alter and scaffolding rights, a grant of a lease to a developer creates a leaseholder of that developer and grants the ability for the developer to build on the rooftop.

An alternative is that the building owner might seek to grant a developer rights to build the extra storeys. If this method is used then thought will have to be given as to how the developer will receive the financial benefit of having done so. One option is securing a joint venture agreement prior to the development in which the building owner and the developer agree what will happen with the additional storeys once constructed and how the profits will be split. Alternatively, the building owner and developer might consider a promotion agreement directing that the dwellings created by the additional storeys are marketed, sold and the profits dealt with in accordance with that agreement. Ultimately, if the developer has no proprietary interest in the rooftop, it will have to be the building owner that grants any leases to the end user.

Such a variety of options creates opportunity for the contracting parties to decide how to structure the deal financially. A developer might pay the building owner for the deal in advance of construction or sale or, alternatively, the building owner may defer payment by agreeing to be paid out of the sale proceeds.

If you have any questions on how to structure a rooftop development deal, please contact Meaby & Co at nc@meaby.co.uk or on 020 7703 5034.

We also have a website dedicated to this area of law: Rooftop Law

airspace legal firm
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The Impact of the Landlord and Tenant Act 1987 on Rooftop Development

The Impact of the Landlord and Tenant Act 1987 in the context of Rooftop Development

The Landlord and Tenant Act 1987 requires a landlord, in the event that they decide to sell to their interest on the open market, to offer it to the existing leaseholders before any sale to a third party.

Ownership of the freehold by residential leaseholders can be a good thing, of course. But if the leaseholders do not want to or cannot buy their freehold then this can cause delays in commercial sales.

The existing leaseholders’ right of first refusal applies provided that there are two more residential flats in the landlord’s building held by qualifying leaseholders and, of those flats, that they constitute more than 50% of the flats so contained. However, this obligation does not apply if the total extent of the commercial part of the building is more than 50% of the internal floor area.

The non-residential status of parts of the building might include an intention to convert from residential to non-residential in the future and this may be a way to circumvent the right of first refusal procedure although this would probably take longer than the right of first refusal process as only two months need to expire from receipt of those notices.

There are various exempt landlords but these are unlikely to be private landlords as exemption includes bodies such as housing trusts.

Avoidance techniques include putting a head lease in between the freehold and the leases of the residential long leaseholders but this requires advance planning. It is worth bearing in mind that the permitted development rights for rooftop extensions apply to buildings constructed between 1948 and 2018. Given that any existing residential flats are likely to have already been sold, unless thought was given before the sales of the residential flats to qualifying leaseholders then it is likely that the right of first refusal process will need to be followed as earlier blocks are unlikely to have a head lease in place to take advantage of this loophole.

Other exemptions include disposals by way of a gift to members of the landlord’s family. So, for example, if it is proposed that there is to be a lease of the rooftop and airspace and the reversionary interest is owned by a private individual than that private individual might grant a lease to a family member and that family member might assign it to the proposed developer.

Another loophole is the grant of a rooftop/airspace lease to an associated company of landlord. This is similar to a transfer to a family member before selling on to the third-party. However, both this and the grant of a head lease that require advance contemplation of the sale of the landlord’s interest.

We are aware that sometimes landlords set up associated companies years prior to any sale to satisfy the requirement that the company must have been an associated company of the landlord for a period of two years.

Alternatively, if a company, a landlord might consider selling the shares in the company but this would only work in practice if that company only held that one asset (unless a portfolio sale is intended).

Some might feel that if the tenants accept the offer made by the landlord under the right of first refusal process then does it really matter who they sell to? However, most rooftop and airspace leases (and this is the type of transaction envisaged by this note) would be far too complicated and expensive for the existing leaseholders to consider taking it up. Very few residential leaseholders fancy themselves as developers (although never say never and we saw one instance of this in 2021). Generally speaking and in reality: not many residential leaseholder would want to pay the sort of premium that a developer would pay to the landlord to thwart that development.

 

If you have any questions on right of first refusal, please contact Meaby & Co at nc@meaby.co.uk or on 020 7703 5034.

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WHAT DOES ‘DEPOSIT’ MEAN IN CONVEYANCING?

When buying a property and hearing the word ‘deposit’ you would immediately link it to the deposit your mortgage broker told you about (or to the one that the bank is asking for). However, ‘deposit’ does not always mean the sum of money you are providing on exchange of contracts.

The meaning of ‘deposit’ in conveyancing.

In conveyancing the word ‘deposit’ has two meanings.

The first one is obvious – you will tell the mortgage broker or the lender what amount of money you have available and it will be used to calculate the Loan to Value ratio (LTV). For example, usually the lender will ask for at least 10% deposit to be able to provide you with a mortgage. During the COVID-19 pandemic, lenders started to ask for bigger deposits and some lenders now ask you to provide 20% of the purchase price. There is also a possibility of providing 5% deposit when you are using a scheme such as Help to Buy.

On the other hand you might have inherited a sum of money and you want to use it towards the deposit. That would mean that you will have, for example, 60% deposit available and the lender will only provide you with the mortgage of 40% of the value of the property.

However, there is a second meaning of the word ‘deposit’ in conveyancing and it is also very important. When you receive a contract to sign you will see that the solicitor must write two amounts in the spaces provided– one for the purchase price and one for the deposit. In this contractual meaning, the deposit means the amount of money you might lose when the transaction will not complete due to the default of the buyer. This should not amount to more than 10% of the value of the property, however sellers do not usually agree for it to be less than 10%. In the case of Rock v Ready [2016] EWHC 3043 (Ch) the buyer lost £43,000 because they failed to complete.

Therefore it is important to distinguish between the deposit in the context of the lender and the contractual deposit. Even though you might want to put 60% deposit towards the purchase, the contractual deposit should not be more than 10% of the purchase price to secure the rest of your money.

To discuss any property related issues, please contact us on 0207 703 5034. You can also visit our Property Section to find out more.

Lawyer For Second Home
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Second Home Buyers’ Boost

If you have any conveyancing queries relating to buying a second home please do not hesitate to contact us for a free, no-obligation chat on 0207 703 5034  or fill out our contact form and we will come back to you.  We are happy to answer your questions and advise how we may be able to help.

Our Head Of Property, Partner Chris Sarsfield, was quoted in the Sunday Times newspaper on the subject of how the Stamp Duty holiday would affect second home buyers. 

Chancellor Rishi Sunak’s decision to raise the Stamp Duty threshold to £500,000 until the end of March 2021 has proved to be an unexpected boost for second home buyers.

Although second home buyers will still be charged a 3 per cent surcharge on the total cost of their property it still creates significant savings.

For example, someone buying a second home for £500,000 during the Stamp Duty holiday will now pay £15,000 rather than £30,000.

Mr Sarsfield helped the Sunday Times produce an article explaining how the new working from home mentality caused by lockdown combined with the Stamp Duty holiday was creating large demands for second homes.

He commented: ‘Once working-from-home patterns had been established and it became apparent that this new flexible way of working was going to continue after lockdown finishes there was a  significant upsurge in people wanting properties outside of London, and particularly by the coast.

‘This second home trend is inevitably going to be turbo-charged by the chancellor’s stamp duty holiday. Until recently we’d seen a large drop in purchases of second homes after the stamp duty surcharge was introduced but I think people will take real advantage of this window. Suddenly someone buying a second home for £500,000 is having to pay £15,000 rather than £30,000 in stamp duty which is clearly a significant saving.

‘People have realised that they can work from home by the sea and perhaps only have to commute into London once a week. It suddenly doesn’t matter that a second home is a couple of hours from the office. It means they can get proper use of the home, particularly in the holidays when the children aren’t at school.

‘The stamp duty holiday has also been a real boost for those wanting to purchase holiday lets because it makes it more affordable and more likely that the numbers will add up to allow them to afford a buy-to-let mortgage.’

If you have any queries relating to conveyancing around second homes please do not hesitate to contact us for a free, no-obligation chat on 0207 703 5034  or fill out our contact form and we will come back to you.  

Licence to Assign rules
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What is a Licence to Assign? Why do I need the Freeholder’s consent to sell?

When selling their flat, leaseholders are often surprised to find out that they need the freeholder’s consent to sell- this is known as a Licence to Assign. 

If you have any queries do not hesitate to contact us for a free, no-obligation quote by calling 0207 703 5034 or email us at info@meaby.co.uk. Find out more: Meaby&Co Solicitors Property Law 

Why is a Licence To Assign necessary?

A minority of leases will contain a provision stating that the property may not be “assigned”, i.e. sold or otherwise transferred, without the “prior consent in writing of the Lessor”.

This means that the freeholder’s consent must be obtained by the seller, and at the seller’s expense, before the sale may proceed to completion.

A Licence To Assign is usually found in leases for large purpose-built blocks of flats, often with a high service charge.  The reasoning behind it is  quite sensible. It is to ensure that the incoming owner is of suitable financial status to be able to pay the service charge.  For the same reason, some leases also prevent the sale of a property to a company, or particularly to an overseas company, without a personal guarantee from a UK-based director of the company.

How does a Licence To Assign work?

In order to establish that the buyer can afford the service charge, the freeholder will instruct their solicitors or managing agents to seek references from the buyer. This  is usually a bank reference stating that the buyer is capable of meeting the service charge payments, and either an employer’s reference or a personal reference (or both) to confirm that the buyer is of suitable character to live in what the freeholder clearly believes is a cut above the average block of flats.

Unfortunately, this often leads to considerably higher charges relating to the sale, with the freeholder’s solicitors frequently charging £1,000 or more for what is ostensibly an exercise in paperwork.  It stands to reason that any person buying a property, whether with a mortgage or as a cash buyer, can afford the service charge, even where the service charge is high.  But where the lease requires the freeholder’s consent, there is little that the seller can do but comply if they want their sale to proceed as planned.

How long does it take to obtain a Licence To Assign and can the Freeholder refuse to give consent?

Freeholders are barred by legislation from unreasonably withholding or delaying consent, but this is perhaps not legislation that many sellers will wish to rely on, as to do so would involve an application to court, which would naturally delay their sale by months.  Typically, obtaining the freeholder’s Licence to Assign will perhaps add three or four weeks to the overall timescale as long as the need for the Licence is spotted early on in the process by the acting solicitors.

Should you have any queries in relation to buying or selling a property, then please do not hesitate to contact Meaby&Co for a free, no-obligation quote by emailing info@meaby.co.uk or calling is on 0207 703 5034.

Find out more: Meaby&Co Solicitors Property Law 

Blogs
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New Build Warranties – Owners exposed as Insurer goes bust

If you have any queries relating to new build properties and warranties please do not hesitate to contact us for a free, no-obligation chat on 0207 703 5034  or fill out our contact form and we will come back to you.  We are happy to answer your questions and advise how we may be able to help.

What Happens If I Lose My New Building Warranty?

Approximately 21,000 owners of new build properties have been left without cover following the bankruptcy of Alpha Insurance last year.

Alpha Insurance was a Danish company which provided direct insurance cover to UK homebuyers as well as underwriting new-build warranties provided by other companies including CRL. As a result of the collapse of Alpha Insurance, any policies they issued or had underwritten were terminated on 11th August 2018.

Since August 2018, the Financial Services Compensation Scheme (FSCS) has been working alongside the Company liquidators and CRL to secure an alternative insurance provider who would be willing to take on the existing warranties. Despite positive discussions taking place with a rated insurer, a deal agreed in principal collapsed, and it was recently announced that no warranties would be transferred.

As such, thousands of homeowners have been left without any insurance cover against defects which arise within the first 10 years of construction. The consequences could be catastrophic for those affected as they would need to fund any repairs themselves and may have serious difficulty in selling their property until it is more than 10 years old. Whilst a cash investor may be willing to ‘take a view’ for the right price, it is extremely unlikely that any mortgage lender would be prepared to lend against the property therefore significantly reducing the number of buyers available.

The FSCS has published a dedicated page on their website which contains information and updates for those affected https://www.fscs.org.uk/failed-firms/alpha/. Whilst it would seem that most of the affected homeowners have received a refund of the policy premium, this is going to be of little comfort to those who have purchased properties in the last few years which may not yet have shown signs of structural defects.

An update from the FSCS on 19th August advised that “Once the premium insurance refund has been paid, FSCS recommends that policyholders seek professional advice on obtaining replacement cover as soon as possible by contacting a suitable insurance broker who specialises in latent defect/structural damage policies. Policyholders may be in breach of their mortgage terms and conditions if they do not have a valid latent defect policy for their property. Should policyholders not know of a suitable insurance broker to help with replacement cover, they can get help via the British Insurance Brokers’ Association’s ‘Find-A-Broker’ service by telephoning 0370 950 1790, email fab@biba.org.uk.”

Those affected may wish to consider following the FSCS guidance and trying to obtain their own replacement warranty. Before taking out such a warranty, it would be prudent to check that the chosen provider is on the list of insurers who are acceptable to most High Street mortgage lenders. The relevant information is located in the UK Finance Mortgage Lenders’ Handbook which can be found on the following website https://www.cml.org.uk/lenders-handbook/englandandwales/question-list/1913/. It is worth noting however, that this is simply a list of insurers which are currently acceptable to each lender. It does not guarantee the current or future financial stability of the insurer (until their collapse Alpha Insurance was on this list as an approved insurer) and homeowners ought to take professional advice from a financial advisor/insurer broker if they have any concerns in this respect

 

If you have any queries regarding new build warranties or any other aspect of residential conveyancing, please contact Stephen Carr on 01306 884432 or email scarr@meaby.co.uk

 

 

 

 

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I’m buying a property – when should I serve notice on my rental?

We are here to supply expert advice for all your property buying and selling needs. Please do not hesitate to contact for a free, no-obligation quote on 0207 703 5034 or email us at info@meaby.co.uk. Find out more: Meaby&Co Solicitors Property Law 

Sometimes, a first time buyer will ask us when to serve notice on their rental accommodation.  It is very difficult at the beginning of the transaction to know when a purchase will complete.  The length of the transaction depends upon a number of factors, including the speed of all parties in the chain, i.e. buyers, sellers, solicitors, lenders and managing agents (if the property is leasehold).

When to serve notice will also depend upon how complicated a transaction is and whether there are any difficult issues to resolve and if there is a chain and how long it is.  If there is a chain, then the transaction can only move as quickly as the slowest link in the chain.  Instructing a conveyancer who is responsive, pragmatic and efficient will certainly speed up matters in the transaction, but there may be issues outside of your conveyancer’s control, particularly if they relate to a third party or another part of the chain.

If you were to serve notice on your rental at the beginning if the transaction, there is no guarantee that you will be able to complete before the end of the rental period.

It is a risk to serve notice before exchange of contracts.

Serving notice on a rental before exchange of contracts will mean a risk of you having to find alternative accommodation and storage if there is a delay in the transaction, such as waiting a long time for documents, resolving a title issue or waiting on one part of the chain to catch up with the rest of the chain.  It is possible that the seller or another party in the chain may have to put the process on hold for a while due to personal circumstances, or certain circumstances may require them to ask for a long time between exchange and completion.

If there is a chain, then one transaction in the chain could fall through which could mean that the chain could collapse or the chain could be delayed while that part of the chain is reinstated and that transaction has to catch up with the rest of the chain.

In conveyancing transactions, there is no legally binding contract until contracts are formally exchanged.  At any point before exchange of contracts, either the buyer or the seller can pull out of the transaction without penalty.  If a buyer were to serve notice on their rental only for the seller to pull out of the transaction, then the buyer would have to find another property to buy and start the process from the beginning.  This would likely mean an extended time in alternative accommodation or having to find another rental for a period of time.

Serving notice on your rental before exchange of contracts also puts a buyer in a weaker bargaining position.  If the papers to the property reveal any issues or adverse matters or if a survey reveals there are a number of problems with the property which require expensive repairs, then the buyer, being aware that their rental will end in the near future, may feel under pressure to proceed with the purchase notwithstanding the issues, whereas they may have pulled out if they did not have the pressure of their rental ending.  If the buyer wished to negotiate a price reduction due to issues on their survey, then they may be in a weaker bargaining position if they felt under pressure due to their rental ending soon.

Our advice

Our usual advice is to wait until contracts are exchanged before serving notice on a rental.  Once contracts are exchanged, the contract is legally binding and a fixed completion date is set.  This may mean a period of paying both mortgage instalments and rent at the same time, but many buyers will feel safer doing this than risking having to find alternative accommodation or storage if the transaction does not run to the timescales they had hoped for.

 

If you are buying or selling a property, please do not hesitate to contact us for a free, no-obligation quote on 0207 703 5034 or email us at info@meaby.co.uk.

Find our more: Meaby&Co Solicitors Property Law 

 

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Airspace Developments

Visit our dedicated Rooftop Law website to find out more how our legal team can help you.

You’ve all seen the advertisements:  “Amazing development rooftop development opportunity” These offer a great chance for development where there is little available land on the ground but there is a lot to consider when considering taking a lease to add floors to an existing development and the devil is in the detail.

Rights under the existing leases: You must consider whether the existing long leases in the building contain rights of access on to the roof at the time of original grant and whether your proposed redevelopment would infringe those rights. You don’t want disgruntled tenants in the building arguing that your new levels constitute a derogation of grant.

Right of first refusal – In  certain circumstances a disposal by a landlord of a roof space will be deemed a relevant disposal under the right of first refusal provisions of the Landlord and Tenant Act 1987 (Check out the decision in Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] EWHC 350). Before taking on a lease of a roof space notices may need to be served on the tenants in the building to offer them to take up the right to buy the roof space themselves. We often find that tenants can be motivated to accept this opportunity – even if they have no development aspirations themselves, they may wish to thwart development going on above their heads.

Nuisance clauses – Many leases contain provisions restricting the tenant from using premises “in a manner that would cause loss, damage, injury, nuisance or inconvenience to the Landlord, its other tenants or any other owner or occupier of neighbouring property” and freeholders will likely be obliged under the terms of the existing leases to take action where there has been a complaint by one of the existing tenants.

Substantially the same form – many residential leases that we read contain covenants obliging the landlord to grant leases in the building in substantially the same form. Can you be sure that the freeholder is able to grant the lease of the air space in the form that you may need to carry out the development?

Service charge adjustments – if the service charge proportions are set out in fixed percentages in the lease, which tends to be more of a feature in older style leases, will the grant of your lease affect the service charge proportions in the building?

Will you have the rights to construct additional floors? Have the existing residential leases reserved the right to develop the landlord’s building as the landlord thinks fit? How will you reach the upper parts? Are there rights to construct scaffolding outside the windows of the existing tenants? Read our related blog on A Tenant’s Quiet Enjoyment vs a Landlord’s Right to Develop. A comment upon Timothy Taylor Ltd v Mayfair House Corporation and Another  [2016] EWHC 1075 (CH) HERE:  https://www.meaby.co.uk/quiet-enjoyment-vs-noisy-development-tenants-rights

These are just some of the few considerations.

Contact Nicky Cleightonhills on ncleightonhills@meaby.co.uk for development matters.

Meaby&Co Property Lawyers London
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Transfers of Equity – Considered Stamp Duty?

You may have bought a property jointly with another co-owner and when circumstances change, you may want to sell your interest in the property or buy out the co-owners share. This type of transaction is known as a Transfer of Equity. A common scenario may be where a property is originally purchased with a family member. For instance, brother A and brother B may own a property which they purchased with a mortgage and which they hold as tenants in common in equal shares.