Letter to Santa: a commercial property lawyer sends his festive wishlist to the Place North Pole
I’ve been very good this year (on the whole), so here is my list of a few things I’d really like for Christmas:
- Reform of the procedure for landlords and tenants to contract business tenancies out of security of tenure and statutory renewal rights under the Landlord and Tenant Act 1954. If we can allow a tenant to enter into a commercial lease at a massive rent, with upwards-only rent reviews and significant onerous liabilities to repair, pay service charges etc without needing to give them a notice spelling out the implications and getting them to provide a declaration that they understand, surely we can allow tenants (or at least those with legal representation) to give up their statutory rights by way of a simple clause in the lease?
The position is even more absurd on the surrender of a business tenancy, where a tenant who enters into an agreement to surrender must be given a notice of the statutory rights they will be giving up (and make the declaration that they understand), whereas no such notice and declaration are required where a tenant enters into an immediate surrender giving up precisely the same rights.
- An end to the charging of Stamp Duty Land Tax on the VAT element of the purchase price in commercial property transactions. VAT is supposed to be neutral for VAT-registered businesses, but by way of example SDLT on a £250,000 purchase is £9,000 if VAT is payable on the purchase price but only £2,500 if VAT is not payable. The buyer will be able to recover the VAT itself, but not the additional SDLT paid as a result.
- In a year that has witnessed the actual and proposed demise of flagship energy efficiency initiatives such as the Green Deal and the Carbon Reduction Commitment and has also seen the impact of new schemes such as Minimum Energy Efficiency Standards, the Heat Network Regulations and the Energy Savings Opportunity Scheme, please can we have a consistent and coherent policy on the energy efficiency of buildings. Property owners and occupiers need to understand what is required of them and where the policy agenda is going if they are to be able to formulate appropriate strategies and implement them with some degree of certainty.
- On the subject of the Heat Network Regulations, please can we have some official guidance (or maybe an amendment to the Regulations themselves) confirming how to reconcile the new statutory obligation on landlords to bill tenants for heating, cooling and hot water according to their actual usage with pre-existing contractual arrangements (usually found in the service charge provisions of the lease) requiring the tenant to pay for such services on another basis.
The following requests are perhaps a little more unconventional, but see what you can do:
- A brief Act of Parliament confirming that any comments made ‘obiter’ (in passing) by Lord Neuberger during his judgments have the status of absolute law. His lordship has an admirable tendency to stray beyond the immediate confines of the case in hand and comment on wider, related issues, in an attempt to settle unresolved points of law. While this is extremely useful (and it would take a very robust court to say that the President of the Supreme Court was wrong), the obiter status of his comments means that some unwelcome doubt remains over them, including his assertions that:
- On the assignment of a lease, the outgoing tenant’s guarantor can validly guarantee the Authorised Guarantee Agreement being given by the outgoing tenant (the so-called ‘Guaranteed Authorised Guarantee Agreement’, or ‘GAGA’)
- On the exercise of a break clause in a lease that does not take effect at the end of a rental period, the tenant can apportion the rent and only pay up to the break date if it is certain on the last rent payment day that the lease will definitely end on the break date.
- In fact, in the absence of appropriate test cases, how about a forum where Lord Neuberger and other senior judges can debate and resolve (with the same binding authority as a Supreme Court judgment) all those troublesome issues where the law is currently uncertain and a definite answer would be useful, such as:
- Do the residential tenants with long leases in a mixed-use building really need to be served with ‘section 5’ notices under the Landlord and Tenant Act 1987 giving them first refusal before the landlord can grant a rack rent lease of the ground floor shop unit (as suggested by the High Court in Dartmouth Court v Berisworth (2008))?
- What is the true status of chancel repair liability since it lost ‘overriding interest’ status in October 2013? In the absence of a binding judicial decision, the Land Registry feels compelled to register applications to note chancel repair liability that are received during the period of a buyer’s pre-completion priority search and even applications received after a transfer for value has been completed and registered. This uncertain outcome benefits neither the landowner whose property is blighted by the notice, nor the parochial church council who does not know whether their claim is really protected and enforceable.
- Since sellers often have difficulty providing complete, accurate and reliable information on these matters, searchable registers listing all the properties where:
- capital allowances have been claimed
- a VAT election has been made
If all else fails:
- Chocolate (lots of it)!
Bill Chandler (age 43 years)
One out of every five commercial properties in England and Wales will potentially become unlettable overnight when Minimum Energy Efficiency Standards come into force next year.
The legal effect of varying a lease can sometimes be to destroy the existing lease and bring a completely new lease into being, with unexpected and far-reaching consequences.
Linking lease rents to inflation is an easy and increasingly popular way of ensuring that rental income from commercial property does not lose touch with the market.