- Bargains for buyers or buyer beware?
- A Reminder of the Need to Comply the Disability and Discrimination Act 1995
- Purchasing a freehold reversion
- Super-leases
- Virtual Assignments: Still a possibility?
- Planning permission conditions
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Bargains for buyers or buyer beware?
In the current economic climate, businesses and individuals are on the look-out for a bargain. Real estate owned or leased by an insolvent company are becoming particularly attractive as many businesses are taking the opportunity to acquire assets of insolvent businesses at significantly less than the market rate.
While there are likely to be bargains available, it is important to be cautious when dealing with a company entering insolvency, or entering into any property-related contract with an insolvency practitioner appointed to realise the value in the company assets.
Pre-insolvency disposals
The basic position is that a company is deemed to be insolvent on the day of the presentation of the winding up petition, unless the petition is later dismissed for any reason. Therefore, in the period after presentation of the petition, yet before a winding up order is made and a Liquidator is appointed, a company may not dispose of any of its property without the consent of the Court. Such a disposal would include a contract, a conveyance or a transfer.
Prospective property buyers from a company that may be struggling financially should proceed with caution. If a buyer intends to enter into a contract to purchase property following the date of the presentation of a winding up petition, the buyer should make an application to the Court for approval to proceed with the transaction or should otherwise require the seller to do so. A party to the transaction can apply to the Court for a prospective validation of a transaction before the winding up order is made and if there is no serious risk to other creditors, the Court is likely to make the order.
Buyers should also be aware that a Liquidator can accept the contract and bring proceedings against the buyer to enforce the terms if the buyer tries to avoid the contract. It should also be borne in mind that once a petition has been advertised in the London Gazette, all parties are deemed to have notice of it. For this reason, prospective purchasers of property from a volatile company should check the London Gazette regularly.
Post – insolvency Disposals
When a company goes into administration or liquidation the Administrator or Liquidator, (known as Office Holders) will look to sell the company assets to realise funds for the benefit of the creditors. If property owned by the company is subject to security, either the Office Holder or secured creditor will look to sell the property.
When an Office Holder disposes of an interest in real property (land or buildings), then a prospective buyer is unlikely to be able to carry out a full investigation of title. The buyer is also unlikely to be able to raise enquiries with the seller regarding gaps in the information available from searches, as would normally be the case in a standard transaction.
When dealing with an Office Holder, the burden is entirely on the buyer to carry out the best investigation possible within the time available. In addition, the Office Holder is unlikely to provide any form of title guarantee and, on that basis; buyers will be left to proceed at their own risk as to title.
So, whilst there may be bargains to be had in acquiring assets from an insolvent company, prospective buyers need to be aware of the potential traps and pitfalls in acquiring such assets.
A Reminder of the Need to Comply the Disability and Discrimination Act 1995
A recent case involving RBS, The Royal Bank of Scotland Group plc v David Allen, serves as a reminder of the need for “providers of services” to make sure they comply with the Disability Discrimination Act 1995 ( DDA”). Below is a brief summary of the requirements of the DDA followed by the details of the case:
Summary Provisions of the DDA
The basic obligation under the DDA is that for a “provider of services” to the public or a section of the public, it is unlawful under the DDA to discriminate against a disabled person:
By refusing to provide or deliberately not providing a service to a disabled person which the provider provides or is prepared to provide to members of the public.
By having a practice, policy or procedure making it impossible or unreasonably difficult for disabled persons to make use of a service which he provides, or is prepared to provide, to other members of the public. It is his duty to take such steps as it is reasonable, in all the circumstances of the case, for him to have to take in order to change that practice, policy or procedure so that it no longer has that effect.
In the standard of service he provides to the disabled person.
The Royal Bank of Scotland Group plc v David Allen
This case revolves around the second point in the above list; what is considered to be the provision of a reasonable alternative where access for a disabled person has been prevented. Here, access was to Mr Allen’s local branch of RBS. Mr Allen used a wheelchair and the branch he preferred to use had steps at the entrance. Mr Allen contended that RBS should provide a platform lift to allow Mr Allen to enter the bank.
In this case, the Court of Appeal unanimously dismissed RBS’s appeal against the previous County Court decision and held that the alternative provisions suggested by RBS of telephone and internet banking did not amount to the provision of a reasonable alternative whilst the provision of a platform lift would be a reasonable alternative provision.
This case will serve as a warning to providers of services to the public that they must ensure they provide proper access to their services to people with a disability and that they have considered where reasonable alternative might be provided, ensuring their compliance with DDA obligations.
Purchasing a freehold reversion
When acquiring freehold property subject to existing leases, potential buyers should be wary of accepting the leases at face value. In particular, they should avoid making the assumption that when they acquire the property the current arrangements for payment of rent and other tenant’s covenants will be as agreed in the lease.
Problems can arise when the tenant has made informal arrangements with the current owner in relation to their covenants. For example, the frequency of rental payments, and such arrangements may be enforceable against new owners.
In the case of Hazel v Ahktar (2001), the court held that where such arrangements had been made, any new owner could not expect nor require the tenant to immediately revert to strict compliance with the terms of the lease unless reasonable notice of this requirement was given.
There are a number of actions that can be taken to avoid any nasty surprises arising after completion. Firstly, all potential purchasers should ensure that they carry out full and detailed enquiries of the current owner relating to the lease. The existence of any such agreement and their exact terms can be ascertained prior to exchange and completion.
If any such agreements do exist, appropriate steps should be taken to ensure that notice is given to the tenant (as soon as possible) that the buyer requires compliance with the terms of the lease as drafted. It may be possible for the buyer to persuade the current owner to issue the notice to the tenant. However, any owner may be reluctant to do so at any stage earlier then exchange of contracts. However, once the purchase has been completed, the buyer will be in a position to issue the notice themselves, and should do so without delay.
As has been widely reported over the changing economic climate, tenants, in particular in large retail parks and shopping centres, have gained some power and strength in their negotiating position when taking or renewing leases. It is obviously a landlord’s desire to have their premises fully-let and to further try and attract large household-named retailers to their sites and centres.
Recent months have seen a move towards tenants trying to secure monthly, rather than quarterly, rent to ease cash flow problems along with other more tenant-friendly terms.
One of the country's largest commercial property company has made huge inroads into dealing with this issue by offering a new lease offering monthly rents and simpler, more transparent terms, which is being dubbed the ‘Superlease’.
Retailers, such as Argos and O2, have signed up to this new Superlease with the hope that the other leading retail landlords will use it with retailers. Under these Superleases, the tenants will be offered:
- Monthly rent payment
Where previously these were offered, it was not uncommon to find a premium charge calculated on a percentage of the rent, this is if tenants were permitted to do this at all. - Incorporation of the Service Charge Code and Lease Code
These are the fair terms that RICS produced so that tenants were able to benefit from more tenant-friendly leases. - Change of use of property
The ability for a tenant to change the use of the property if the landlord does not respond within 15 days of the request under a 'deemed consent' clause. - Subletting
The ability for a tenant to sublet the property if the landlord does not respond within 15 days of a request under a further 'deemed consent' clause. - Review of rents
As opposed to open market rent reviews, a shift towards the rent to be reviewed in accordance with the retail price index.
Land Securities, the large retail landlord, plans to roll out the Superlease across its entire retail portfolio and it is hoped that other large landlords will follow suit. This, together with the plan that was agreed with a number of the UK’s largest landlords working in consultation with the British Property Foundation to agree a 10 point plan focusing on 10 cost-efficiency steps with a view to cutting the cost for retailer tenants released in April 2009 has seen significant steps towards a more tenant-friendly retail property environment.
Historically, rents were always payable quarterly, but trends have seen a shift towards landlords being more willing to accept monthly rent. Some landlords still refuse to record this in the lease and prefer to record the monthly rent arrangement by way of a side letter (which is personal to the tenant and always remain to be revocable).
This new Superlease hopes to take this one step further and encourages all landlords to allow tenants to pay rent monthly. Not only does monthly rent arrangements allow the tenant to manage cash flow better, it allows the landlord to have a more accurate impression of regular rent payments, allowing them to act quicker if a tenant falls into arrears with their rent rather than just checking on this quarterly.
The chief executive of the British Property Federation has made the observation that landlords and tenants working together has allowed greater transparency between the parties to achieve the most suitable position for all concerned.
This can only be timely good news for retailer tenants, as the first steps towards the future of the retail rental market taking on a more balanced position.
Virtual Assignments: Still a possibility?
In both boom and bust times the possibility of a virtual assignment has been explored by tenants looking to get rid of, move on from, or make a profit on leases where the lease has covenants against assignment or parting with possession without the consent of the landlord. A tenant may not wish to approach a landlord for consent if he knows that the tenant is not of the financial standing the landlord will require or if the consent is unlikely to come through in the timescale that the tenant requires.
In a very specific scenario, where the property has already been under let (with the consent of the landlord), a transfer of the economic benefits and burdens of the lease to a third party (but without any change of occupier or actual assignment) can be effective. The third party is granted a power of attorney to act on behalf of the tenant in relation to the property.
The Court of Appeal in Clarence House Ltd –v- National Westminster Bank plc found that this form of virtual assignment did not constitute a breach of the lease as it did not transfer to the third party any interest in the premises, nor did it give the third party any contractual or occupational right in relation to the property or a right to receive the rent. In effect, the relationship between the landlord and the tenant remained the same.
Further schemes are being developed to achieve the same ends where, perhaps, not all the ingredients for a virtual assignment are in place. For example, management agreements that establish an agency relationship should not run the risk of any breach of the alienation covenants. Partnerships or joint ventures may also be effective.
At the present, most landlords are unwilling to forfeit for breach of lease anyway (being only too pleased to be receiving the rent) and may not look too closely at the arrangements of their tenants. In the future, agreements that are put in place now may be tested, therefore creative and forward looking advice is a must.
Planning permission conditions
During the last few years many property developers and business owners alike have been forced to put their development plans on hold as they wait for the recession to draw to a close and many planning permissions that might have been granted before the recession took hold, have been left unused - but how long will they last?
Planning permissions can be granted with many conditions and limited in time. The standard time frame imposed is three years, but planners can impose shorter or longer time frames if they find this appropriate.
Now that the economy is beginning to look up, many developers and business owners are considering what their next steps are. It is important that the terms of any existing planning permissions are checked as soon as possible. If planning permissions are due to run out, or if the planning conditions cannot now (or are unlikely to) be satisfied, there are a number options available.
On 1st October 2009 the Government brought in some changes to create greater flexibility for planning permissions. These changes are intended to assist during these difficult economic times.
Now, in order to vary the conditions of a planning permission, the following options should be considered:
Section 73 of the Town and Country Planning Act 1990 (TCPA 1990) allows minor material amendments to be made to a planning permission that has been granted (subject to conditions). Upon application the Local Planning Authority (LPA) will only consider conditions attached to the original permission and not the permission itself. Whilst the applicant may obtain a revised permission which omits one or more of the existing planning conditions, beware the risk of new conditions, which the LPA may impose as a result of policy changes since the date of the original planning application.
Section 96A in the TCPA 1990 allows LPAs to make changes to any planning permissions granted in their area, provided that the change is not material. As above, the LPA will have the authority to impose new conditions to the planning permission when considering a section 96A application. Applications of this sort can only be made by a person with an interest in the property subject to the planning permission.
What if the planning permission is due to Lapse?
Planning permissions will lapse if they have not been implemented within the time frame set out in the planning permission. As a temporary measure, it is possible to apply to extend the time available to commence a development before the planning permission lapses. This is known as an Article 10B(b) application.
There are three conditions to making an Article 10B(b) application:
1 The original planning permission must be granted prior to 1 October 2009.
2 The original planning permission must be valid at the date the Article 10B(b) application is made.
3 The development has not yet commenced.
Outline planning permissions may also be extended under this article where:
• The outline permission was granted before 01 October 2009
• The time limit for the submission of reserved matters has not yet expired or where reserved matters have been submitted the time for the development to commence has not expired
• Development has not commenced.
The DCLG has issued some useful guidance, which includes a comparison table for the three types of applications outlined above, entitled “Greater flexibility for planning permissions Guidance”. Depending on which route is taken, there are a number of benefits to the changes. For instance, fresh designs, access statements, plans and drawings may no longer required for the variation sought.
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