What’s on the (Tory blue) horizon for the Property Industry?

by Hardwick Legal | May 12, 2015 | Purpose Built (LexisNexis)

After the election dust has settled - which will likely involve new brooms for Labour, Lib Dems and UKIP - what will be on the cards for the property industry over the next five years?

Mansion Tax

Labour’s proposed mansion tax on properties over £2 million is less likely. Instead, the family home will be taken out of Inheritance Tax for all but the richest by raising the threshold for married couples and civil partners to £1 million.

Buy-to-Let

Private landlords will be relieved to hear that Labour’s proposals to regulate the industry by introducing 3 year tenancies with rent control are not an immediate concern.

Right to Buy

The Conservatives propose to extend the scheme to:

• 500,000 housing association tenants who currently have no right to buy their home; and
• a further 800,000 who currently qualify (but only for less generous discounts of £16,000 or less).

The scheme will be funded by requiring councils to sell off their most valuable housing stock as it becomes vacant and replace it with cheaper property.

The proposals are somewhat controversial and have been criticized by housing associations and industry bodies alike. There are a number of major issues which will need to be surmounted if such proposals are to go ahead, including:

• Many housing associations are charitable bodies bound by rules not to dispose of assets for less than full value and to further their charitable objects - the principal one being to provide housing to those in poverty. Selling homes at an undervalue to promote home ownership likely falls outside even the widest interpretation of this object.
• Many schemes built by housing associations were funded with debt or equity finance and are reliant on a rental income stream.

Custom/Self-Build

Historically, a number of barriers have led to significantly fewer homes being self-built in the UK versus the rest of Europe. Such barriers have included:

• limited access to suitable plots of land;
• access to development finance; and
• regulatory hurdles.

The Conservatives have pledged to double the number of custom-built and self-built homes by 2020.

At the moment there is no obligation on local authorities to make plots available for custom/self-build homes. The Self-build and Custom Housebuilding Act 2015 (SCHA 2015) which came into effect in March 2015 requires local authorities to keep registers of those interested in custom building their homes. The aim is for local authorities to build up a picture of demand for custom/self-built homes in their area. Applicants will probably need to show a connection with the local area to be eligible (eg period of residence).

Further regulation and guidance can be expected setting out the detailed operation of the local registers early in this Parliament. Regulations will be informed by the consultation responses and the practical experience of the 11 test local councils see: Consultation response.

The Government’s ultimate aim - following such consultations and trials - is to reach a point where it can legislate for local authorities to be subject to a legal obligation to allocate land to local people for the purpose of building or commissioning their own homes under the Right to Build Scheme.

Custom/self-build homes are also exempt from the community infrastructure levy and the government is looking at a range of planning reforms for self-builders and reducing other costs through changes to s 106 affordable housing contributions.

The Homes and Communities Agency is supporting a number of  developments providing plots for  custom build in Middlesbrough, Milton Keynes, Basildon, Telford and Basingstoke.  See further:  HCA Custom Build.

Human Rights Act

The Human Rights Act is in the firing line with the Conservative pledge to scrap it and introduce a British Bill of Rights which they claim will:

“[restore] common sense to the application of human rights in the UK…. Which will protect…..the right to a fair trial…… But it will reverse the mission creep that has meant human rights law being used for more and more purposes…..”.

For followers of the development of Article 8 of the European Convention on Human Rights in the context of possession claims in  Manchester City Council v Pinnock [2010] UKSC 45, [2010] All ER (D) 42 (Nov) and more recently Lawal and another v Circle 33 Housing Trust [2014] EWCA Civ 1514, [2014] All ER (D) 266 (Nov)…watch this space.

(LexisPSL subscribers can read more here:https://www.lexisnexis.com/uk/lexispsl/property/document/412012/5DRY-J241-DYW7-W49P-00000-00/Life%20after%20Pinnock%E2%80%94human%20rights%20and%20social%20landlords

Is there any immediate action practitioners should consider taking in light of the result?

If you advise Housing Associations:

• consider working with clients to identify those schemes likely to be affected if Right to Buy extension proceeds; and
• assess what mitigation measures may be put in place (particularly around structuring and financing).

If you advise local authorities / builders / developers:

Consider advising clients and developing package documentation for financial and legal agreements in:

• public private partnerships;
• custom build;
• marketing materials;
• online register template;
• training;
• help desk process; and
• direct bid mechanism for the Custom Build Serviced Plots Loan fund. 

See further http://www.selfbuildportal.org.uk.

Source: LexisNexis Purpose Built

The Built Environment under the Conservatives

by Hardwick Legal | May 8, 2015 | Purpose Built (LexisNexis)

In the wake the Conservative Party’s solid win in last night’s election, we’ve trimmed our five party pre-election manifesto summary, to bring you this compact feature looking at what we can expect from the Conservatives in four key areas related to the Built Environment.

We look at:

- Infrastructure;

- Energy and the Environment;

- Housing; and

- the Countryside.

What are your thoughts? Let us know in the comments below or on twitter: @LexisUK_Propty

Source: LexisNexis Purpose Built

Real Estate Finance Case Law: Personal Guarantees

by Hardwick Legal | May 6, 2015 | Purpose Built (LexisNexis)

Charles Bezzant, partner, and Aselle Djumabaeva-Wood, associate at Hemlins, consider recent trends in relation to real estate finance case law and what might be on the horizon.

What have been the key cases in this area over the past 12 months?

There have been quite a few cases in relation to the recovery under personal guarantees given in relation to the borrowing from banks and private lenders but only a couple of those cases are in the context of real estate finance.

What themes are developing in this area?

This type of case is not uncommon after a recession, and the cases have inevitably taken some time to reach the courts. During difficult economic times, in relation to loans when full recoveries from borrowers have not been possible because of the fall in value of the properties, lenders have been faced with seeking to make good shortfalls in recovery from personal guarantees. This time around, the courts appear to have largely found in favour of the lenders. In fact, lenders have often been looking to seek summary judgment to enforce the guarantees.

The most interesting cases in this area have come about when summary judgment has been granted by a court, and guarantors have sought to challenge it by presenting evidence that there might have been a misrepresentation on the lender’s part to induce the guarantor to enter into the guarantee, and/or that the guarantor only entered into the guarantee as a result of duress.

For example:

Bank of Ireland (UK) plc v Jones and another [2014] NIQBD 93

A default judgment given in favour of the bank was set aside because the guarantors contended that they gave personal guarantees on the basis of their understanding that their liability under those guarantees was limited. It was held that the court should determine the issues raised by the guarantors at a full hearing.

Bank Leumi (UK) plc v Akrill [2014] EWCA Civ 907, [2014] All ER (D) 192 (Jul)

A summary judgment given in favour of the bank was set aside and the case was returned to the High Court for consideration because the guarantor raised a defence of misrepresentation that was allegedly made by the bank as to the circumstances and the extent of the bank’s intention to seek recovery under the guarantees.

It remains to be seen how these cases will be determined on the proper examination of the evidence, but these two cases show that guarantors have been able to challenge, if not the enforceability of the guarantees, then certainly the lenders’ ability to obtain summary judgment in respect of them.

How have these cases changed lawyers’ approach in this area?

Advisers to guarantors are perhaps even more often seen to be exploring any avenues to enable their clients to challenge enforcement of guarantees.

Following the decision in the case of Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, [2001] 4 All ER 449 some 14 years ago, in order to protect the lenders from potential allegations of duress, lenders’ advisers have been insistent on guarantors procuring independent legal advice and having their signatures witnessed by these independent lawyers.

In order to deal with this relatively new wave of potential misrepresentation issues, a usual standard form of the guarantee document contains an express exclusion of any representations and warranties which are not incorporated in the signed guarantee. A prudent adviser to a guarantor insists on any variations to the guarantee (or any waivers or promises in relation to their enforcement) to be recorded in a side letter signed by the lender if the lender does not agree to vary the wording of the guarantee.

We recommend that the same practices are adopted by the lenders too so that—should they ever need to—they would be able to show that, if any variations or promises have been made in relation to the enforceability of the security documents in general, and of guarantees in particular, it is their customary practice to record those. This being the case, if in relation to a particular loan nothing has been recorded, then this might be used as evidence to support the lender’s position that no variations were agreed.

What are the most important cases in this area on the horizon?

We will have to wait to see how the above cases are determined on their facts. Watch this space.

Source: LexisNexis Purpose Built