HMRC wins landmark SDLT avoidance case

Authors: Neil Warriner, Partner and Head of UK Real Estate Tax; Will Arrenberg, Partner, Real Estate Tax; Heather Gething, Partner and Head of Tax Planning and Tax Disputes, London

In a 4-1 ruling, the Supreme Court has found in favour of HMRC in the long-running saga of Project Blue Limited v. HMRC (2018) UKSC 30, to the effect that the taxpayer was liable to pay stamp duty land tax (SDLT) on the amount of financing (£1.25bn) it received under the sharia’h law compliant structure, and not merely on the actual price it paid for the land (£959m).

To recap briefly, the taxpayer had contracted to buy a freehold property at Chelsea Barracks in London from the Secretary of State for Defence for a basic price of £959m and had arranged to finance this, along with anticipated development costs, by using a sharia’h law structure under which it sub-sold the freehold on to a banking group for £1.25bn and immediately leased back the asset on terms that effectively replicated a normal financing arrangement, at the same time taking a right to buy back the freehold in the future once the financing arrangement had run its course.

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Real Estate Podcast EP1: Why mark documents “subject to contract” in real estate transactions and joint ventures?

Kate Wilson and Lucy Morton, lawyers in the Real Estate and Planning teams at HSF, provide a summary of the importance of marking documents with the words ‘subject to contract’ when entering a real estate transaction or joint venture arrangement, as discussed in the recent Court of Appeal case of Generator Developments v Lidl UK [2018] EWCA Civ 396.  Continue reading

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Ousting unauthorised occupiers! Government consults on dealing with trespassers 

Authors: Judith Smyth, Associate and Matthew Bonye, Partner and Head of Real Estate Dispute Resolution, London

The word “trespasser” may well send a shiver down the spine of many commercial landowners.  Trespass can take a number of different forms, from squatters in empty commercial buildings, to travellers on empty land, or protestors occupying land to gather publicity for a particular cause. While squatting in residential buildings is now a criminal offence, the criminal law does not so easily assist for commercial land. Instead, regaining possession of commercial land following incursion by trespassers can be a fraught, costly and time-consuming exercise for the landowner, often involving court proceedings and bailiffs, and resulting in an expensive clean-up and repair operation after possession is obtained. There is now an opportunity for landowners, developers and other interested parties to comment on proposals for improving the system.

The Government’s recently announced consultation on “Powers for dealing with unauthorised development and encampments” is welcome recognition that the current system needs to be strengthened to give greater powers to commercial landowners to deal with trespass incidents swiftly and without having to incur significant expense. Although the consultation is expressed to be directed predominantly at what the Government terms “unauthorised encampments” set up by the travelling community, given the statutory mechanisms for dealing with trespass are essentially the same for all categories of trespass on commercial land, the consultation has the potential to benefit commercial landowners more broadly.

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Are you GDPR ready?

Authors: Ruth Benfield, Senior Associate and Alice Dockar, Partner, Real Estate, London

It is unlikely to have gone unnoticed from the volume of emails asking individuals to “opt in” to future company mailing lists that tomorrow (Friday 25 May), the EU General Data Protection Regulation (GDPR) comes into effect in all EU countries and in the UK it will be supplemented by the Data Protection Act 2018. The stakes are high – if your company does not comply, it could be fined up to 4% of worldwide turnover or 20 million Euros, whichever is higher.  As the information being held by landlords and developers is likely to be varied and complex (and not just employee data), such industries are in a vulnerable position with regards to compliance.

So what do companies operating in the real estate sector need to do?

  • Read the rest of this blog post for a reminder of the types of personal data which you might be holding on your databases which will need to be GDPR compliant;
  • Check our HSF hub page on GDPR here; and
  • Contact us at HSF with any queries or for further information.

GDPR will affect anyone using, collecting, processing and storing personal data. Personal data covers the type of information which you would expect, for example contact name and details, but could also include information collected by landlords and developers on building management systems and databases (for example when an individual enters and exits a building, and see more examples below).

The property development industry appeared to be lagging behind other sectors in its preparation for GDPR so we have put together a brief reminder of the types of personal data which you might be holding on your company databases which will be subject to GDPR requirements. This could include:

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CYBER SECURITY – is your property adequately protected?

Authors: Ruth Benfield, Senior Associate, Real Estate and Alice Dockar, Partner, Real Estate, London

Cyber security affects all businesses and industries and is a Board level agenda item. As cyber-attacks are becoming more common (and hitting large institutions, such as Uber and the NHS) we are advising our clients to check the adequacy of their buildings and contents insurance policies and the building management, security and IT systems in their properties.

Buildings are particularly vulnerable to outside threats due to their reliance on technology for building management and security systems (for example fire alarms, sprinkler systems, automated air-conditioning, lifts, escalators, to name a few) which are often fundamental to the running of a commercial building. Such systems could be an easy target to hackers and the potential physical damage, destruction and disruption which could be caused makes the threat a real one. The risk for developers and landlords is therefore significant.

A cyber-attack which results in the destruction (or temporary failure) of such systems is likely to mean that tenants or their customers and employees are unable able to use or occupy the premises until new systems are installed, which could be a time consuming and expensive process. Imagine if a cyber-attack results in the activation of a building’s sprinkler system, causing severe water damage. Not only would a tenant be unable to use its premises until the water damage is repaired (resulting in loss of business) but also the cost of repairing the damage might not be covered by any existing insurance policy. This type of threat could affect a range of commercial properties, whether retail shopping centres, industrial units, offices or hotels.

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How is IPMS measuring up?

Authors: Nick Turner, Partner, Alice Dockar, Partner and Olivia Rolleston, Associate (Australia), Real Estate, London

Despite prevailing market practice indicating a preference by developers/landlords to continue to use the 6th edition (2007) of the RICS Code of Measuring Practice (CoMP), RICS will continue to ask its members to apply the International Property Measurement Standard (IPMS). Whilst our clients should be aware of RICS continued commitment to IPMS it remains to be seen whether this commitment results in a tangible impact on established market practice.

That said, on 1 May 2018, the second edition of RICS Property Measurement will come into effect, and one of the principal changes is the introduction of IPMS for residential buildings. The IPMS for office buildings has been mandatory for members since the first edition of the Property Measurement came into effect in 2015. However the second edition sets out 2 elements: Part 1 – the Professional Statement: property measurement – which applies to all properties and includes IPMS measurements for office buildings; and Part 2 – RICS IPMS Data Standard – which is designed to encapsulate the attributes and elements of an IPMS measurement aimed at providing consistency to software developers who provide measuring software.  Part 1 must be complied with by all RICS professionals involved with work that includes the measurement of buildings. Industrial and retail buildings can be measured under IPMS 1 which is a universal standard that applies to all building classes and measures the area of a building including external walls and compares closely to the gross internal area under the CoMP. IPMS 1 is also used for planning purposes and development appraisals.

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Court Interprets Obligation in a Standard Form Construction Contract to use all due diligence to obtain planning approvals

Authors: Nick Oury, Senior Associate, Disputes, Tokyo and Jean Hamilton-Smith, Associate, Disputes, Tokyo

A commonly encountered provision in the standard form JCT Building Contract (2005 edition) was interpreted by the Court of Appeal to include an implied obligation on a developer to use “all due diligence” to obtain planning approvals. The phrase “all due diligence” was held not to require the developer to ensure that planning approvals were in fact granted, or that they were granted within sufficient time to prevent delays. At most it required the developer to make a timely application containing sufficient information and to co-operate with the Local Authority during the planning process.

The decision demonstrates the limits of the obligations commonly entered into by developers in the UK in relation to planning approvals.

1. Facts of the case

2. Developer responsible for Planning Approvals

3. Obligation to exercise “all due diligence”

4. Delays caused by Local Authority

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TOUCHING THE VOID – Mazars Revisited

Author: Martin Dawbney, Partner, Real Estate, London

Not many outside the business rates bubble will have been following the twists and turns of the Mazars case and its aftermath.  Stripping away the jargon, the Supreme Court decided that each floor in a multi-occupied building should be subject to a separate rates bill even where immediately above or below another floor occupied by the same entity, unless linked by a private staircase or lift.  This is of relevance because especially large floors enjoy a discount, which only applies if all floors occupied by the entity in the building are taken into account.

The Government surprised the rating world by announcing in the Autumn 2017 Budget that legislation would be introduced to restore the practice of the Valuation Office (responsible for setting the rateable values of commercial properties) prior to the Supreme Court decision.

After a consultation process the draft bill has now been published.  In short, once it becomes law (intended to be before the end of the current session of Parliament) floors will be treated as one provided they are occupied (or, if vacant, were last occupied) by the same entity and are “contiguous”.  Contiguous means they either touch or are separated only by a void (e.g. a raised floor accommodating landlord’s services).

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Observations from MIPIM: The Public Dented Sector

Author: Matthew White, Partner and Head of Planning, London

Now that the annual decant to Cannes has drawn to a close, I am left wondering how to judge the mood of this year’s MIPIM – the world’s biggest property show. This was a year of contradictions: not just the capricious weather, but also the prevailing atmosphere of scrutiny that hung heavy over the enthusiastic hospitality.

Rumours of undercover reporters and elaborate sting operations were overblown, ‎with only the Guardian having written anything so far (in their article, here). But this didn’t stop it being a common theme of conversation on the roadside outside Caffé Roma and in the foyer at the Martinez regardless.

‎Comparing the London stand with five years ago, it was remarkable how far the pendulum had swung from the private to the public sector. Many exhibitors this year were local councils: alongside the venerable City of London Corporation, I spotted Barking & Dagenham, Bexley, Croydon, Ealing, Havering, Harrow, Hounslow, Newham and Kingston. Their presence at MIPIM is often criticised in the press. How can local authorities possibly justify spending council tax receipts on an annual jamboree in the south of France? Photograph a council officer holding a champagne glass or on a yacht; print it next to a millennial who can’t afford to buy a new home and you have an instant headline. This is despite the fact that developers actually chip in to cover council attendance costs through sponsorship.

There is actually a better story beneath the surface: why do local authorities attend MIPIM?

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Observations from MIPIM: logistics and prop tech

Author: Paul Chases, Partner and Head of Corporate Real Estate, London

In this post, Paul Chases, a partner in the HSF London Real Estate team comments on his experience of the Shedmasters event at the MIPIM real estate conference, and on the direction of travel of parts of the real estate industry.

  1. Continued Growth
  2. Future of the Shed
  3. Impact of Brexit

1. Continued Growth

The popularity of this year’s Shedmasters event at MIPIM (sponsored by Savills, Gazeley and Prologis, amongst others) is testament to the ongoing strength of the logistics sector, which, in 2017, saw record highs for investment in the industrial and distribution sector. The general view seems to be that this trend is likely to continue for 2018 and beyond with returns for the industrial and logistics sectors predicted to outperform those for office and retail (for example) over the next five years. Already this year, HSF has acted on a number of logistics deals. With such positive forecasts, the expectation is that new investor entrants will look to enter the market and there will be further consolidation by those already involved in the sector.

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