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Capital Allowances - New legislation from April 2014

From 1 April 2014, new legislation introduces the 'mandatory pooling' of integral fixtures and fittings for Capital Allowances purposes. The seller will have to produce a schedule and a valuation of all integral fixtures and fittings. If a figure cannot be agreed, both parties have two years to apply to HMRC for a first tier tribunal to settle the dispute and confirm a figure.

Answering 'not applicable' or 'not as far as the seller is aware' in replies to standard enquiries relating to Capital Allowances may come back to haunt you and your client in the future. Why? Because under the new legislation, if Capital Allowances are not claimed at the point of sale they are lost forever, and this could amount to considerable financial losses (by way of tax relief) for your clients.

You may not be tax experts and you may have a disclaimer to this effect in your terms of business, but with the new legislation, it will be important to ensure your client takes advice from an appropriate expert. You will also have to reconsider your replies to any enquiries raised in relation to Capital Allowances.

Manorial Rights - register or lose them

From 13 October 2013, manorial rights must be protected by registration against the affected title. Such rights (e.g. the Lord of the Manor's sporting rights, rights to mines or minerals, etc) remain binding against the current owner as an overriding interest even if not registered, but are lost on a purchase for valuable consideration without notice, i.e. ifnot registered.

The Land Registry is wading its way through the many applications it has received, so be ready to offer your clients advice if a unilateral notice is registered against their property. If you have any clients likely to have the benefit of such rights, you will presumably have offered them advice on how to protect their position, but if not,you'd better do so now.

Break Notices - best practice tips

Drafting

The Commercial Lease Code 2007 (use of which is oluntary, but serves as a useful tool for assessing best ractice) recommends that the only pre-conditions to he exercise of a break clause should be that the tenant:

  • Is up-to-date with the main rent
  • Gives up occupation
  • Does not leave behind any continuing subleases.

Some commercial property lawyers argue that there hould be no pre-conditions whatsoever, particularly if, for example, the only subleases in place are those to which the landlord consented. The landlord can demand any outstanding sums, costs of repairs, etc. from the tenant if the tenant has failed to comply with all its obligations but this should not prevent the tenant from exercising the break.

The Code position (above) is probably an acceptable middle ground, at least for judging whether a solicitor has complied with his or her duty of care. If your tenant client accepts a greater burden by way of pre-conditions, you must advise it in writing of the risks.

Payments

If the break clause requires payment of other sums, such as insurance, rent, or service charges, and there is a dispute as to what sums are due, the tenant may be advised to consider paying the sums demanded to avoid the landlord using non-payment to frustrate the operation of the break. The tenant may then seek to recover what it considers to have been overpayment, after the break notice has been served/accepted or the lease has come to an end, (whichever is the most appropriate).

Where a break notice takes effect between rent days, unless the lease specifically states otherwise, the tenant should still pay the rent for the full period rather than paying rent only up until the date of the break.  Otherwise, the landlord may argue that the tenant has not paid the full rent as required by the lease, is in breach of condition and cannot, therefore, exercise the break clause. However, unless the lease provides for repayment in such circumstances, there is no general legal right for a tenant to be refunded any rent that relates to the period after the break date.

With both service charges and rent, the decision on whether to pay the full amount must be the client's.   What you must make clear to the client is that, if it does pay, there is no guarantee that it will be able to recover any element of the disputed service charge or any pro-rata rent payment. You must also make clear, however,the risk that, in not paying, the client may not be able to exercise the break clause. It's not your job to make the decision, just to make sure that your client fully understands the options and implications.

Before breaking the lease, the tenant should ask the landlord for a statement of the amounts the landlord claims are outstanding, so that no sums will go unnoticed. Beware of late interest payments, however.

Recent Landlord & Tenant Cases

Guarantor – release

In Topland Portfolio No. 1 Limited v Smiths News Trading Limited [2014] EWCA Civ 18, the Court of Appeal upheld the High Court decision that a guarantor was released from its obligations under a lease when it was not a party to a subsequent licence for alterations permitting structural works to be carried out that would not otherwise be permitted by the lease. The guarantor had not consented to the works either. Whilst some leases may have protective wording in the guarantee provisions (such as confirming that the guarantor will not be released in certain situations), it is preferable to make the guarantor a party to any supplemental document to avoid any doubt.

Administrator – obligation to pay rent

Video retailer 'Game' went into Administration in March 2012. The administrator continued to trade from some shops and closed others. The Court of Appeal held that rent is due on a daily basis for the entire period during which the administrator trades from the shop as an 'administration expense' (payable in priority to unsecured debts). It is not affected by the date on which the administration began – perhaps bringing to an end the practice of administration beginning on the day after a rent payment date to avoid paying rent for the current rent period, as previously the rent payable in this situation would have been an administration debt rather than an administration expense.

Andrew Nickels is Risk Manager in the Financial Lines team at Zurich. 

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