Property UPDATE

Issue No.1 October 2004

Welcome to the first CVS Property Department newsletter!

Our aim is to inform you of developments and matters which affect the property world and which we feel may be of interest to you and your business. Please let us have your comments – suggestions for future topics are especially welcome!

The Countryside and Rights of Way Act – might you feel the ‘Madonna’ effect?

This Act has received a great deal of publicity over the past few weeks as the first open access areas came into operation on Sunday 19th September in parts of the South East and North West of England.

However, it is not a general ‘right to roam’ wherever one pleases and the new rights will only become effective in specific areas as the definitive plans are issued and statutory instruments bring them into effect. The Act also defines specific types of land to which it will apply although it is possible for a landowner to voluntarily dedicate land for permanent public access.

The Act does not give new rights to carry out various activities, for example cycle, ride horses or use vehicles, where these did not previously exist and it is still possible for a landowner to take steps to remove those acting in breach of rules governing access and to treat such transgressors as trespassers.

Landowners may also exclude or restrict access for any reason for up to 28 days a year without seeking permission for, for example, land management purposes, although the ability to restrict access at weekends is limited.

It will also be possible for a landowner to apply for an order to divert or stop up a path crossing his land if a valid reason can be shown whereas previously it was only possible to make an informal request to the local authority for such an order.

A new country code is to be issued which will inform landowners of their responsibilities and gives the public guidance as to the correct exercise of their rights.

A new offence is also introduced whereby driving any motor vehicles (which includes motor bikes and quad bikes) off road is illegal unless the driver has lawful authority.

Stamp Duty Land Tax – an introduction

No doubt you will be aware that stamp duty on property transactions was abolished in December last year and was replaced by Stamp Duty Land Tax. This is a tax on transactions rather than documents.

Generally the rates of duty have not changed but the scope of the tax is much wider. Some of the many changes include:

• Completion of the appropriate self-assessment SDLT forms, giving full details of the transaction, becoming the buyer’s personal responsibility and incorrect or fraudulent returns carry criminal penalties.
• Payment and signed forms must be sent to the Inland Revenue’s dedicated SDLT office within 30 days of the “Effective Date”. If not, penalties and interest will be payable.
• The “Effective Date” of the transaction may be earlier than the completion date, e.g. on substantial performance of the contract. This will include where a buyer goes into possession of the land, perhaps to carry out works or where the buyer receives rent before the contractual completion date.
• SDLT on lease rents has changed dramatically. SDLT is now assessed on all rents payable under the lease rather than the average annual rent, as was previously the case. Although the first £150,000 of rent is free from SDLT on commercial properties (£60,000 on residential properties) and a small discount is given before the total duty is calculated, the overall duty is now considerably higher. This is likely to encourage the granting of shorter leases; a trend which was already increasing due to other market forces.

SDLT is a highly complex area and one to which we will return in future newsletters.

Changes to the Town & Country Planning (Use Classes) Order 1987

A number of important changes to the Use Classes Order are shortly to be introduced. As a general rule, planning permission is required for a material change of use for building on land. However, in certain cases, planning permission is not required and the Use Classes Order sets out changes of use which are permitted without the need for planning consent.

The new changes to the Order can be summarised as follows:

• Use Class A1 currently includes shops and the sale of cold food. This will be extended to include internet cafes.
• Planning permission will be required to change motor vehicle showrooms into retail outlets whereas currently planning permission is not required. This is being implemented in order to prevent supermarkets acquiring old car showrooms and turning them into retail outlets without requiring planning consent.
• Use Class A3 includes the sale of food and drink for consumption on the premises (or hot food to be taken away). This currently encompasses cafes, restaurants, pubs, bars and takeaways. Following the changes, A3 will no longer include reference to the sale of hot food for consumption off the premises thereby requiring any café or restaurant which wishes to convert to a takeaway to obtain planning permission. There will be a new Use Class A5 which is a new classification for takeaways together with a new Use Class A4 for bars and pubs.
• A change of Use from A4 (pubs and bars) or A5 (takeaways) to A1 (retail), A2 (financial and professional services) or A3 (sale of food and drink for consumption on the premises) will be permitted without the requirement of planning consent but any other change (for example, from A4 (bars and pubs) to A5 (takeaways)) will require planning permission.
• A new class D3 will be introduced which is defined as “late night leisure” and is intended to cover nightclubs. The Government wishes to have more control over the proliferation of nightclubs in city centres, as currently, subject to licensing, it is possible to change a pub or bar to a nightclub without planning permission. Any change of use to or from D3 will henceforth require planning consent.

Does the Land Registry have your correct address?

Under new Land Registry rules, a registered proprietor may now have up to three addresses registered with the Land Registry; at least one of which must be a postal address. Unlike the old rules, the addresses need not be in the UK. However, if addresses outside of the UK are given, the Land Registry will not allow any extra time for service of notices which may prejudicially affect your ability to challenge any dealings with the registered title.

E-mail addresses may also now be given but beware as these are often changed more frequently than a postal contact address and any changes will have to be notified to the Land Registry.

Have you in the past used this firm’s address as your or your company’s address on any registered titles? If so, you can now add two further addresses or replace our address with, for example, a postal address abroad – notices will be sent to all of the addresses notified to the Land Registry. If you wish to continue using our address, you should always ensure that we have your up to date contact details so that we know where to contact you if the Land Registry serves any notices.

Keeping your addresses up to date at the Land Registry is now particularly important because of changes to the rules regarding adverse possession of land and also a number of new procedures which allow notice to be served on the registered proprietor in relation to applications affecting your property.

Short leasehold interests and Income Tax

If you are in the position of receiving a premium for the sale of a short leasehold commercial investment (i.e. a leasehold interest with less than 50 years to run) you should be aware that the premium might be liable to income tax. Income tax is payable on the proportion of the sale price that represents the difference between 50 years and the number of unexpired complete years (less 1) expressed as a fraction of 50.

By way of example, if a lease having 30 years unexpired is bought for £100,000, then 21/50th of the premium (£42,000) will be subject to income tax. If there are only 20 years left to run then 31/50th (£62,000) of the premium will be subject to income tax. As you can see, the shorter the unexpired term then the greater the amount that is subject to income tax for the seller. At its extreme, a seller selling a short leasehold with just one year left to run will find that the whole of the premium is subject to income tax. There are exemptions for pension funds including private and personally managed pension funds. Accordingly, if you are thinking of buying a short leasehold interest, you should consider buying it via a pension vehicle.

Note:

Please note that this newsletter is not intended to be a comprehensive statement of the law and should be used for guidance purposes only. If you require specific legal advice please contact Juliet Ryder, Alastair McClean, Michael O’Shea or Sharon Rutter or by telephone 020 7493 2903.