Are you ready for the arrival of the Carbon Reduction Commitment
Scheme in April?

The CRC goes live on 1 April 2010.

If electricity supply to your business is delivered via the half hourly electricity market then the Government's new Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is likely to impact your business.

CRC is a mandatory emissions trading scheme for non energy-intensive business organisations in the public and private sector, designed to encourage lower carbon dioxide (CO2) emissions and stimulate energy efficiency.

For information on the scheme, what you have to do to comply with it and the consequences of not doing so, please contact Peter Bond, Stephen Law or Peter Massey

Properties at risk of flooding – flood risk searches

Recent extreme weather conditions have increased the number of both residential and commercial properties at risk of damage from flood water. In June 2009 the Environment Agency estimated that one in six properties in England are at risk from flooding, with this estimate including for the first time properties considered to be at risk from surface water flooding.

Flood risk may be of both immediate and long-term concern to existing owners, tenants and buyers for the following reasons:

   1.      The effect on insurance premiums and availability of cover.  You may not be able to get
             insurance cover.

   2.      The mortgage lender's reluctance to lend because of the risk.  You might not be able to raise
             a mortgage on the property.

   3.      Potential cost of structural repairs.  Do you really want the builders in?

   4.      Damage to goods, fittings and services.  It is likely that an insurer will not pay all the costs.

   5.      The effect on continuity of business with resulting loss of profit.  Trading could be disrupted.

A flood search will assess the risk from the four main types of flooding - river, coastal, ground water and surface water.

Some searches are suitable for residential properties and others for commercial sites. The cheapest are desktop searches where the search provider collects and sometimes analyses the data from a variety of sources but does not visit the property. A more expensive desktop search will offer a wider range of information and a more tailored assessment. Top level and even more expensive searches can include further investigations and a site visit.  Even then an overall assessment of the risk will probably be required and it may well be beneficial to have the result reviewed by a consultant.

Depending on the level of risk a buyer/tenant may wish to:

   1.      Re-negotiate a lower purchase price/lease premium so as to retain funds to pay for increased
            insurance premiums, a policy excess, repairs and flood protection measures.

   2.      Re-arrange the layout/use of the premises to minimise the scope for damage.

   3.      Include flood protection measures in fitting out works.

   4.      Re-negotiate lease terms to allocate liability for flood damage.

   5.      Simply not proceed.

A buyer/tenant may also wish to supplement the result of a flood search with information available from the flood map on the Environment Agency website, enquiries of the seller/landlord and an environmental desktop report.

It is essential that enquiries are made – although the degree of investigation will depend on the individuals and mortgage lender's requirements.  Buyers/tenants may wish to commission a more detailed search or more specific enquiries so that the implications can be considered in greater depth – better to find out if the property to be bought/rented is one of the one in six at risk before commitment!

To find out more, please contact Diana Forde

'Reasonable and usual use' – interpreting rights of way

The Court of Appeal case of Davill v Pull and Sanderson [2009] considered the meaning of 'reasonable and usual use' when interpreting the use of a right of way.

Davill, Pull and Sanderson owned adjoining plots of land, which the original conveyances described as 'garden' land. All three landowners had the benefit to use 'for all reasonable and usual purposes' such part of a track as was necessary to give access to and from the 'garden' land.

Mr Davill obtained planning permission to build a house on his three plots, access to which would be via the track. His neighbours, Pull and Sanderson asserted that the track could not lawfully be used for access to the proposed developments.

The Court of Appeal had to establish whether the parties to the original conveyances intended for the right of way over the track to only be used in connection with the use of the plots as 'garden' land. 

The court found that the limitation in the conveyances was intended to prohibit the use of the right of way for unreasonable and unusual purposes. The plots were conveyed with no limitation on their future use; there was nothing to infer that the right of way could only ever be used in connection with the use of the plots as gardens. The use of a plot for residential development was a reasonable and usual use and the right of way could be used for these purposes.

This decision will be welcomed by property owners and developers alike. It also provides a useful reminder of the need for clear drafting in the grant of a right of way. Interpretation of such rights can be problematic and particular consideration needs to be given to any future possible changes in the use of the land benefiting the right. 

To find out more, please contact Sarah Gibson

NAMA and what it means for you

You have probably heard of the Irish Government's scheme to sweep up and take control of  distressed property assets held within many of the Irish banking institutions.  What you may not realise is that along with the bad and distressed assets, the scheme will also affect the good assets in such institutions.

For information on how this may affect you and your business and what you should be doing at this stage in readiness for this, please contact Richard Hunter or Peter Massey

'Strange new beasts in the forest' - the impact of virtual assignments on the landlord and tenant relationship

Virtual assignments are a relatively new concept. Until recently their impact on the landlord and tenant relationship has been uncertain but the Court of Appeal in Clarence House Limited v National Westminster Bank Plc [2009] confirmed that virtual assignments do NOT amount to a breach of standard alienation covenants prohibiting assignment without consent, sharing or parting with possession or entering into declarations of trust in relation to premises.

What is a virtual assignment?

A virtual assignment is an arrangement under which a tenant agrees to transfer the economic benefits and burdens of a lease to a third party without effecting a legal assignment of the lease. A virtual assignment is useful to a tenant because it can also be used to transfer property management responsibilities to a third party and remove lease liabilities from the balance sheet - and so achieves the same economic result as an assignment without altering the underlying legal relationship between the parties.  To date, such arrangements have principally been used in large real estate transactions or group re-structures. As one of the Court of Appeal judges commented, such arrangements are indeed 'strange new beasts in the forest'.

The facts of the case

National Westminster Bank Plc ('the tenant') was granted a lease by Clarence House Limited ('the landlord') and subsequently underlet the whole of the premises to William M Mercer Ltd ('the undertenant'). The tenant then 'virtually assigned' their lease to New Liberty Holdings Ltd ('the virtual assignee').

The material provisions of the virtual assignment included:

   -   the transfer of all economic benefits and burdens of the lease to the virtual assignee;

   -   an obligation on the virtual assignee to pay rent to the landlord and to observe and perform the 
       tenant's covenants in the lease and to keep the tenant indemnified against liability for all rent, 
       costs, liabilities and claims; and

   -   the appointment of the virtual assignee as the tenant's agent in all dealings connected with
       the premises including the collection of rent from the undertenant.

The virtual assignment did not transfer any proprietary, contractual or occupational right in relation to the premises. The landlord subsequently issued a claim for a declaration that the virtual assignment was in breach of the standard alienation provisions in the lease because it constituted one or more of the following:-

   -   a declaration of trust as between the tenant and the virtual assignee;

   -   an assignment between the same parties, without consent; and/or

   -   an arrangement under which possession of the premises was either shared or had been parted 
        with

The Court of Appeal decision

   1.  Declaration of trust

It was held that although the virtual assignment was similar to a declaration of trust, it was a contractual arrangement under which the virtual assignee had been appointed as the tenant's agent and had acquired the economic benefits and burdens of the lease.  It did not create a trust.

   2.  Sharing possession or occupation

It was held that possession was to be given its ordinary meaning ie the right to exclude all others from the premises. At the time of the virtual assignment the undertenant was in occupation of the premises and the virtual assignment did not alter this position. Since the tenant was not in occupation, it could not be said to have parted with or shared possession of the premises with the virtual assignee.

   3.  Assigning the premises

It was held that in the absence of any context showing that a covenant against assignment is to have an extended meaning, it only covers a legal assignment, not an equitable assignment, and as such the relevant covenant could not have been breached by anything other than a legal assignment – which the parties agreed had not taken place.

Impact for landlords and tenants

Tenants can use virtual assignments (unless there is an express prohibition in the lease) to avoid onerous alienation covenants. Such arrangements can be used to release lease liabilities from the balance sheet so that capital can be invested elsewhere. Since there is no need to obtain landlord's consent, virtual assignments will continue to be useful for large corporate tenants wanting to transfer a property portfolio, or as part of a group restructure.

From a landlord's perspective, it would appear that virtual assignments are 'with us' for better or for worse – they do not appear to impact on the landlord and tenant relationship (in that both parties remain liable to observe their obligations under the lease) but they do allow tenants to dispose of leases in a way which is outside the landlord's control ie the landlord loses the ability to assess the covenant strength of the proposed assignee.

Landlords may also be concerned about undertenant rent being diverted to a third party and the indirect effect this could have on a tenant's covenant strength (although it should be noted that the landlord's right to request payment of rent by an undertenant direct to the landlord, if the tenant is in arrears, would be unaffected).

Some commentators have suggested that the alienation covenants in leases could be drafted so as to expressly prohibit virtual assignments.  Such an approach will need to be carefully considered as the relevant wording could be seen as an onerous provision at rent review - although to date such an argument has not reached the courts.

To find out more, please contact Catherine McCann

Further consultations on planning procedure – more chances to have your say!

The Department for Communities and Local Government and Planning Inspectorate have issued several new consultations on proposed changes to the planning process.

These include:

   -   a proposed new Planning Policy Statement on pro-active involvement between councils 
       and developers all the way through the planning process
       (click here for further details)

   -   the procedures for consultation on applications with relevant parties
       (click here for further details)

   -   improving the use of planning conditions and speeding up confirmation of compliance
       (click here for further details)

   -   revised model planning conditions (click here for further details)

To get involved in the consultation process and have your say, please use the above links. The consultations close on 19 March.

To find out more, please contact Graham Dixon