Our Newsletter contains information you can use. You do however need professional advice on the facts of your case and you should not take any steps or refrain from taking any steps without advice from Sykes Anderson Perry Limited.
It is also a chance for you to provide us with feedback on the services we have provided you.
Since our last newsletter we are delighted to have appointed Gemma Wright as a director and head of our Residential Property department. We have also welcomed Kevin Finlayson as a new commercial solicitor and Arani Nadarajah as a conveyancing paralegal.
Whilst we believe that we offer a high quality service to all our clients we are always looking for ways in which this can be improved. We appreciate feedback from all clients and contacts who have experience of working with us. If you would like to provide us with some feedback of your experience with us please follow the link below:Graeme Perry
Many flat owners are liable under their lease to make an annual ground rent payment to their landlord. Often the rent starts off low and increases over time in accordance with the rent review provisions in the lease. Typically the rent is increased every 10 or 25 years in one of the following ways:(a) by a fixed amount
More recently, landlords have been inserting onerous escalation clauses into residential leases resulting in rents increasing more rapidly and by larger increments. Such clauses have become more common given the recent boom in new build properties being built across the capital and can have an adverse impact on the resale value of the property. Particularly concerning and common rent review provisions include those which double the rent after set short periods throughout the term. We have set out an example of how this may work in practice below:
In 2017 Sally purchases a property with a ground rent of £200pa as an investment to later pass to her child Norman. 30 years later she transfers the property to Norman; at this time the ground rent is £1,600pa. A further 20 years later the ground rent has increased to £4,800. Norman is no longer able to afford the ground rent and looks to sell the property. Potential purchasers of the property realise that the ground rent would reach £51,300pa by 2097. Norman is unable to sell the property and is stuck with the prospect of being liable for an astronomical ground rent in the future.
Rent review clauses are purported to be included to cover increase in inflation, however the rate of rent increase in the above scenario is 800% which will be substantially greater than any increase in inflation.
Rent review clauses are common and not always unreasonable however they should always be checked carefully to ensure the rent towards the end of the term will still be reasonable.
Where a purchaser is obtaining a mortgage the lender will require that the increase in ground rent is fixed or can be easily established and is reasonable. Your solicitor should check this. If the rent increases too rapidly or at large increments your solicitor must report this to your lender. The lender may determine that the clause has a material affect the value of the property and refuse to lend.
Onerous ground rent clauses can also have an effect on the premium payable on a lease extension as the loss of ground rent is a factor taken into account when paying the premium.
In order to avoid wasting time and legal fees, purchasers of leasehold properties should request a copy of the lease and check the rent review provisions ideally before making an offer or as soon as possible thereafter.Gemma Wright
Most flat owners are aware that they have a right to extend the lease of their flat. Here are some tips which could save you money and avoid problems:
Get together with neighbours in your block. Lease extension (strictly the right to a new lease) is a right exercisable by one flat alone but in most blocks the leases are of a similar term length so why not collaborate with other leaseholders to make claims at the same time? You get the benefit of savings in fees plus increased negotiating power with the landlord on price.
Assign a claim notice when buying or selling. Where there is a flat with a shorter lease which needs extending the parties can agree that the seller makes a claim between exchange of contracts and completion and assigns the benefit of it to the buyer on completion. This saves the buyer from having to wait 2 years after purchase to make a claim in their own right.
Be wary of private deals with the landlord. These can often contain trips for the unwary. Always take advice from a specialist solicitor before paying over any money to the landlord or negotiating with them.
Extend the lease before the term gets to 80 years or less. Otherwise you will have to pay what is called a marriage value which can add about 50% to the price you will have to pay the landlord for the new lease.
Also, bear in mind that there are other enfranchisements and similar rights such as the right to enfranchise a house, collective enfranchisement of blocks of flats and the right to manage which may be worth exploring depending on your circumstances.
In some contracts, particularly ones which have ambiguous drafting, if can be difficult to establish the meaning of certain clauses and provisions, and consequently what implications these clauses and provisions have on the parties to the agreement.
There has been debate over the approach to take when interpreting a contract – should you look at the natural meaning of the words used, or look at the words with other business related considerations in mind? In the recent case of Wood v Capita Insurance, the Supreme Court has gone some way towards reconciling these approaches and has provided a way forward.
Following this decision, it appears the commercial context and the facts of each case will now be a key consideration in contract interpretation.
This decision confirms that the wider commercial picture can be considered when examining the meaning of a contract. The natural meaning of the words of course has to be considered, but this is just one factor which is equal to the commercial context. The court did go further, saying it may be more important to give one factor more weight depending on the particular agreement. Agreements prepared by professionals may warrant a greater reliance on the words used than other agreements, which may require a greater reliance on other factors.
Many see this as a clarification on the position, rather than a change.Alan Massenhove
The Pre-Action Protocol for Debt Claims (“the Protocol”) comes into force on 1 October 2017. It applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader). The Protocol describes the conduct the Court will normally expect of parties prior to the commencement of Court proceedings.
Pre-Action Protocols were established by the Civil Procedure Rules (CPR) as a means of encouraging early engagement and communication between the parties to a dispute, to enable parties to resolve their dispute without the need to commence proceedings, and to encourage parties to act in a reasonable and proportionate manner. A party to a dispute not complying with the relevant Pre-Action Protocol faces possible sanctions from the Court, including cost penalties, or even termination of their Claim or Defence altogether. Put simply, parties fail to adhere to Pre-Action Protocols at their risk!
The Protocol requires the creditor to send a Letter of Claim to the debtor before commencing proceedings. The Letter of Claim should contain certain key information relating to the debt, e.g. whether interest or other charges apply to the debt and details of how the debt can be paid. The Protocol also requires the creditor to send the debtor an up-to-date Statement of Account for the debt with its Letter of Claim, along with two key documents (the Information Sheet and the Reply Form). The debtor should respond to the creditor using the Reply Form within 30 days. If the debtor does not reply to the Letter of Claim within 30 days the creditor may start proceedings.
Unfortunately for creditors, the Protocol adds another layer of cost/bureaucracy when chasing debts.
In the recent case of Fulton and another v Bear Scotland Ltd (No. 2), the Employment Appeals Tribunal assessed whether a three-month gap between deductions (in the context of deductions from wages) breaks the “series of deductions” necessary to claim for an ongoing unlawful deduction of wages. If such a gap did break the series, it would reduce the scope to make claims for historical deductions.
In 2014, Mr Justice Langstaff in Bear Scotland Ltd v Fulton and another ruled that a break in the chain of any “series of deductions” relating to wages, where such a break was for a period of more than 3 months, would actually prevent a claim being made for those deductions before the break.
This limited a worker or employee from being able to make substantial claims for past unlawful deductions of wage. Coupled with the further restrictions added under Deduction from Wages (Limitation) Regulations 2014, which introduced a two-year cut off point period for most unlawful deductions from wages claims brought on or after 1 July 2015, the scope of such claims has been severely reduced.
The Employment Appeals Tribunal, upholding Mr Justice Langstaff’s decision in 2014, confirmed that a three-month break between unlawful wage deductions would break a “series of deductions”.
In practice, this means an employee will need to be mindful of timing when issuing claims for unlawful deduction of wages, in order to avoid losing the right to make a claim for a retrospective deduction.
However, if a claimant has had their claim limited by a break of over three months in the “series of deductions”, this should not prejudice them from bringing a common law claim for breach of contract in the civil courts.
The Finance Bill 2017 was to introduce a raft of new measures impacting non-domiciled individuals, which were to take effect on 6 April 2017. These included:
A complete change to the way in which inheritance tax applies;
The introduction of a “deemed” domicile for tax purposes in the UK after residing here for a long period (15 or more of the last 20 years); and
Changes to the way in which capital payments from trusts would be taxed.
Following the calling of a snap general election, the Finance Bill had to be rushed through before the dissolution of Parliament. As a result, these provisions were dropped from the final version which received Royal Assent.
We are now in a state of flux – these laws have not been introduced so individuals are left in a position where, for example, they do not know if they are to be treated as domiciled in the UK for tax purposes or not. This carries serious restrictions on the way in which people are able to use their money and the way in which they might plan for inheritance tax on their risk. Many individuals incurred significant costs reviewing and unwinding structures in good faith before 5 April as a result of these changes.
We must now await the result of the General Election and the eventual approach of the Government to find out whether these proposals will come into force. If so, it is still not known when the effective date will be. There have been suggestions of a second Finance Act in 2017 to ensure the effective date is 6 April 2017 but it may well be that the changes are delayed until the next tax year at least.
In all cases, it is extremely important for non-domiciled individuals to obtain advice on their circumstances. There may be planning opportunities available, whatever the outcome!Graeme Perry
France is targeting high earners who will leave Britain as a result of Brexit. They are offering attractive tax deals to individuals relocating there.
In order to benefit from the tax break you must:
not have been a French tax resident in the 5 years preceding your arrival in France;
become a French resident when you take up your employment in France; and
be employed by a company established in France.
The exemptions extend to your income from:
your employment; and
your investment income from a non-French source.
Employment income exemption
The exemption is on any additional payment (premium) payable because of the work in France. This needs to be on the actual amount which should be specified in the employment contract or a forfeit amount of 30% of the net remuneration. It extends to relocation and housing costs, social security costs and motor car costs. Your basic salary must be at a comparable level to French employees in the same company or similar companies in France.
Remuneration for work carried on outside France is exempt. This must be carried out solely for the benefit of the company.
The maximum exemption for work both in France and outside France is 50% of your total remuneration.
Alternatively you can elect to have your foreign earned income limited to a maximum of 20% of your total income excluding your premium payment.
Investment income exemption
There is a 50% income tax exemption for income from shares and bank and other deposits and intellectual property rights. There is a similar 50% exemption for capital gains tax. The payments (i.e. source) must be made by an entity outside France in a country with a tax treaty with France.
These exemptions previously lasted up to 31st December in the fifth calendar year following the date you take up your position in France. This has now been extended to 8 years.
These provisions will be of particular interest to French nationals resident in London considering a return to France because of Brexit. High earning individuals who have international careers will receive significant tax breaks especially if they are coming to the end of their working life with 8 or fewer years to go. It will also be a useful option for UK resident non-domiciled people who wish to establish a “break” in their UK residency for non-domiciled reasons.
The smaller businessman who intends to retire to France could also use this exemption, possibly towards the end of his career. Housing and other removal costs to France could be mainly paid for out of untaxed income.Graeme Perry
In a French property transaction, it is the buyer who is responsible for paying the stamp duty and other registration taxes. When it comes to the estate agent’s commission; this can be paid either by the buyer or the seller, depending on what agreement is reached between the parties.
However, it is important to bear in mind that the estate agent’s commission can affect the amount of French stamp duty and registration taxes which are due on the transaction.
When the commission is included in the price (i.e. payable by the seller) stamp duty is paid on it. When the commission is paid by the buyer, the position is that stamp duty is not normally paid on it. Commissions in France are often higher than you ordinarily see in the UK – they may be 4% or 5% of the sale price. The stamp duty on the transaction may amount to around 6% of the purchase price.
On 7th March 2017, a French parliamentary question considered the position where commission is paid by the buyer, but the agreement (mandate) with the estate agent specified the commission was due by the seller. In these circumstances, the French Parliament has confirmed that stamp duty would still be payable on the commission. As such, it is crucial to look at the mandate which is in place at the outset in order to avoid hidden costs down the line.David Anderson
A recent case (Ilott v Mitson) attracted a lot of press coverage and was heard by the Supreme Court. Mrs Jackson died, leaving her estate to three animal charities (the Blue Cross, RSPB and RSPCA). Mrs Jackson left nothing to her estranged daughter, Mrs Ilott.
Mrs Ilott claimed a share of her mother’s estate using the Inheritance (Provision for Dependents) Act 1975. The Act allows certain categories of people (based on their relationship with the deceased) to apply to the Court for a share of an estate. The Court has to consider various factors.
Mrs Ilott was living in financially straightened circumstances and was awarded £50,000 by the District Judge in the Family Division when the case was first heard. There was an appeal (by both Mrs Ilott and the charities) and the Court of Appeal gave Mrs Ilott a higher award.The Supreme Court decision did not:
Change the law,
Tell us what the Supreme Court judges would have awarded (they simply confirmed that the District Judge had not made an error in choosing to award £50,000 and therefore the original judgment should stand).
Does not set how an award under the Inheritance (Provision for Dependents) Act 1975 should be calculated.
The Supreme Court decision clearly states that each case has to be considered on its merits and an individual judge can reach their own conclusion based on the facts. The Supreme Court decision also highlights the idea that maintenance should be limited (different rules apply for spouses), that a life-interest might be appropriate and that the testator’s wishes should be considered.
If you think you have a claim to an estate you should seek legal advice at the first opportunity – normally a claim should be brought within 6 months of the Grant of Representation being issued.
If you want to protect your estate against a claim, you should take legal advice. You should also document your wishes and consider whether to leave a small sum to a potential claimant.David Anderson
Please feel free to contact us with any questions on the above matters or any other legal query you may have. If it is on a topic we do not deal with we will almost certainly know someone who can. Our website contains a lot of information and articles on our practice areas.Summer 2017