Charities Act 2022 – Sale of Charity Land

The third and final tranche of provisions of the Charities Act 2022 (the ‘2022 Act’) came into force on 07 March 2024.  Designed to reduce unnecessary regulation on charities in England and Wales, saving them both time and money, the 2022 Act implements many of the recommendations made by the Law Commission in its 2017 report Charity Law: Technical Issues in Charity Law.

The 2022 Act has wide ranging implications for trustees, employees and indeed legal professionals working in the charity and not for profit sector.  In this article, we examine some of the key changes made by the 2022 Act which charity trustees should be aware of when selling charity land.

  1. Designated Advisors

As was the case prior to the 2022 Act, trustees must obtain a written report on the proposed disposition from an advisor acting exclusively for the charity.  Importantly, however, the 2022 Act has widened the category of advisors who can provide such a report to include fellows of both the Central Association of Agricultural Valuers and the National Association of Estate Agents in addition to members of the Royal Institute of Qualified Surveyors (collectively referred to as ‘designated advisors’).  Section 21 of the 2022 Act has further confirmed that trustees, officers or employees of the charity can act as designated advisor so long as they have the requisite qualifications and experience.

By expanding the choice of advisors who can be instructed, trustees have greater discretion to choose the most suitable advisor for the transaction in question.  In the case of the disposal of residential property, for example, it is likely that a local estate agent may be most suited (and offer better value for money) to advise on a marketing strategy than a surveyor.  Furthermore, in lower value transactions, the ability to instruct an internal officer to act as designated advisor offers a cost-effective alternative to external professional advisors. Charity trustees should, however, ensure that they are always acting in the best interests of the charity and that no conflict of interest arises.

  1. Designated Advisors Report

The content of the designated advisor’s report has been simplified by The Charities (Dispositions of Land: Designated Advisors and Reports) Regulations 2023 which has replaced the previous ‘one size fits all’ approach under the Charities Act 2011 regulations.  The designated advisors report must now cover the following points:

  1. The value of the relevant land and any steps which could be taken to enhance that value;
  2. Whether and, if so, how the relevant land should be marketed;
  3. Anything else which could be done to ensure that the terms on which the disposition is made are the best that can be obtained for the charity;
  4. Any matters the designated advisor believes should be raised with the trustees.

The above requirements are less prescriptive than under the previous regulations, allowing the designated advisor to give more tailored advice to the charity trustees.

Charity trustees must consider the designated advisors report and be satisfied that the terms of the disposition are the best that can be reasonably obtained for the charity before committing the charity to the relevant disposal (s.119(1)(c) CA 2011).

  1. Advertisement of Charity Land

Prior to the 2022 Act, charity trustees were required to advertise the disposal of land in the manner that was advised in the surveyor’s report, regardless of whether such advertisement was out of proportion to the transaction in question.  The 2022 Act has granted charity trustees more discretion as to whether, and how, they advertise the disposal of land.  Charity trustees should still consider the advice of the designated advisor and importantly, where they choose to ignore such advice, keep accurate minutes of the charity’s decision-making process to be used if questions as to the sale process arise after the event.

  1. Statutory Instruments

Section 23 of the 2022 Act has given further guidance on the information to be included in certain statutory instruments. Section 23(2) of the 2022 Act has confirmed that a contract for the sale of charity land must include a statement which confirms that the land is held by or on trust for a charity and that the disposal has been made in accordance with the provisions of s.117-121 of the Charities Act 2011 (as amended by the 2022 Act as described above).  HM Land Registry Practice Guide 14 sets out the specific wording that should be included.

Where such a statement is omitted from a contract for sale, section 122(6) of the 2022 Act provides protection to the purchaser of charity land who has acted in good faith by confirming that the contract will remain enforceable.

  1. Impact of the Charities Act 2022

The changes made as a result of the 2022 Act are welcome and should result in more tailored and useful advice to charities on the disposition of charity land. The trustee’s legal duties remain the same: generally speaking, to obtain the best value for the property in question.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

How will the end of the ‘Four Year Rule’ impact developers?

The Levelling-Up and Regeneration Act 2023 (LURA 2023) is designed to “speed up the planning system, hold developers to account, cut bureaucracy, and encourage more councils to put in place plans to enable the building of new homes.”

 

One significant feature of the Act (section 115) is the abolition of the ‘Four Year Rule’. This rule, which currently gives local authorities just four years to act against certain planning breaches, was revoked on 25 April 2024 (England only).

 

What was the Four Year Rule?

 

Section 171B of the Town and Country Planning Act 1990 (TCPA 1990) gave local planning authorities (LPAs) strict time limits to take enforcement action for breaches of planning control. There was:

 

  • A four-year limit to start enforcement action against unauthorised operational development, including building, engineering, mining, and other operations;
  • A four-year limit to start enforcement action against unauthorised changes of use to a single dwellinghouse.

 

LPAs could not initiate enforcement action after four years from the date of breach. So, if owners procure Certificates of Lawfulness, those developments could be regularised (apart from some specific circumstances).

 

What has changed?

 

After 25 April 2024, LPAs in England will have a decade to take enforcement action against unauthorised development or the change of use of a building to a single dwelling. This aligns with the current ‘Ten Year Rule’ for other planning control breaches such as unauthorised material change and breaches of condition as well the recent changes to the building control regime.

 

The change is not retrospective, so, as long as affected projects were substantially completed before the new rule takes effect, the ‘Four Year Rule’ will still apply.

 

Other legislative changes implemented on 25 April 2024 include (but are not limited to):

 

  • Giving LPAs the power to issue temporary stop notices where they believe works are being carried out to a listed building without the required consent;
  • Increasing the duration of new temporary stop notices from 28 to 56 days;
  • Giving LPAs the power to issue enforcement warning notices when it appears a development has taken place in breach of planning control, thus inviting applications to regularise the position;
  • Limiting the circumstances in which an appeal against an enforcement notice can be brought on the basis that planning permission should be granted for a development;
  • Giving the Planning Inspectorate the ability to dismiss appeals against enforcement notices and certificates of lawfulness when the appellant is causing undue delay to the appeal process; and
  • Increasing the financial penalties for a range of planning enforcement offences.

 

What does the ‘Four Year Rule’ change mean for developers?

 

Any developers carrying out work without the required authorisation should seek legal advice to determine whether the old or new immunity timeframes will apply.

 

  • For works completed (or substantially completed) by 24 April 2024, LPAs will have four years to take enforcement action
  • For developments not substantially completed by 24 April 2024,the new ten year time period will apply.

 

While the full impact of LURA 2023 is unknown, the extension from four to ten years may lead to increased action from local authorities as there is a greater period of time for them to become aware of planning breaches. There may also be insurance considerations as providers tighten their requirements to protect themselves from the changes.

 

At Underwoods, we have extensive experience in commercial property matters. By taking the time to understand your situation and particular requirements, we can oversee a smooth process and deliver the right outcome for you. For further advice, please contact our commercial property team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

 

Property Management Agreements – The Application of TUPE

Whilst it is relatively common knowledge that the Transfer of Undertaking (Protection of Employment) Regulations (“TUPE”) apply to the sale of a business as a going concern, TUPE also applies to service provision changes. TUPE will transfer employees “wholly or mainly engaged” in the provision of the services and preserves their terms and conditions of employment.

In relation to property management this can present unique challenges for those practicing and working in this area which we will summarise below.

Change of managing agent

When there is a change in the managing agent of a property, the employment terms and benefits which had been provided to the staff by the incumbent managing agent will often be at odds with those typically provided by the incoming agent to their existing workforce. This can mean that the managing agent is engaging staff working under a variety of different terms. This can be commercially unattractive and administratively burdensome.

Furthermore, the incoming managing agent may be unable to replicate certain benefits that it is required to (for example if it is a different type of corporate body), even though these benefits are in theory preserved by virtue of TUPE.

For example, the employee may have the benefit of an employee share scheme but the incoming agent is not a company, and therefore does not have shares to offer. To replicate this benefit, it may need to look at “buying out” the right from the affected employees. The value of any right may be very difficult to quantify, require specialist advice, and may not have been anticipated when the tender was submitted at the outset.

Change of client with change of property manager

The cases of McCarrick v Hunter [2012 EWCA Civ 1399] and Taurus v Crofts [UKEAT/0024/12] established the principle that where there is a simultaneous change of ‘client’ and incoming service provider/managing agent, then TUPE will not apply. In relation to property transactions this means that if a property is sold and the new owner simultaneously changes managing agents, then the site-based staff who work at the property will not necessarily transfer under TUPE. It is important to note that this does not affect circumstances where a property is owned by a corporate body and there is a sale of shares in that body. In such circumstances the owner or client remains the same, albeit with a change in shareholders, and TUPE would not be applicable.

Furthermore, who is the client is a question of fact, as opposed to law and it is important to look to see who is the ‘ultimate’ client. In your typical property management scenario, the ‘client’ would be the owner of the property who would employ a management company or managing agent to manage the same. However, difficulties arise where there are sub-contractors involved, for example, where the managing agent employs cleaners or security staff for the property. These would be deemed as ‘sub-contractors’ and the managing agent would be their ‘client’, with the property owner being the managing agent’s ‘client’ (Jinks v London Borough of Havering [UKEAT/0157/14]).

So, which ‘client’ needs to remain the same for TUPE to apply? Each situation will need to be looked at on its facts but, when considering if TUPE should apply on a property sale, it is important to look beyond the initial client and identify the end client for whom the services provided ultimately benefit.

Who bears the employee risks in a property management agreements?

Whilst certain management costs are usually recoverable through service charges, one of the key issues is which party (the owner, or the managing agent) should bear the risk of claims or disputes, especially any claims which could arise on termination if TUPE does not apply. The provision of appropriate indemnity protection (whatever side you are working for) is therefore crucial.

It is important to note that if TUPE does not apply when there is a change in managing agent, if the outgoing managing agent cannot relocate its staff to other properties it manages, the default position is that is required to cover the costs of redundancy of these staff members (some of whom may have been inherited from an outgoing agent and never have worked elsewhere).

The managing agent can therefore be reluctant to take on such risk if the staff have been inherited from a previous managing agent if appropriate indemnities cannot be obtained, and further, if the fee negotiated does not cover the potential risks. The owner can be reluctant to assume the risk given that they have little control over the managing agent or its staff and feel that staff should not be their responsibility or cost.

An additional  challenge can arise given that management agreements can often provide that the client can compel the agent to remove a member of staff from the property. The agent, as the employer, must be mindful of the employment rights of its employees, particularly if the agent considers that the request could result in an unfair or discriminatory dismissal. This results in a tricky challenge of balancing its contractual requirements and the wishes of its client, together with the employment rights of the individuals engaged by it.

Negotiation of Agreements

The above are all factors that come into consideration when negotiating property management agreements. Underwood Solicitors LLP have extensive experience in all aspects of property management agreements, from both the managing agent’s and the landlord’s perspective, and in respect of both residential and commercial properties and portfolios. Please contact Michael McDonnell, William Gubbins, or your usual contact at the firm, if you would like assistance with this.

This article is for general purpose and guidance only and does not constitute legal advice. It should not replace legal advice tailored to your specific circumstances.

 

 

When should I review my will?

According to the Ministry of Justice, the number of inheritance challenges is rising. Legal rows over inheritances have risen 34% in five years, with court cases involving contested wills increasing by 140% over the past decade.

Cohabiting couples, second marriages, and blended families can make inheritance tricky. But, with a properly drafted will, most disputes can be avoided, or at least easily resolved. Nevertheless, life can change quickly, and factors such as shifting relationships, families, and finances could mean that your carefully drafted will no longer reflects your situation and wishes.

Estate planning is not a one-time task. You should review your will at least every five years or, after a significant change in your personal or financial circumstances, such as those outlined here.

On marriage

Most people do not know that getting married (or entering into a civil partnership) automatically invalidates a will. Unless your will makes specific reference to your intended marriage, it will be revoked after your marriage or civil partnership, and intestacy rules will apply. This means that:

  • If you are married and your estate is worth up to £322,000, your spouse will inherit everything, even if you have children;
  • If you are married with children (not including stepchildren), and your estate is worth more than £322,000, your spouse will inherit the first £322,000 plus personal belongings. Anything remaining will be split 50/50 between your spouse and your children*. Your children will all inherit an equal share of the remaining 50%.

*Your grandchildren and great-grandchildren will inherit in their place if any of your children die before you.

On divorce

Divorce does not automatically revoke your will. If you end a marriage or civil partnership, your will treats your spouse as if they have died. This means that anything you have left to them will no longer take effect.

Of course, the divorce process can take a long time. It is therefore often a sensible precaution to review your will at the earliest stage, to mitigate the risk of your spouse inheriting should you die before the divorce is finalised.

When cohabiting with a partner

Contrary to popular belief, there is no such thing as ‘common law’ marriage. If you establish a household with your partner, you should consider what ought to happen if one of you were to die. Should financial provision be made for each other? Should a partner have rights over your share of any property?

A cohabiting partner will have no rights or inheritance under English succession law.  Naturally, if you have provided for a cohabiting partner, you should review your will if that relationship ends.

When welcoming new children to the family

You should review your will once you have children, to consider when they might inherit, who should manage funds for them during their youth, and who should act as their guardian(s) if you die whilst they are young.

You should also consider updating your will if a new partner has their own children. You will, between you, need to consider the possibly competing interests of all family members.

If you become a grandparent

It is common for grandparents to add their grandchildren to their wills so they inherit directly. As such, the birth of grandchildren may require a will review.

On a change of financial circumstances

Significant changes in the value and makeup of your estate may impact the planning your current will implements. There can also be tax consequences to factor in. You should consider updating your will if:

  • You purchase/ sell property, or your property changes in value significantly;
  • You inherit or are gifted assets;
  • Your business interests change in value, or your business changes in nature.

If your health or personal circumstances change (or that of a loved one)

Deteriorating health is often a distressing event, and reviewing your will may not be the priority it should be.  If you or a dependant needs care, you may want to use your will to help you do this and protect your estate from care fees.

You will also want to update your will if the executors you have named are in poor health, so that new people are appointed to administer your estate.

Should a beneficiary die

If a beneficiary should die, you should review your will to ensure that the assets you planned to leave them are redistributed according to your wishes. The death of potential beneficiaries will often have been provided for in a solicitor-drafted will, but it is always sensible to check.

Unfortunately, most people are unaware of the impact life changes can have on the distribution of their estate. According to recent research, only 56% of people have updated their will within the last five years, meaning around half of UK wills are out of date.

At Underwoods, we help ensure your loved ones are taken care of when you pass on. In addition to drafting, reviewing, and amending your last will and testament, we can also advise you on several other key areas of law that may impact your estate planning. For further advice, please contact James McLean, Alex Shah or Shirin Wright in our private client team.

 

This article is for general purpose and guidance only and does not constitute legal advice. It should not replace legal advice tailored to your specific circumstances.

Significant departures to a longstanding Will

As our society ages, there are growing incidences of individuals making significant changes to their Wills later in life. English succession laws have a proud tradition of testamentary freedom, but it is important to recognise that late-in-life amendments can have consequences.

The recent case of Rea v Rea (2023) EQHC 1901 (Ch) highlights the difficulties with challenging a Will, and the importance of regularly reviewing your Will.

What happened?

Mrs Rea (deceased) had one daughter and three sons. She made a Will with a solicitor in 1986 appointing one son as sole executor and left her estate in four equal shares to her four children. She made no subsequent Will or Codicil since 1986 – for almost thirty years.

In 2015 Mrs Rea had a solicitor prepare a new Will. She wanted to ensure her home went to her daughter, feeling that her sons did not care for her and had abandoned her. At the time Mrs Rhea had several physical health issues.

The solicitor arranged a capacity assessment – a sensible precaution, given Mrs Rea’s age and health, and the departure in her instructions – with Mrs Rea’s GP who confirmed capacity. They made no suggestion of undue influence.

The Will was witnessed by the solicitor and GP.

After Mrs Rea’s death in 2019, her sons challenged the validity of the 2015 Will on grounds including lack of testamentary capacity and undue influence. The Court concluded the Will was valid.

After several attempts the sons appealed in 2022, and were successful due to a procedural error the judge had made when conducting the trial.  A re-trial was heard in July 2023.

The judge ruled that Mrs Rea did have capacity to make her 2015 Will. However, the judge decided after reviewing the evidence that despite having a solicitor draft the Will and the GP conducting a capacity assessment, there was undue influence by her daughter. The judge determined that due to Mrs Rea’s age and vulnerability, dependence on her daughter, the fact that her daughter had made the arrangements for her mother to make the 2015 Will and that the new Will was unbeknownst to the sons until after their mother had died, Mrs Rea had been coerced to make the new Will.

Mrs Rea’s daughter appealed the decision with the Court of Appeal, and on 23 February 2024, Lord Justices Moylan, Newey and Arnold unanimously ruled in her favour.  They determined that the ruling in 2023 had been wrong; the dependency Mrs Rea had on her daughter should not determine that there was undue influence.

What does this mean?

This case illustrates several important lessons:

  • When considering making major changes to a Will, there may be greater scrutiny placed on the circumstances of the new Will if a long period of time has elapsed.
  • Although testamentary freedom forms the basis of English succession law, we know that people often have an expectation of inheritance. Where changes are being made that show preference to a family member (which is not unusual where significant care is being provided), it is important to try and explain the reasoning to all family members in a non-confrontational manner. We wonder whether the shock discovery of the new Will by Mrs Rea’s sons contributed to their determination to have it disregarded.
  • Where a Will is amended to benefit a person on whom the testator depends, that dependency should not give rise to a presumption of undue influence. It has long been a principle of the Court that undue influence must be proved by the persons alleging it.

The full case judgement can be found here.

For further advice, please contact James McLean, Alex Shah or Shirin Wright in our private client team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

“I’m sorry, Dave. I’m afraid I can’t do that” – Copyright in the AI world

The expansion of AI raises some important questions particularly in relation to intellectual property; can a computer generated work be protected by copyright? Who benefits from the copyright protection the computer or the human being who set the parameters of the enquiry? And, in terms of the end product, how can you be certain that the AI output has not infringed someone else’s rights?

Somewhat surprisingly,  the Copyright, Designs and Patents Act 1988 (“CDPA”) does offer some guidance here. S.178 of the CDPA offers a definition of ‘computer-generated’ – “in relation to work, means that the work is generated by computer in circumstances such that there is no human author of the work”. Does this therefore mean that the computer itself can have the copyright? The answer can be located in s.9(3) of the CDPA where “in the case of literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken”.

It would seem that where a computer has generated a piece of work it is the person who made the ‘necessary arrangements’ that retains the rights associated with authorship. For example, if you ask a computer programme to generate an image, or a document, it should be the person setting the parameters or writing the ‘prompt’ that holds the copyright. That being said this is not explicitly set out in legislation. Conceptually whilst the most appealing answer is as suggested, that the user is the copyright holder, it could also be the case that ‘necessary arrangements’ could refer to the creator of the software itself. Therefore the company that created the software owns the copyright in its outputs.

One of the most significant issues concerning AI and copyright relates to the basis of the ‘knowledge’ the AI tool relies upon. Consider the most popular or recognisable forms of AI, ChatGPT, Microsoft’s Cockpit and similar.  These forms of AI are based upon what is known as a ‘large language model’, which means that these tools have been ‘taught’ by presenting them examples of human authored text, for example by data mining through thousands of pages of information available on the internet. Through a process known as ‘deep learning’ their algorithms can learn to recognise patterns, classify data and make predictions based on analysis of large quantities of data. These algorithms also calibrate and ‘learn’ to provide more specific answers based on user inputs. So the more they are used, the more they learn how to provide an accurate response.

Considering that AI based on large language models relies entirely on existing material to form the basis of its responses can the end user be certain that the answer that an AI tool has provided is not in reality infringing someone else’s copyright. After all copying without consent of the right holder is an infringement of the rights of the right holder even if you as the end user were unaware of the source of the material that AI generated or learned from.

Another significant issue that should be considered is the specific subset of intellectual property relating to the protection for database rights, both in the form of ‘sui generis database rights’ and in copyright. In the United Kingdom the Copyright and Rights in Databases Regulations 1997 amended the CDPA so that a ‘database’ means “a collection of independent works, data or materials which (a) are arranged in a systematic or methodical way; and (b) are individually accessible by electronic or other means.” The systematic ‘scraping’ of data from a website, even if it is easily accessible, in order to train an AI bot or algorithm could be an infringement of the database owner’s rights both in terms of the database right and in copyright.

There are some exceptions that would allow the use of the data, but currently these allow data mining and computer based analysis of materials for non-commercial research. If there is a commercial use and prior permission from the rights holder has not been obtained then commercial exploitation could amount to infringement, it is essential for users that clarity is sought on how the AI tool has been ‘taught’ prior to making use of its products so as not to become embroiled in intellectual property disputes.

In conclusion, the fundamental issue with AI and intellectual property is that the pace of the technological advance is greater than the law’s ability to react. The governmental response in the United Kingdom has been an attempt to be permissive, which has drawn a negative response from the creative industries as they stand the most to lose from de-regulation of copyright. We await with interest the publication of the Intellectual Property Office’s forthcoming code of practice on Copyright and AI in the hope that it gives clarity to a rapidly evolving area of law.

If you require further information about anything covered in this briefing, please contact Oliver Whitehead or your usual contact at the firm on +44 (0)20 7526 6000.

Should I make a Will?

According to recent research, around half of UK adults do not have a will. Reasons for not doing so include:

  • the belief that they do not have enough assets or wealth to warrant making a will (24%)
  • the belief that loved ones will automatically inherit their wealth regardless (17%)
  • not being able to afford to make one (15%)
  • the belief that they have plenty of time to make one (15%)
  • not knowing how to write a will (14%)
  • not wanting to think or talk about death (13%)

Planning for death is not something any of us want to do, especially if you are just starting a family, getting on the property ladder, and making headway in your career.  If you want a secure future for the people you care about, making a will is something you must consider. Indeed, a properly drafted will is one of the most important documents you should have, and careful preparation should start as soon as possible.

Who should make a will?

While it might be more common to think about estate planning as you get older, unexpected events can happen at any time. So, adults of all ages should ensure they have a valid will.

If you die without one, the intestacy rules determine how your estate is distributed. In an age of cohabiting couples, second marriages, and blended families, these rules rarely respect the bonds of modern living. So, if you care about what happens to your hard-earned assets after you die, and, more importantly, who should inherit them, you must have a will.

People with assets

You should have a will if you own any assets (including through inheritance), such as property, savings, investments, or other valuable possessions. Such legal provision ensures these assets are distributed according to your wishes. A properly drafted will can also safeguard against potential care costs, providing a strategic element in financial and estate planning.

Parents, grandparents, and carers  

In the unfortunate event of both parents passing away, a will lets you select a guardian for your children, ensuring their care aligns with your preferences. Moreover, a will offers vital protection for children from previous relationships, mitigating the risk of them inheriting nothing if you have remarried.

In a broader familial context, it is not uncommon for grandparents to add their grandchildren to their wills, so they inherit directly. Furthermore, if you are financially responsible for a dependent, including those with specific care needs (which notably may include parents), a will can help provide for their future should you no longer be around.

People in relationships

Contrary to popular belief, without a will, your husband, wife, or civil partner may not automatically inherit everything. Likewise, there is no such thing as ‘common law’ marriage, and if you are unmarried and do not have a will, your partner could be left with nothing.

Business owners

A will can determine what happens to your business interests after your death. This includes issues like succession planning and asset distribution.

Reviewing and Updating your Will

Life can change quickly, and a range of factors, including shifting relationships, children, finances, property values, and regulatory and tax updates, could mean that your carefully drafted will no longer reflects your situation and wishes.

There are also some occasions, such as getting married, when a will is automatically cancelled. So, once drafted, as well as reviewing your will after any significant life event or a significant change in the size or nature of your estate, it is also worth doing every five years.

It is never too early to prepare

It is all too easy to put off writing a will, but doing so can cause problems for your loved ones after you’re gone. The good news is that making a will is easier than you might think. Nevertheless, appointing a solicitor is crucial to ensure you avoid the common mistakes that could make your will invalid. Even the slightest error could render a will null and void, so expert advice is recommended.

At Underwoods, we help ensure your loved ones are taken care of when you pass on. In addition to drafting, reviewing, and amending your last will and testament, we can also advise you on several other key areas of law that may impact your estate planning. For further advice, please contact James McLean, Alex Shah or Shirin Wright in our private client team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

Government’s five‑point plan to cut net migration

To combat record levels of migration to the UK, the government has made tightening the country’s immigration rules a key priority. In December 2023, the Home Secretary introduced a five-point plan to reduce net migration by around 300,000 people per year.

With the new rules set to come into force in Spring 2024, the government believes the changes will:

  • Deliver the biggest reduction in net migration on record
  • Bring net migration down towards more sustainable levels
  • Curb the employment of cheap labour from other countries
  • Ensure the NHS and businesses have access to the talent they need.

Under its five-point plan, the government will:

  1. Reform the current Health & Care visa system

The Health and Care visa enables overseas workers with specialist skills to come to the UK and work for licensed employers in eligible roles. Under the changes, holders of Health and Care visas will no longer be able to bring family dependants with them. In addition, organisations that want to sponsor people for Health and Care visas will be limited to those regulated by the Care Quality Commission (CQC).

  1. Increase the minimum salary required to obtain a Skilled Worker visa

A Skilled Worker visa allows an individual to come to the UK to do an eligible job with an approved employer. Applicants must be paid a minimum salary to qualify for a Skilled Worker visa.  At present, the threshold is £26,200. Under the changes, this will rise to £38,700 (an increase of 48%).

There will be temporary provisions to cover those already in the Skilled Worker route. Those on Health and Care visas and workers in occupations on the national pay scale (e.g. teachers) are exempt from the increase.

  1. Reform the Shortage Occupation List

The Shortage Occupation List (SOL) includes those jobs where there is a shortage of skilled workers in the UK. The SOL currently includes healthcare workers, engineers, veterinarians, construction workers, artists, and more. To make it easier for employers to hire skilled workers from outside the UK to fill these positions, jobs on the SOL can be paid 20% below the minimum salary threshold and benefit from lower fees for sponsored work visa applications.

To “scrap cut-price shortage labour from overseas”, the government plans to axe the 20 % discount. The list will also be reviewed, reformed, and reduced.

  1. Increase the minimum salary threshold for Family Visas

A Family Visa enables eligible foreign nationals to live with a family member in the UK. British citizens who want to use a Family Visa to bring their foreign family member or partner to the UK need to show they can financially support them. The minimum annual income required to do this is currently £18,600, increasing by £3,800 for a first dependent child and £2,400 for any additional children.

From Spring 2024, the minimum income threshold will increase to £29,000 before rising to £34,500 and then to £38,700 (an increase of over 100% from the current figure). There will no longer be a separate child element.

  1. Further changes to the Graduate Visa

Graduate Visas allow individuals to stay in the UK for at least two years after successfully completing their studies here. Since January 2024, changes to the Graduate Visa have limited the number of students who can bring family members to the UK to those on postgraduate research courses with dependents. The government will now ask the Migration Advisory Committee to review Graduate Visas further to prevent what it sees as “abuse” of the system.

Impact on Employers

While the government wants to prioritise growing the domestic workforce, the changes will likely impact businesses based in London and elsewhere in the UK that rely on foreign workers. The reforms may be especially worrying for those still battling with labour shortages in our post- Brexit, post-pandemic world.

Our immigration team is highly experienced in this area of law and fully understands the process of bringing personnel to the UK. We encourage employers to plan ahead to avoid being caught out by the changes.

As well as advising and working with you to navigate the best way through the system, we can also help with employees whose visas are about to expire. And we can assist with personal and family applications, plus procedures for overseas students keen to study in the UK.

If you would like to know more about how these changes may impact you or your business, please do not hesitate to contact Aoife Reid, our immigration specialist, or Michael McDonnell in our employment team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

 

Leasehold Reform.  Where are we up to?

What is a leasehold?

A leasehold is a type of property ownership where an individual owns the right to use and occupy a property for a specified period of time, but does not own the land on which the building was erected. Instead, the land is typically owned by a separate entity known as the freeholder (or landlord).  A lease agreement outlines the rights and responsibilities of both the leaseholder and the freeholder, including any ground rent and maintenance charges the leaseholder may be required to pay. When the lease term expires, ownership of the property reverts to the freeholder, unless the lease is extended or renewed.

The system of leasehold property ownership in England dates back to 11th Century. It was created to ensure someone (the freeholder) takes responsibility for the maintenance of common structures and areas thus relieving homeowners from the burden of directly managing and funding significant repairs. Professional management can also help ensure that properties meet certain standards, and help avoid potential neighbour disputes.

Nevertheless, there is general agreement that the system requires reform, and the new Bill should make it easier for leaseholders to:

  • Extend their leases
  • Buy their freeholds
  • Take over management of their buildings.

What is changing?

The Leasehold and Freehold Reform Bill proposes to:

  • Increase the standard lease extension to 990 years (up from 90 years in flats and 50 years in houses) with ground rent at zero.
  • Remove the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry.
  • Remove the requirement for a new leaseholder to have owned their house or flat for two years before they can benefit from these changes.
  • Allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management (up from 25%).
  • Set a maximum time and fee for the provision of information required to make a sale to a leaseholder by their freeholder.
  • Require transparency over leaseholders’ service charges.
  • Replace building insurance commissions for managing agents, landlords and freeholders with transparent administration fees.
  • Require freeholders who manage their properties to belong to a redress scheme so leaseholders can challenge them if needed.
  • Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders.
  • Build on the legislation brought forward by the Building Safety Act 2022.

The Response

Most of the proposed reforms constitute a mere expansion of the leaseholders’ protections which are already in place but theoretically will make it simpler and less expensive to own and maintain a flat. At the same time, the concept of leasehold as a contract between the Landlord and the Tenant in principle remains in situ and there will still be service charges and management charges, Landlord’s control on alterations and underletting and premium payable for lease term extension or purchase of a share of the freehold. Last but not the least, the most controversial issue of leasehold houses has not been resolved as the latest draft does not include the long-awaited ban.

Where are we up to?

The Bill is expected to become law before the next general election.

Affected freeholders should seek legal advice to prepare for the new legislation. For example, things to consider include:

  • Whether the proposed cap on ground rent in existing residential leases will affect income.
  • What might happen if more leaseholders decide to take over the management of their buildings and freeholders lose control.
  • Whether less-experienced individuals managing buildings will lead to increased risks, higher insurance premiums, and devalued properties.

If you would like to know more about how the Leasehold and Freehold Reform Bill will impact you, please do not hesitate to contact Anna Severtoka or Mark Smith in our real estate team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

Property Guardians of the Galaxy: Unintentional HMOs

More often than not, a landlord of a House in Multiple Occupation (HMO) will know that it is being used as one where residential premises are concerned. However, the use of property guardians to occupy vacant commercial properties to offer security to their owners may also require licensing oversight from local authorities.

The recent case of Global 100 Ltd v Jimenez and others (2023) EWCA Civ 1243 highlights that an HMO licence pursuant to Part 2 of the Housing Act 2004 (HA 2004) may still be required where a vacant commercial property is occupied as living accommodation by so called “property guardians”. We discuss the key takeaways from the judgement.

What is an HMO?

Section 254 of the HA 2004 generally defines that an HMO is a building (or part of it) that consists of living accommodation occupied by tenants who do not form part of the same household; at least one of the tenants pay rent; such accommodation is used as their main or only residence; and the tenants share facilities in the premises, such as toilets, showers and kitchen facilities. HMO licences are normally required where the property is occupied by at least five people and the above criteria apply.

HMO licences cannot be assigned. If a purchaser acquires a property that is already used as an HMO and continues to be used as one at the time of their purchase, they will need to obtain their own licence or a temporary exemption.

Property Guardians

In brief, these are private individuals who occupy vacant properties that are not intended for residential use. Examples of these include warehouses or office space and the intention of such occupation is to provide a degree of security to the property owner and mitigate the risk of squatters.

Background to The Global 100 case

This was a Court of Appeal case following on from the Upper Tribunal’s decision to uphold Rent Repayment Orders against the landlord and guardian firms’, Global Guardians Management Ltd (GGM) and Global 100’s, failure to hold a valid HMO licence (Global Guardians Management Ltd & Ors v London Borough of Hounslow & Ors (UKUT 259 (LC)).

On 31 March 2016, the owner of the property, a vacant commercial building, contracted with GGM to provide guardianship services at the property at a monthly licence fee of £600 and a minimum term of four months (determinable at four weeks’ notice). GGM then contracted with Global 100, a sister company, who would identify occupants to act as “guardians”, paying a monthly licence fee. GGM converted the building to create 30 bedrooms, 4 kitchens, and 4 lavatories. The rooms (and the provision of keys to access these rooms) were then licenced to guardians who paid varying licence fees depending on the size of their rooms. The local authority inspected the property and satisfied itself that it was occupied as an HMO. At least 29 of the 30 rooms were occupied at the time of the inspection. The issues in dispute concerned the ‘sole’ purpose of occupation and whether this purpose was as living accommodation. The tenants argued that this threshold was met. However, Global 100 and GGM had advanced the following arguments:

  • that the property was not solely occupied for residential use for the purposes of s.254(2)(d) HA 2004;
  • that GGM had not been granted a tenancy of the property; and
  • neither GGM nor Global 100 were persons having control or management of the property.

The FTT rejected the above arguments and the FTT’s decision had been upheld on appeal before the Upper Tribunal. Global 100 and GGM subsequently appealed to the Court of Appeal.

At appeal, Global 100 and GGM argued:

  • That residential occupation by the guardians did not constitute the only use of their living accommodation.
  • That the Upper Tribunal had erred in finding that GGM had a tenancy of the property and that GGM was a person in control of that property (in that they would receive the rack-rent if let at a rack-rent); and
  • The Upper Tribunal erred in its finding that Global 100 was a person in control because of its receipt of the rack rent.

Global 100’s appeal was ultimately dismissed for the following reasons:

On (1), the Court of Appeal kept their dismissal of Global 100’s argument brief. The Court held that the tenants ‘had no responsibilities as property guardians save to live in the accommodation. The presence of the property guardians in their living accommodation and the property may have deterred persons from entering the property, but it did not convert the use made of the living accommodation. In these circumstances…the Upper Tribunal was right in both appeals to find that the occupation of the property guardians of the living accommodation constituted the sole use of that living accommodation’ [1].

On (2), the Court of Appeal also dismissed GGM’s argument regarding whether they had a tenancy of the property as the FTT had originally found that GGM was, in fact, being granted the exclusive right to exploit the whole of the property[2], and had therefore been granted exclusive possession of it. As to whether GGM was a person in control of that property (in that they would receive the rack-rent if let at a rack-rent), a decision on this was not made as they were liable as the person managing the property.

On (3), the Court of Appeal dismissed Global 100’s argument in that together, GGM and Global 100 arranged for the modification of the property for habitation and subsequently licensed property guardians to live in it, generating £15,000 per month from licence fees. Global 100 was in the business of making money and not acting as a charity. The property guardians were also willing licensees of living accommodation, Global 100 was a willing licensor, and there was nothing to suggest that anything more could be obtained from letting or licensing the property in terms of obtaining a rack-rent. In any event, Global 100 was the only person who could charge the guardians for living in the property, if let at a rack-rent for the purposes of section 263(1) of the Housing Act 2004.[3]

Commentary:

The decision in Global 100 Ltd v Jimenez & Orz reaffirms the court’s position on the occupation of commercial premises by property guardians and where this can fall foul of the HA 2004’s licensing requirements. Where properties are occupied by property guardians, they may unintentionally be subject to HA 2004 licensing requirements which, if breached, can result in the landlord and/or the guardian firm being subject to rent repayment order applications and possible criminal prosecution.

It is important to seek legal advice before putting any such arrangements in place due to the material financial and criminal consequences landlords or guardian firms may be subject to for failing to obtain an HMO licence where one is required.

If you have any queries regarding any of the real estate issues covered in this blog, please do not hesitate to contact Sharado Watson or Deepak Ohri in our real estate team.

This article is for general purpose and guidance only and does not constitute legal advice.  It should not replace legal advice tailored to your specific circumstances.

 

[1] Global 100 Ltd v Jimenez & Ors [2023] EWCA Civ 1243 (27 October 2023), para. 51

[2] Ibid, para.57

[3] Ibid, para. 63