Commercial Property Update August 2019

Introduction

With school holidays, government shutdown, new Prime Minister and BREXIT looming, it has been a quiet month on the property front.  There have, however been further HM Treasury consultation in relation to private residence relief from Capital Gains Tax, further movement with regard to reform (and eventual abolition) of assured tenancies.

We also take a look at this month’s update at easements in particular whether an intensification of use (following development of land) can give rise to modification or extinguishment of an existing easement.


Capital Gains Tax – Consultation on Private Residential Lease

The previous Chancellor, Philip Hammond, announced in the 2018 Budget that two of the current ancillary release, applicable under the Capital Gains Tax regime relating to Private Residents Relief would be altered.  The stated aim of the alterations was to target the release more accurately, owner occupiers rather than non-occupying owners, investors or buy to let owners.

Private Residents Relief

Private Residents Relief is usually lost for any period when the tax payer is not using a property as his or her only or main residence (with an apportionment made between those periods when the property was being used as the main residency and when it was not).  Ancillary relief is however available in certain circumstances. These include periods where there is no occupation at the end of a tax payers ownership (e.g. during a final period of up to 18 months where the Seller has moved out of the property in advance of its sale).  In addition, relief is also available (albeit subject to conditions) where a person lets all or part of his or her main residence (or form of residence) as residential accommodation.

The changes to be introduced are as follows:

    • The final period of exemption is to be reduced from 18 months to 9 but will special rules applicable to those with a disability or those in care – where an exemption of 36 months will continue to apply;

    • Relief is to be altered so that it only applies where an owner is in “shared occupation” with a tenant (where the tax payer who would otherwise be an owner occupier chooses to let the property whilst away on a short holiday or during a hospital stay or occasionally working away from home).  HM Treasury has indicated that where there are longer periods of absence, a separate ancillary relief (period of absence) relief for period of absence not exceeding three years may apply.

Draft legislations have been published and the changes are intended to take effect from the 6th April.  Further guidance can be found by following the link below:

https://www.gov.uk/government/consultations/capital-gains-tax-private-residence-relief-changes-to-the-ancillary-reliefs

Reforms to Assured Tenancies

The government has published a consultation paper on terminating residential tenancies.  A link to the documents is set out below.

The consultation is considering the proposal announced in April 2019 by the government to bring an end to “no fault” terminations of assured tenancies.  The proposal will effectively end the assured shorthold tenancy regime. It is not thought that the changes will apply retrospectively however Landlords should be on notice that the days of the shorthold tenancy are numbered.  

The consultation runs until 12th October and we recommend that interested parties follow the link below to make their views know:

https://www.gov.uk/government/consultations/a-new-deal-for-renting-resetting-the-balance-of-rights-and-responsibilities-between-landlords-and-tenants

Tenancy Deposit Reform

The government has issued a call for evidence on residential tenancy deposit reform, including “passporting” of a tenancy deposit from one property to another (where the tenant moves home).  The consultation runs until 5th September.  Interested parties should follow the link below:

https://www.gov.uk/government/consultations/tenancy-deposit-reform-a-call-for-evidence



Easements – Intensification of Use

A situation we are often asked to advise upon is the effect of an existing easement of an intensification of use.  In particular, where a pre-existing easement can be relied upon when land is subsequently redeveloped.

In the recent case of Stanning -v- Baldwin the Claimant owned property in Buckinghamshire.  It was accepted that the Claimant’s property enjoyed the benefit of a right of way on foot (and with vehicles) of an unsurfaced and unadopted track over adjoining land and leading to the property.  The easement had arisen by prescription based on long use from 1906. The Freeholder Title to the land subject to the easement was owned by the Defendant.

The Claimant obtained planning permission for the demolition of buildings on her property and the construction of four terraced houses with underground parking for nine cars come with access to continue via the track.  The Defendant argued that the Claimant could not rely on the prescriptive easement for the intensified use as allowed following its redevelopment.

The court considered the case of McAdams Homes Limited -v- Robinson (2004).  This case had held that if there was a radical change of use whether land benefitted by an easement coupled with a substantial increase or alteration in the burden on the land subject to it, the right to use the easement was lost (or at least suspended whilst the change of use was operative).  In this case, the court felt that there had been no radical change in the use of the land with the benefit of the easement. What had been a residential use of a coach house building would remain a residential use with a construction of four terraced houses. The High Court did not think that the new use was self evidentially excessive so as to render the Claimant liable a nuisance.  Despite the extensive excavations that would be required in the construction phase, possible damage to the surface of the track, and an expected increase in domestic motor vehicles accessing the new houses, the court felt that the evidence came no where near establishing that a nuisance based on excessive use could arise.

The McAdams case provides useful guidance with regard to how to approach cases of change of use and/or intensification.  Three significant points relevant to implied easements (extending also to prescriptive grants where made by the court during the case:

  1. The court noted that the owner of land subject to an implied or prescriptive easement is unable to complain about increased usage alone.  The court felt that each case would need to be examined on its own merits, however the test would be whether or not the intensification of use would amount to a nuisance as such would be regarded as excessive.

  2. The court said that if there was a change in the use of the land with the benefit of the easement but such change did not impact on the nature or extent of the use of the easement, the change of use, however radicle would not affect the right to use the easement.  This would however be subject to any expressed wording in the easement itself to the contrary.

  3. Finally, and most significantly, the Court of Appeal states that if there was a radical change of use of the land with the benefit of the easement, coupled with a substantial increase or alternation in the burden on the land subject to it, the rights to use the easement would be lost (or at least suspended whilst the change of use was operative).

The above case highlights the difficulties faced by developers (and those purchasing property from developers) when prescriptive or implied easements are relied upon (most commonly for access to and from the property).  Very often we come across situations where a developer purchases a property with the benefit of an easement and then converts it into apartments. The developer then seeks to rely on prescriptive or implied easements, so convince the apartment owners that they can rely upon the implied/prescriptive easement to access their properties.  In such cases, the test to be applied is whether or not there has been a radical change of the use of the land with the benefit of the easement, coupled with a substantial increase or alteration in the burden on the land subject to it. In such cases, the benefit of the easement could be lost (or at the very least suspended). Very careful consideration therefore needs to be given when dealing with reliance upon easements and our view is that where land is redeveloped the developer should be obliged to enter into a new express easement with the owners of the land to be subject to it making it clear that the changed use is expressly authorised so that the easement can be registered against both the land with the benefit of it and the land subject to it to prevent any risk of argument or dispute later down the line.