Real Estate monthly digest - July 2018

Changes to the taxation of real estate held by non-residents

The Government has now published its response to the consultation on changes to the UK taxation of capital gains realised by non-residents from direct and certain indirect disposals of UK property. Published alongside is draft legislation covering some, but not all, aspects of the changes.

Full coverage can be accessed [here](https://www.simmons-simmons.com/publications/ck0bjr6qho8ok0b362m8hc7fx/090718-changes-to-the-taxation-of-real-estate-held-by-non-residents-finance-bill-july-2018.

A webinar discussing the changes can be accessed here.

A look at the changes from a real estate finance perspective can be found here.

Overseas entities owning UK properties will have to reveal their ultimate owners on a new public register

The Government intends to introduce a register of the beneficial owners of overseas entities owning land in the UK (the Register) by 2021. It will be a public register held and maintained by Companies House.

On 23 July 2018, the Government published the draft Registration of Overseas Entities Bill which sets out the framework for the Register and the enforcement regime that will sit behind it. Transparency and tackling corruption clearly remain the key drivers for the Government in introducing the Register.

To encourage compliance with the Register the Government plans to use a combination of what it describes as “novel land registration requirements” and criminal sanctions, including significant fines and up to five years’ imprisonment. The land registration requirements will involve adding a restriction to the registered title of property owned by overseas entities and preventing registration of transactions where an overseas entity has not complied with the regime.

A detailed analysis will follow shortly.

Construction Blog: Hackitt Final Report

The Simmons & Simmons construction blog includes analysis of Dame Judith Hackitt’s final report concerning the independent review of Building Regulations and Fire Safety and the potential impact of the recommendations on the lifecycle of a construction project.

In July’s blog the team consider:

The new regulatory framework: In Week 1 of the blog series the team discussed and considered Dame Judith’s proposal for a new Joint Competent Authority (JCA) to oversee the management of safety risks in “high risk” residential buildings. In this post the team consider the further ways in which the final report proposed that the new regulatory framework for building safety should be underpinned.

Products: the team also look at the recommendations for products made in the report.

In addition, on 19 July 2018 the Government announced that it had clarified building regulations fire safety guidance and that it is seeking views on the revisions in a consultation which will run until 11 October 2018. Simmons & Simmons commentary can be found here. At the same time the Government also announced that it intends to implement the following measures:

• establishing a panel, made up of residents, to ensure proposed safety improvements are grounded in the experience of those who live in high-rise buildings
• Dame Judith Hackitt will chair a soon-to-be established Industry Safety Steering Group to drive the culture change needed to improve safety and hold the industry to account
• working with a small group of organisations from industry to pilot safety improvements, and
• introducing a mandatory requirement on landlords in the private rented sector to ensure electrical installations in their properties are inspected every five years.

Certain off-plan purchasers ranked ahead of the lender when it came to the distribution of sale proceeds following an administration

In this case, administrators successfully applied for permission to dispose of a development site, free from both the registered charge and several notices registered by off-plan purchasers of the residential apartments in respect of their sale contracts. Many of the off-plan purchasers had paid a 25% deposit.

The interests of the secured lender and the residential purchasers instead attached to any proceeds to be realised from a sale of the site free of those existing secured interests. The order in which the interests had been registered against the title at the Land Registry was key to establishing the priority given to each of them on a distribution of the sale proceeds. The Court held that, after administration costs had been paid, three residential purchasers who had registered their interests ahead of the charge would get their deposits back first, together with interest and costs, and the secured lender would rank second, receiving an amount up to the aggregate of the sums advanced, plus interest. The remaining purchasers who had registered their interests after the charge was created, although secured creditors, would rank after the lender in the distribution, meaning it was very unlikely they would receive any money.

The case highlights the importance of registering interests promptly at the Land Registry and of assessing the financial standing of a developer. Lenders are also likely to be interested in the decision and the potential impact of purchasers’ liens on the monies available for distribution in the event of an insolvency. In this case, only three of the residential purchasers had registered notices ahead of the lender’s charge, but if the remaining 51 had done so and, as a result, ranked ahead of the lender for the purposes of the distribution of sale proceeds, the lender’s recovery would have looked materially different.

Full details can be found here.

Williams and another v Broadoak Private Finance Ltd and others [2018] EWHC 1107 (Ch).

Consultation: Overcoming barriers to longer tenancies in the private rented sector in England

The Government is consulting on a new model for residential tenancy agreements in England in the private rented sector. The proposal set out in the consultation is for a minimum three-year tenancy but offering an opportunity for either the landlord or the tenant to break the agreement after the initial six months if dissatisfied. On the expiry of the initial six-month period, the tenant could break the tenancy by giving a minimum of two months’ notice in writing. Landlords would retain the right to regain possession during the term on reasonable grounds (for example, antisocial behaviour or rent arrears).

The consultation is also looking at the flexibility that could be allowed for landlords wishing to sell the property during a longer-term tenancy agreement.

The consultation does not propose capped rents but suggests rents increase only once per annum based on a clear mechanism agreed at the outset of the tenancy. Exemptions are proposed for short-term lets and student accommodation.

Other areas on which views are sought as part of the consultation include the length of notice periods, possible exemptions and implementation (with one suggestion being tax incentives for landlords).

The consultation closes on 26 August 2018.

Residential leasehold reform for leasehold houses and long leases of flats

Following the Government’s announcement in December 2017 that it intends to ban leaseholds for almost all new build houses and make changes so that ground rents on new long leases are set at zero, the Law Commission has published a summary paper on proposed solutions for existing leasehold houses. It advises that a full consultation paper covering leasehold flats and houses will be published in Autumn 2018.

The summary paper notes that the Law Commission has been asked by the Government to prioritise solutions for leaseholders of houses and to publish those proposed solutions ahead of the summer break. The provisional proposals for reform in this area include:

• changing the valuation formula
• simplifying the process of buying the freehold interest
• eliminating the current right of leaseholders of houses to purchase a one-off 50-year lease extension at a high ground rent and replacing with a right to purchase unlimited longer lease extensions without a ground rent (the Law Commission will consult on the length of the extension, which could be 125 years or 250 years), and
• removing the requirement that leaseholders must have owned the leasehold interest in the house for at least two years before making a claim, thereby allowing the owners of leasehold houses to make claims immediately and avoid increasing premiums while they are waiting.

The Law Commission notes that their terms of reference require them to keep in mind the interests of landlords who would be affected by reforms that would lower the premium paid.

Comments on these proposals are invited as part of the Autumn 2018 consultation.

In a sign that residential leasehold reform is building strong momentum, the Law Commission has also announced that it intends to publish consultation papers on commonhold and Right to Manage before the end of the year.

SDLT filing and payment deadline to be reduced to 14 days from 1 March 2019

Following a previous consultation, the Government has issued draft legislation to shorten from 30 days to 14 days the period given to purchasers to file an SDLT return and pay any tax due. The shorter period will apply to transactions with an effective date on or after 1 March 2019. Improvements to the SDLT return are also planned.

Full details can be found here.