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scruttonbland.co.uk
Specialist advice for land and property professionals and investors
Managing risks Insurance for property transactions
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In 2009 a couple near Stratford-upon-Avon made the national news when they were forced to sell their family farmhouse in order to pay for £230,000 of repairs at their local church, thanks to the enforcement by the local diocese of an ancient property law dating back to Henry VIII.
They were held responsible for a ‘chancel repair liability’ clause which arose when the church gave the farm 1.1 hectares of land, in return for the property owners being named as lay rectors and being held responsible for some of the church repairs. The couple spent £250,000 in legal bills to fight what they had thought was “a dead law” but in fact the regulation still applies to approximately 5,200 pre-reformation churches in England and Wales. It is a salutary lesson in the importance of being aware in advance of possible problems relating to buildings, titles and deeds. Whilst domestic homeowners are encouraged to take out an indemnity insurance policy to cover themselves whilst buying or selling a home, legal indemnity insurance is obviously a key aspect of commercial property transactions to protect against local authority action, or legal problems in the future. Risks may be uncovered during the due diligence process, and typical reasons for taking out indemnity insurance include • Cover for missing deeds, leases and other documents relating to the title of the property • Cover for problems arising from work having been carried out in the past without proper planning consent, such as planning permission issues or missing building regulation certificates, and professional installation certificates for fire prevention equipment or windows • Cover for problems arising from interpretation of documents, for example where old plans have been digitised and are now unclear; similarly, where legal papers have been worded in a vague or ambiguous way • Cover for breach of restrictive covenant, such as restrictions on access to a property, or types of residential developments • Cover for losses in a jurisdiction where local practices and registration processes are unknown to the purchaser
Being able to cover these risks with insurance can in many cases unlock a deal which would otherwise stall. Depending on the location and circumstances of the property, there may be policies which are relevant to the developer, buyer or lender, and your insurance broker should be able to assess the risks relating to you and your situation and advise accordingly – often in conjunction with your solicitor. A competent property insurance broker should have detailed knowledge of this area of the industry and point out certain risks which may be relevant to you, as well as changes in business law, and of course if any claims do arise in the future, they will be able to help you manage the claims process. It is important to remember that legal indemnity insurance is taken out to give protection to a buyer (and a lender) where there is a defect in the title, which has been uncovered through due diligence and which cannot be resolved. It does not remedy the defect, but it does offer financial compensation should a claim be brought against the property owner in the future. It is a one-off payment for a policy that then lasts forever. However if an event occurs that triggers a claim against an indemnity policy, it is very important not to disclose the existence of the indemnity policy to the claimant’s legal advisers to avoid possible prejudice to the insurers. Most legal indemnity policies contain a non-disclosure condition, and if that is breached it may mean that cover is declined. Legal indemnity insurance used to be the exception and not the rule in commercial development transactions. However, over the past twenty years or so it has become a critical tool enabling many developers to obtain funding in order to proceed with their project. For more information and to discuss your insurance requirements contact us on 0330 058 6559 or email hello@scruttonbland.co.uk
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Autumn Budget The impact for the land and property sector
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Entrepreneurs Relief: The good news for developers is that Entrepreneurs Relief (ER) has been retained so that many developers can still benefit from a 10% Capital Gains Tax rate on the sale or liquidation of a property development company. However, the ER rules have been altered so that shares in property development companies will now need to be owned for at least 2 years (or the company has traded for at least 2 years) in order for an individual shareholder to benefit from ER. The current period is 1 year. This new rule will apply to company sales or liquidations on or after 6 April 2019. A further change was announced which will require a shareholder to be entitled to 5% of the distributable profits and net assets of the company as well as requiring a shareholder to hold at least 5% of the voting rights and issued share capital. This change took effect for disposals after 29 October 2018 . VAT Reverse Charge: The Government has confirmed that it is going ahead with its proposals to introduce a VAT reverse charge procedure to invoicing within the construction industry. These changes will take effect from the 1 October 2019 and will shift the responsibility for accounting for VAT from the sub-contractor to the contractor in cases of supplies made by sub-contractors to contractors. In other words, the contractor will pay over the VAT to HMRC on the invoice which they receive rather than the supplier collecting the VAT from the contractor. There is currently a degree of uncertainty as to whether this change will directly impact property developers.
Stamp Duty Land Tax (SDLT): The time window for filing an SDLT return and paying SDLT following a property transaction will be reduced from 30 days to 14 days with effect from 1 March 2019. The Government also announced an extension to first-time buyer’s relief on purchases of shared ownership properties. The current rules restrict the use of this relief to cases where the first-time buyer elects to pay SDLT on the full market value of the property. The new rules will allow first time buyers to benefit from the relief on the initial purchase of a property share (subject to a maximum property value of £500,000). These rules are backdated to apply to purchases from 22nd November 2017. Reforming Community Infrastructure Levy: The Government have published a consultation on reforming the Community Infrastructure Levy and the rules relating to s.106 obligations. You can find further information about this online by visiting the Local Government Association website. If you would like to discuss how the changes announced in the Budget will affect your land or property business contact us on hello@scruttonbland. co.uk or tel 0330 058 6559 .
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Specialist help with property transactions for the legal profession
Specialist tax advice can be hard to access or costly, particularly when you are looking for a one-off or intermittent service. Set up in 2017, sbtax+ is a ‘pay-as- you-go’ and easy to access tax advisory service which can provide you with access to specialist tax transaction support when dealing with commercial or residential property, or corporate transactions.
The sbtax+ specialists can be engaged on a sub-contractor basis to a legal firm working for a client or, can be commissioned directly by the client themselves. If you would like to find out more about Scrutton Bland’s sbtax+ service, contact the team at hello@scruttonbland.co.uk or tel 0330 058 6559 to arrange a call back or meeting.
There is no annual retainer fee involved. Instead, advice is charged for by the time spent on a matter, based on an hourly rate and up to an agreed time limit. sbtax+ is ideal where tax expertise is required on Stamp Duty Land Tax, VAT, ATED, Inheritance Tax and Capital Gains Tax or any land and property related tax issue. If it becomes apparent that additional time will be needed which is above the agreed limit, an upfront fee estimate will be provided, which can be agreed in advance.
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0330 058 6559 scruttonbland.co.uk
@scruttonbland
Scrutton Bland Financial Services Ltd is authorised and regulated by the Financial Conduct Authority. 0331/11/2018/MTKG
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