Real Estate Update 2017

1. The unwelcome decision of the High Court in EMI Group Ltd v O & H Q1 Ltd [2016] EWHC 529 (Ch) is scheduled in May 2017 to be heard by the Court of Appeal. The High Court found that a guarantor is precluded from becoming the assignee on an assignment by the tenant whose tenant covenants he is guaranteeing.

The reasoning for this is because the effect of such an assignment is that the guarantor, as tenant re-assumes precisely the same liability in respect of the tenant covenants as it is released from on assignment and that re-assumption frustrates the release of the guarantor under s24(2)(b) Landlord & Tenant (Covenants) Act 1995. It follows that a guarantor who has given a guarantee in respect of the liabilities of a tenant cannot be required to give a guarantee of that tenant’s immediate assignee.

It is useful to note that the 1995 Act does not invalidate an agreement which requires G1 to guarantee the obligations of T1 in any Authorised Guarantee Agreement which T1 might give in respect of T2.

Both landlords and tenants need to be careful not to inadvertently assign or consent to an assignment which might turn out to be void. Landlord investors need to carry out careful due diligence to check property management history to make sure there are no suspect leases (where there have been transfers to guarantors) that might be void and unenforceable. Due to the unwelcome decision of the High Court the Appeal decision is eagerly awaited.

2. From 6 April 2017 trusts or individuals owning UK residential property through an offshore company, partnership or other non UK company will pay Inheritance Tax (IHT) on the value of the UK property in the same way as a UK domiciled individual. The new rules will change the IHT treatment, so some non-doms and trusts may wish to remove the “corporate envelope” and move in to a simpler more straightforward structure outside the scope of future Annual Tax on Enveloped Dwellings (ATED), ATED reporting or ATED-related CGT.

3. Businesses need to be aware that their rating assessments are currently being re-valued with the new Rating List coming in to force on 1 April 2017. This will impact business rates and business tenants with security of tenure that are entitled to compensation if a landlord successfully opposes a new lease.

4. Under the Energy Act 2011 from 1 April 2018, landlords who own buildings with an EPC rating of below E that is F & G cannot let their property unless they take steps to improve the energy efficiency or they can rely on an exemption and registered this on the PRS Exemption Register. The PRS Exemption Register is due to open on 1 April 2017.

If you would like any further information on how these changes may affect you please contact Selchouk Sami on [email protected] or by telephone on 020 7408 8802