Local Asset Based Vehicles (LABV’s)

 The landscape that led to large scale Private Finance Initiatives over the last 10 years has changed – as has the   government.

Local Asset Backed Vehicles or “LABVs” are fast becoming the regeneration funding and delivery model of choice for the public sector.

The potential impact on the regeneration sector for public sector bodies embracing this new approach is enormous, in terms of leveraging in private sector finance without calling upon central government funding and heralding a new culture of genuine partnership between the public and private sectors.

What is a LABV?

LABVs are often limited liability partnerships typically owned 50/50 by the public and private sector partners with the specific purpose of carrying out regeneration and/or renewal of property assets.

The most important concept which underlies the LABV is that it allows the public sector to exploit and unlock the full economic potential of its existing property estate through regeneration and rationalisation. The main attractions of the LABV include the potential to deliver a pipeline of projects without having to enter into a series of separate procurements.

LABVs typically run for an initial period of around 10-20 years. The private sector is asked to cash match the public sector assets being contributed into the LABV. There is nothing preventing the public sector from injecting cash of its own (to the extent this is appropriate).

Control is retained by the public sector through the drawing up of a partnership business plan for the LABV and the overall relationship is governed by the terms of a Members Agreement entered into between the two partners.

The models can deliver much greater efficiency in procurement and design costs for new or refurbished buildings and are much less “contractualised” than structures such as PFI.

They rely upon both parties seeing the potential for joint working and committing to the development of the partnership because the value is obvious rather than a consequence of a contractual obligation.

Case Study: Torbay Council

Torbay Council is using the LABV structure for a major regeneration project that aims to deliver the objectives set out in its plans and policies, such as the Mayor’s Vision for the New English Riviera, along with major housing and accommodation schemes on council owned sites in the Torbay area.

The joint venture is not envisaged to be simply a vehicle to extract the highest appropriate financial returns from the council’s land assets, but has been conceived on the basis that through it, the council will be able to better meet its key objectives and redevelop key sites, leading the way for the comprehensive regeneration of Torbay.

It is intended that the LABV will be established as a stand-alone commercial entity, in which both the council and private sector partner will work side by side in true partnership. The joint venture will blend the skills of the partners to help deliver the physical and economic development to the benefit of Torbay.

Key features include:

1. the timing of when property transfers into the LABV and how it is valued
2. the conditionality for the transfer of properties
3. the extent to which the LABV would be committed to develop the more difficult, less economically advantageous sites, and control and termination provisions in the Members Agreement.

Next steps

A number of local authorities have already embarked on the procurement of a private sector partner and have assessed that the LABV model is suitable for their estate. This is not an area where it is possible to create a “one size fits all” model.

Stamp Duty Rates – Residential Property

Stamp Duty rates for residential property are set out below:

Property Purchase Price	Stamp Duty Land Tax Rate
Up to £125,000	0%
£125,000 - £250,000	1%
£250,001-£500,000	3%
£500,001 and above	4%
As of 25 March 2010, exceptions apply:
Up to £250,000 (FTB only)	0%
As of 2011/2012 tax year:
£1,000,000+	5%

 

From 25th March 2010, the chancellor scrapped stamp duty on all homes costing £250,000 or less for first-time buyers only. The new stamp duty threshold will last for the next 2 years, and means that 9 out of every 10 first-time buyers will not have to pay stamp duty. The move should give first-time buyers a boost to get onto the property ladder. However, the tax break will be funded by an increase to 5% stamp duty on all houses costing £1 million or more.

For some consumers at the bottom of the market, stamp duty land tax may not even apply, but for the majority of house transactions some level of stamp duty land tax will be levied.

Currently, if the purchase price of a property falls below £125,000, the buyer does not have to pay Stamp Duty.

However, if the price of the property exceeds £125,000 the buyer has to pay between one and four per cent of the total purchase price to satisfy Stamp Duty Land Tax.

Stamp Duty varies

Are there exceptions to Stamp Duty?

Generally, there are no exceptions to Stamp Duty Land Tax. However, for those people that purchase a property in an area designated by the government as being ‘disadvantaged,’ the limit of 0% stamp duty climbs to £150,000. For this reason, property bought in these areas that costs less than £150,000 does not attract any stamp duty.

A further exception to the Stamp Duty Land Tax rules applies to ‘zero carbon’ homes. This requires the house to fulfil a complex set of regulations, including renewable power, high quality insulation and other criteria. Some zero carbon homes qualify as exempt from Stamp Duty Land Tax. Those under £500,000 and zero carbon attract no stamp duty, those above £500,000 have their bill reduced by £15,000.

Who pays for Stamp Duty Land Tax?

The buyer of the property is responsible for paying stamp duty land tax. This is usually handled by a conveyancer or solicitor on behalf of a client.

 

For more detailed information visit –

http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm

Property Valuation Methodology: The Comparable Sales Method

What Is It?

The "Comparable Sales Method" is sometimes called the "Inferred Analysis" method of property valuation. This method estimates the value of a house by comparing it to the prices of similar properties sold in similar locations within a recent period of time. The basic assumption is therefore that a property is worth what it will sell for, in the absence of undue stress and if reasonable time is given.

This method works with the market value of homes. It is the most prevalent method in the residential property market, concerning general trends and projections and employing the principle of substitution.

Procedure

1. The central task is to systematically assemble data on comparable properties. Basically, the forces influencing value have to be weighed against each other. The relevant elements to look for can be split into transaction and asset characteristics:

Transaction Characteristics - Date of transaction, means of payment, transaction speed, etc.

Asset Characteristics - Size, location, conditions, utility, building regulations, business climate, etc.

2. The best way to compare property would obviously be to inspect it in person. Since this option is very time-consuming and not always possible, the next best solution is to search property transaction databases. An ideal database will contain information relating to transaction date, price paid, property features and size etc.
3. Once the data has been obtained and collated the task is to draw informed conclusions on the value of your property - for example a valuation price range - based on the evidence collected. Obviously those properties that are most similar to yours should receive a greater weighting than those which are less comparable.

Property Transaction Database

mouseprice.com provide the UK's leading comparable transaction database. Their service is the preferred choice of Surveyors and Valuers across the country. mouseprice.com offers a cleansed version of the entire Land Registry dataset for England & Wales - containing every sale since April 2000 and continually updated with the most recent prices.

The mouseprice.com service provides an invaluable tool in the search for comparable data. They allow fast searches by price paid, date of sale, address and postcode. For £9.95 per month Joe Public can use the same powerful valuation facility favoured by Surveyors and Estate Agents.

To find comparable data on mouseprice.com we recommend two search methods:

1. Search recent sales of close proximity by specifying the following search parameters:

a)     Specify 'transaction date' as all sales within the last year.

b)     Specify the location by using a partial postcode - we find the Postcode Sub-Sector works best, e.g. 'SN11 8D' - all the postcode except for the last letter.

c)     Try this out for yourself here: http://www.mouseprice.com/

2. Search recent sales in a similar price range within a wider geographic area:

a)     Specify 'transaction date' as all sales within the last year.

b)     Specify the 'price range' as +30% and -30% of your best guess on price

c)     Specify 'transaction date' as all sales within the last year

d)     Specify the location by using a partial postcode - we find the Postcode Sector works best in this case e.g. 'SN11 8' all the postcode except for the last two letters

e)     To search using this method you need to subscribe to the mouseprice.com professional services (£9.95pcm at time of writing).

Example: let's say you were the owner of No. 54 Milton Street, York YO10 3EP and were looking to sell. A search on the mouseprice database using method 1. above would tell you that four identical houses on the same terrace all sold for between £125,000 and £135,000 while the end-of-terrace house sold for £158,000 - all within the last six months.

 A search using method 2 would show there were also four similar terrace houses sold on the parallel Nicholas    street for between £122,500 and £142,500. Armed with this information, the seller can confidently assume that  his house price should be no less than £120,000 and could possibly fetch £140,000.

 Comparable Sales Method Advantages

·         It is the most easy and straightforward method and has become general practice in the residential housing market.

·         It leads to an objective valuation being placed on the property. The answer is connected to the actual market value as opposed to an individual's preferences.

 Comparable Sales Method Disadvantages

      Sometimes it might be difficult to locate enough similar property transactions to draw meaningful conclusions with regards to what the value should be.

·         Market value and price might differ due to "unreasonable" actions by other actors.

·         This technique makes no reference to intrinsic value. If a property's price is reasonable on a comparable basis, it does not necessarily follow that this is a reasonable buying or selling price for an individual. For example, I might want to purchase a property in order to let it. The property's price might be within a reasonable market price range, but because average rents in the area are not very high, the investment would not be profitable to me.

CNN - Turns 30!

Where were you?

http://edition.cnn.com/

The mighty news channel celebrates its 30th year.

More than a mere news channel it is now an iconic brand that takes an international connective view of the world....beyond barriers!

The global theme in an era of immense globalization of the the human existence where communication and interaction is as quick and fast as man has even known, making the world a far smaller place.

Tributes and words filled with personal memories from reservoirs within the masses and many when news of events that have touched persons around all corners of the world...to which CNN was the vessel that presented the breaking news.

Often CNN has ventured beyond the mere coverage of news and its wonderful connectivity of the global communications that now are the new world remains a wonderful thread.

Always a comfort to have when one switches on the TV in practically any hotel room in any part of the world....here's raising a glass to CNN, happy 30th!

Funnies...

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Funnies...

Housing market to suffer a 2% drop in 2011

The housing market prices are due to drop by 2% in the next year, the view from the RICS  being widely reported in the mainstream media seems to be the general tone that is being set for the challenges the property market and the economy at large are set to face in 2011. As mentioned in another entry on this blog, 2011 is likely to be no less tougher than the past few years have been.

However, the bright side in such gloomy times are that the RICS also predicts that the drop is unlikely to be exceed 5% which may be a slight silver lining.

The RICS also shares and expresses the same view as expressed on this blog that first time buyers will be all in likelihood frozen out for a considerable period of time

http://www.guardian.co.uk/business/2010/dec/22/housingmarket-realestate

Forfeiture of a lease under the Law of Property Act 1925 (Section 146)

S146 Restrictions on relief against forfeiture of lease and underleases.

(1)   A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable, by any action or otherwise, unless and until the lessor serves on the lessee a notice-

a.     specifying the particular breach complained of;

b.     if the breach is capable of remedy, requiring the lessee to remedy the breach, and

c.     in any cases, requiring the lessee to make compensation in money for the breach;

and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.

(2)   Where a lessor is proceeding, by actions or otherwise, to enforce such a right of re-entry or forfeiture, the lessee may, in the lessor’s action, if any, or in any action brought by himself apply to the court for relief and the court may grant or refuse relief as the court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit; and in case of relief may grant it on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the court, in the circumstances, thinks fit.

(3)   A lessor shall be entitled to recover as a debt due to him from a lessee, and in addition to damages (if any), all reasonable costs and expenses properly incurred by the lessor in the employment of a solicitor or surveyor or valuer, or otherwise, in reference to any breach giving rise to a right of re-entry or forfeiture which, at the request of the lessee, is waived by the lessor, or from which the lessee is relieved, under the provisions of this Act.

(4)   Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture under any covenant, proviso, or stipulation in a lease, or non-payment of rent, the court may, on application by any person claiming as under-lessee any estate or interest in the property comprised in the lease or any part thereof, either in the lessor’s action (if any) or in any action brought by such person for that purpose, make an order vesting, for the whole term of the lease or any less term, the property comprised in the lease or any part thereof in any person entitled as under-lessee to any estate or interest in such property upon such conditions as to execution of any deed or other document, payment of rent, costs, expenses, damages, compensation, giving security, or otherwise, as the court on the circumstances of each case may think fit, but in no case shall any such under-lessee be entitled to require a lease to be granted to him for any longer term than he had under his original sub-lease.

(5)   For the purposes of this section-

a.     “Lease; includes an original or derivative under-lease; also an agreement for a lease; also a grantee under any such grant as aforesaid and the person deriving title under him;

b.     “Lessee” includes an original or derivative under-lessee, and the persons deriving title under a lessee; also a grantee under any such grant as aforesaid and the persons deriving title under him;

c.      Lessor” includes an original or derivative under-lessor, and the person deriving title under a lessor; also a person making such a grant as aforesaid and the persons deriving title under him;

d.     “Under-lease” includes an agreement for an under-lease where the under-lessee has become entitled to have his underlease granted;

e.     “Under-lessee” includes any person deriving title under an under-lessee.

(6)   This section applies although the proviso or stipulation under which the right of re-entry or forfeiture accrues is inserted in the lease in pursuance of the directions of any Act of Parliament.

(7)   For the purposes of this section a lease limited to continue as long only as the lessee abstains from committing a breach of covenant shall be and take effect as a lease to continue for any longer term for which it could subsist, but determinable by a proviso for re-entry on such a breach.

(8)   The section does not extend-

(i)     To a covenant or condition against assigning, underletting, parting with the possession, or disposing of the land leased where the breach occurred before the commencement of this Act; or

(ii) In the case of a mining lease, to a covenant or condition for allowing the lessor to have access to or inspect books, accounts, records, weighing machines or other things, or to enter or inspect the mine or the working thereof.

(9)   This section does not apply to a condition for forfeiture on the bankruptcy of the lessee or on taking in execution of the lessee’s interest if contained on a lease of-

a.     Agricultural or pastoral land;

b.     Mines or minerals

c.     A house used or intended to be used as a public-house or beershop;

d.     A house let as a dwelling-house, with the use of any furniture, books, works of art, or other chattels not being in the nature of fixtures;

e.     Any property with respect to which the personal qualifications of the tenant are of importance for the preservation of the value or character of the property, or on the ground of neighbourhood to the lessor, or to any person holding under him.

(10)                  Where a condition of forfeiture on the bankruptcy of the lease or on taking in execution of the lessee’s interest is contained in any lease, other than a lease of any of the classes mentioned in the last sub-section, then-

a.     if the leassee’s interest is sold within one year from the bankruptcy or taking in execution, this section applies to the forfeiture conditon aforesaid;

b.     if the leasee’s interest is not sold before the expiration of that year, this section only applies to the forfeiture condition aforesaid during the first year from the date of the bankruptcy or taking in execution.

(11)                  This section does not, save as otherwise mentioned, affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

(12)                  This section has effect notwithstanding any stipulation to the contrary.

Forfeiture means the act of losing or surrendering something as a penalty for a mistake or fault or failure to perform etc.

A landlord usually reserves the right to forfeit a lease. Before a landlord may exercise a right of re-entry or forfeiture of lease the provision of s.146 (1) of the Law of Property Act 1925 must be complied with.

This section applies to most breaches of covenant save for:

1. Non-payment of rent (s.146(11) ) and
2. The cases specified in s.146(8) and (9) for example, a mining lease or insolvency in special cases.

Under s.146(1) the landlord must serve upon the tenant a notice:-

i.       Specifying the breach complained of;

ii.      If capable of remedy requiring the tenant to remedy it; and

iii.     In any case, requiring the tenant to make compensation in money for the breach.

Upon the service of a s.146 notice an application for relief against forfeiture may be made.

Rent reforms - Quarterly v Monthly

Article published in the British Retail Consortium (BRC)* once again opens up the  debate on the rent payment methods. The convention has been that rents are paid quarterly, but tough economic conditions have often forced the hand of landlords, particularly in the commercial retail sector to often agree to periods of monthly payment of rents. This has often been a two way street of compromise.

The tenant often has been experiencing the brutal effects of a recession and poor results as a consequence of drop in sales, thus being faced with the choice of closing down the business, going into Administration or selling the interest at loss.

Given such an unforgiving scenario seeking help from the landlord to allow for monthly payment of rent has often been one way of surviving and pulling through tough periods. For the landlords part, it often is the better of the two possible options – the possibility of an empty unit if the tenant goes bust or the possibility of an occupied unit, albeit for a period of rental payments being received in smaller monthly instalments. Such arrangements are usually relatively informal affairs and run for an agreed period of between 3, 6, 9 or even up to 12 months. Landlords often require for the retail tenants to provide turnover figures to support their application and matters are monitored closely with both parties actively co-operating.

There have been some in the retail sector, the most notable voice in recent times, the retailer Phillip Greene.

The resistance to such change could be based on a number of factors, the two obvious are that very many leases that have been drafted based on the older principals of property law and would either need to have new provisions added on by way of a deed of variation, which could result in costs, in some instances this could be quite significant.

The second reason, also cost related and much more direct, is that the administration costs for charging and recovering rent on a monthly basis could quite significant.

The BRC survey indicated a slow but steady increase in monthly rental terms, certain the rise from some 3% back in 2008/09 to some 12% by 2010 shows that the conventional method may be slowly losing its grip.

However, the obvious and very apparent element that is noticeable here is that monthly terms are mainly agreed at lease renewal points, during the negotiation process when the tenants has the opportunity to impose terms, particularly in a market where the landlord is in the weaker position.

There may come a time when it is the norm for retail tenants to have leases with monthly payment provisions for rent, as a standard term, but as yet it still is one which is in its somewhat early stages and still subject to some resistance.

* http://www.brc.org.uk/details04.asp?id=1862

Goodbye 2010...Hello 2011

The closing of 2010 has seen some serious economic turbulence, much like the weather that has gripped the UK in a frozen stalemate, airports unable to functions, rail and roads literally frozen to a standstill in parts of the country.

The prevailing wind that brings in 2011 promise no warmer news.

The Bank of England is expected to start the process of increasing the interest rate. All the signs are that the interest rate may be increased on a ‘step-increase’ basis. The eventual destination of the interest rate, by the end of 2011 could a good few percentages higher than at the start of 2011.

The results and direct expected consequence of the interest rate rises are likely to be even tougher lending policies by the banks, squeezing the property sector even harder. The residential sector is likely to be hit hard, particularly where first time buyers are concerned.

The commercial sector will no doubt slide further into larger number of voids saturating the market and landlords increasingly being forced to embrace the tag of the ‘reluctant landlord’.

The flip side will inevitably be the need for landlord of commercial property portfolios  to seek and be guided by careful advice and management of surplus void properties. The increase in the number of such portfolios will in all likelihood drive down prices in the commercial property market which in effect could open up opportunities for private investors to group together into small quartets/quintets, pooling together a pot to invest into a 'bespoke property pension fund'. The demographic age of such investors is usually post mid 40s with a sizeable chink of savings sitting in a interest paying savings account or nominal pension scheme.

The vat increase in January 2011 is likely to the most obvious and immediate pinch in the pockets and wallets of the consumers as retailers mark up prices following the Christmas/January sales bonanzas.

All in all in 2011 is likely to be no less tougher or challenging than the past year (or three) have been. Prudence will have to prevail and wear her hat in a manner that dues not get blown away by the chilly winds that blow out 2010 and bring in 2011.

India - A property view...from Bangalore

 Irfan Razack, Chairman & Managing Director, Prestige Estates Projects Limited - on company's order book position & the general situation in the real estate market.

There is an increasing fear that real estate prices have gone up, demand is not there and real estate prices at least in India, they will come down...

Irfan Razack : I disagree with you. Just now, the market is extremely vibrant and sales are up. The transactions are happening at a fast pace and all sections of property are being sold starting from the ultra luxury even to the bottom of the pyramid and people are buying and committing themselves. I do not see any cause or reason to worry.

The growing concern for your sector now is that the tap of liquidity has been somewhat turned off by the government and that raising funds would now be problematic. What is your thought on that?

Irfan Razack : Actually I have a different take on this because as far as residential market is concerned, we really do not depend on bank funding. Basically if we even take a line of credit only as a backup, most of the real estate sales happen on presales and the entire projects get done on the internal accrual from the presales and that is how a whole lot of churn that happens. Where a huge funding is required certain times is when you are doing projects like SEZs or office property which you are retailing or you are into more in hospitality business.

So if you are able to probably manage your profile in terms of different segments, I see no reason why there should be any problems and moreover, banks are lending. It is not as though the banks are not lending. They are lending to good companies with good balance sheets and with proper whatever fundamentals that they see. So it is not as though somebody just switched off the tap. That is a different wrong perception.

So tell us a bit about your debt book or loan book. How much of existing loan is from PSU banks from private bodies and overseas borrowing?

Irfan Razack : No, we do not have any overseas borrowings. Our borrowings are only from the banks in India and right now after the public issue like we said earlier, we have reduced certain amount of debt and most of our debt is on rental securitisation and this rental securitisation means that we really do not have to look for additional liquidity and this loan actually gets paid off from the rental accrual that comes month on month.

What are you sensing in terms of pricing trends because the area that you operate in; there was still volume growth despite the prices being on a higher trajectory, that is the Bangalore area? Do you think that is sustainable even in the near term?

Irfan Razack : It is, one person who always believes that the prices should not go up too high too fast, that is where the trouble comes in. As far as the Bangalore area is concerned, there has been a very organic growth in prices, maybe more in line with inflation. Our prices in Bangalore probably are the lowest if you compare it anywhere else in the country except for certain luxury properties which are in the heart of the city where there is no land available but the rest of it if you just go into peripheral areas, the transactions are even as low as 2500 going up to about 4500.


(Excerpts originally appeared in The Economic Times of India) 

Turkish property investment market - 2011 and beyond...

The sleeping giant that is the Turkish market, bordering the Euro-Asian gateway and historically the trade path to various countries and continents, still has vast untapped potential for investors.

It's no secret that Turkey’s stable and growing economy has investors taking notice. According to Turkish property expert Steven Worboys, overseas property investors are attracted to this country and will make a rising number of investments in 2011.
Worboys adds that, while some foreign investors have been disappointed in the past with their yields on investments, international real estate continue to be popular; investors have simply learned to be more cautious and do their research on the economy and the anticipated property market growth predictions.

Turkey boasts tremendous economic growth this past year. The GDP is expected to come in at the end of the year at 8% growth according to OECD and predictions are that it will continue to be above 5% for the next couple of years.

According to the experts, the Istanbul Stock Exchange has gained 4.5% in value this year and this has had a positive impact on the real estate market, including new construction, which has experienced “21.9% growth in the second quarter of this year alone.”
Because Turkey's fundamentals are strong, the fact that investors are doing more research is actually benefiting the country.

Whereas before people may not have looked past the problems with EU membership, now they are looking deeper and seeing that Prime Minister Erdogan has paid down the country's debt, and turned Turkey's economy into a stable one with powerful growth prospects.
Because of this, and the fact that Turkey has emerged from recession as one of the strongest growing economies in the world, investment in Turkish property is set to increase throughout 2011.

Private Landlords – Warm news in chilly weather for the buy to let market

Figures published following research by LSL Property Services, which owns the UK’s largest letting agents network, which includes Your Move and Reed Rains, indicate that two-third of landlords have properties that are vacant for only two weeks, amounting to costs of approximately £319 per annum per property.

The figures indicate that the average UK private property landlord’s void period costs have fallen by 15% in the last year, as void costs drop by 12%

Compared to October 2009 when the average property remained unoccupied for 36.4 days per year,  in October 2010 that figure has fallen to 30.9 days, amounting to a saving of £125.

As rental figures hit a record high of £691 per month, a private buy-to-let landlord looking to rent out a property now may face losing £702 in rent through voids in the next 12 months, some 12% less than a year ago. Taking this into account, a landlord is looking at an average annual rental income of £7,594.

A private buy-to-let landlord looking to rent out a property about a year ago would have seen £799 lost in voids despite a much lower rent of £668 per month. In October 2009, a landlord’s void adjusted annual rental income would have been £7,217.
‘Void periods are a nightmare scenario for landlords. Whilst their property remains vacant, landlords aren’t collecting the rent they need to pay their mortgage each month. But the good news is that void periods are decreasing,’ said David Brown, commercial director of LSL Property Services.

One aspect of the impact has been due to more stringent lending criterions, which have kept thousands of first timers off the property ladder, and most are staying in their current rental accommodation for longer. On top of this, tenant demand has rocketed up in the past twelve months. Frustrated first time buyers swell the rental population, while the supply of properties has been kept in check by difficult mortgage finance conditions for landlords,’ he added.

According to the survey of private landlords, around 18% witnessed void periods of a month or more last year. Nearly six in ten landlords saw their properties remain empty for less than two weeks in total, costing an average of £319. Only 7% of those polled stated they had void periods in excess of ten weeks, a figure which also includes landlords who were refurbishing their properties.
‘It is a minority of landlords with severe void periods that are pushing up the national average. The vast majority are seeing their properties stay vacant for less than two weeks per year. However, properties don’t just rent themselves out. Investors need to do their homework to ensure the property has a strong rental history and is in the correct condition to appeal to tenants to help limit void periods and achieve a strong rental income. With the right research before purchase, and the right letting agent, void periods can be minimised,’ said Brown.

It was further revealed by the research that nine in ten landlords, some 88%, expect void periods to be lower than four weeks in the next twelve months, with just 3% anticipating their properties will be vacant for ten weeks or longer.
‘Void periods have been declining for landlords and will continue to do so. With the recent cuts to the social housing budget, the private rental sector will have an even bigger stream of demand over the next few years. We anticipate the average void period will fall by another two days over the coming year, making property investment an even more attractive opportunity to professional investors,’ added Brown.

Compensation - Tenant unable to obtain a new tenancy

Part II of the 1954 Act deals with instances where a tenant is unable to obtain a new tenancy because of opposition by the landlord on certain grounds. 

There are two important cases that are noteworthy; one deals with contracting out of the compensation provisions; the other with the conditions for double compensation. 
Each case is concerned with the occupation of the tenant immediately prior to the termination of the tenancy.

The right to compensation: s37

• If the court is precluded from making an order for a new tenancy by reason of (e), (f), (g)

          or

• If the Landlord served a s25 notice or s26(6) counter-notice relying only on (e)(f)(g) and Tenant did not apply or did but withdrew the application,

Tenant is entitled to compensation on quitting the holding: s37(1).

The amount of compensation: s37(2)

Basic rate: Appropriate multiplier x rateable value.

Enhanced rate: Appropriate multiplier x twice rateable value.



Restriction on contracting out 
Bacciocchi v Academic Agency Ltd [1998] 3 EGLR 157, CA.

Section 38(2) states:

"Where .. during the whole of the five years immediately preceding the date on which the tenant under a tenancy to which this Part of this Act applies is to quit the holding, premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes any agreement which purports to exclude or reduce compensation shall to that extent be void".

What is the position where there is a short gap between the tenant leaving the premises and the tenancy coming to an end?

Basic facts

• 20 year lease - Tenant ran a restaurant
• Lease contained a clause excluding compensation on quitting
• Landlord served s25 notice specifying (f) and (g)
• Tenant issued claim for new lease in Jan 94
• Tenant discontinued 11/5/94
• Tenancy came to an end 11/8/94 (s64) 

On the face of it (because he had been in occupation for more than 5 years) T entitled to double compensation - the exclusion clause was void (s38(2)).

Tenants problem

• He physically vacated and handed over keys to his solicitors on Friday 29/7/94, i.e. 12 days prior to 11/8/94 when the tenancy came to an end.
• Judge held that the Tenant was not in occupation of the premises "immediately preceding" 11/8/94.
• Therefore s38(2) did not help him. Tenant appealed.

Court of Appeals's decision

Appeal allowed - Tenant was in occupation for the purposes of s38(2) during the last 12 days and was entitled to compensation. Simon Brown LJ:

" ... whenever business premises are empty for only a short period, whether mid-term or before or after trading at either end of the lease, I would be disinclined to find that the business occupancy has ceased (or not started) for that period provided always that during it there exists no rival for the role of business occupant and that the premises are not being used for some other, non-business purpose. That, to my mind, is how Part II of the 1954 Act should operate in logic and in justice. It has nothing to do with the de minimis principle. Rather, it is recognition that the tenant's physical possession will not invariably require permanent physical possession throughout the whole term of the lease and he ought not to have to resort to devices like storage of goods or token visits to satisfy the statutory requirements of continuing occupation. If of course, premises are left vacant for a matter of months, the court would be readier to conclude that the thread of continuity has been broken."

(Compare Sight & Sound on s37(2) below and cases on “occupation” under s23. In particular

Pointon York Group plc v Poulton [2006] EWCA Civ 1001 where Bacchiocchi was applied).

Condition for double compensation
Sigh and Sound Education Ltd v Books etc Ltd [1998] EWHC 319 (Ch)

Section 37(3)of the 1954 Act states:

"..during the whole of the 14 years immediately preceding the termination of the current tenancy, premises being in the holding have been occupied for the purposes of a business carried on by the occupier."

Termination for these purposes is when the s25 notice expires - s37(7).

The following is an example of a case where the tenant did not receive compensation because he was not in occupation immediately preceding the termination of the tenancy:

Key facts

• Lease of 14 years - on the face of it Tenant is entitled to double compensation.
• Section 25 notice served - relied on(f)(g).
• Tenant issued application for new tenancy but later discontinued.
• Tenant vacated a few days before the contractual expiry date and five months before the date specified in s25 notice.

Tenant's problem

• When he left in Sept 97 he ceased to enjoy the protection of Part II 
  Esselte AB v Pearl Assurance plc
  [1996] EWCA Civ 911; [1997] 1 EGLR 73)
• The crucial date for determining the amount of compensation was five months later when the s25 notice expired (s37(3)(a); s37(7)).
• At that date he was clearly not in occupation and so did not satisfy the condition that he had been in occupation "during the whole of the 14 years immediately preceding the termination of the current tenancy" (s37(3)(a)).

Held

Tenant was not entitled to double compensation.

(Compare Bacciocchi immediately above under s38 - where there was only a small gap in time).

Landlord & Tenant Act 1954 - June 2004 Changes

 The Regulatory Reform (Business Tenancies) ( England and Wales ) Order 2003 brought a number of changes to the 

Landlord & Tenant Act 1954 on 1 June 2004.  

In summary, these are:

·       the Landlord’s Section 25 Notice must include the Landlord’s proposals as to the new rent and other terms;

·       there will no longer be a requirement for the Tenant to serve a counter-notice;

·       the Landlord and Tenant may agree extensions of time but the current rent will remain the same unless an application has been made for interim rent;

·       the contracting-out procedure under Section 38(1) will be abolished;

·       both the tenant and landlord will be able to apply for interim rent.

Landlord’s Section 25 Notice

The Landlord must now include their own proposals in the Section 25 Notice.  A new form has been proposed under Schedule 2 of The Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004.   

The recent case of Mount Cook v Rosen [2003] 1 EGLR 75 ruled that the proposals should be realistic proposals.  If they are not then this will potentially invalidate the Section 25 Notice.  The notice must also contain a “health warning” suggesting that the Tenant seeks independent legal advice.

Applications to the Court for a New Tenancy

Under the new regime, the Tenant or Landlord can apply to the Court for a new tenancy.   

The Landlord is also able to apply for an Order terminating the current lease without renewal.   

This application does need to be made before the expiry of the Section 25 Notice or the date specified on the Section 26 request.  Further extensions of time can be agreed between the parties.

Interim Rent

Both Landlords and Tenants can now apply to the Court for interim rent during the continuation of the tenancy.  The method of valuation will change where the renewal is unopposed by the Landlord and this should reflect the open market rental value.

Applications to the Court to Exclude the LTA 1954

It will no longer be necessary to apply to the court to dis-apply the security of tenure provisions under the Landlord & Tenant Act 1954.   

The Landlord should serve on the potential Tenant a notice in the prescribed form which contains a “health warning” suggesting that the Tenant seeks independent legal advice.  This should be served on the Tenant at least 14 days before the commencement of the Lease.  If this is done, then the Tenant need only sign a simple declaration confirming receipt of the notice.  Should there be less than 14 days before the commencement of the Lease, then the Tenant will have to swear a Statutory Declaration in the form as prescribed in Schedule 1 of The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.

Vacation of Premises by Tenant

The reforms give statutory effect to the case of Esselte AB v Pearl Assurance plc [1997] 1 WLR 891 which states that where a tenant ceases to occupy the property for business purposes then security of tenure will cease.  The tenant can then simply vacate without the service of a Section 27 Notice.