Real Estate Focus: December 2021

Real Estate Tax Update: Tax Administration and Maintenance Day on November 30, 2021

On November 30, 2021, the Government published a series of tax-related consultations and policy papers, including a number of interesting consultations relating to real estate.

Noteworthy are the consultations on SDLT reliefs currently available for purchases of mixed property and multiple dwellings and the call for evidence on simplifying the option to tax.

SDLT – mixed property and multiple dwellings

The Government is considering a range of reforms to the way in which SDLT applies to mixed property transactions (that is, those which involve both residential and non-residential property) and the introduction of restrictions on the availability of multiple dwellings relief.

Mixed property transactions are subject to SDLT at the non-residential rates, which are typically significantly lower than the residential rates. There is a concern that transactions which have a minimal non-residential element can and do benefit from the rules in an unintended way. The consultation looks at two proposals for reform:

• A requirement for purchasers to apportion the consideration between the residential and non-residential elements, with the relevant rates applying to each portion; and
• Introducing a rule that a transaction is only treated as “mixed” where the non-residential element is above a certain threshold (such as 50%).

In both cases, the “six or more dwellings” rule, which treats such acquisitions as non-residential would remain as currently drafted.

VAT – simplifying the option to tax

Following the “call for evidence” on the VAT exemption for land which was published in May 2021, HMRC has published a summary of the responses. A range of responses was received and HMRC has decided to consult further on:

• Establishing a workable definition of short term or minor interests in land, which could automatically be standard rated (with no need for an option to tax); and
• The implications of making all supplies of land standard rated, subject to a limited number of exemptions.

This latter proposal would be a radical change from the current system, and there is recognition that there could be challenges and unintended consequences in pursuing this approach. However, HMRC is keen to explore this option, particularly as it would be likely to reduce the administrative burden in dealing with notifications of options to tax.

For further information please contact Tax Partner Julia Lloyd.

The Electronic Communications Code: reforms in the offing

The Electronic Communications Code (the Code) governs the relationship between network operators and site owners/occupiers in respect of access rights to install and keep electronic communications apparatus on land.

The Code, which was substantially reformed in December 2017, seeks to encourage such access through commercial negotiation and voluntary agreements, with the imposition of agreements by a tribunal as a back-stop. However, the proliferation of cases on the operation of the Code indicates that, overall, the regime introduced by the Code has not been a resounding success. 

In our October 2021 Real Estate Focus we reported that the Government was analysing responses to a consultation on the Code with a view to making it more effective and user-friendly. The consultation identified three “problem” areas as being in particular need of further reform:

• Operators, site providers and their representatives often find engagement with one another difficult, which can prolong negotiations and delay network rollout.
• Operators are currently unable to make the most efficient use of existing infrastructure because automatic rights to upgrade and share apparatus are only available for agreements completed after the 2017 reforms came into effect. 
• There is inconsistency in the way agreements are renewed and in some situations the current legislation unintentionally prevents some operators who already have apparatus installed from renewing an expired agreement or obtaining a new Code agreement to replace it.

The outcome of the consultation, including the Government’s proposed changes to address these issues, was published on November 24, 2021. A significant number of responses also flagged another significant problem area arising as a result of changes made by the Digital Economy Act 2017 to the statutory valuation regime, which affects how much operators are required to pay site providers for the use of their land. However, the Government has reiterated that it does not intend to revisit that statutory valuation framework.  

The Government’s proposed changes are set out in Part 2 of the Product Security and Telecommunications Infrastructure Bill. They are wide-ranging and include:              

• A new duty on operators to consider Alternative Dispute Resolution to settle or narrow disputes before going to court.
• A new procedure to address the issue of unresponsive landowners and occupiers, ultimately allowing the operator to apply to the First-tier Tribunal for the imposition of Code rights for a maximum of six years.
• A new automatic right for operators to upgrade and share apparatus regardless of when it was installed, provided certain conditions are satisfied.
• Changes to the Landlord and Tenant Act 1954 as it applies to agreements conferring Code rights that are currently excluded from the scope of the Code, so that the procedures for dealing with any renewal dispute and the terms of any new agreement are more closely aligned to those in the Code.
• Where an application to the courts is made in relation to an expired Code agreement, a right for either party to apply for an interim order pending the resolution of that dispute and an extension to the scope of such interim orders. 

As to timing, the Bill was introduced to Parliament on November 24, 2021 and the date of the Second Reading is yet to be announced. Given the breadth of the Bill as a whole – Part 1 creates a new regulatory scheme to ensure that consumer connectable products are more secure against cyber-attacks – parliamentary scrutiny is likely to be considerable.

Registration of Overseas Entities Bill - where are we now?

A draft Registration of Overseas Entities Bill was published in July 2018 but has made little progress of late despite the Government’s original plans to get it on the statute book in 2021. 

To recap, the purpose of the draft Bill is to “prevent and combat the use of land in the UK for money laundering purposes by increasing the transparency of beneficial ownership information relating to overseas entities that own land in the UK”. It aims to achieve this through a new publicly available register of the beneficial owners and controllers of such entities to be held by Companies House. 

In broad terms the draft Bill as introduced proposed that:

• Any overseas entity that owns, or wants to own, UK land - residential or commercial - will be required to identify its beneficial owners, register their details in the new register and update that information annually. 
• “Overseas entities” include companies, partnerships, corporations sole, governments and public authorities – in fact any entity that has a legal personality under the law by which it is governed. Trusts do not have a legal personality but if holding UK land through an “overseas entity”, that entity would be caught. 
• The registration requirement will be retrospective and overseas legal entities that already own UK land will have 18 months to register or to sell.
• The register will record beneficial ownership above a certain threshold. For example, in the case of a company limited by shares, a person holding more than 25% of the shares in the company would be a registrable beneficial owner.
• Where another legal entity is the registrable beneficial owner, disclosure of ownership further up the chain will be required until the individual (or individuals) who exercises control over the legal entity is identified.
• A failure to register and to update the register annually will mean that an overseas entity cannot register at the Land Registry as the legal owner of land and, if already registered as legal owner, cannot sell, charge or lease the land for a term of more than seven years as any buyer, chargee or tenant will not be able to register the disposition at the Land Registry.
• Compliance will be enforced through restrictions on the title registers of land owned by overseas entities. There will also be criminal sanctions for non-compliance and delivering misleading, false or deceptive information.

These proposals may well change of course - and possibly become more onerous - as the Bill progresses through Parliament, assuming it goes ahead. 

So will it? A Government announcement made on November 2, 2021 confirmed that the register is still very much on the agenda: “The overseas entities register is one of a number of proposed corporate transparency reforms which together will play an important role in underpinning a strong, transparent and attractive business environment in the UK while reducing the opportunities for bad actors to abuse our systems and controls.”

Timing is a little more vague, with the Government promising to introduce legislation to Parliament “as soon as parliamentary time allows”.

Can peeking be a private nuisance? The Supreme Court to decide…

If visitors to the Tate Modern public viewing platform can see straight into the interior of neighbouring flats with floor to ceiling windows - and take full advantage of the fact - does this amount to an actionable private nuisance?  

This is the question that the Supreme Court has been asked to decide in Fearn and others v Board of the Trustees of the Tate Gallery.

Four long leasehold owners in a new development adjacent to the Tate Modern whose flats are directly opposite the Tate Modern’s viewing gallery sought an injunction requiring the Tate to prevent members of the public from observing their flats, alleging that this unreasonably interfered with their enjoyment of their flats and amounted to a nuisance. 

The Court of Appeal had disagreed, holding that a private nuisance is a violation of real property rights and had no hesitation in concluding that mere overlooking is not capable of giving rise to a cause of action in private nuisance. It also rejected the argument that public viewing from the Tate Modern viewing gallery into the leaseholders’ flats infringed their rights to respect for their private lives and their homes under article 8(1) of the European Convention on Human Rights. 

The leaseholders’ appeal against those decisions was heard by the Supreme Court earlier this month. Will their Lordships decide that private nuisance is capable of providing a remedy against ‘viewing’ from neighbouring land? We await their judgment with great interest given its significance in a wider context.