European ruling

UK property law is increasingly being influenced by European law. Allyson Colby, Suzanne Lloyd Holt, Lee Nuttall and Mark Dakeyne analyse the potential impact of the four changes to UK legislation coming into force this year.

The Human Rights Act

UK property law will soon be subject to scrutiny by reference to European standards on human rights.

The Human Rights Act 1998 incorporates the European Convention on Human Rights into domestic law.

The act is expected to come into force on 2 October 2000 and will give UK citizens the right to enforce the convention in domestic courts.

The changes

Article 1 of the First Protocol of the convention states that: 'Every natural or legal person is entitled to the peaceful enjoyment of his possessions.

'No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by the law…'

The convention also includes the right to a fair and public hearing by an independent and impartial tribunal (Article 6), and to privacy and family life, including one's home

(Article 8).

It will be unlawful for public authorities to act in a way that is incompatible with these rights (s6 HRA 1998).

Likely impact

Convention issues may be raised in respect of various aspects of the planning process and in relation to compulsory purchase orders and compensation provisions.

Public authorities could also face allegations of convention breaches in cases of severe environmental pollution.

It is not yet clear whether the act will be applicable in proceedings between private individuals, but the legislation could affect 'self help' remedies such as distress and forfeiture by peaceable re-entry because neither are subject to any prior legal process (although the counter-argument is that there are statutory provisions for subsequent relief).

Stamp Duty

The highest rate of UK stamp duty has tripled since 1997 but European rates average between 6-7 per cent and there are fears that the Government may push rates higher, towards European levels.

Current rates

Progressive rates of stamp duty apply to transfers of commercial leasehold rights in France, with a charge at 11.4 per cent for the slice over circa £70,000.

Spanish real estate property transactions attract transfer tax at 6 per cent (with various exemptions and conditions).

Italian real estate transfers are subject to a registration tax of 8 per cent (with various conditions and exemptions).

The UK top rate is 3.5 per cent, payable on property transfers in excess of £500,000. However, property owners can reduce the rate to 0.5 per cent by selling the shares in a property-owning company (rather than the property itself).

Possible changes

There are fears that the Government may push stamp duty up in order to align UK rates with Europe.

Anti-avoidance rules that may be adopted in the UK in 2000 include top rates of duty on share transfers in 'land rich' companies; claw back of duty on intra-group property transfers if the transferee were to leave the group within a period of, for example, three years; and charging agreements for sale.

Shares in companies listed on the London Stock Exchange may be excepted from stamp duty, to bring City share trading into line with Frankfurt and New York.

Accounting rules

International pressure to change accounting rules could change property leases in the UK.

The long-term lease is a peculiarly British institution that is quite alien to continental markets. The pressure for change has, to date, been largely domestic but that could be about to change.

The proposed changes

The British Accounting Standards Board published a discussion paper in December 1999 entitled Leases: Implementation of a New Approach.

The paper proposes a new regime that could change property leases in the UK.

Under the proposed new requirements, which have been drawn up by the standard setting bodies in Australia, Canada, New Zealand, the UK and the US, companies would be forced to reveal the true scale of their leasehold commitments on their balance sheets. The longer their leases, the bigger the liabilities that companies would have to disclose.

Likely impact

Tenants with relatively few lease commitments would be least affected by the new requirements, but others may well find themselves adversely affected.

Landlords with properties that are in demand may have less to fear from the proposed new regime as their bargaining position will be stronger. Others will need to find innovative ways to attract new tenants.

Break clauses, short-term leases and off balance sheet occupancy agreements could, therefore, become more prevalent, which has in turn fuelled concerns about the effects that this might have on the property market in general.

Competition law

Domestic competition law will soon be subject to European rules that will apply to commercial property too. The property industry has, until now, been spared the rigours of European competition law, which only affects trade between member states, but the Competition Act 1998 introduces new rules based on Articles 85 & 86 of the Treaty of Rome, that will apply at a domestic level with effect from 1 March 2000.

The Chapter I prohibition

The act prohibits agreements that have an appreciable effect on domestic trade with the result that provisions that contravene the act will be void. This may, in some cases, invalidate entire agreements.

Planning obligations will not be affected and many 'land agreements' will be excluded from the act, but commercial property lawyers will need to become familiar with a whole new area of law and an exclusion order that has yet to be approved by Parliament.

The Chapter II prohibition

Land agreements will not, however, be exempt from Chapter II, which prohibits the abuse of a dominant position in the UK.

As a rule of thumb, property owners with less than 40 per cent of the market are unlikely to be 'dominant' in the absence of special factors, such as the weak position of competitors in the same market.

Owners of essential facilities (such as ports, airports and bus stations) should, however, be wary about charging excessive rents, discriminating between tenants or limiting access to such facilities – these are all potentially abuses of a dominant position.