Real Estate Review 2003: Estate of the nation
15 December 2003
In general terms, the real estate market has been a little quieter this year compared with the previous high levels of activity. Property lawyers have been involved in a number of deals and projects that are not pure property deals, although the depth of the recession felt in the real estate market has not been as extensive as the difficulties in the corporate sector.
Despite the fact that large investment deals have not been as frequent, the Alban Gate purchase by Matrix Securities through the establishment of a limited partnership for £253m was believed to be the largest-ever single-asset deal in the City. Another example of a sizeable investment deal was the purchase by Burford Property, with a number of other partners, of Green Property’s £400m property portfolio, as part of Green’s divestment of property across Europe generally.
The continuing trend of real estate companies to go from public to private companies continued during the year with Compco, Structadene and Merivale Moore proceeding and the projects involving Chelsfield and Canary Wharf pending at the present time.
On the development front, the weak state of rental demand generally and the depressed corporate sector has restricted activity. Notably, Quintain’s development of the site around the new national stadium at Wembley into a major mixed-use scheme was a project that went against the general trend.
2003 featured major legislation and proposals for legislation, which will undoubtedly have a very significant effect on the work that property lawyers do going forward.
The implementation of the Land Registration Act 2002 was hailed as the most significant piece of property legislation since the 1925 Land Registration Act. The legislation is a major stepping stone towards the move to electronic conveyancing generally. The principal area that was dealt with within the legislation was the requirement for registration of leases of seven or more years, which means many more leases will be submitted for registration at the Land Registry. The move towards making the registers at the Land Registry public also caused some controversy, with concerns over what information will now be available to the public. In particular, property companies feel more vulnerable to takeover bids in that the rentals achieved on individual lettings will now be available. The property market does now seem to have accepted that it is only in exceptional circumstances that information will be exempted from disclosure.
The changes effective on 1 December moving away from stamp duty and introducing stamp duty land tax produced an enormous amount of activity in the property market in the weeks leading up to their introduction. Tenants were anxious to save themselves punitive increases in rates of stamp duty and the closing of a number of the loopholes relating to tax avoidance led to some considerable activity. It is hoped that the Government will not seek to exclude the formation of limited partnerships as a tax-efficient vehicle – consultations are continuing.
The whole area of the tax treatment of property ownership is very much a live issue and is a fundamentally important area for property lawyers. If the Government finally permits tax-transparent vehicles for the ownership of both residential and commercial property, this will considerably benefit the property industry and certainly result in increased levels of activity.
Commercial Lease Code
The Commercial Lease Code, although not yet legislation, received considerable publicity during the year and virtually all of the large institutions and property companies are paying increasing attention to its provisions.
The clarification of the position on a number of issues that are traditionally negotiated between landlord and tenant, for example insurance provisions, must be welcomed. Traditionally, the areas of negotiation have been very diverse and a combination of a weak letting market and a welcome clarification from the code does appear to be clarifying the position here.
The Government appears to be growing impatient with what is a purported lack of implementation of the code, and the likelihood of legislation imposing upwards and downwards rent reviews as a requirement of commercial leases does seem to have increased as the year wears on. This must be a cause for concern for the industry.
It is worth mentioning one of a number of cases that looked at the whole area of rent review during the year. In the case of Canary Wharf Investments (Three) v Telegraph Group, it was held that the hypothetical lease term looking at the period for review of the rent must be construed as commencing on the review date, where there was no express provision in the review clause as to the start date of the hypothetical lease term. The case was somewhat of a departure from previous cases, although it was welcomed as common sense by a number of commentators. The area of rent review remains a difficult one for lawyers when it comes to producing the drafting on leases.
Although the prospects for the property market generally, and therefore lawyers practising in it, remains fairly optimistic for the coming year, it must be of concern that the role of lawyers increasingly appears to be affected by legislation.
Under the new stamp duty regime, lawyers are required by the Government to fill in its forms and to collect its tax for it. The provisions of the Land Registration Act 2002 are bewildering in the details required for registration, and the likelihood is that lawyers will be required to interpret detailed governmental legislation on upwards and downwards rent reviews.
It is of a continuing concern that the combined effect of legislation, together with the threat of still further increases in stamp taxes, will act as a damper on what should be a robust property market.
Jon Vivian is a real estate partner at SJ Berwin