Real Estate Bulletin - January 2023

The Register of Overseas Entities and the end of the transitional period

The transitional period in relation to the Register of Overseas Entities (the Register) ends on 31 January 2023.

• An overseas entity which is a registered proprietor of a qualifying estate pursuant to an application made prior to 1 August 2022 (and on or after 1 January 1999) must be on the Register, or have a pending application for registration, by the end of the transitional period in order to avoid committing a criminal offence.

• An overseas entity that disposed of land on or after 28 February 2022 must, if not exempt, provide the required information about the disposition and its beneficial ownership to Companies House by the end of the transitional period. Where an overseas entity is also applying to go on the Register because it continues to own UK land, it must disclose any dispositions between 28 February 2022 and the making of the application.

• For overseas entities that became the registered proprietor of a qualifying estate pursuant to an application made prior to 1 August 2022 (and on or after 1 January 1999), the ‘transitional’ restriction applied to their title will become effective.

We have updated our practical guide to reflect recent developments. However, we await further statutory instruments to finalise the legislative framework.

VAT: changes in processing option to tax forms

From February 2023, HMRC will only issue an automated acknowledgement of receipt of a notification of an option to tax sent by email.

HMRC has published Revenue & Customs Brief 1 (2023) setting out changes to the way in which option to tax forms will be processed. The publication follows a six-week consultation period on the change to the process, which ended in November 2022. The changes are designed to increase HMRC productivity, allowing HMRC to turn around notifications more quickly.

Opting to tax a property for VAT purposes is a two-stage process. A taxpayer must make the option and then notify HMRC of that option. Failure to complete either stage will invalidate an option. As such, it is important that taxpayers retain evidence of the making of the option to tax and its notification to HMRC.

You can read more about this here.

January 2023 Building Safety update

The First Tier Property Tribunal has granted what we believe to be the first Remediation Contribution Order made under section 124 of the Building Safety Act 2022 (BSA) against a landlord/developer of a high-rise block of flats, requiring them to repay leaseholders just under £195,000 of service charges paid towards the remediation of building safety defects.

You can read more about this here.

Pay now, argue later…

The Supreme Court held a ‘pay now, argue later’ approach was the correct interpretation of a clause in a lease linked to a service charge dispute.

The case concerned a lease of retail premises in Liverpool. Blacks Outdoor Retail Ltd (Blacks) were the tenant and Sara and Hossein Asset Holdings Ltd (S&H) were the landlord. The service charge for the premises in 2016/2017 was in the region of £55,000. Blacks’ lease of the premises was due to expire in May 2019.

In January 2019, S&H submitted a certificate for the service charge year 2017/2018 showing that £400,000 was due. For the seven months of the 2018/2019 service charge year leading up to the date of lease expiry, S&H certified that around £62,000 was payable. Blacks did not pay and challenged the amount on various grounds. S&H sought summary judgment in relation to the unpaid service charge.

The lease provided that the service charge certificate was, in the absence of manifest or mathematical error or fraud, conclusive as to both the total cost of the services and the sum payable by the tenant. S&H’s position was that the service charge certificate was conclusive subject only to the very narrow permitted defences. Blacks’ position was that the certificate was conclusive as to the amount of costs incurred by the landlord but not as to the tenant’s liability for those costs.

The lease did not allow for set-off or counterclaim but did permit Blacks various rights of inspection in relation to the documentation related to the service charge costs following receipt of the certificate for the relevant year.

In a majority decision, based on the specific drafting in the lease, the Supreme Court adopted a ‘pay now, argue later’ solution. It held that the service charge certificate was conclusive (subject only to the narrow permitted defences) as to what was required to be paid as per the payment timeframes set out in the lease. However, this did not preclude the tenant from disputing liability for that payment later, which was consistent with the drafting granting the various inspection rights.

The Court noted that on this interpretation the landlord is “assured of payment of the service charge without protracted delay or dispute”, which provides a real benefit to the landlord not only in terms of cashflow but also because “there is a world of difference between the tenant being able to hold up payment whenever charges are disputed and the tenant being required to pay first and then to have to take the initiative to initiate and establish a claim”. The tenant is not deprived of the possibility of then pursing arguable claims in relation to its underlying liability for the service charge.

The Court also noted that the ability of the tenant to bring arguable counterclaims was not precluded by the no set-off provision. While that would prevent any counterclaim that was relied on as a basis for set-off, the clause as drafted did not extinguish the right to bring a counterclaim. The Court therefore concluded that the Court Of Appeal had been correct to enter summary judgment for S&H but that this did not preclude Blacks from pursuing its counterclaim.

Sara and Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2.