In this issue:

• Break Notices - We look at what tenants should bear in mind when serving a break notice.
• Issues surrounding Lease Renewal.
• HiP and EPC Certificates - recent changes which will affect buyers and sellers. 
• FSA propose new standards for lending to protect mortgage customers.
• Stamp Duty and Land Tax update - HMRC crack down.

Break Notices - what tenants should bear in mind when serving a break notice

Serving a break notice is one of those jobs that in theory, should be simple and straightforward, yet there are fewer times when the tenant (and of course the acting solicitor) is more on edge or nervous. This isn’t helped by a raft of case law each testing the validity of notices served. To limit any challenge by the landlord, the tenant should bear in mind the following:

1. Preparation
For a tenant break option to be validly exercised when giving notice, the legal tenant or its agent/solicitor must give the notice. The obligation is on the tenant (or acting solicitor) to check with the Land Registry, Companies House and recent rent demands to ensure that the notice is served by the current lawful tenant.

2. Service
If the notice clause within the lease imposes mandatory requirements regarding service which the tenant does not follow, the notice is likely to be invalid. The tenant should therefore ensure that correct period of notice is served, that any prior obligations are satisfied (which is likely to mean that rent/service charge is paid to date) and that the notice is served on all requisite parties.

3. Following Service
If the option is conditional upon the tenant complying with the covenants up to the break date, the tenant must fully comply or risk losing its opportunity to break. One way to deal with this is after service of the notice for the tenant to reach an agreement with the landlord – usually a cash settlement in respect of dilapidations.

However, the landlord will need to be careful when negotiating with the tenant in these circumstances. In one recent case (Bordcrest Properties v DPP [2010]) the landlord became involved with the tenant and the judge agreed it ran a real risk of becoming barred by estoppel from relying on material breaches at the time of the break date. The argument being, that by entering into those negotiations, it is clear the landlord has accepted the lease will terminate.

Lease Renewal – Effect of Planning Breach

The Court of Appeal (Fowles v Heathrow Airport Ltd [2008]) has held that a tenant who constantly flouted planning control was not entitled to a new tenancy under the Landlord and Tenant Act 1954.

Under one of the statutory grounds (ground ‘C’), a landlord can oppose a new tenancy under the 1954 Act if the tenant has committed substantial breaches of his obligations under the current tenancy or for any other reason connected with the tenant’s use or management of the holding.

In the case in question, the tenant had breached planning control which ultimately led to an enforcement notice and subsequent criminal proceedings. The landlord opposed the grant of a new tenancy, relying on ground ‘C’, which the court supported. The court held that the existence of the enforcement notice (which was still in force and valid at the time of the proposed renewal) was sufficient to indicate that the tenant would continue to act unlawfully if he were granted a new tenancy.

This would indicate that that the tenant’s use of the property in breach of planning control can be ground for opposing a new tenancy under ground ‘C’.

HiP and EPC Certificates - recent changes which will affect buyers and sellers

It will come as no surprise to many that the coalition government addressed the requirement for HiPs and EPC Regulations within a month of coming into power

The Home Information Pack (Suspension) Order 2010 came into force immediately (on 21 May 2010) and removed the requirement for sellers to provide a home information pack when marketing residential property. Sellers should be aware though, that the Suspension Order is not retrospective and properties that were marketed before the 21 May will still be liable for breaches that occurred before the suspension. However, bearing in mind the government acted swiftly to avoid disruption and uncertainty in the housing market it would seem unlikely that any action will be taken as a result of breaches of the HiP regulations prior to 21 May.

The suspension of HiPs has not removed the requirement for EPCs for residential properties, although the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) (Amendment) Regulations 2010 has amended the rules. The first amendment is that the seller only needs to have commissioned the EPC before marketing (rather than having the EPC finalised). Secondly, an EPC will now be valid for 10 years as opposed to 3 years.

These new regulations are clearly an attempt by the coalition government to remove bureaucracy and unnecessary expense from a stagnating housing market and certainly seem to have the support of many in the property industry. Whether these regulations will have the impact the government hope remains to be seen – although this is likely to be measured under extremely testing circumstances.

FSA propose new standards for lending to protect mortgage customers

Following a detailed analysis of the mortgage market which included the causes of arrears and repossessions since 2005, the FSA concluded without much surprise, that borrowers with self certified mortgages are more likely to be in arrears or face repossession than those who can verify their income. However, the survey found that between 2007 and the first quarter of 2010 almost half of all new mortgages were provided to customers without having to verify their earnings.  The FSA now propose to minimise the exposure to this risk by setting new guidance to mortgage providers.

The new proposals from the FSA would include the following:-

1. Requiring all mortgage applicants to verify their income, to help prevent mortgage fraud and ensure consumers do not overstate their earnings.
2. Imposing affordability tests for all mortgage applications and market lenders responsible for assessing a borrowers ability to pay.
3. Extra measures to protect vulnerable mortgage customers with an impaired credit history.

These proposals are still at the review stage and any comments and submission by the industry are invited to be submitted to the FSA by 16th November 2010.

The survey also found that fees for borrowers in mortgage arrears also varied significantly across the market and this should be brought in line with a reasonable estimate of the costs of any additional administration being utilised and transparent to the borrower.

HMRC to crack down on stamp duty land tax avoidance

HMRC is to extend the Disclosure of Tax Avoidance Schemes (DOTAS) to stamp duty land tax (SDLT) on residential property with a value of at least £1 million.

The new regulations, which came into effect on 1 April 2010, aim to crack down on accountants, law firms, banks and other financial institutions who currently promote tax avoidance schemes to their clients. Previous regulations only required the disclosure of certain commercial, rather than residential property to HMRC.

Schemes that relate to non-commercial property with an aggregate value of £5 million will also be made disclosable.

Changes to SDLT announced in Budget 2010

The two changes to stamp duty land tax (SDLT) announced in the 2010 Budget are:
• A two year holiday period from SDLT for first time property buyers; and
• A new rate of SDLT for expensive properties

Legislation will be introduced in Finance Bill 2010 to provide an SDLT relief where:
an individual or individuals jointly purchase a major interest in land which is wholly residential, and

• The consideration is more than £125,000 but not more than £250,000, and
• That individual (or all of them) intends to occupy the property as his/her or their only or main residence and
• Has or have not previously purchased such an interest or its equivalent anywhere in the world and
• The effective date of the transaction is on or after 25 March 2010 and before 25 March 2012.

At present the highest SDLT rate of 4% applies to purchases where the consideration exceeds £500,000. Legislation in Finance Bill 2010 will add a new rate of 5% for transactions in residential property where the consideration for the transaction exceeds £1 million.

The new higher rate will apply to residential purchases where the effective date (normally the date of completion) is on or after 6 April 2011.