REAL INSIGHT - Property Update - August 2010

Miss Sixty CVA set aside

Company voluntary arrangements (CVAs) are back in the spotlight after the High Court set aside a CVA for the Miss Sixty and Energie fashion chains on the basis that it unfairly prejudiced a landlord.

Sixty UK, which went into administration in 2008, proposed a CVA which provided that its trading creditors would be paid in full save for the landlords of four loss-making shops, including two in Liverpool’s Metquarter Shopping Centre.

The two 10-year Metquarter leases had seven years left to run and were guaranteed by Sixty UK’s Italian parent company. The CVA proposed a one-off payment of £300,000 to the landlord, Mourant & Co Trustees, as compensation for the release of liabilities of the tenant and the guarantor.

The High Court held that the purpose of the CVA was to compel Mourant & Co to give up its rights for a fraction of their fair value and to improve the Sixty group’s negotiating position. Therefore the CVA was set aside.

Creditors will now meet on 8 September to vote on proposals to liquidate Sixty UK, according to press reports.

For background on the decision please click here.

Planning regime under review

Now that Eric Pickles MP has abolished Regional Strategies (RS) and their housing targets, the industry and councils are facing confusion and delay. Only London retains any strategic level statutory planning document, the Mayor’s London Plan.

Housing minister Grant Shapps has confirmed a new approach of incentivising councils to deliver growth with "direct and substantial extra funding" but has not repeated previous references to six years' matching of council tax and an extra 25% for affordable housing. Without clarity, many councils are being cautious.

It was only a matter of time before the decision to revoke all of the RS was challenged. This month, Cala Homes was first off the block, appealing the non-determination of an application for 2,000 homes at Barton Farm by Winchester City Council. The biggest issue at stake relates to the revocation of the RS and lack of housing need evidence to produce a locally derived housing number. The inquiry date is not yet set and Winchester would like it delayed until after the court's decision. The inspectorate has already agreed to one delay when the formal revocation of the RS was imminent. Cala's solicitors were pressing for an early hearing of the Judicial Review next month.

Until then, the whole saga reminds us just how much of the planning system is up in the air, at a time when many schemes are still unviable, the construction industry needs to see development happening and even the government is desperate to see economic growth.

HMRC changes on option to tax

A seller / landlord of non-residential property must generally charge VAT if they have opted to tax. Exceptions include where the sale or letting relates to a building intended for use solely for a relevant charitable purpose (but not as an office). HMRC's recent Brief 33/10 says that it will interpret "solely" as meaning 95% use in this context (it used to be 90%).

Significantly, a seller / landlord is not obliged to adopt this treatment - the parties must agree that the option to tax can be disapplied where a tenant is using the building for only 95% charitable use. A seller / landlord will not normally want its option to be disapplied as this means that it cannot recover any VAT costs associated with its sale or letting. So to summarise, if use by the buyer / tenant is for:

• 100% charitable purposes, the buyer or tenant can disapply the option to tax
• at least 95% but no more than 100% charitable purposes, the parties can agree that the option is disapplied but the seller / landlord cannot be forced to accept this
• less than 95% charitable purposes, the seller / landlord will always charge VAT when it has opted.

The moral of the story? A seller / landlord must be wary of the option to tax disapplication rules when dealing with a charity, and it may be necessary to build some protections into sale or letting agreements. Conversely, charities should be aware that the rules are now less generous for them. Of course, the concept of "charitable use" is itself nebulous and may need careful examination in each case. Click here for the HMRC Brief.

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