REAL INSIGHT - Property Update - October 2010
Head off the competition
Land agreements (including leases) have previously been exempt from competition law. However from 6 April 2011 restrictions in such agreements between businesses that prevent, restrict or distort competition will be void and unenforceable. Additional penalties include fines of up to 10 per cent of annual turnover for non-compliance. The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 which revokes the previous exemption will apply retrospectively.
The OFT this month produced draft guidance and invited feedback by 14 January 2011. The guidance provides hypothetical examples of how agreements may be assessed and states that only a minority of agreements and leases which have an appreciable impact on competition will be affected. They impose restrictions which keep other companies out of a market, or aim to make it more difficult for other businesses to compete. The types of agreements which will need to be assessed include:
- Anti-competitive restrictions in shopping centre leases
- Restrictions accepted by buyers of property not to sell in the future to a competitor of the seller
- Agreements preventing land from being used for a superstore
There may be commercial opportunities for landlords and tenants to take advantage of this retroactive legislation. Please click here to view the draft guidance.
Something new in store
The Groceries Market Investigation (Controlled Land) Order 2010, introduced by the Competition Commission in August, prevents large grocery retailers (as listed in the Schedule to the Order) from entering into anti-competitive restrictive covenants that have the effect of restricting grocery retailing.
The retailers must also endeavour to release existing covenants restricting grocery trading from which they benefit.
Exclusivity arrangements by which large grocery retailers agree with landowners, or procure that others agree with landowners, not to allow other retailers to operate from the same site for a period in excess of five years are also prohibited. Any current exclusivity arrangements may not be enforced after the expiry of five years from the date of the Order.
Under the Order, owners of burdened land can apply to the OFT for certain other restrictive covenants and exclusivity arrangements to be set aside if they are in highly concentrated areas and restrict grocery retailing.
The Order places various obligations on the large grocery retailers to notify and disclose information to the OFT in certain circumstances.
If you require further information please click here.
Get down to brass tax
New guidance on how the imminent increase of VAT to 20% will affect stamp duty land tax (SDLT) on the grant of a lease was published this month by HM Revenue & Customs. The VAT increase takes effect from 4 January 2011.
SDLT is due on the grant of a lease by reference to any premium paid and the net present value (NPV) of the lease. In dealing with the VAT increase, the guidance says:
- For leases granted on or after 27 July 2010, you should take into account the VAT increase when calculating the NPV. So, if a lease is granted on 1 August 2010, the "year 1" rent for the purposes of the NPV calculation will comprise (i) the rent arising in the September and December 2010 quarters plus 17.5% VAT and (ii) the rent arising in the March and June 2011 quarters plus 20% VAT. From "year 2" onwards, you would obviously assume a VAT rate of 20%.
- For leases granted before 27 July 2010, the change in VAT rate does not of itself mean that another SDLT return is due. However, where a second SDLT return has to be made in the future (perhaps because a 'reasonable estimate' of a rent review in the first five years was made when the lease was granted) that return will calculate the NPV based on the rents which have actually arisen, which would include VAT at 20%.
Please click here to view the guidance.
LandAid Debate
Mishcon de Reya supported LandAid’s first Future of London Debate hosted by London Mayor Boris Johnson at the iconic City Hall last week. The event raised £40,000 for LandAid. Panellists including Sir Simon Milton, Baroness Margaret Ford, Sir Terry Farrell and Ian Hawksworth, Chief Executive of existing client Capital & Counties, discussed the steps required to ensure London’s future success. The debate will feature in Property Week on 29 October. Photos are available here.
Notting ventured
The Firm advised Williams Pears Group and LaSalle Investment Management on the £131 million acquisition of the Notting Hill Estate from Land Securities and Delancey. The estate is comprised primarily of prime retail shops and restaurants along with offices, a cinema and car parking spaces. The team advising was led by head of real estate Nick Doffman and included partners John England (real estate) and Larry Nathan (corporate) and real estate finance specialist Nick Strutt.
Slice of paradise
Mishcon de Reya also advised long standing clients Anthony Lyons and Simon Conway of Matterhorn Capital and Gary Wilder and Jonathan Massing of Kingswood Property Investors on a joint investment in a five-star Caribbean resort. Matterhorn Capital and KPI set up Sugar Beach Investments to invest in the continued redevelopment of the Jalousie Plantation Resort Hotel, a four-year project costing around $100 million. Corporate partner Dean Poster and finance partner Luke Morris advised throughout.