Solicitors’ corner
Land promotion agreements: Advantages and traps
The collaborative nature of a promotion agreement helps overcome the potential for conflict between landowner and developer inherent to an option agreement, but attention to detail is crucial to ensuring the landowner’s interests are protected. Promotion agreements are joint venture arrangements under which a landowner and a promoter seek to maximise land value before sharing the profits of an onward sale. The agreement will provide a framework for marketing and sale of the consented site, before the net sale proceeds are split between the parties in agreed proportions.
ADVANTAGES INCLUDE:
> The landowner benefits from the skill and expertise of the promoter, who is required to do all the legwork;
> The cost and risk of the planning process falls on the promoter, who will be motivated to achieve results as costs will only be recouped on completion of an onward sale;
> Both parties share the common goal of maximising land values and minimising planning and infrastructure costs (under an option agreement, the landowner and developer are pitted against each other in agreeing the sale price –with the landowner wanting to keep land value high and the developer seeking a lower value);
> Sale of a consented site on the open market guarantees the best price is obtained (an option agreement typically relies on a set of agreed assumptions to determine market value);
> The parties may agree to delay sale if market conditions are not favourable (under an option agreement, a developer may take advantage by exercising its option to buy in a weak market).
TRAPS FOR THE UNWARY:
> Tax – the landowner will need to recover VAT which the promoter will charge on its promotion fee. This will necessitate VAT registration and ‘opting to tax’ the land. Consideration will need to be given to the capital gains tax implications of a sale and any reliefs which may be available –early tax advice is critical in ensuring tax efficiency;
> Deductible costs – the promoter’s costs will be deductible before division of the net sale proceeds. The agreement must ensure that deductible costs are reasonable and sensible caps are agreed. Promoter’s internal costs should be excluded;
> Competing sites – promoters often promote multiple sites simultaneously. The agreement should prevent the promoter promoting other competing sites which could prejudice a successful outcome;
> Aligning objectives – there is often a balance to be struck between achieving the quickest results and maximising returns. Care should be taken to ensure the parties interests are aligned and controls are in place;
> Weak market – the agreement must contain a minimum sale price below which the landowner is not obliged to sell. This will usually be based on price per gross (or net) developable area within a consented scheme.
As ever, every case is unique and advice at an early stage is key to ensuring best outcomes are achieved.
ADAM HALE Partner, Willans adam.hale@willans.co.uk
This month we have invited a selection of our solicitor colleagues to contribute some insights for landowners.
Protecting land from claims for unwanted public rights of way
Public rights of way, such as footpaths and bridleways, are recorded on the Definitive Map and Statement (DMS). They are a fantastic way for people to enjoy our countryside but do have the potential to be troublesome for rural landowners.
Apart from issues with the accuracy of the DMS, another extremely problematic issue for landowners is that new public rights of way can be established on the basis of ‘deemed dedication’ by the landowner. Effectively, additional routes are being established by their use; these may be completely new, or could be as a result of people straying from existing routes. This may not be causing a problem now but could cause difficulties in the future (preventing plans for diversification, for example).
The legal position, put simply, is that the Highways Act 1980 provides that if members of the public have been using a particular route for a continuous period of twenty years (possibly less under common law) and have been doing so “as of right” then the route is deemed to have been dedicated as a public right of way. The term “as of right” has a particular meaning at law, being ‘without force, without secrecy and without permission’.
In order to prevent the public from establishing new public rights of way, the landowner will need to show that they did not intend to dedicate the route in question as a public right of way. This can be done by showing that there has not been twenty years continuous use, and that any use has not been “as of right”.
This is where landowners can be proactive. There are various things that can be done to prevent the use being “as of right” including the erection of suitably worded notices, securing the land (ensuring access to any existing rights of way are maintained), granting permission to specific users and depositing what is known as a Landowner Statement and Declaration to the local authority which confirms that there is no intention to dedicate additional public rights of way.
Depositing a Landowner Statement and Declaration is arguably the easiest way to protect the landholding as, once the paperwork has been correctly deposited, no further action is required (although must be renewed within twenty years). The Council is, however, obliged upon receipt of the paperwork to give notice of this on their website, and to notify certain interested parties (such as the Ramblers Association, Open Spaces Society and Parish Council). Potentially this could put interested parties on notice, and instigate a claim for alleged new routes to be detailed on the DMS if twenty years use “as of right” has already been established.
Careful consideration should therefore be given, and professional advice sought, as to the most appropriate methods of protecting a particular landholding based on what use has already taken place and for how long.
HANNAH TAYLOR Senior Associate, mfg hannah.taylor@mfgsolicitors.com
The Landlord and Tenant Act 1954
WHY SHOULD AGRICULTURAL LANDOWNERS TAKE NOTICE?
In many cases, business tenants have security of tenure under the Landlord and Tenant Act 1954 (the 1954 Act). As diversification becomes more popular among agricultural landowners, and more are granting business tenancies, below are some of the most relevant features of the 1954 Act and why they are important.
WHAT AND WHO IS THE 1954 ACT FOR?
The 1954 Act applies to tenancies where the leased property is, or includes, premises occupied exclusively for running a business. Under the 1954 Act, when a protected tenancy expires, a tenant is automatically entitled to a new one. The landlord cannot refuse a new tenancy unless they have grounds to do so. Note, the 1954 Act can also apply to unwritten tenancies and informal arrangements.
It is possible for leases to be contracted out of the 1954 Act, so the usual protections will not apply, but a strict procedure must be followed before the lease is completed.
CONSIDERATIONS FOR LANDOWNERS
If a business tenancy remains within the protection of the 1954 Act, there are several considerations:
1. Recovering possession from a tenant can be tricky and can only be achieved by serving notices under the 1954 Act. A landlord can only refuse the tenant a new tenancy if they have specific prescribed grounds to do so under the 1954 Act. There are also strict time limits that must be adhered to when serving notices.
2. If a landlord seeks to rely on certain grounds to refuse a new tenancy, they may have to pay compensation to the tenant.
3. If a new lease is opposed, or cannot be agreed before the expiry of notices under the 1954 Act, the tenant can apply to court for a new tenancy to be determined. The tenant can then remain in occupation of the property until court proceedings are concluded, or until a new lease is completed. Sometimes, this can be years after the contractual term of the lease has expired.
4. The tenant’s liabilities for service charges, utilities, insurance contributions and their repairing obligations should be clearly documented – we see many disputes arising from unclear lease terms, and landlords should be wary of these issues.
AVOIDING ISSUES
Whilst the 1954 Act can provide challenges for landlords, properly drafted Heads of Terms and leases can help prevent issues arising. Landlords should not underestimate the importance of the 1954 Act and should fully understand the consequences of protection offered by it – they may regret not doing so later down the line! It is always prudent for landlords to take early advice on their options, especially if they wish to recover possession from a tenant in the future.
KATIE MANN Solicitor, Lodders katie.mann@lodders.co.uk
What happens when a business partner dies?
In recent years we have noticed clients taking a much more proactive approach in making their wills and taking inheritance tax advice to ensure that their wishes on death are put into effect in the most tax efficient way. However, there are still many family run partnerships who, for whatever reason, do not get around to putting in place a written partnership agreement or, more worryingly, do not know what will happen to their partnership on the death of a partner.
It is possible to set up a partnership without having a formal written partnership agreement but without this you will have a ’partnership at will’. A partnership at will is governed by the Partnership Act 1890 which contains “default provisions”. Examples of default provisions include:
1. that death of a partner will result in the automatic dissolution of the partnership; and
2. it is presumed that the partners share all the partnership assets in the same proportions as they share income profits. In addition, many farming partnerships do not appreciate that if there are only two partners and one dies the partnership will automatically dissolve, with or without a written partnership agreement, leaving the surviving partner responsible for winding up the business.
Even in situations where there is a partnership agreement, if that agreement does not contain specific provisions which provide for the partnership to continue, then on the death of a partner the partnership will automatically dissolve.
These outcomes may not be what the partners, or their respective families might have wanted, or intended to happen. It can also cause substantial damage to the finances and goodwill of a business. It is common practice nowadays for the business bank account to be closed on the death of a partner until grant of representation (i.e. probate) is obtained. Obtaining a grant of representation to the deceased partner’s estate can take some months to achieve.
Succession planning is always important to a business and best dealt with proactively, not reactively. A properly drawn partnership agreement can make that planning much easier but requires specialist advice to ensure the partnership agreement and the wills ‘fit’ together to ensure that the assets, and business pass as families intended. A properly drafted partnership agreement is also a good way to manage expectations and reduce potential for conflict.
Any existing partnership agreement should, like a will, be reviewed from time to time and, if necessary, amended to take account of any significant changes in the partnership.
CLAIRE LEWIS Senior Associate, Loxley claire.lewis@loxleylegal.com
This newsletter has been prepared as a guide to topics of current financial business interests. We strongly recommend you take professional advice before making decisions on matters discussed here. No responsibility for any loss to any person acting as a result of the material can be accepted by us. Hazlewoods LLP is a Limited Liability Partnership registered in England and Wales with number OC311817. Registered office: Staverton Court, Staverton, Cheltenham, Glos, GL51 0UX. A list of LLP partners is available for inspection at each office. Hazlewoods LLP is registered to carry on audit work in the UK and regulated for a range of investment business activities by the Institute of Chartered Accountants in England & Wales.
