Archive for August, 2012

Long Leases (Scotland) Act 2012

Thursday, August 23rd, 2012

long-term-leaseThe Long Leases (Scotland) Act received Royal Assent on 7 August 2012. The Act will on the “Appointed Day” (the first Martinmas (28th November) falling 2 years after the relevant sections of the Act come into force) convert the tenant’s interest in long leases into outright ownership and extinguish the existing rights of land owners in exchange for payment of compensation.

Leases which are affected by this Act are those:

  1. whose original duration or term was for more than 175 years;
  2. which still have more than 100 years left to run where the subjects comprise wholly or mainly a private dwellinghouse, or more than 175 years left to run in any other case; and
  3. which have an annual rent of £100 or less.

The Act will not apply to leases:

  1. which are only of minerals;
  2. which are granted for the sole purpose of allowing the tenant to install and maintain pipes or cables; or
  3. of a harbour in respect of which there is a harbour authority.

Only the tenant has the ability under the Act to opt out of conversion. They also have the ability to cancel their opting out, but for any of these to be effective, the tenant’s notice must be signed and registered at lease 2 months before the Appointed Day.

The Landlord will be entitled to claim payment of compensation from the tenant in accordance with the formula set out in the Act for the loss of his ownership right. In each case, the Landlord will be entitled to claim for loss of rental income, which also takes into account any premiums which may have been payable for a lease renewal or extension. In some cases the Landlord will also be able to claim for compensation for (i) loss of right to get the property back if there was more than 200 years of the term left to run after the Appointed Day, and (ii) loss of right to enforce non-monetary obligations.

Upon conversion of the lease, any standard securities over the tenant’s interest in the lease will remain in place, however standard securities over the landlord’s title will be extinguished.

For further information please contact Caren McNeil on 01224 581581 or by email at c.mcneil@jgcollie.co.uk

Stamp Duty Changes

Thursday, August 23rd, 2012

stamp-dutyOne of the more unpleasant aspects of any house purchase is paying Stamp Duty Land Tax (“SDLT”). It is usually far and away the biggest outlay in any house purchase. According to statistics released by Aberdeen Solicitors Property Centre, the average house price in Aberdeen in 2011 was £208,398. This would attract SDLT of £2,083. Further up the housing ladder, SDLT payments can reach eye watering levels. In a recent residential purchase transaction here at James & George Collie, SDLT of £165,000 was paid.

As taxes go, Stamp Duty – the forerunner of SDLT – has a more colourful history than most. Stamp Duty may have cost the UK its biggest asset. The introduction of The Stamp Act 1765 to the colonies is acknowledged as one of the main causes of the American Revolution which took place just 10 years later. For the American republicans this was the last straw, and riots and revolution ensued. There has never been Stamp Duty in America. It seems the scars have never healed.

For the government SDLT is really the perfect tax. It is collected by solicitors on their behalf and all the form filing is done by the solicitor and the client. The costs of administration must be minimal in comparison to other taxes.

And what happens if you don’t pay it? Then your solicitor can’t register your title and you won’t get the keys. There is really no point or future in being an SDLT “refusenik”.

SDLT is also a very good earner for the government. In 2009/10, a year of deep recession for property sales, SDLT receipts in Scotland came to £249m and in the UK to £4.885 billion. In recent years SDLT receipts in both Scotland and the UK have been roughly equal to the amount raised by Capital Gains Tax and Inheritance Tax put together.

There are however changes afoot. Under The Scotland Act 2012, SDLT in Scotland will be abolished. In a major move by Westminster the powers to raise tax on land and buildings have been devolved to the Scottish Government. SDLT will be replaced in April 2015 with a new land and buildings transaction tax which has already got its very own acronym – LBTT. The Scottish Government is currently consulting about LBTT but the indications are that it will be a progressive tax based on value. That is no different from SDLT but it is likely the extreme effect of banding for SDLT on residential transactions will be mitigated. At present, a purchase at £249,000 yields SDLT of £2,490 at 1%. A purchase at £251,000 is charged at 3% and yields SDLT of £7,530. The Scottish Government wants to do something about this anomaly. Another suggestion is that purchases at less than £180,000 are to have no tax which should stimulate the lower end of the market. On the other hand, it is likely that properties at the higher end will attract high levels of LBTT. All should be revealed towards the end of this year.

Property professionals and The Law Society of Scotland have given a cautious welcome to the overhaul. Our view at James & George Collie is that anything which will simplify land taxes on house purchase or commercial transactions and promote fairness is to be supported.

For further information or advice, please contact Forbes McLennan by telephone on 01224 581581 or by email at f.mclennan @jgcollie.co.uk

Cohabitee’s Rights

Thursday, August 23rd, 2012

co-habitationIn a recent landmark decision by five Justices of the Supreme Court, some clarity has been brought to the issue of cohabitee’s rights writes Graham A Garden. Whilst it has always been accepted that the terms of The Family Law (Scotland) Act 2006 did not seek to provide couples, who chose to co-habit rather than to marry or enter into a civil partnership, the same rights to financial provision, the Justices decided that the Inner House of the Court of Session had adopted too narrow an approach in considering what financial provision should be made on the termination of cohabitation. The Justices acknowledged that the main principle in deciding what financial claims a cohabitee may have against a former cohabitee, is one of fairness whilst at the same time acknowledging that cohabitation is a less formal, less structured and more flexible form of relationship than marriage or civil partnership. In the case which the Court was considering, Mr Grant and Miss Gow first met in 2001, became engaged, but separated in 2008. Miss Gow had owned a property in Edinburgh before the relationship and had sold this during the course of her relationship with Mr Grant. The proceeds of sale of her flat were used during the course of the relationship and the couple had lived in Mr Grant’s home for a period.

The terms of Section 28 of The 2006 Family Law Act (“the 2006 Act”) dictates what awards, if any, should be made in the circumstances. The Sheriff at first instance exercised his discretion in concluding that taking all matters into account Miss Gow had suffered a net economic disadvantage as a result of the relationship and that she should be compensated in the amount of £39,500. Mr Grant appealed against this decision to the Inner House and this Appeal was allowed. Miss Gow then took the decision to the highest Civil Court in the land, namely, the Supreme Court, who found in her favour. Lady Hale, in her judgement, acknowledged that the law does not seek to impose upon unmarried couples the same rights and responsibilities which result from marriage or civil partnership but seeks to redress the gains and losses flowing from the relationship.

If nothing else, this decision simply underlines the need for couples who have decided that they do not intend to marry or enter into a civil partnership to consider entering into a Cohabitation Agreement to minimise the potential financial fallout in the event that the relationship ends. In view of the fact that the 2006 Act covers the position in relation to the ending of cohabitation of same sex couples as well as couples of opposite sexes,  this decision has significant ramifications for all couples who make the decision to cohabit and not to marry.

For further information please contact Graham Garden by email on gag@kinnearandfalconer.co.uk.