Property News
Inside this issue:
Reasonable Enough
“Reasonable endeavours”, “all reasonable endeavours” and “best endeavours” are phrases that are frequently used in contracts, despite being phrases that by their very nature are open to interpretation.
There may be seemingly little between these phrases to a lay person but Scottish lawyers are generally agreed as to the standard of effort required in each case.
In short “reasonable endeavours” requires less effort than “all reasonable endeavours”, which in itself is a lesser standard of effort than “best endeavours”.
The recent case of Mactaggart & Mickel Homes Ltd v Charles and Sandra Hunter (16 September 2010) confirmed the Scottish lawyer’s understanding of these phrases and more importantly provided some guidance on what these phrases mean when applied in practice.
Mactaggart & Mickel contracted to purchase a site in Balerno from the Hunters, for development. The contract was in effect conditional upon Mactaggart & Mickel obtaining a planning consent satisfactory to them. Mactaggart & Mickel were obliged in the contract to use “reasonable endeavours” to obtain such a planning consent.
The Hunters alleged that Mactaggart & Mickel had not used such reasonable endeavours because they had not engaged the local authority in pre-application discussions as regards the acceptability of their proposed planning application, nor had they taken due account in their planning application of the fact that Balerno is a conservation area.
The court held that:
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The onus was on Mactaggart & Mickel to show it had used “reasonable endeavours”;
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“Reasonable endeavours” only requires a party to take one reasonable course of action, not all reasonable courses of action available;
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The question to be asked of Mactaggart & Mickel's actions is what would a reasonable and prudent Board of Directors acting properly in the interests of their company and applying their minds to its contractual obligations have done to try to obtain the planning permission;
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Whether a course of action is “reasonable” is linked to whether that course of action is likely to be successful or not. The fact that Mactaggart & Mickel did not (i) engage in pre-application discussions with the local authority; or (ii) design units that were more ‘traditional’ to take account of the conservation status of the area, was unlikely to actually change the outcome of any planning application; and
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Each case much be decided on the merits of the relevant facts.
The even more recent case of EDI Central Ltd v National Car Parks Ltd (27 October 2010) generally affirms the principles set out in the Mactaggart & Mickel Homes Ltd v Charles and Sandra Hunter case, including that a person is not obliged to disregard their own commercial interests when using “reasonable endeavours”.
While the case of Mactaggart & Mickel Homes Ltd v Charles and Sandra Hunter, and also EDI Central Ltd v National Car Park Ltd are helpful in interpreting the meaning of the phrase “reasonable endeavours” they also highlight just how ambiguous this particular phrase can be. While it is often used as a matter of necessity, if specific steps are required (or not required as the case may be) of a party then best practice must be to spell that out in the contract.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact Jennifer Laurie.
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CRC - A Green Tax?
The Government Spending Review 2010 provided the property industry with at least one unexpected surprise. This was the announcement that revenue raised from the CRC Energy Efficiency Scheme (“the Scheme”) would no longer be recycled to participants of the Scheme in line with performance set out in league tables. Instead, funds raised will be retained to shore up public finances. Additionally, the first sale of CRC allowances has been delayed to 2012, instead of 2011. Whilst further details are awaited, this announcement raises a number of issues for many Scheme participants.
One of the main reasons behind the Scheme was to encourage energy efficient behaviour in participants. Recycling payments were to act as a prime driver given that (in general terms) the most efficient would be rewarded with the largest repayments. It would appear that league tables of performance will still be produced. Whether that will be sufficient to encourage energy efficient behaviour remains to be seen. This will also, no doubt, depend on the cost of allowances. These had been set at £12 per tonne for the first phase of the Scheme, and we shall wait to see if the Government proposes any change to this figure. Undoubtedly, without recycling payments, the Scheme is going to be more costly for participants.
The Scheme has already been the cause of much “head scratching” within the property industry, no more so than for landlords and tenants. Landlords who are responsible (in terms of the Scheme) for the supply of energy to leased premises are responsible for acquiring allowances for their tenants’ emissions. There is no automatic provision within the Scheme allowing landlords to pass through such costs to tenants. Accordingly, to date there has been a divide in opinion as to whether or not landlords should pass through the costs of participation in the Scheme to tenants in lease documentation, and if so, how this should be done given the delay in distribution of recycling payments. Some landlords have sought provision in new leases to recover costs. Many tenants have resisted. Some landlords have reportedly taken the view that the potential level of recycling payments outweighs the administrative expense of recovering CRC costs from tenants and distributing recycling payments to them. However, with the removal of recycling payments, tenants may now find themselves under further pressure from a greater number of landlords to accept new lease clauses that, at the least, allow for recovery of the cost of CRC allowances required for that tenant’s energy consumption.
Whether the cost of CRC allowances can be recovered from tenants in terms of outgoings clauses and service charges in existing leases has already been the subject of debate. The Government’s announcement makes the conclusion of this debate even more difficult to call. The Scheme is no longer revenue neutral, so is it strictly speaking a tax? The Government have not spelt this out. Will existing lease clauses which allow for landlords to recover tax encompass the cost of CRC allowances? No doubt this is an argument landlords will consider, and one which tenants may counter by pointing out the Scheme is not a tax on property, but a cost on overall emissions for which landlords are responsible under the Scheme. Obviously this will also depend on the wording of individual clauses.
By its actions the Government may have simplified the workings of the Scheme but it seems unlikely to have simplified the issues which impact on landlords and tenants. Whether the changes will aid the reduction of carbon emissions remains to be seen.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact Chris McLeish or Iain McHardy.
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Title Conditions - Restriction on Trade
There is one fewer reason to stay late in the office, following the Court of Session decision in Snowie v Museum Hall LLP that a residential use restriction will not prevent someone from carrying out office tasks in their own home. Importantly, too, the court refused to let the purchasers break pre-existing contracts which had been concluded before the effects of the recession took hold.
The Obligations
The judgement follows an attempt by the Snowie family to extricate themselves from a binding contract to purchase six apartments within a new-build development of fifteen flats. The contract stated that the properties would be subject to:-
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“the conditions contained in any Deed of Conditions relating to the Development which shall contain no unduly onerous or unusual conditions” and
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The Deed of Conditions shall contain no prohibition to the right to lease the Subjects provided it is not to more than one family unit”.
As is standard for a new-build development, the Deed of Conditions was completed and registered before completion of the purchase of the plots, and included conditions to the effect that:-
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“No trade, business or profession may be carried out in the apartment”; and
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“Each apartment must be used as a private house only, and may not be used even in an ancillary capacity for any trade, business or profession”.
The Arguments
The Snowie family argued that the prohibitions on business use constituted an “unduly onerous or unusual condition” and, as such, that the sellers were in breach of their obligations.
To grant a lease of one of the flats, they argued, would be to carry on a letting business in breach of the Deed of Conditions. Not to be allowed to let out the property or a room within the flat would, they said, be unduly onerous.
This argument was swiftly rejected by the courts: it is long-established law that a prohibition on letting is simply inconsistent with ownership. Any such restriction would not be enforceable; and an unenforceable condition cannot be unduly onerous. The court helpfully went further to state that even if it were enforceable, the business of residential letting is usually carried on from an external office or estate agency – the flat may be subject to a lease, but that does not mean the letting business is carried on there.
The Snowies’ broader argument was that the prohibition on ancillary business use was unduly onerous as it would prohibit all manner of reasonable activities e.g. taking work home from the office; or an artist painting or meeting with an agent in the flat. As the flats were marketed at a high price, targeted at professional people liable to work from home, they argued such a restriction was again unduly onerous.
Common sense prevails
All of these arguments were rejected by the judge, who said that the restrictions must be given “a sensible construction”. The purpose was to protect the residential nature of the development and none of the examples given (such as bringing home work from the office) would be inconsistent with that. Whether an anxious or meddlesome neighbour raises a challenge on the basis of an over-literal interpretation is irrelevant in determining whether the condition is onerous. In this case, the title conditions were found to be in entirely standard terms and the Snowies were obliged to complete their purchase.
It can surely be no coincidence that missives were concluded in 2007 and 2008, but the Snowies only sought to break the contract when the development was completed in 2009 after the effects of the recession were being widely felt.. At a time when more and more purchasers try to break free from pre-existing contracts, it is encouraging to note that the courts have adopted a common-sense approach to confirm the contract.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact, Geoff Stansfield or Gregor Duthie.
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Can't Pay or Won't Pay
If an analysis of the types of cases coming before the Scottish Courts tells us anything, then they are clearly saying that there is a significant problem in Scotland with purchasers refusing to implement contracts and, in particular, to proceed with the purchase of new-build residential properties.
As the title above highlights there are normally two distinct types of unwilling purchaser, those who simply cannot pay and those who, for whatever reason, would rather not do so in the current market. This is a critical distinction – to take proceedings against someone with no funds or no access to funds to complete the purchase is a thankless and pointless task, the difficulty is most often deciding which category applies to any particular purchaser. If we can therefore put those in the “Cannot Pay” category to one-side, what are the options available against those who “Won’t Pay”?
The standard approach in Scotland has always been for the developer/seller to raise an action of specific implement or, in other words, to force a purchaser to conclude on the contract and thereby make payment of the purchase price in exchange for delivery of title. There are well known potential difficulties with such types of action, namely that the Court can refuse to grant a Decree for implement of the contract and opt to award damages as an alternative, such damages invariably being limited to any shortfall on a further sale of the property and associated costs therewith. In particular there is a risk that the Court will refuse to grant such an Order where the purchaser pleads that he is simply unable, for economic or other reasons, to proceed with the purchase of the property rather than an economic unwillingness to do so in the current market. An unwilling purchaser will always come up with some reason or other which he contends justifies his position and allows him not to proceed with the purchase, for example, as argued (unsuccessfully) in the case of Snowie v Museum Hall LLP above
An alternative option to specific implement was taken in the recent case of AMA (New Town) Ltd –v- Finlay, a case decided at Edinburgh Sheriff Court on 19 August 2010. Mr Finlay purchased a development at Springside, the former Fountainbridge brewery site in Edinburgh. Reflecting the current market, Mr. Finlay indicated that he would not be making payment and did not intend to purchase the flat on the terms originally agreed in the missives. The option taken in that case was not to seek an Order for implement of the contract but simply an Order for payment of the purchase price. It may seem to some, indeed if not most, readers of this article that this is simply achieving the same result but by a different method. Indeed it is, but the importance is that by not seeking an Order of implement the developer/seller avoided the risk of the Court refusing to grant an Order for implement and to opt for damages in the alternative. Unlike in an action for implement, the Court has no discretion to refuse to grant an Order for payment where there is otherwise no defence to the action. Furthermore, as the Order granted by the Court was a simple payment order similar to that of any other debt, this Order can be enforced against the purchaser one would any other debt including the ultimate sanction of the bankruptcy of the purchaser.
The lesson to be learnt from the AMA –v- Finlay case is that if a developer/seller is ready and willing to complete on the sale of a property but is being met with a simple refusal to do so by the potential purchaser, it might well be a better option to avoid the risks of the more traditional action for implement of the contract and raise an action against the purchaser in the form of an action for payment for the purchase price.
For further information on the issues raised by this article, please contact Alistair Drummond, Partner of our Property Dispute Management Team.
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Land Registration Fees to Soar
Despite sitting on reserves of over £122 Million, the Scottish Land Register is proposing massive increases in the cost of transferring land.
The minimum fee for the most simple title transfer will double. If implemented using the Land Register’s new paperless system the cost nearly trebles. The cost of recording a security also doubles, as do the charges for most other types of property transaction. Conveyances which create new title conditions will be subject to a £400 surcharge. The cost of certain searches increases by nearly 70%, and the price of ordering a copy deed doubles.
The period for the public to make their views known on these proposals has now expired. It will be interesting to see if the Scottish Ministers will back the Land Register’s proposals to hit the hard-pressed property sector even further.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact Anthony McEwan.
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Compulsory Purchase in the 21st Century
In early October, Biggart Baillie attended the Scottish Government conference on Compulsory Purchase in the 21st Century – the launch of a new government initiative to update the current law and practice on compulsory acquisition of land.
The Scottish Law Commission is undertaking a review of the current procedures under a statutory framework which dates back to the nineteenth century. With no up to date practical guidance issued since 1976, there is a lack of expertise in both acquiring authorities and the private sector as those familiar with the statutory framework have often moved on. The Scottish Government notes that, with public/private partnerships a vital part of the economic recovery process, compulsory purchase is liable to be a crucial tool for future developments and urges best practice going forward.
Since 2000 the Scottish Ministers have confirmed the equivalent of one Compulsory Purchase Order per year per each of the thirty two local authorities in Scotland. By contrast, nearly a thousand compulsory orders were promoted in England and Wales during the same timeframe, and the Scottish Government have decided that it is now time a similar pro-active approach were adopted north of the border.
Compulsory purchase need not be a negotiating tool of last resort, but can be an efficient way to maximise development potential, even where the landowner is willing to co-operate. The statutory framework of compulsory acquisition provides benefits:-
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To the Landowner: A compulsory purchase can clean a property of any existing securities. If the property has suffered a drop in value, the owner may find themselves in negative equity – which they would not be able to clear under a voluntary sale. Compulsory purchase allows the landowner to transfer the site free from security, and to carry any remaining unsecured debt to a new property with sufficient Loan To Value ratios.
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To the Acquiring Authority: Large scale public projects can involve a site assembly of numerous different properties. And with numerous different landowners involved, negotiations can drag on to unexpected lengths, jeopardising future development plans. A compulsory purchase brings with it a statutory framework, with reasonably fixed timescales, allowing an authority a greater degree of certainty as to when an end product may be delivered. As the statutory framework also regulates the compensation payable, the acquiring authority can have a greater degree of certainty over the price likely to be paid than they would in an open market sale.
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To a Developer / Agent: A developer may have the expertise to deliver a construction project, but will often require the statutory powers of the authority to convey the necessary land to them. For a complex site assembly, the developer can rely on the acquiring authority to piece together the land required for the site, with no danger of any ransom strips left behind. Once the compulsory acquisition has been completed, the developer can take title to (or a long lease of) the site in a single conveyance with the added benefit that the compulsory purchase will have cleaned the title deeds of any onerous burdens or title conditions.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact, Geoff Stansfield or Gregor Duthie.
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On the Verge
Daily the population of Scotland move around the roads and footpaths exercising what are legally termed public rights of access probably without much thought to who owns the road or pavement or the basis of their right to use a road or footpath. If you are developing ground or altering the use of an access you may have cause to consider who owns the land and the basis on which access is permitted.
In the last year there have been two cases that have reached the Court of Session relating to rights of access and publicly adopted roads. Each case highlights the importance of the statutory duties of local authorities, and the rights that are created as a consequence of the status of adoption of roads, footpaths and verges by a local authority.
Listing of a road as public doesn’t alter the underlying ownership. The ground on which the road is built is still owned by the landowner. The local roads authority may maintain the road and the public may use the road, but the land on which the road is built isn’t actually owned by the local authority.
The case of Hamilton v Nairn concerned a dispute over the right to carry out works on, and thereafter take access over, the verge of a public road. Hamilton’s proposed works were to improve a junction to permit the development of a cattery and livery stables to which Nairn, the landowner of the verge, was opposed. Nairn argued that the verge of the public road, owned by him, was not subject to a public right of passage. The public could only travel along the road and not the verge. Accordingly the local roads authority had no right to authorise works by Hamilton through the verge owned by Nairn. As owner of the verge Nairn claimed his consent was necessary before any works could be done on his verge. The Council provided evidence that they considered the verge was within the adopted roadway.
The good news for all developers is that the court was firmly of the view that the verge of any public road is just as public as the carriageway itself, and that the local roads authority had the same power to authorise works in the verge as in the road itself. Nairn appealed but his appeal was unsuccessful, leaving little doubt that there is no real difference between the verge and the carriageway of publicly adopted roads when it comes to roadworks.
What developers should be alive to is the risk that the road was never properly adopted by the roads authority in the first place.
What recent court decisions have clarified is that a road can only be adopted by the local roads authority if there is a pre-existing public right of way over it. Generally that requires 20 years of uninterrupted passage over the road by the public. Without that, any purported adoption of the road can be challenged by the owner of the land on which the road is situated
This is precisely what happened in Hamilton v Dumfries & Galloway Council. In this case the sole access to a housing estate was by a road formerly on the Council’s list of adopted roads, but which had since been stopped up and removed from the list. Where there have been public rights of passage exercised over a road and a stopping up order is issued by the local authority that means the road is no longer a road in terms of the Roads (Scotland )Act 1984 and the public right of passage over that area of land is extinguished. This results in the ownership of the solum of the road including footpaths and verges reverting to the parties who have title to these areas. Mr Hamilton, the landowner of the road, objected to the householders using the road. The Council responded by re-adopting the road. Mr Hamilton challenged this decision and sought a judicial review. On appeal, the court held that as the road had not been used by the public for twenty years the Council could not competently adopt it as public.
One final thought. Faced with budget cuts and a reduced labour pool it is not impossible to envisage a local authority considering if there are opportunities to save money by reducing the extent of the roads on the list of publicly adopted roads by deleting roads from its list. This statutory power exists. Hopefully the age of austerity will not result in the number of publicly adopted roads reducing. If a road loses its adopted status the rights flowing from a road, footpath and verge being publicly adopted and maintained disappear. If roads and footpaths are in private ownership the extent of the rights that can be exercised are sometimes less clear.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact Neil Davidson or Anthony McEwan.
Title Boundaries
It is clear from various transactions in which we have recently been involved that there is widespread confusion over title boundaries where land adjoins a road. The consequence can be a failure to spot ransom situations and the inability to develop otherwise prime areas of land.
It is often claimed that where land is bounded by a road, then the landowner’s title automatically includes the road too. This isn’t in fact true. Quite why this myth has become a common misunderstanding isn’t clear, but it remains a myth nonetheless.
So what is the law on roads ownership?
Well, as highlighted by the case of Hamilton v Dumfries & Galloway Council above, where a publicly adopted road is delisted and ceases to be publicly adopted then ownership of the carriageway will go to the landowners on either side, but only if there is no better claim to the land on which the road is situated. Very often the historical titles will be quite clear as to ownership and mere adoption by the local roads authority doesn’t change that. The delisted road is owned by whoever owns the land underneath it and that will only be the adjacent landowners if either their existing titles say so or no-one can trace the original owner.
Roads which are not publicly adopted likewise are owned by whoever owns the land on which the road is built. If the owners on either side have title plans which show their title as ending at the edge of the road then quite simply they do not own the road. We may not know who does own the road but we do know it isn’t the neighbours. They cannot own more than what is on their title plan.
Where the adjacent owners’ titles don’t have plans then one needs to check what words are used in their title to describe the boundaries of what they own. In these limited circumstances, seeing the words “bounded by the road” can mean the road is included in their title up to its midpoint, but only if the road in question is one over which there is a public right of way. (The public can have rights of way over roads that are not actually adopted as public by the local roads authority). If the road is completely private then the words “bounded by the road” exclude the road from the adjacent landowner’s title.
Even where the road is subject to public access and the title states that it is “bounded by the road” then the road will still be excluded if there is anything in the title deeds (plans or measurements or other descriptive words) which suggest the road isn’t included in the title.
So the lesson is, don’t assume that road is yours just because you own what is next to it. Always get a review of your titles carried out before planning any development that includes that road.
To find out more or to seek advice please speak with your usual Biggart Baillie contact or contact Anthony McEwan.
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Tax Tips
The tale of the former tax inspector turned property developer who faced a £5000 capital gains tax bill merits a closer look, because of the way it applies property tax law.
The taxpayer in question spent time and money restoring a derelict 19th century Chapel and obtained planning permission for a change of use to a residential property.
His hope was to sell the restored property for £299,000, giving rise to a taxable gain of around £17,850.
The fundamental question is – is he a developer who should pay income tax on his profits at 40%, or an investor who pays capital gains tax at 28%?
The general rule is that whether income tax or CGT is due depends on the taxpayer’s intention when he took over ownerhsip of a property:
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Buying to let by renting out a property suggests the intention is investment and any gain in value is subject to CGT;
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Buying to profit from a sale often hints at a bias towards property development, with profits being subject to income tax.
If the intention is not clear, other factors to consider are:
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How was the property financed?
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Did the property generate rental income?
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How long was the property owned?
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Why is the property for sale?
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Business Structure.
If this case were to go to Tribunal, a decision would be made on the “balance of probabilities” – i.e. if a reasonable person considered the evidence, would he conclude that the taxpayer refurbished the chapel as an investor or a developer. The difference is a £5000 CGT bill or income tax of about £16,000 on profits of £40,000 or so, once capital gains reliefs and allowances have been disregarded.
In this case, the property was financed, apparently, from the taxpayer’s pension fund and key to the decision to subject the gain to CGT rather than income tax seems to have been his original intention simply to do the property for “fun” rather than with any definite intention to realise it at a profit.
Salutory lesson to all would be property purchasers – keep notes of why you buy and back them up with other evidence where possible.
For further information on the issues raised by this article, please contact Ronnie Brown or Carol Goodwin.
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The New Planning System – One Year On.
We are just over a year in to the new system and it is an opportune time to see where we stand. There are of course some elements of the new system yet to be implemented (such as the changes in relation to Section 75 Agreements and planning obligations). The recent consultation paper entitled “Resourcing a High Quality Planning System” also shows that the changes made to date are all part of an ongoing process including what the Government terms “culture change”.
Important and significant changes are made to the Development Plan system (Structure Plans/Strategic Plans and Local Plans/Local Development Plans). As the guidance on this makes clear (see Circular 1/2009) the Government intends that these documents should be different from their predecessors. Strategic Development Plans are to be “concise visionary documents that set clear parameters for subsequent LDPs and inform decisions about strategic infrastructure investment” (see paragraph 14) while Local Development Plans are to be “concise map based documents that focus on their specific main proposals for the period up to year 10 from adoption… Minor proposals and detailed policies may be removed to supplementary guidance especially if there is no significant change from the previous plan” (paragraph 39).
While the new system understandably and correctly seeks to speed up the production of Development Plans, a year into the new system it is premature to expect any of the new style plans to formally have been adopted. Nonetheless early examples show the potential scope of the changes.
On 14 August 2009 Scottish Ministers approved the Aberdeen City & Shire Structure Plan. While this is an “old style” Structure Plan, the format is very much that of a new style Strategic Development Plan. The approval letter from Scottish Ministers notes that “the Plan is a positive response to the Scottish Ministers’ desire for succinct Development Plans and the Plan’s aspirations and vision for the future of the area are endorsed”. Following on from that the Aberdeenshire Proposed Local Development Plan has been out for public consultation, a process that finished on 1 October 2010. This document is very much in the new style making significant use of supplementary guidance as contemplated by paragraph 39 of Circular 1/2009. For those who have not looked at them, both documents are worth looking at as they show what plans are likely to look like going forward. It will be particularly interesting to see the range of responses to the Proposed Local Development Plan.
Despite the length of the consultation period in respect of the new system, the Scottish Government have recognised that the new development management system needs to be changed. A consultation period on the proposed changes appeared in early October with the consultation running to 28 January.
Some of the changes are quite technical (for example those proposing the changes to decision notices), Others are of more significance.
Difficulties have arisen in relation to Section 42 applications – applications to vary conditions or develop without complying with them. In relation to major applications (large developments such as those of more than 50 houses) the whole pre-application regime applies where a Section 42 application is made. This means no application can be made for 12 weeks while the public is consulted. Though some planning authorities have tried to find ingenious ways round this the Government recognises change is necessary, the issue is the extent of the change and how to implement it. If change to the 2006 Act is necessary then that may take time to enact.
An area that causes difficulty is demolition with provisions in the 1997 Act, the Permitted Development Order as well as a Circular. The proposal is to rationalise the notice procedure that applies to demolition. This is however an area where more significant rationalisation might be appropriate.
It is also intended to refine the rules on the need to advertise certain applications. The most significant proposals are take away the need to advertise major departures from Development Plans while adding a requirement to advertise major developments (typically developments of more than 50 houses or office or business premises in excess of 10,000 square metres or commercial premises of 5,000 square meters or more). That may result in increased cost.
So, a year in, where are we? In truth we probably need more evidence to evaluate the new system. The changes proposed are of limited impact. The overall impression is that while there are difficulties and issues the new system is working better than some anticipated or expected. One area of concern is the undue emphasis on speed. While speed is important, speedy decisions do not always equate to quality in the planning sphere. The effects of bad planning are all too obvious to see.
What is also clear is that the new system is “front loaded”. The prospects for success whether in terms of a development plan objection or planning application/appeal are increased if proper preparatory work is done up front. No longer is it safe to assume information can be given at a later stage.
For further information on the issues raised by this article, please contact Murray Shaw and also see our article “The new Planning Regime – First Changes”.
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The Land Exclusion Order
The OFT has recently published draft Guidance about the types of land agreements between businesses that might breach competition law.
Up until 6 April 2010, land agreements had benefited from an exclusion from the UK competition rules prohibiting anti-competitive agreements. A transition period is now in place and, from 6 April 2011, land agreements that prevent, restrict or distort competition in the UK will be void and unenforceable.
Businesses involved in such agreements can also face fines of up to 10 per cent of their annual worldwide gross turnover.
The OFT has published the Guidance to assist businesses in complying with this change in the law. It provides a clear explanation of the legal framework together with examples of how typical agreements are likely to be assessed.
The draft Guidance explains that:
- There is no presumption that a restriction in a land agreement constitutes an infringement of competition law. In fact, the OFT expects that only a minority of restrictions will be anti-competitive.
- The types of restriction most likely to impact competition are those which exclude other businesses from a market, or which aim to make it more difficult for other firms to compete.
- The law will only apply to land agreements between businesses. It will not apply to transactions with individuals.
The OFT has invited Business to give feedback on the draft Guidance by 14 January 2010. The OFT expects to publish the final Guidance later in 2011.
Commenting on the draft Guidance, Douglas McLachlan, an Associate in Biggart Baillie LLP’s Competition Team said:
“The repeal of the Land Agreements Exclusion Order is unlikely to mean that every land agreement between businesses in the UK will fall foul of competition law, but it’s clearly the case that some agreements will. Businesses need to review their land agreements and put their house in order before the new rules come into full force in 6 April 2011. The OFT’s draft Guidance will help them to do that.”
For more information please contact Colin Miller or Douglas McLachlan.
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The information contained in these articles is given for general information only, reflects the current law on the date of the article, and does not constitute legal advice on any specific matter