This session provided an introduction to SPVs, looked at key tax considerations when purchasing property, overage and restrictive convenants, and a planning update.

1. Planning and development club
November 2017, Nottingham

2. Introduction to SPVs
Vicky Gaskell and Beth Dowson

3. Topics
• What is an SPV?
• Key differences between the acquisition of an SPV
and a property purchase
• The legal process of an SPV acquisition
• Buyer protections in an SPV situation
• Case study
• Summary of key points to remember

4. What is an SPV?
• Special purpose vehicle or a single purpose
vehicle
• Often used as property holding company

5. Property purchase parties
BuyerSeller is the owner of the property

6. Share acquisition
Seller Buyer
SPV SPV
The Buyer becomes
a shareholder of
shares in the SPV

7. Summary of key differences
• The Buyer becomes a shareholder in the SPV
• The owner of the property is the SPV – this does
not change
• The Buyer is purchasing the SPV which includes
the property as an asset but also includes all
liabilities

8. Tax

9. Key tax considerations – property
purchase
Taxes payable on the purchase of the property
• SDLT
• Potential VAT
Other considerations
• New (and known) base cost
• Capital allowances on existing fixtures
• Potential mortgage interest relief restrictions
• Seller’s tax position

10. Key tax considerations - SPV
Taxes payable on the purchase of the shares in the SPV
• No SDLT
• No VAT
• Stamp duty
Other considerations
• Mortgage interest relief
• Capital allowance continuity
• Potential double taxation
• Tax history
• “Pregnant gain”
• ATED

11. Example tax differences on purchase –
Residential (£3m)
• Property purchase
– No VAT
– £273,750 - £363,750 SDLT (individual Buyer)
– Up to £450,000 SDLT (company Buyer)
• SPV
– UK-based SPV
– £15,000 stamp duty
– No SDLT or VAT

12. Example tax differences on purchase –
Commercial (£20m)
• Property purchase
– VAT charged
– £1,189,500 (SDLT)
– £4,000,000 (VAT)
• SPV
– UK-based SPV
– £100,000 (stamp duty)
– No SDLT or VAT

13. SPV – primary Buyer tax concerns
• “Pregnant gain”
– What if the SPV later sells the property?
– How big is the pregnant gain?
– Negotiate a reduction to the purchase price?
– Contractual protection from the Seller?
– Tax advice and early due diligence is essential

14. SPV – primary Buyer tax concerns
• Historic tax liabilities
– Corporation tax?
– VAT / PAYE / NIC / SDLT?
– ATED? High value residential property only
– Overseas tax position? Overseas companies only
– Contractual protection from the Seller is required
– Tax advice and early due diligence is essential

15. ATED charges
• Annual Tax on Enveloped Dwellings
• Applies to residential properties valued over £500,000
owned by a non-natural person (incl. SPV)
– Annual charge between £3,500 (lowest band) and £220,350 (highest
band)
– Charges are increased yearly (on 1 April)
• Reliefs are potentially available, but must be claimed
on a return
• Fixed penalties for failing to file returns

16. What is the legal process for a
share acquisition?
• Negotiate and agree heads of terms
• Due diligence
• Understanding the company and the Seller
• Preparing a due diligence report
• Draft and negotiate SPA
• Split exchange and completion not necessary.

17. Legal process
• Draft and negotiate all relevant ancillaries
• Negotiate the disclosure letter
• Mechanics of completion and completing
• Post completion matters such as paying stamp duty
and updating the company statutory books
• Liaising with overseas lawyers for input on
jurisdiction-specific aspects

18. Buyer protections
• Warranties and indemnities
• Guarantor
• Retention funds held in escrow
• Insurance

19. SPV - SPA tax considerations
• Sale price
– Negotiate purchase price to take into account:
 any pregnant gain (Buyer)
 any tax savings for the Buyer (Seller)
• Tax Warranties and Tax Covenant
– Pregnant gain warranties/indemnity:
 controversial
– Cover for historic tax liabilities:
 how broad?

20. Case study (Guernsey)
• London property worth £20m
• SPV and Seller based in Guernsey
• Seller a shell company in Guernsey with the
ultimate owner an individual in Russia
• We were acting for the Buyer

21. Case study (Guernsey)
• We were engaged to act on the UK corporate and
property aspects
• We engaged Guernsey-based lawyers for specific
jurisdictional advice
• Big four accountancy firm engaged on financial
aspects

22. Case study (Guernsey)
• Significant due diligence (primarily property)
– We found some historic loan agreements that had to
be covered
• Guarantor – potential issues with enforceability
– Retention + W&I Insurance to cover risks

23. Case study (Guernsey)
• Significant tax savings
• “Base cost” warranty
– Aggregate incurred expenditure (acquisition, costs of
acquisition, capital expenditure etc.,)
– Big four accountancy firm “signed off” on the base cost on the
basis of the above warranty
• Overseas element
– No stamp duty payable on the stock transfer form (the stock
transfer form was not brought into the UK)

24. Summary
• Remember an SPV acquisition is a more complex
legal process – factor this into timetable
• Involve a corporate lawyer and financial and tax
advisers at an early stage to assist with structuring
• Check financing arrangements of the buyer early on
and requirements of any third party funders – do
they require security? What are the conditions
precedent?

25. Summary
• Understand who the seller is and the financial
standing of the person providing assurances about
the SPV
• Ensure the client is comfortable with the tax
structure and consequences early on
• Make sure the heads cover not just the property
basics but the SPV specifics
• If overseas companies – overseas lawyers to be
instructed

26. Questions?
Vicky Gaskell
E: vicky.gaskell@brownejacobson.com
T: +44 (0)115 976 6585
Beth Dowson
E:beth.dowson@brownejacobson.com
T: +44 (0)115 976 6186

27. Overage and Restrictive
Covenants
Kassra Powles and Jonathan Borer

28. What is an Overage?
• Promise from a land buyer to make a further
payment to the seller when a trigger event happens
• Numerous ways of documenting – most common is a
positive contractual obligation protected by
restriction on title
• Methods of Calculating Overage:
– Increase in Market Value Post-Planning
– Sales Based Overage

29. When and how used?
• Agricultural or Bare Land Sale – no immediate
expectation of development
• Sale for development – sales based overage to
agree final purchase price and spread payments
• Public Sector Landowners – anti-embarrassment
protection
• Landed Estates – deter future development of
former estate land

30. When Buying Overage Land
• Does your purchase trigger payment?
– If so, ensure seller deals with it pre-completion and
provides release documents
• Does it continue to bind land post completion?
– Establish future payment triggers
• Is third party consent required?
– Delays to purchase
– Additional costs for getting consent / release

31. Getting details right
• Sparks v Biden – 2017 case
• Overage payable on sale of any newly built homes
• Minimum payment under formula was £700,000
• Biden constructed eight homes but then lived in
one and rented the others on ASTs
• Court implied an obligation on Biden to actually
proceed to sell homes otherwise agreement made
no sense

32. Key Considerations
• Overage Period and Percentage Payment
• Trigger Events
• Planning Permission and Development
• Implementation
• Disposals
• Deducting Costs from Enhanced Value
• Profit Calculation
• One trigger or multiple triggers?

33. Overage Period and Percentage
• Need client or agent to advise client on best terms
– there is no “standard” or default overage period
or percentage payment
• Will depend on what landowner is trying to protect
through the overage and what value given to the
land at date of sale as undeveloped land

34. Trigger Events
• When should further payment be made?
– Sale with Planning Permission
– Implementation of a Planning Permission
– Grant of Planning Permission? Usually no.
• Any sale for profit? Anti-embarrassment
• Plot Sales
• When dealing with SPVs: change of control of SPV

35. What is a Planning Permission?
• Permission for either a specific Development or
permission for anything other than a specific
Development?
• Outline? Detailed? Reserved matters?
• Consider permitted development rights – no application
needed for planning permission. Are these acceptable or
still require overage payment?

36. Relevant Development
• Specific type of development triggers overage or all
development except for a specific exclusion trigger overage?
• Be clear about types of development permitted / triggering
overage
• Reference to Use Class Order – as at time of overage or as
varied?
• “Residential Development”? See Harris v Berkeley Strategic
Land Ltd re: care homes as residential

37. Implementation
• S.56(2) Town and Country Planning Act 1990: “Development
shall be taken to be begun on the earliest date on which any
material operation comprised in the development begins to
be carried out.”
• Pre-commencement planning conditions as triggers?
• Exclusion of preparatory works? e.g. demolition and site
surveys?
• Phased implementation of large developments – single
trigger for payment or staged payments?

38. Disposals
• Sale / Transfer – obvious one – of land or plots
• Grant of Lease? Consider long leases and short term
leases for a commercial rent
• Permitted “disposals”:
– Easements
– Substations / highways / infrastructure
– Mortgages / Charges
– Affordable Housing – Burrows Investments v Ward Homes
• Disposal of individual plots to end users?

39. Deducting Costs from Valuation
• Will need to determine market value and enhanced
value for most overage calculations
• Deduct costs of obtaining planning permission:
– Professional Fees
– Planning Fees
• Construction Costs?
• Caps on costs deductions – reasonable costs or fixed
cap?

40. One Trigger or Multiple Triggers?
• Can have big impact on purchase price offered
• One Trigger better for buyer – overage disappears
after first Trigger
• Multiple Trigger better for seller – overage catches
every Trigger during overage period
• One Trigger – risk of a ‘soft planning permission’ to
secure release for low payment

41. Restrictive Covenants
Enforceability and options

42. Restrictive Covenant
• A promise
• That binds land
• To restrict to use of that land in a particular way

43. Is it Valid?
• Does the covenant benefit another person’s land?
• Is the benefitting land identifiable?
• Has the land been subdivided? (If so, will the
covenant bind the last plot to be sold off?)
• Was any land retained?
• Any common ownership of burdened and
benefitting land?

44. Positive or negative?
• To erect and thereafter maintain a boundary wall
between the points marked A to B
• Not to let the boundary fence fall into disrepair
• Not to use the premises for anything save as an
ambulance station

45. Positive or negative?
• A true restrictive covenant will bind the land to which
it relates (provided it is valid and enforceable)
• A positive covenant does not bind the land - will only
be enforceable by a chain of indemnity or direct
covenants given to intended beneficiary

46. Enforceability - When was it
created?
• Pre 1926? Was it referred to in a title document?
• Post 1926? Is the land registered?
– If unregistered, was it registered as a Class D(ii) Land
charge?
– If registered, is it protected by a notice on the title
register?

47. Next steps - Options
Express release
• Pros
– The land is definitely released, and the covenant no
longer binds
– The release should be registered, and the covenant
should be removed

48. Next steps - Options
Express release
• Cons
- Potentially difficult to locate the benefitting party
or parties – especially if subdivisions of the land have
taken place
- You are alerting the beneficiary to the covenant –
they may not be aware
- Expense
- Precludes / invalidates insurance

49. Insurance
• Pros
– Quick and easy to obtain
– Can be cheap depending on how old the covenant is
• Cons
– Does not get rid of the problem
Next steps - Options

50. Next Steps - Options
Challenge the Covenant
• Pros
– Can get rid of the covenant if successful
• Cons
– Can be more time consuming that just getting
insurance
– Flags the issue to the person with the benefit

51. Upper Tribunal
• Pros
– Gets rid of the covenant if successful
• Cons
– Can be difficult to prove
– Expensive – costs rules
– Time consuming
– Flags the issue to the person with the benefit
– Compensation payable
Next Steps - Options

52. Upper Tribunal - what is
considered?
• The development that is actually planned or the use for
the property, and whether there has been any grant or
refusal of planning permission in the relevant area
• If there have been changes to the character of the land
burdened, or the neighbouring land
• Whether there was been an express or implied release
• That the restriction should be removed if there had
been no injury caused by the removal
• Any other material considerations

53. Restrictive covenants - process

54. Questions?
Kassra Powles
E: kassra.powles@brownejacobson.com
T: +44 (0)115 908 4806
Jonathan Borer
E: jonathan.borer@brownejacobson.com
T: +44 (0)1121 237 3983

55. Planning update
Stephen Coult

56. Introduction
Todays content:-
• Developer contributions
• Planning Conditions
• Application and Appeal Fees
• Alternative Providers
• Special measures designation
• Housing delivery test
• Revised NPPF
• Compulsory Purchase Reform
• Planning Freedoms and Planning in
Principle
• Local Plans
• Neighbourhood Plans
• Permitted Development Rights
• Revised NPPF
• S106 Dispute Resolution
• Application and Appeal Fees

57. Developer Contributions
• The future of the CIL is due to be determined in the Autumn Statement
(22 November 2017)
• As an example, CIL has generated £16 million for Westminster Council
• Local infrastructure tariff proposed
– Supplemented by bespoke s.106 and streamlined examination
arrangements for charging schedules
• The Autumn statement will reveal government’s intention on the
implementation of section 158 of the Housing and Planning Act 2016
(resolution of disputes about planning obligations)
• No news on Conservative manifesto pledge to work with housebuilders on
ways of capturing increased land values form building for reinvestment in
local infrastructure

58. Planning conditions
• Ministers now have powers under the
Neighbourhood Planning Act 2017 to set out
planning conditions and require agreement to their
imposition
• No secondary legislation detailing what types of
condition will be acceptable has been passed

59. Application and appeal fees
• Ability for LPA to set significantly higher planning application fees
mooted in February 2016 (including fees for prior approval under
new PD rights)
– Councils can increase fees by up to 20% with an additional 20%
increase possible for councils that deliver homes their
communities need
• Necessary regulations promised in July, but draft regulations only
published on 25 October 2017
• No consultation for fees of up to £2000 for submission of planning
appeals.

60. Alternative providers
• Government reflecting on whether to bring in
regulations to test the practicality and desirability
of competition in the processing of planning
applications
• No timescales on implementation

61. Special measures designation
• No local authorities will be designated under
‘special measures’ this year
• Authorities designated as such can be bypassed by
applicants, who can apply directly to the Planning
Inspectorate
• However this may be introduced in spring

62. Compulsory purchase reform
• Clarifications regarding the no scheme rule
contained in the Neighbourhood Planning Act 2017,
which dictates that any increase or decrease in
value arising from the scheme underlying a CPO is
to be disregarded in assessing compensation
liability, came into force on 22 September 2017.

63. Planning freedoms & permission
in principle
• Government is also looking at implementing the planning freedoms
scheme which would allow national planning rules to be relaxed
temporarily to support increased housebuilding. Measures include:
– Reducing the standard and duration of permissions from 3 to 2 years
– Requiring housebuilders to notify planning authorities of timescales
– Allowing councils to take developers’ track records on build-out into
consideration when considering applications
• Since April, regulations have been in force that allow councils to grant
planning permission in principle for housing and compatible non-
residential developments on suitable sites on brownfield registers
• Regulations on criteria for inclusion on such registers also came into force
in April and all authorities are required to produce them by the end of
2017

64. Local plans
• Early 2017 deadline for up-to-date plans has passed
• There is no timetable yet for the implementation of intervention
powers
• The proposed criteria for intervention are, where:
– The least progress in plan-making had been made
– Policies in plans had not been kept up to date
– There was higher housing pressure
– The intervention would have the greatest impact in
accelerating local plan introduction

65. Neighbourhood plans
• Post-examination neighbourhood plans to be treated as
material considerations in determining planning applications
• Further provisions are expected including a more
proportionate process for modifying neighbourhood plans and
neighbourhood development orders and measures to improve
council support for neighbourhood planning groups
• The national planning policy update will allow
neighbourhood plans to set green belt boundaries when a
green belt review is called
• £22.8 million to help develop neighbourhood plans

66. Permitted development rights
• There has been no further news form the
government in relation to permitted development
rights for demolition of office premises and their
replacement with new housing
• Government has proposed a new right to convert
agricultural buildings up 750 square metre into up
to 5 new dwellings to meet local need

67. Revised NPPF
• The government will be working on a revised NPPF towards
the end of the year
• More clarity is hoped for on the goal of ‘high quality, high
density housing’
• The revised NPPF is expected to confirm the reasonable
options which councils will need to show before considering
green belt releases
• The NPPF is also expected to implement measures for
proactive planning in the rental sector

68. Revised NPPF
• The government is consulting on proposals to ensure that the right
homes are built in the right places. Consultation ended on 9
November
• The proposals in the consultation include:
– A standard method for calculating local authorities’ housing
need
– How neighbourhood planning groups can have greater certainty
on the level of housing need to plan for
– A statement of common ground to improve how local
authorities work together to meet housing and other needs
across boundaries

69. s.106 Dispute resolution
• Intended to "speed up section 106 negotiations and help
housing starts to proceed more quickly", according to
planning minister Brandon Lewis
• Developers would have to bear in mind the costs which
may be incurred if they go for dispute resolution
• Concerns it could protract the process
• However, developers will be keen to use the
mechanism if it leads to better decisions
• May place additional requirements to reveal detail of
economics of development

70. s.106 Dispute resolution
• The resolution process may most frequently be used to
overcome differences about the viability of providing
affordable housing at the level required in the local
plan
• Councils may have to compromise on planning policies
as result of the mechanism
• Difficult to impose outcome on developer- could decide
not to go ahead with scheme

71. Questions?
Stephen Coult
E: stephen.coult@brownejacobson.com
T: +44 (0)115 976 6152

72. All information correct at time of production.
The information and opinions expressed within this
document are no substitute for full legal advice. It is for
guidance only and illustrates the law as at the published
date. If in doubt, please telephone us on 0370 270
6000.
© Browne Jacobson LLP 2017 – The information
contained within this document is and shall remain the
property of Browne Jacobson. This document may not
be reproduced without the prior consent of Browne
Jacobson.