Davon Summer Cruise

Thursday June 15th dawned warm, sunny but breezy for Davon’s annual summer cruise on the beautiful motor yacht Seafin.

A collection of guests including Davon clients old and new gathered on board Seafin at her base on the River Hamble before departing for drinks and lunch at the historic and picturesque Bucklers Hard village on the Beaulieu River.

The crew of Seafin as always provided hospitality and service of the highest calibre and after a splendid lunch we set sail across the Solent to anchor in the shelter of Osborne Bay on the Isle of Wight where the jet skis were launched. A good number of guests aboard enjoyed the thrills (and in one particular case – the spills!) of the high-performance jet skis while others enjoyed a refreshing swim in the sea…brave folk these developers!

Afternoon tea and a cruise back to base completed the day on the water and it would have been rude to part company without a drink or two at the marina bar.

Team Davon would like to thank all our guests that joined us for the day and of course the skipper and all the crew of Seafin for a superb day…..already looking forward to next year!!

Davon Limited
June 2017

Guest Article: Taxing Times?

 

With the Treasury ever hungry to increase tax revenues and the construction industry bearing the brunt of compliance burdens due to the very nature of having a transient workforce, reviewing your tax compliance and exposure on a regular basis and before undertaking each major transaction can save you money in the long run.  In the absence of proper due diligence and taking timely and relevant advice it is unfortunately, very easy to overlook an unintended consequence.

CONSTRUCTION INDUSTRY SCHEME: At the time of writing (September 2016) we are seeing an increased number of contractor construction businesses undergoing CIS compliance reviews and having penalties and tax liabilities imposed where the contractor has failed to properly deduct tax under the CIS scheme at either 20% or 30%. In this situation, the payment made to the subcontractor is grossed up and the liability for the tax falls on the contractor who can only avoid paying an increased amount of CIS tax if his subcontractor has already accounted and paid tax on the income he has received before HMRC raise the notice to pay on the contractor.

CIS rules put the onus on the Contractor to have verified the identity and tax status of the subcontractor before payment is made. Contractors should ensure that not only do they have written systems in place to capture the verification process but that they retain evidence of the checks made before payment to the subcontractor is authorised.

VAT OPTION TO TAX: To opt to tax rents or not? Whilst the option to tax allows VAT reclaim on the costs incurred in renovating and maintaining an opted property, the VAT reclaim may subsequently be clawed back. Will opting to tax a property restrict the number of willing buyers for the property or is the exit strategy going to trigger a claw-back of VAT reducing the anticipated return on the investment?

ANNUAL TAX ON ENVELOPED PROPERTIES: Companies owning residential property that was valued at more than £500,000 on 1 April 2012 will need to make an ATED Return each year. The normal filing and payment date is 30 April following the tax year. The new reduced threshold of £500,000 came into effect on 1 April 2016. ATED-related capital gains tax may be due on the sale of a residential property that is completely or partly-owned by a company. ATED-related Capital Gains Tax is due by 31 January following the tax year and not through the Company’s Corporation Tax Self-Assessment.

The next valuation date for ATED properties is 5 April 2017 so nil returns made previously or close to the next band will need to be reviewed carefully.

LAND REMEDIATION RELIEF: Available to property investors and developers, the relief can be given for the qualifying costs of remediation of contaminated land, removal of asbestos from buildings, breaking our buried structures and the treatment of harmful and naturally occurring contaminants such as Japanese knotweed, radon or arsenic, subject to passing the qualifying restrictions. The owner occupier/investor rate of relief is 150% of the cost, for developers the rate is 50% and for loss-making companies the relief can be given as a tax credit/cash rebate at 24%. The relief has to be actively claimed so it’s as well to flag such costs in your accounting records so the relief is readily identifiable.

REPAIRS AND RENEWALS: For buy-to-let landlords in the residential sector, tax relief for the cost of replacement white goods is dependent upon whether the items are free-standing or integrated. With the withdrawal of tax relief on mortgage interest for individual buy-to-let landlords, they will appreciate their developer maximising relief by configuring the white goods appropriately. Developers selling to buy-to-let landlords might reference this in promoting their properties to those buyers.

ENERGY SAVING CAPITAL ALLOWANCES- COMMERCIAL PROPERTY; Whilst Annual Investment Allowance may be available for the purchases of plant, where energy saving plant and machinery is purchased, an allowance of 100% of the cost of that plant may be available in addition to the AIA. The Government publishes an Energy Technology product list of the various items that qualify for this claim. When preparing a specification for heating or ventilation works, making reference to the Product list and installing a qualifying product could help your tax bill.

This article does not constitute professional advice and is not a substitute for seeking specific advice from a qualified accountant on your proposed transactions.  You should always undertake due diligence on any property and financing transaction before committing to the transaction. Butt Miller are an independent firm of Chartered Accountants based in Camberley Surrey. We aim to add value to our clients by helping them see their Bigger Financial Picture. If you would like to know more about any aspect of this article or would like advice on your proposed transaction please contact Roland Moss on 01276 25542.

 

Roland Moss FCA

Managing Director

Butt Miller Chartered Accountants

 Guest Article: Taxing Times?

 

Davon Property Finance

Guest Article: The Devil is in the Detail

In an active and rising land market and under competition, it is all too easy (and common) for the land buyer to be tempted to “gloss over the finer details” to short circuit the due-diligence process or to accept facts at “face value” in order to get that all important deal over the line. The cautionary phrase ‘’act in haste and repent in leisure’’ springs to mind and the Residential Development land team acting as  land agents and/or bank valuers regularly encounters scenarios in which remedial action is  recommended and ultimately required to ensure the marketability of  both the end product and the lender’s loan security.

 

It may also be the case that whilst a very competent and “development savvy” solicitor will be appointed to act, that same professional may not have visited the site and is therefore only dealing in a truly one dimensional context in terms of the existing legal documentation which is sometimes incomplete or not up to date. Whilst more legal practitioners are tending to conduct site visits (particularly if they are more complex or higher value) there are occasions due to issues of fee/time constraints or geography where this is either not practical or financially feasible.

 

With this mind, as the instructed Land Agent or Valuer, we often have to act as that second pair of eyes (and ears) on that first all- important site visit which coupled with many years of experience and local knowledge might  highlight issues that  otherwise would be missed.

 

Whilst often cited as a positive marketing feature, shared private drives and access roads also raise questions as to the ongoing cost of (and the purchaser’s ability) to maintain them in the future. Such scenarios often occur where the estate roads are vested in the ownership of a management company or alternatively where there is no clear indication of clear legal title. An existing access for a single domestic dwelling does not always mean that this will be sufficient for a multi-unit development.

 

Whilst not the final arbiter, a thorough site inspection can also reveal other hidden issues- at the very least it can assist the conveyancing process by highlighting areas of uncertainty for further clarification. Does that gate in the boundary fence suggest a right of way –formal, informal or otherwise? Is there any evidence that the boundary has been changed from its original position? Is there a substation on site – if so on what basis and can it be relocated within the site or offsite in order to implement the planning consent. Is there Knotweed on site, has it spread next door? You notice that they are cars from neighbouring properties that are being parked on the site and are told that they are doing so on an illegal basis, can be moved  but then establish later on (post completion) that they have been doing this for many years unchallenged.

 

One aspect of land buying that we are increasingly encountering is the potential impact of Restrictive Covenants and which for our team have on more than a few occasions inhibited a sale and/ or the implementation of   a planning permission. By their very nature they can be recent or very historic and vary in the ability to frustrate the principle of or the quantum and nature of redevelopment.  This is a complex and specialist area of the law and our advice would be always to seek specialist legal advice at the outset, initially from a solicitor and possibly also from Counsel. The main challenges are to identify the beneficiaries of that covenant, their benefitting land or whether it was part of a building scheme and the extent to which they might be enforceable or capable of being challenged in the Lands Tribunal or whether the risk could be covered by Defective Title Insurance or if it could be negotiated between the parties.  On no account should ( in the first instance ) a unilateral approach/enquiry be made of the identified or possible beneficiaries of the Restrictive Covenant as that action might  preclude the ability to obtain cover or nullify any existing policy.

 

It is very often the case, that a property might be acquired with the benefit of an insurance policy which would need to be audited by the purchaser’s own solicitors. Quite apart from the level of cover which need to be sufficient, it is important to ascertain that it is not scheme specific, it is fully assignable and ideally it is capable of being split off as individual units. It is also worth establishing as to what information was disclosed to the underwriters at the time the policy was taken out and whether the site had been through the planning process and if so whether there had been any reference to the restrictive covenants in the public consultations. Finally, be aware that certain underwriters place restrictions on how an opportunity might be sold with the benefit of that policy and care is needed that any marketing  action does not inadvertently invalidate the policy. In some cases, it has been necessary to pre-clear the marketing strategy with the insurer.

 

Another point of detail which we would routinely question is the position on copyright and reliance in respect of the planning drawings and associated specialist reports and it continues to surprise us how many developers and landowners overlook this when ‘’packaging land ‘’for onward sale given the potential marketing and cost implications of having to obtain retrospective copyright or reliance from professionals.

 

We have highlighted a few of the more common issues that can arise and which if not pre-empted can trip up that next acquisition or result in a costly mistake. Whilst, caution is not normally an adjective associated with developers, it is the case that whilst time consuming (and not without cost) additional due diligence can be worthwhile. The two truisms about development is that you should expect the unexpected and not always believe at face value everything that you are being told!

Hugo Stuttaford

Director – Residential Development

Jackson Stops & Staff

Hugo Stuttaford - Jackson Stops & Staff - Davon

Davon Property Finance - Blackheath

Higher Rates of SDLT on Purchases of Additional Residential Property

New higher rates of Stamp Duty Land Tax (SDLT) have been introduced by the Government on purchases of additional residential property. These rates apply to purchases on or after 1 April 2016, subject to transitional relief.

The additional rate of 3% is now payable where the value of the dwelling exceeds £40,000 and:

  • an individual purchaser is buying an additional residential property and they are not replacing their main residence; or
  • a company (or other “non-individual”) is purchasing residential property.

The new SDLT rates have been introduced as part of the Government’s plan to support first time buyers. The higher rates are therefore applicable in most cases where individuals purchase additional residential properties or when companies purchase residential property. The Government indicated in their 2015 Autumn Statement that they were considering exemptions for developers and corporates or funds with portfolios of at least 15 residential properties. However, controversially, these exemptions have not materialised. Higher rates now apply even to the purchase of a first property by a non-individual purchaser.

Despite the reforms to the SDLT rates for non-residential and mixed use property, announced in the March 2016 Budget, there is now even greater disparity between the SDLT payable on the purchase of additional residential, and non-residential or mixed use properties. There has therefore been more discussion about what constitutes a “dwelling” for SDLT purposes, as the higher rates for additional residential properties will only apply to such a property. A “dwelling” is defined as a building or part of a building that is used or suitable for use as a single dwelling, or is in the process of being constructed or adapted for use as a dwelling. The question as to whether part of a garden of a house is residential or bare land will be very much down to the circumstances of each transaction. Where it is not so clear, such as if there is land which may not necessarily form part of, or be enjoyed with, the dwelling itself purchasers should bear in mind HMRC’s general attitude to tax avoidance. We hope that more guidance on the issue will be released shortly.

If 6 or more residential properties are bought in a single transaction, the purchaser can choose to apply either the non-residential rates of SDLT or the residential rates of SDLT with multiple dwellings relief applied.
The higher rates of SDLT add to what is already a complex scheme of rules. There are many issues to consider when determining the SDLT payable on a transaction and there is currently limited HMRC guidance on most aspects of the new charges. In many cases, purchasers will need to be prudent in their approach to the new rates.

 

For advice on this and other development issues contact Tim Hardesty, Head of Real Estate at Herrington Carmichael LLP

Davon Property Finance - Tim Hardesty

 

 

Davon Property Finance - MIPIM

Cannes 2016

We have recently returned from another successful trip to MIPIM, the annual property conference held in Cannes. Here are some photos from our co-hosted event with Jackson-Stops & Staff and BLP Insurance.

 

Guest Article – BLP Insurance

Inherent defects in buildings not only affect the asset value of the property but it can also give rise to significant disruption to a business and its income stream. All stakeholders and members of the construction team stand to lose out in the event that problems in the build emerge later on; from landlords and tenants, to funders, contractors, builders and designers.

Yet despite the high risks at stake, there are concerns that the insurance industry is failing to provide an adequate response. The construction industry has made significant leaps in construction and design but it’s worrying to see that the insurance industry – in particular the traditional warranty policy – has struggled to keep up with the pace.

Traditional defects cover was established back in the 1930’s with the aim of addressing poor building practice and indemnifying buyers against any latent defects in new properties. Standards were drawn up with the average two bedroom red-brick house front of mind and financial limits set accordingly to cover the defects that you would expect in these types of building. It’s a model which still exists today in the form of traditional warranty products and continues to serve these standard properties well.

However, today’s reality in UK cities is a far cry from these construction sites on which this traditional warranty model was built.  High-rise, mixed-use, apartment blocks encompassing all tenure types are being developed at a rate which would have been difficult for the industry to predict. As a consequence, standards and technical manuals outlining best practice for the average property fail to reflect the development of new technologies and features. Manuals on erecting timber walls and installing wall ties would be of little assistance when fitting German glass cladding which is increasingly found covering skyscrapers from top to bottom.

The logistics of the build are not the only problem. Traditional policies with a maximum scheme liability of £25m for new builds and £5m for conversions are simply not fit for purpose when skyscrapers in London can cost up to £400 million to re-instate. This substantial difference in cover leaves investors and funders severely exposed to unnecessary risk.

Most of the high rise developments changing the skylines of our UK cities epitomise the term mixed-use. Consider the Shard which boasts office and retail units, restaurants, hotel, as well as private for-sale units. Every tenure conceivable can be found in a single high rise structure, but traditional policies do not provide the comprehensive cover required for this varied use under one roof.

One provider may cover the residential portion of the development while another covers the commercial. Proper seamless building cover is a distant prospect. Policy lengths can also vary from 10 years for private property to 12 years for social housing and fundamental requirements for a tenant such as “loss of rent” cover the former but not the latter. A more bespoke cover is required.

BLP Insurance’s commercial latent defects insurance is now being used increasingly in new build projects for commercial and mixed use developments. It provides the most comprehensive structural cover in the market and protects the building against mechanical and electrical failure, component failure, loss of rent and business interruption in the event that problems with a building occur later on.  The cover can be taken out by the developer, contractor, owner/funder, landlord or tenant and may be assigned to any future owners, funders or tenants.

This first party insurance policy from BLP Insurance covers the building not the builder and is designed to cover the full rebuild value of the development in the event of a building failure arising, providing comfort to the funders of the project and protecting the interests of shareholders. While it is better to get it right first time, the cover provides comfort that should anything go wrong later down the line, any problems can be fixed quickly, with minimal disruption through a single point of reference.

BLP Insurance will also technically assess a build project from design through to workmanship on site to help minimise the chance of any future building defects occurring.  In an environment where construction rates are rapidly rising and the risk of standards slipping is greater, this assurance creates a more saleable and/or lettable property with the comfort that the build has been finished to a high standard.  Prospective tenants are also safe in the knowledge that if anything happens to the building, their financial exposure can be mitigated.

There is a growing need for a bespoke cover, whether it’s for a mixed use commercial landmark or a residential tower, so that developers, tenants and funders have the reassurance that the property is adequately covered should defects arise down the line. If the construction industry fails to wake up to the benefits of this comprehensive cover, participants could find themselves exposed to millions of pounds of potential liability, through policies that have failed to keep up with the changing nature of new build developments.

 

Cover for all stakeholders:

  • Funders looking for security of investment
  • Protects the asset value and income stream
  • Creates a more secure investment
  • Contractors & Designers looking for an easier solution
  • Offers less exposure to collateral warranty and PI claims
  • Reduces the need for bonds and high limits of liability in client contracts
  • Provides protection through insurance Waiver of Subrogation Rights
  • Stimulates enhanced build quality through access to BLP Insurance’s audit and defect avoidance regime
  • Professional advisors looking for flexible solutions
  • Enables you to protect all clients on a project at the same time
  • Provides a clearer remedy to latent defect problems through insurance
  • Lessens reliance on enforcing collateral warranties and professional indemnity insurance
  • Secures a higher limit of liability for building defect repairs than PI
  • Can enhance landlord/tenant and contract negotiations
  • Owners & Landlords  looking to improve marketability of the property
  • Creates a more leasable property
  • Protects rental income and asset value
  • Helps to secure anchor tenants
  • Helps to secure better lease terms for tenants and eases negotiations
  • Protects tenants by providing security and recourse for repairs
  • Improves the saleability of the property as it comes with quality assurance backed by insurance
  • Lessens the need to revert to collateral warranties and PI Insurance negotiations
  • Tenants looking for peace of mind
  • Reduces exposure to repair liability within a Repairing Lease
  • Offers direct access to an insurance policy for repairs
  • Gives access to cover for Business Interruption and alternative accommodation and expenses
  • Protects repair contingency fund

Case Study

The Client

BLP Insurance secured its largest scheme with Land Securities’ Nova, Victoria development in Victoria, London. BLP Insurance is the preferred defects insurance provider for Land Securities.

The Need

The latent defects insurance product from BLP Insurance is designed to cover the full rebuild value of the development in the event of a building failure arising, providing comfort for the funders of the project and protecting the interests of the shareholders. BLP Insurance is underwritten by Allianz Global Corporate & Specialty SE (AGCS) and is the leading insurance provider on this joint development venture between Land Securities and Canada Pension Plan Investment Board (CPPIB). BLP has also been appointed as Technical Auditors on the residential element of the development to deliver high end contemporary apartments.

The Cover

BLP Insurance has insured a total of £1.77 billion worth of commercial developments for Land Securities. The commercial latent defects insurance product, underwritten by AGCS, is recognised as the most comprehensive in the market with M&E cover, Component Failure, Loss of Rent and financial limits to match the exposure.

Nova, Victoria, which was formerly known as Victoria Circle, is part of Land Securities’ £2.2 billion re-invention of Victoria. Comprising of five new buildings the transformation of the 5.5 acre site opposite Victoria station commenced in June 2013 and once completed will provide a mix of retail, residential, office and public amenity space.

 

Article written by Chris Loerns

Underwriting Director at BLP Insurance

Contact BLP Insurance:

 

Chris_Loerns - BLP Insurance - Davon Property Finance