CPSE.5 is part of the Commercial Property Standard Enquiries suite of documents, prepared by members of the London Property Support Lawyers Group and endorsed by the British Property Federation.
For more information on CPSEs, and a list of all the documents, see GN/CPSE (version 2.1) Guidance notes on the CPSEs.
Use of this CPSE is free, subject to the Conditions of use set out below.
CPSE.5 (version 1.1) is available in Word and PDF format - select from the links below.
Please send feedback to: cpse@practicallaw.com.
For details of the changes made between CPSE.5 (version 1.0) and CPSE.5 (version 1.1), see Legal update, June 2008: amendments to CPSE.1 and CPSE.5.
For the Word version of this CPSE click here.
For the PDF version of this CPSE click here.
CPSE.5 enquiries should be raised where the transaction is a surrender of a rack rent commercial lease. They have been drafted on the assumption that vacant possession is to be given and that the lease will be determined on surrender. If there are underleases, the Buyer (landlord) should also raise CPSE.2. If the lease will not be determined on surrender (because there is a declaration of non-merger in the surrender document), the Buyer (landlord) might consider whether any additional enquiries from CPSE.1 or CPSE.4 are appropriate.
Where the transaction is more like the purchase of a valuable interest (e.g. the surrender of a premium lease), these enquiries may not be sufficient and it may be more appropriate to raise CPSE.1.
These guidance notes:
Enable the enquiries to be presented in a concise form without the need for illustrative examples.
Are intended to help the legal advisers, the Buyer (landlord) and the Seller (tenant) to understand why individual enquiries are raised, how the enquiry should be answered and what may need to be done depending on the nature of the reply.
The Buyer (landlord) may wish to keep a set of the guidance notes with the Seller's (tenant's) replies to the enquiries to assist the Buyer (landlord) in understanding and using the information in the replies both during the period of the Buyer's (landlord's) ownership and later on a subsequent sale of the Property.
The enquiries stand on their own and do not depend on the guidance notes for interpretation.
This document may be used freely and without charge subject to the following:
The user identifies this document, and any part or parts of it, as GN/CPSE.5 (version 1.1) and as being part of the suite of documents comprising the Commercial Property Standard Enquiries (CPSEs). Details of these documents can be seen at http://www.practicallaw.com/5-376-4578.
Use of the CPSEs, including the guidance notes, is at the user's own risk. Neither the participating law firms who prepared the CPSEs, their partners and employees, the British Property Federation nor Practical Law Company Limited represent that the CPSEs, including the guidance notes, reflect or will be kept up-to-date to reflect modern law or practice relating to commercial property transactions, that the guidance notes comprise complete or accurate statements of the law to which they relate or that comments and suggestions within the guidance notes are appropriate or sufficient for any particular transaction. Such law firms, their partners and employees, the British Property Federation and Practical Law Company Limited exclude all liability to the user and the user's clients for any losses, liabilities, damage or other consequences arising from the CPSEs, including the guidance notes, failing to reflect modern law or practice relating to commercial property transactions, the guidance notes not comprising complete or accurate statements of the law to which they relate or for comments and suggestions within the guidance notes not being appropriate or sufficient for any particular transaction. A list of the participating law firms can be seen at http://www.practicallaw.com/9-101-3380.
The user acknowledges that use of this document is with the consent of the Practical Law Company Limited, the British Property Federation and the participating law firms. Any reproduction of it must be marked © MEMBER FIRMS OF LPSLG AND PRACTICAL LAW COMPANY LIMITED 2002 - 2008 and must bear the logo of the British Property Federation.
The user will not change the text of this document (including these Conditions of use) or represent that it or any part or parts of it is anything other than GN/CPSE.5 (version 1.1). If the user wishes to raise any enquiries additional to those contained in this document or in the other documents comprising the CPSEs, the user will do so in a separate document that identifies clearly those additional enquiries as being separate from and additional to the CPSEs.
The user can use this document in connection with the provision of legal advice or legal training, including advice or training given for reward or commercial gain, but otherwise the user will not sell or publish for reward or commercial gain either this document, whether in whole or part, or any document which incorporates it, whether in whole or part.
Title is now normally deduced prior to contract and, in the case of a surrender, it is common not to have a prior agreement. This enquiry is designed to enable the Buyer (landlord) to satisfy itself that it is taking a surrender from the person entitled to make it and that the Buyer (landlord) will be able to close any registered leasehold title or remove any notice of the Lease from its own and other relevant titles.
Enquiry 1.2 The Seller (tenant) may have entered into agreements or obtained rights (or be in the process of obtaining rights) of which the Buyer (landlord) is unaware but which the Buyer (landlord) wishes to preserve. Examples include agreements allowing for emergency escape over neighbouring property, rights of light, being part way through a prescription period or being in adverse possession of the land of a third party. In the case of prescription or adverse possession the Buyer (landlord) should obtain any statutory declarations it may require from the Seller (tenant) before the surrender to prepare the ground for any future claim.
The Seller (tenant) may have acquired easements limited to the term of the Lease (see Wall v Collins [2007] EWCA Civ 444). The Buyer (landlord) will take the benefit of them but must be aware of their limited life.
Paragraph (b) is directed at practical issues such as telecommunications, water, gas and electricity suppliers.
Enquiry 1.4 Where the Lease will be surrendered and cease to exist on completion the Buyer (landlord) only needs to ask this limited question.
Where the Lease and any assignment to the Seller (tenant) were subject to stamp duty (ie pre-date 1 December 2003), the Buyer (landlord) can check that the correct payments were made by examining the title deeds, if unregistered. Where the Seller (tenant) is the current registered proprietor, the Buyer (landlord) can rely on the Land Registry to have checked that the Lease and any transfers appeared to have been correctly stamped.
Where the Lease or any assignment to the Seller (tenant) was subject to stamp duty land tax (SDLT), the Buyer (landlord) will not inherit any liability to pay the tax on past transactions. The Buyer (landlord) only needs to confirm that appropriate returns have been made in respect of any transaction in the course of registration. The confirmation is only to avoid having to deal with any requisitions about missing SDLT certificates from the Land Registry after completion of the surrender: the Buyer (landlord) will not inherit any liability to pay the tax on that transaction.
SDLT 60s have been abolished for transactions with an effective date on or after 12 March 2008. There is no reference to SDLT 6o, therefore, but the enquiry helps the buyer to establish why the lease or assignment was not notifiable, if no SDLT 5 certificate was issued.
Occasionally a Buyer (landlord) will want to prevent the Lease from merging with its interest on surrender. In that situation the Buyer (landlord) will need to ask for further information about SDLT. It will need to establish whether:
any consideration (either for the grant or assignment of the Lease) was originally contingent, uncertain or unascertained;
the rent will be increased in the first five years of the term; or
any liability to pay SDLT was deferred.
In all these cases, the Buyer (landlord) should obtain copies of the land transaction return for the relevant transaction to ascertain how the initial SDLT liability was calculated and what SDLT was actually paid. (Although, strictly, this information might also be necessary in case there is an abnormal rent increase in the future, it seems unlikely that the Buyer (landlord), having acquired the Lease, will allow such an increase to be made.)
Enquiry 1.5 This enquiry concerns registered title and overriding interests. The Property may be subject to third party rights and interests, which will not necessarily be apparent from the title deeds or from any inspection of the Property, but which will still bind the Buyer (landlord) whether or not the Buyer (landlord) knows of them.
Land Registry Practice Guide 15 (LR Practice Guide 15 - Overriding interests and their disclosure (www.practicallaw.com/4-106-6724)) describes the law relating to overriding interests and how it has changed under the Land Registration Act 2002.
Enquiry 1.6 This obligation is usually contained in the contract but is included here as it is common for there to be no prior agreement to surrender a lease.
The Buyer (landlord) should consider if any rights granted by the Lease or covenants which it gave affected titles other than that of the immediate reversion (e.g. if the Buyer's (landlord's) reversion is in two titles and the Lease granted a right of way over a route which passes through both, the Seller (tenant) should have registered the easement it was granted against both titles). Where the Lease is determined on surrender, the Buyer (landlord) should also request assistance in removing any relevant registrations. However, if the Lease will not be merged into the Buyer's (landlord's) reversion on surrender, the Buyer (landlord) will need to check that the rights have been appropriately protected by registration. If for some reason the benefit of a right or covenant over other land has been protected by a Unilateral Notice, the Buyer (landlord) will need to change the identity of the beneficiary of the Unilateral Notice. Where the servient tenement is unregistered and a caution against first registration has been registered to protect the easement, the Buyer (landlord) may need to change the name and address on the cautions register or, if this is not possible, lodge a new caution in the Buyer's (landlord's) own name. Failure to change the beneficiary's name and address will result in any warning-off notice not being received.
Enquiry 2.3 This anticipates SCPC 6.8.2.
Enquiry 2.4 This enquiry assumes that the Buyer (landlord) will not be willing to accept undertakings in lieu of discharges, releases or certificates of non-crystallisation. These requirements should also be included in any agreement to surrender.
If there is to be an agreement to surrender, the Buyer (landlord) will want a certificate of non-crystallisation in respect of any floating charge as at the date of the agreement as confirmation that the Seller (tenant) still has power to deal with the Lease.
Enquiry 3 is concerned with the rights, statutory or otherwise, of anyone who will, following completion of the Transaction, either remain in occupation of the Property or who will be employed to work at the Property.
Occupiers may have specific rights of occupation which need to be addressed as part of the Transaction and where there are leases and licences conferring these occupational rights, the Buyer (landlord) may need to raise additional enquiries (e.g. CPSE.2).
Occupiers may have rights which go beyond those set out in a formal lease or licence and these rights may be protected as overriding interests, information about which should have been included in reply to Enquiry 1.5.
There may be people in occupation who are employed to work at the Property and they may have rights as employees under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") (in force on 6 April 2006 and replacing the Transfer of Undertakings (Protection of Employment) Regulations 1981) (see enquiries 3.5 and 3.6).
Enquiry 3.1 Where the Seller (tenant) is a company, firm or partnership or some other corporate body, the Seller (tenant) is not required to give the names of all shareholders, partners or employees but should give details of any other body in occupation including a company in the same group. The Seller (tenant) should explain whether occupation is by virtue of lease or licence or whether there is no formal right to occupy, in which case the Seller (tenant) should give details of the length of occupation, any payments received in respect of it and any objections made to it.
Enquiry 3.3 If vacant possession is not to be given on surrender, because there are undertenants or other occupiers, the Buyer (landlord) should raise the additional enquiries in CPSE.2.
Enquiry 3.5 and 3.6 The purpose of TUPE is to protect the jobs and terms and conditions of employment of employees where the undertaking by, or in respect of which, they are employed is transferred. TUPE applies to any transaction considered to be the transfer of an economic entity and can include the transfer of premises as part of a business sale and transfers of investment properties such as shopping centres or office buildings. As from 6 April 2006, TUPE also applies to where a client engages a contractor to do work on the client's behalf, and the client then reassigns the contract or brings the work "in-house" (a "service provision change"). For TUPE to apply to service provision changes, there must have been an organised grouping of employees before the change whose principal purpose was to carry on services for the client. It is expressly stated that the grouping of employees may be only one employee.
TUPE applies to staff employed in respect of the business or property which is being sold or the service which is to be provided by a new supplier. It extends to managers, managing agents, caretakers, cleaners, maintenance staff and security guards employed in respect of buildings which may otherwise be empty.
All employees employed in the undertaking or service automatically transfer to the Buyer (landlord) on their existing terms and conditions (save for pension schemes) and their employment is treated as being continuous for purposes of all statutory claims including redundancy and unfair dismissal. Any dismissals connected with the transfer are considered to be automatically unfair.
Under TUPE, the Buyer (landlord) takes on all rights, liabilities and responsibilities for anything done by the Seller (tenant) in respect of the transferring employees and may therefore inherit liability for unfair dismissals, claims in relation to any form of discrimination and any failure to pay wages or bonuses which arise before the time of the transfer.
TUPE imposes obligations on both the seller and the buyer to inform and consult with appropriate representatives of any affected employees.
TUPE also requires the seller to provide the buyer with certain information (the "Employee Liability Information", see regulation 11 of TUPE) about the transferring employees, including their identity. If the seller provides any further information about the transferring employees it should omit names and other identifying details such as job titles. This is to ensure compliance with the Employment Practices Code issued by the Information Commissioner to take account of the obligations under the Data Protection Act 1998 (see The Information Commissioner: Employment Practices Code (www.practicallaw.com/8-200-9113)).
Enquiry 4.1 Asbestos was extensively used in building materials providing protection from heat, fire and sound, until the dangers from exposure to asbestos became known. It was used widely, for example, in floor tiles, as insulation around pipes, for wall and ceiling panels, roofing, and decorative plasters. It is now illegal to use any form of asbestos in the construction or refurbishment of any buildings, but much of what was used in the past is still in place, constituting a significant health risk to those involved in building, renovation or maintenance work.
The Control of Asbestos Regulations 2006 (CAR 2006) replaced the Control of Asbestos at Work Regulations 2002 (CAWR 2002) with effect from 13 November 2006. The provisions of regulation 4 of CAWR 2002 were replicated without modification in regulation 4 of the CAR 2006. Regulation 4 imposes a duty on all "dutyholders" to:
Determine whether asbestos is present in a building or is likely to be present; and
Manage any asbestos that is or is likely to be present.
"Dutyholders" are all those who have some contractual responsibility for the maintenance or repair of the property, or can exercise some control over access to and from the property. A number of people may have regulation 4 duties in respect of the same property, as for example where a property is let: the freeholder, the tenant, the sub-tenant and any licensee could each be responsible. Where there is joint liability, each party's relative liability is determined by the "nature and extent of the maintenance and repair obligations" that it owes.
There is also a duty on "every person" to co-operate with the dutyholder "so far as necessary to enable the dutyholder to comply" with its duties. This would extend, for example, to landlords, tenants and licensees co-operating with each other, and also to surveyors, architects and building contractors.
There is no definition of "non-domestic premises" in the CAR 2006, but the Health and Safety Executive (HSE) advises that a broad approach should be taken, which may include certain parts of blocks of flats, houses that have been converted into flats, and flats over shops.
The duty is first to carry out an assessment of the property to identify the presence or possible presence of asbestos. The assessment must be recorded and kept under review. If the result of the assessment is that asbestos is or is liable to be in the property, the dutyholder must determine the risk posed by the asbestos, prepare a written plan to identify those parts of the property affected and to specify what measures should be taken for managing the risk. It may be appropriate in the circumstances for the asbestos to be removed, but it may be sufficient for the asbestos to be encapsulated and effectively made safe.
The written plan must be kept under review and the dutyholder must ensure that information about the location and condition of any asbestos, or any substance containing or suspected of containing asbestos, is provided to everyone liable to disturb it and to the emergency services.
Detailed guidance on the application and extent of the duty to manage under regulation 4 is contained in the Approved Code of Practice, "The management of asbestos in non-domestic premises" prepared by the Health and Safety Executive (HSE). For details on how to obtain this, see the HSE website, http://www.hse.gov.uk/asbestos/.
The Buyer (landlord) will want as much information as possible about the presence and condition of asbestos. Enquiry 4.1 therefore asks the Seller (tenant) to supply a copy of the most recent survey or assessment carried out in relation to the Property for the purposes of complying with regulation 4 of the CAR 2006. The most recent report may have been prepared under the CAWR 2002, which is why both sets of regulations are referred to.
The Seller (tenant) may decline to provide a copy of any survey or assessment. A record of assessment may not be a particularly useful document if the Seller (tenant) has simply made a presumptive inspection (i.e. presumed the presence of asbestos, which effectively the Seller (tenant) must do unless it can establish that there is no asbestos present). The information can effectively be obtained by the Buyer's (landlord's) own survey and once the Buyer (landlord) completes on the acquisition, the Buyer (landlord) will become a dutyholder in respect of the Property and liable to make its own assessment. The Buyer (landlord) is unlikely to be in compliance with regulation 4 merely by relying on the Seller (tenant)’s assessment.
Enquiry 4.2 Enquiry 4.2 is concerned with the written plan and other records prepared in relation to the duty to manage asbestos. This will provide the Buyer (landlord) with useful background information, but the Buyer (landlord) will be under a duty to prepare its own written plan once it has completed the transaction; the Buyer (landlord) will not be able to rely on the Seller's (tenant's) written plan. The Seller's (tenant's) written plan may be of limited use on the purchase of the freehold because the scope of it will be determined in part by the Seller's (tenant's) use of the property, proposals for alterations, finances and current condition. However, on the acquisition of leasehold property, the Seller's (tenant's) plan will provide valuable information about what works the Seller (tenant) may need to do, and so may be able to charge the Seller (tenant) for under the service charge provisions.
Enquiry 4.3 Since 1 October 2006, fire safety for most non-domestic premises has been dealt with primarily under the Regulatory Reform (Fire Safety) Order 2005 (the Fire Safety Order 2005).
The burden of compliance with the requirements of the Fire Safety Order 2005 lies with the "responsible person", who is defined in article 3 of the Fire Safety Order 2005 to be:
In the first instance, the employer, to the extent that the workplace is under the employer's control; or
If there is no employer, the person who has control of the premises for the purposes of a trade, business or undertaking (whether or not for profit).
Otherwise, the owner, which would be the case in relation to a newly constructed building that has yet to be occupied.
There may be more than one "responsible person" in respect of the same premises (for example, if the Property forms part of a building in multiple occupation). Where there is more than one responsible person in respect of a single property, each has a duty to co-operate, to co-ordinate fire safety measures and to give the others information on fire safety risks.
Fire safety duties are also imposed on any person who has, to any extent, control of the premises, insofar as the fire safety duties relate to matters within that person's control (article 5(3), Fire Safety Order 2005). A person with obligations under a lease or any other contractual agreement for the maintenance or safety of the premises is considered to have control of the premises (article 5(4), Fire Safety Order 2005).
The duties include the following:
A duty to take whatever fire precautions are reasonably practicable to ensure that employees at or in the vicinity of, the premises are safe, and to take whatever fire precautions are reasonably required to ensure that the premises are safe for "relevant persons" (employees and non-employees who are lawfully at or in the vicinity of the premises and at risk from a fire at the premises).
A duty to carry out an assessment of the fire risks at the property, with a view to identifying what fire precautions are needed to ensure that the premises are safe for "relevant persons".
A duty to keep the fire risk assessment under review.
A duty to keep a record of significant findings of any fire risk assessment, of any precautions that have or will be put in place to address findings and of any group of people identified in the risk assessment as being particularly at risk. Note that certain people are exempt from this requirement for example, employers with less than five employees.
A duty to maintain fire-fighting equipment, ensure that the premises are maintained to ensure the safety of "relevant persons" in the event of fire, and to keep fire exits clear.
The fact that the obligations rest with people who are currently responsible in some way for the property and what is going on in it, means that a buyer is going to be under a duty to comply with the Fire Safety Order 2005 as from the moment of purchase. There is no lead-in period, so in theory at least, a buyer can be liable for breach at the point of completion. It follows from this that:
The Buyer (landlord) needs to collect as much information as possible before completion to be as prepared as possible.
Whatever information the Seller (tenant) has may be of limited use. The Buyer (landlord) cannot produce the seller's (tenant's) risk assessment in satisfaction of the Buyer's (landlord's) obligations and many of the factors affecting the risk assessment are likely to have changed with the Buyer's ownership.
Note also, that breaches and notices served by enforcing authorities that relate to fire safety may also be disclosed in response to Enquiry 6 (Notices).
The Buyer (landlord) may find the records disclosed in response to Enquiry 4.3 useful, although they will not absolve the Buyer (landlord) from its responsibilities under the Fire Safety Order 2005. The enquiry is phrased to refer to "any records" because:
The duty to keep records goes beyond the duty to carry out a fire risk assessment.
The records may not have been made by the Seller (tenant) itself.
Note that a fire risk assessment may not be a single document, but a collection of documents.
The solicitors acting for the Buyer (landlord) are unlikely to want the documents themselves, particularly as the bundle is likely to be bulky. The enquiry has therefore been phrased to ask where the papers may be inspected.
Enquiry 4.4 Replies to this enquiry may be affected by both the Construction (Design and Management) Regulations 1994 (CDM 1994) and the Construction (Design and Management) Regulations 2007 (CDM 2007). The CDM 2007 replaced the CDM 1994 with effect from 6 April 2007.
The objective of the CDM 2007 is to build on the improvements made by the CDM 1994 and further improve management, information and co-ordination of work on site. "Construction work" has a similar meaning in both the CDM 1994 and the CDM 2007 but under the CDM 2007 "construction work" includes: "construction, alteration, conversion, fitting out, commissioning, renovation, repair, upkeep, redecoration or other maintenance (including cleaning which involves the use of water or an abrasive at high pressure or the use of corrosive or toxic substances), de-commissioning, demolition or dismantling". Construction work also includes installing or removing, for example, mechanical and electrical equipment or telecommunications equipment (regulation 2(1), CDM 2007).
Subject to specific exceptions, the CDM 1994 applied to all construction work carried out between 31 March 1995 and 5 April 2007. The CDM 1994 did not apply to small projects where the number of people working on the project at any one time was not expected to exceed four and the project was not expected to last longer than 30 days.
On 6 April 2007, the CDM 2007 came into force, and apply to all construction work, including small projects. There are limited exceptions relating to mineral extraction works. The CDM 2007 include transitional provisions for construction projects that were started under the CDM 1994 and continued under the CDM 2007.
A complete Health and Safety file for the Property should contain all health and safety related information necessary for the proper maintenance, repair, alteration, decoration and demolition of the Property. The Buyer (landlord) needs the information requested as it could have an impact on the Buyer's (landlord's) ability to carry out works or the method of doing works or on the value of the Property and its marketability. If the Health and Safety file will not be handed over at completion, that may be appropriate, so long as the original file is available to the Buyer (landlord). The CDM 2007 allow a single Health and Safety file to relate to more than one building.
Paragraph (a) requests confirmation that any Health and Safety file has been compiled and maintained in accordance with the CDM 2007 or the CDM 1994. This is because the Health and Safety file may have been compiled before 6 April 2007 when the CDM 2007 came into force. If no new works have been carried out since 6 April 2007, then the Health and Safety file would not have needed to have been updated under the CDM 2007. Any new works carried out on or after 6 April 2007 would have required the Health and Safety file to have been amended in compliance with the CDM 2007.
The Buyer (landlord) should be aware of the broad definition of construction work under the CDM 2007 (see above).
The Buyer (landlord) needs details of every dispute relating to the Property so that it may:
Appreciate what liabilities it may be taking on.
Be aware of potential obstacles to the use and enjoyment of the Property.
Take steps in the contract to ensure that the Seller (tenant) deals with all disputes as may be appropriate.
Be prepared to take appropriate action following completion of the Transaction.
Negotiate an indemnity.
Disputes include those that have arisen in the past, whether or not they have been resolved. The existence of a dispute in the past may indicate a potential problem for the future and also may explain facts and circumstances about the Property. Information should be included on anticipated disputes, even where there is nothing formally on record.
The Buyer (landlord) needs details of every notice affecting the Property so that it:
Knows what may affect the Property;
Can take steps in the contract to ensure that the Seller (tenant) deals with all notices as appropriate;
Is prepared to take appropriate action following completion of the Transaction; and
May negotiate an indemnity.
Examples of notices which may affect the Property include planning notices, compulsory purchase notices, public utilities' notices, repair notices.
Notices about disputes should be included in the reply to Enquiry 5.
Enquiry 7.1 The Buyer (landlord) will want to know about works which are not covered by consents given by it or its predecessors for several reasons:
It may be able to include them in any requirement to reinstate the Property;
If it intends to retain the works, it will want to check that appropriate planning and building regulation consents have been obtained for them.
Enquiry 7.2 The Buyer (landlord) and the Seller (tenant) need to agree what items will be left at the Property on completion of the Transaction and what items will be removed, and any effect this may have on the price.
This enquiry is to clarify what the Buyer (landlord) expects to receive and what the Seller (tenant) must do to give vacant possession of the Property. The general rule, unless the parties agree otherwise, is that:
Fixtures remain in the Property and pass to the Buyer (landlord).
Chattels do not pass and the Seller (tenant) is legally obliged to remove them prior to completion.
The distinction between fixtures and chattels can be difficult to determine, which is why the enquiries avoid these terms in favour of "item". The courts have evolved tests by reference to the degree and purpose of annexation to the property. Generally if something has been fixed to a property so that it is difficult to remove without causing damage and was fixed to improve that property permanently, it will be a fixture. Rather than rely on this imprecise test, however, it is prudent for the parties to come to a clear agreement.
In the case of telecommunications links and equipment, replies should clearly set out what will be removed, what will remain, and what is the undertaker's property.
Enquiries 7.3 and 7.4 These obligations will be covered if there is an agreement for surrender which requires the Seller (tenant) to give vacant possession. The enquiries are included as it is common to surrender a lease without a prior agreement.
Enquiry 7.5(b) Examples of third party claims which may affect items that the Seller (tenant) is proposing to leave at the Property following completion include credit or conditional sale agreements, hire and hire purchase agreements, finance and leasing agreements. Some of these may contain title retention clauses, which would mean that the Seller (tenant) does not own the item in question.
Enquiry 8.1 This is a useful practical reminder to the Seller (tenant) that it is obliged to pay outgoings until surrender, even if it has already moved out of the Property. It is also a prompt to deal with any apportionments in the completion statement.
Enquiry 8.2 If a property is vacant, the owner or occupier may be entitled to empty rate relief for a period of three months following the date on which the property becomes vacant. After that three-month period, empty rates are charged. If the property has been left vacant for any period of time and relief has been claimed for that period, full details should be provided. If the property is currently vacant, the date on which the property was vacated should also be provided. From 1 April 2008 the Rating (Empty Properties) Act 2007 will change the empty rates regime. Most business properties will have empty rates relief for three months (six in the case of industrial buildings) but, after that period, will be charged full rates. The final details of exemptions will be contained in regulations yet to be made (as at September 2007).
Exemption from local authority rates may be given to certain qualifying premises in designated enterprise zones.
Leases commonly provide that the tenant must not claim empty rate relief or, if it has done so, must compensate the landlord for any loss of the relief as a result. This enquiry is a prompt to the Landlord to check whether the Lease contains such provisions and, if so, to include the appropriate sum in the completion statement.
Enquiry 8.3 Rateable occupiers of businesses in an area (which could be a business or retail district, a particular street, centre, arcade or other clearly defined area), can choose to have their area defined as a Business Improvement District (BID). Where an area has been designated as a BID, the local authority and the business occupiers work together to provide additional services for the area, principally funded by an additional levy on the rates bill. In addition, property owners who are not rateable occupiers can contribute on a voluntary or contractual basis to the funding of the BID. The Buyer (landlord) will not necessarily know if there is a BID and the information is not included in enquiries of the local authority.
Most BIDs will be established through a separate BID organisation formed by the rateable occupiers. This will usually be a company limited by guarantee. If there is a BID organisation, the Seller (tenant) may by a member of that organisation. Even if the Seller (tenant) is not a rateable occupier, it may have participated in the process of creating the BID and become a member of the BID organisation. The Buyer (landlord) will need details of the BID organisation for management purposes and the Landlord may want to become a member of that organisation so that it can participate actively in the improvements to the area covered by the BID. The Buyer (landlord) will want to know the amount of the BID levy payable in respect of the property. Even if the Buyer (landlord) is not the rateable occupier, it would become responsible for the levy if the property becomes vacant.
Owners of property who are not the rateable occupiers may have been involved in the BID process and agreed on a voluntary or contractual basis to provide additional funding for the BID. Where the contributions are made on a contractual basis, the Seller (tenant) may have agreed to ensure that its successors in title enter into new arrangements with the BID organisation to continue to fund the BID. Where the Seller (tenant) has underlet it may have agreed with its undertenants to be liable for the whole or part of the BID levy payable by the undertenants (who will be the rateable occupiers) as an incentive for the undertenants to support the BID proposal.
If the property is not currently in a BID area, the Buyer (landlord) will want to know if there are any proposals for the area to become a BID.
Where the Buyer (landlord) is paying the Seller (tenant) for the surrender, the VAT status of the payment will depend on whether the Seller (tenant) has opted to tax. The enquiry establishes if the Seller (tenant) is registered for VAT to ensure that any charge to VAT is valid. The information is also important in deciding whether an option to tax should be made. If the Seller (tenant) is registered as part of a VAT group, the name of the group representative member is needed, as the Transaction will be deemed for the purposes of VAT to be made by that company.
If the Property will remain subject to underleases, the transaction may qualify as a transfer as a going concern and appropriate VAT enquiries in CPSE.1 should be raised.
This enquiry is intended to help the Buyer (landlord) to verify the Seller's (tenant's) view of the correct VAT treatment of the Transaction. The legislation is extremely complex and specific expert advice should always be sought.
Where the Seller (tenant) is paying a reverse premium for the surrender, the VAT status of the payment will depend on whether the Buyer (landlord) has opted to tax.
Enquiry 9.3 If there is an agreement to surrender, the agreement should include an obligation not to opt to tax.
A deduction from profits can be claimed for certain types of capital expenditure under the Capital Allowances Act 2001 (CAA 2001). The deduction is called a capital allowance. Some expenditure, such as that on assets used for scientific research or situated in an enterprise zone, may be written off in full in the year in which it is incurred. Most capital expenditure, however, is written off over a number of years. The most common capital allowances are those in respect of plant and machinery, and on certain "industrial" buildings, which expression generally relates to buildings or structures used for manufacturing and processing together with some types of storage and also includes hotels built after April 1978 with ten or more bedrooms and certain statutory and other undertakings. The Finance Act 2007 starts the phasing out of industrial building allowances. Balancing events on or after 21 March 2007 cannot be used to make balancing adjustments and recalculations of writing down allowances (subject to transitional arrangements for events pursuant to certain contracts made before that date).