CPSE.1 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.
GN/CPSE.1 (version 2.9) 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.1 (version 2.8) and CPSE.1 (version 2.9), see Legal update, September 2008: amendments to CPSE.1 to deal with capital allowances .
For the Word version of this CPSE click here.
For the PDF version of this CPSE click here.
CPSE.1 enquiries should be raised in every transaction where commercial property is being acquired, whether freehold or leasehold.
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 and the Seller 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 may wish to keep a set of the guidance notes with the Seller's replies to the enquiries to assist the Buyer in understanding and using the information in the replies both during the period of the Buyer'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.1 (version 2.9) 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.1 (version 2.9). 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.
Verifying extent
This enquiry is concerned with verifying the extent of the Property. The questions are aimed at matching the title description of the Property with what appears on the ground as the physical extent of the Property, often marked by features such as walls, trees, ditches and hedges.
The Property will be defined in the title deeds and, if title is registered, the extent of the Property will be shown on the title plan. However, the Land Register is not conclusive as to boundaries and the boundary features may not correspond exactly with the title description. They may:
Lie wholly within the legal boundaries of the Property in which case the Buyer will need to establish that nobody else has been using the land which lies between the legal boundaries and the boundary features; or
Lie outside the legal boundaries in which case the Buyer will wish to establish whether the Seller has acquired additional land by "adverse possession" or long usage. To do this, the Buyer needs to know:
For how long any land beyond the legal boundaries has been used as part of the Property.
Whether there has been any objection to this use.
Who has maintained the boundary features.
Responsibility for boundary features The Buyer also needs to know who is responsible for maintaining boundary features. The title deeds may not contain information about the ownership of the boundary features or their maintenance, and in the absence of any clear indication the Buyer must find out what the Seller and others have regarded as their responsibilities.
If available, the Seller should include details of:
What works to boundary features have been carried out.
What costs have been incurred.
Who contributed and in what proportions.
Plans
Although it is up to the Buyer to obtain suitable plans, the Seller should supply copies of whatever plans it has in the interests of speeding up the Transaction. It would be helpful if the Seller were to mark all the boundaries on a plan and indicate which belong to the Property using "T" marks along the inside of the boundary line.
Enquiry 1 If there is any boundary dispute, the Seller should give details here or in response to enquiry 28.
Enquiry 1.5 Examples of what may be included in the reply to this enquiry include: vaults beneath a pavement; overhanging eaves; projecting signs; canopies; and flying freeholds.
Enquiry 1.6 Examples of what might be included in the reply to this enquiry include: storehouses, car parking areas, plant and equipment rooms, and strips of land alongside boundaries which are used although they fall outside the legal title.
Enquiry 1.7 The Buyer needs to establish whether there is any issue of adverse possession by the Seller. Enquiry 1.7 is, therefore, concerned with land or premises which do not actually form part of the Property to which the Seller has paper title, but which the Seller is nevertheless still using or enjoying. The reply to enquiry 1.7 will help identify whether the Buyer will acquire title to additional land by reason of the Seller's adverse possession, as well as whether use or occupation of other property will be needed by the Buyer to enjoy the Property once acquired.
Where a boundary structure is jointly owned by the owners of the properties on either side of it, the structure may be a party structure. The joint owners of a party structure are given some statutory protection to prevent one owner carrying out work to the structure unilaterally without regard to the needs and wishes of the other. The statutory protection is in the Party Wall etc. Act 1996. Prior to the 1996 Act, party walls were governed by the London Building Acts if they were in London; outside London they were usually subject to the common law.
Under the 1996 Act, certain notice procedures must be followed for:
The construction of a new wall (including the wall of a building) over or up to the boundary.
Works affecting existing party structures, and
Excavations within certain distances of neighbouring buildings.
Non-compliance with the legislation may mean that the construction has to be dismantled and the land reinstated. The London Building Acts contained similar notice requirements.
The Seller should give the Buyer copies of all notices, awards and agreements, whether made under the 1996 Act, the London Building Acts or by private agreement, and including any which are the subject of negotiation and settlement.
The Buyer should check all the terms, particularly those relating to payment of compensation, costs, or security. To speed the Transaction, the Seller could anticipate further questions about outstanding payments and arrangements for securing payments.
Generally rights benefiting the Property will pass to the Buyer.
Examples of rights benefiting the Property are rights of way (including those over emergency escape routes), rights of support, rights to light and rights to use conduits serving the Property (e.g. water, drainage and gas pipes, electricity and telephone cables).
Rights may have been granted:
Formally by deed.
Informally by agreement but not documented, or
Informally through long use, with or without the knowledge or consent of the person over whose property the right is exercised.
If the title deeds do not show that the Seller has good title to exercise a right, the Buyer may be able to establish that the right has been granted informally or is in the course of being acquired. To do this the Buyer needs to establish:
For how long and to what extent the right or purported right has been exercised (and this includes the frequency of exercise and whether the exercise has been over the whole or part of the relevant land or conduits).
Whether this has been with the knowledge or consent of the person over whose land the right has been exercised.
Whether there has been any objection to the exercise.
Whether there are any maintenance obligations associated with the rights or whether anyone has assumed any responsibility for maintenance (for example, in relation to drains or footpaths).
What costs have been incurred in exercising the rights, how costs are dealt with and the amount of any recent expenditure.
The Seller should supply details of all rights and arrangements benefiting the Property, even where these would be evident to the Seller from an inspection. What is legally required may be different from what happens in practice, which may not be apparent. The Seller should supply copies of all relevant documents and correspondence.
Enquiry 3.2(b) Express reference is made to plans because if the Right is an easement that is not formally documented, the Buyer will need to know the exact position, line or route of the easement. This is necessary to enable the Buyer to check the title to the servient tenement to ascertain whether the burden of the easement has been properly noted on it (without which the easement may not be binding on the owner of the servient tenement).
Enquiry 3.3 If for some reason an easement has been protected by a Unilateral Notice, the Buyer 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 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 own name. Failure to change the beneficiary's name and address will result in any warning-off notice not being received.
Generally the burden of adverse rights to which the Property is subject will pass to the Buyer.
Examples of adverse rights affecting the Property are rights of way (including emergency escape routes), rights of support, rights to light and rights to use conduits serving the neighbouring premises (e.g. water, drainage and gas pipes, electricity and telephone cables).
Adverse rights may have been granted:
Formally by deed.
Informally by agreement but not documented, or
Informally through long use, with or without the knowledge or consent of the person over whose property the right is exercised.
Please see the notes to enquiry 3 as similar considerations apply.
Public rights may be acquired over property where, for example, an open forecourt forming part of the property is regularly crossed by members of the public. Car parks and private passageways between buildings are similarly vulnerable. It is possible to negative dedication as part of the highway by the display of a notice to that effect. If there are or have been any such signs erected, further enquiry should be made as to the extent of public use, its duration and as to how long the sign has been displayed.
Even if the title deeds are silent on third party rights affecting the Property, the Buyer will still need to establish that no such rights have been created informally or are in the course of being created. This is not confined to the acquisition of rights by private landowners. Public rights may also be in the course of acquisition, as explained in the preceding paragraph.
Enquiry 4.5 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 whether or not the Buyer knows of them.
Land Registry Practice Guide 15 (www.practicallaw.com/T3755) describes the law relating to overriding interests and how it has changed under the Land Registration Act 2002.
Enquiry 4.6 Part I of the Countryside and Rights of Way Act 2000 gives a public right of access to land that comes within the definition of "access land" in section 1(1) of that Act. Land that is wholly or predominantly mountain, moor, heath or down is defined as "open country" (so long as it is not improved or semi-improved grassland) but this definition may be extended to include "coastal land" (within the meaning of section 3 of the Act) in the future.
Open country will qualify as access land if it has been shown on a map of open country issued by the countryside bodies. The countryside bodies will be responsible for deciding the extent of any mountain, moor, heath and down. Land over 600 metres above sea level and registered common land immediately qualifies as access land without any requirement for mapping by the countryside bodies, but the bodies will in due course also include these categories of land on their maps. Access land will also include land which under section 16 is irrevocably dedicated by the owner to public access.
The definition of "access land" excludes the 13 categories of land listed in Schedule 1 to the Act, defined as "excepted". This includes cultivated land, land covered by buildings and land within 20 metres of a dwelling. In particular cases, landowners are entitled to exclude or restrict the public's right to enter access land. The principal exclusion is a right to exclude the public for up to 28 days in any calendar month, on terms prescribed by the Access to the Countryside (Exclusions and Restrictions) (England) Regulations 2003.
The Seller may not know whether the Property has been designated as access land because the designation procedure does not include any requirement for service of a notice on the landowner. The Buyer will, therefore, also need to make its own inspection of the public maps that indicate the extent of access land. These can be inspected at www.countryside.gov.uk/access/mapping for England and www.ccw.gov.uk/mapping/index.cfm for Wales.
Enquiry 4.7 The purpose of this enquiry is to determine whether there is a possibility that an application may be made to register the Property as a town or village green ("green"). Where land has been registered as a green, interference with it or encroachment on it is a criminal offence under section 12 of the Inclosure Act 1857 and section 29 of the Commons Act 1876.
A search in form CR21 will reveal whether the Property is already registered as a green but it will not reveal whether an application has been lodged but not yet determined by the registration authority, or whether an application is likely to be made in the future. It is not possible for a landowner to protect itself in any way against such an application being made, and therefore it is important to make suitable enquiries before committing to buy the land. This may include making enquiries of the registration authority (to enquire whether there is a pending application for registration) as well as of the seller.
In outline, section 15 of the Commons Act 2006 (CA 2006) provides that anyone can apply to register land as a town or village green where "a significant number of the inhabitants of any locality, or of any neighbourhood within a locality, have indulged as of right in lawful sports and pastimes on the land for a period of at least 20 years" and one of the following three circumstances applies:
The land continues to be used for that purpose at the time of the application to register (section 15(2), CA 2006). Where an application is made under section 15(2):
the relevant time for assessing whether the use is "continuing" is at the time of the application to register;
the use will be regarded as "continuing" even if the public has been prohibited by statute from accessing the land, as long as the use was occurring immediately before access was prohibited (section 15(7)(a), CA 2006); and
any permission to use the land for sports and pastimes will be disregarded when assessing whether the use of the land continues to be "as of right" (section 15(7)(b), CA 2006).
The use of the land for that purpose (or the use "as of right") ceased before the application to register was made but after 6 April 2007. In such cases, the application must be made within two years of the cessation of use (section 15(3), CA 2006).
The use of the land for that purpose (or the use "as of right") ceased before 6 April 2007. In such cases, the application must be made within five years of the cessation of use (section 15(4), CA 2006). Section 15(4) does not apply to any land where:
planning permission was granted in respect of the land before 23 June 2006; and
construction works were started before 23 June 2006 in accordance with the planning permission, either on the land or on any other land covered by the planning permission; and
the land either has or will become permanently unusable for the purposes of lawful sports and pastimes as a result of the works authorised by the planning permission being carried out.
If members of the public were prohibited by statute from accessing the land for any period (for example, due to an outbreak of foot and mouth disease), this period will be disregarded when assessing the 20 years' use required by section 15 of the CA 2006 (section 15(6) CA 2006).
Section 15(4) has caused controversy amongst landowners and developers. The effect of this section is that a potential development site may be open to registration as a town or village green, even though it has not been used for such purposes for up to five years before 6 April 2007.
To illustrate:
In March 2006, X bought a piece of land for development. X's search of the commons register showed that there were no entries affecting the site. In July 2006, X submitted an application for planning permission in respect of the development. In August 2006, the inhabitants of the nearby village applied to register the land as a village green, claiming that it had been used as of right by the villagers for sports and pastimes for over 20 years, from August 1980 until August 2002. Even though the villagers had not used the land for four years, their application to register the land as a village green may succeed under section 15(4) of the CA 2006.
Even after the five-year "period of grace" ends in April 2012, the provisions of section 15(3) allow a two-year period of grace in which an application for registration may be made. These provisions place developers in a difficult position because of the risk that local inhabitants may claim rights over the land of which the developer was previously unaware.
The Government's view is that in the majority of cases, the landowner will know whether the past use of the land is capable of supporting a claim for registration as a green. This is based on the assumption that in most cases it will be the landowner who has prevented the use of the land "as of right".
However, the provisions in section 15(3) and 15(4) also apply if the local inhabitants have simply ceased to use the land.
The Government's advice is that developers should seek assurances when buying land that it has not been used for purposes that may support a claim for registration as a green.
In reality, the seller may have owned the land for a short period of time and be unaware of any such use prior to their period of ownership. Sellers may also be reluctant to provide such assurances.
Where the developer is unable to obtain unequivocal confirmation that the land does not qualify for registration as a green, the developer faces the dilemma of either not buying the land, buying the land and waiting for the period of grace to expire before developing the land or proceeding with the development immediately and bearing the risk of potential registration as a town or village green.
Enquiry 4.7 asks whether the Seller has any knowledge of recreational use of the Property by local people within the preceding period of ten years. This is a much longer period to enquire about that is necessary but, by erring on the side of caution, it is more likely that relevant information will be elicited where memories may be uncertain.
A positive answer will put the Buyer on notice that an application for registration of a green may be likely. Where no useful information is forthcoming as a result of this enquiry, the Buyer will need to consider making further investigations to establish the likelihood of an application for registration as a green.
Insurance may be available to cover:
Restrictive covenants where, for example, the nature of the covenant or the identity of the person having the benefit of the covenant is unknown, or
Lost title deeds (for example, in relation to rights benefiting the Property) or defects in title where the title to the land is unregistered.
Title insurance policies may benefit subsequent owners and mortgagees of the Property as well as the person who originally took out the insurance. The Buyer needs to be satisfied that the level of cover is still adequate. Any increase in the market value of the Property may make the level of cover inadequate, irrespective of any index-linking of the sum insured.
Enquiry 5.2(a) "Policy documents" generally comprise the policy and schedule showing the level of cover. Copies of any other documents referred to in the policy documents should also be produced (e.g. any opinion of counsel).
Enquiry 5.3 The Seller should include details of any application for insurance that has been refused as this is relevant information that must be disclosed on a future insurance application and may also be useful in making any subsequent re-application.
It is often difficult or impossible for an owner or occupier to carry out repairs, alterations or other works to its own premises without going onto neighbouring land. If access is necessary but neighbours cannot agree arrangements, an application may be made to the court for an order giving access under the Access to Neighbouring Land Act 1992.
The Buyer will want details of all requests for access made and permissions given, whether made informally or by the court, including any applications and permissions relating to conduits (e.g. for unblocking drains or laying cables) so that it is aware of any potential difficulties that are likely to arise.
Enquiry 7.1 The Buyer needs to be satisfied that there are adequate rights of access to the Property. If access is direct to a public highway, no additional rights of way will be necessary and the Buyer will need to check only that there are no outstanding maintenance charges in respect of the highway (see enquiry 13).
Local authority enquiries should reveal whether roadways and footpaths are public highways, and therefore maintainable at public expense. They are unlikely, however, to reveal whether the public highway directly abuts the boundary of the Property and it may not be possible for the Buyer to establish this from an inspection.
Following Gooden v Northamptonshire County Council [2001] 49 EG 116 (CS) if adoption of a road or footpath is crucial to a buyer's proposed use or development of the property, it is prudent not to rely solely on information obtained from local authority searches and enquiries, which may be unreliable. Further independent checks should be made, for example, of adjoining landowners.
Enquiry 7.2 Access may be controlled by a third party (e.g. by means of a locked gate). Enquiries should be made as to availability of keys, times when the barrier is attended by an operator and access arrangements when the barrier is not attended.
Enquiry 8 relates to the physical condition of the Property.
A survey or inspection may not reveal past or intermittent defects and not everything can be inspected, for example, hidden structure and conduits. For this reason, the Seller is asked about the condition of the Property and, in answering, may be willing to give full details even where it considers that a defect or problem would be apparent on an inspection or would be revealed by a survey or has been treated or resolved. The Seller may of course (as with any enquiry) decline to give an answer. The Buyer can deduce what it wishes from any such refusal. If, however, the Seller does provide an answer, it may be liable for misrepresentation if the answer is not complete or is misleading in some way.
A significant part of Enquiry 8 is devoted to enquiries about asbestos. 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 extensively, 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 was 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/.
Enquiry 8.1(a) An inherent defect (sometimes referred to as a latent defect) is one that exists because of some fault or limitation in the construction or design of the building or the materials used to construct it. It may not be apparent on completion of the construction of the building, but may become apparent with time or because an intervening event triggers symptoms of the defect.
Enquiry 8.1(c) The Seller should include in any reply information about all defective conduits affecting the Property, whether or not they form part of the Property.
Enquiry 8.2 This enquiry focuses on asbestos and the present construction of the Property, which includes the original construction, any subsequent alteration or addition to it, and fixtures, plant, equipment or conduits, which serve the Property, whether or not they form part of it.
Enquiry 8.3 The Buyer will want as much information as possible about the presence and condition of asbestos. Enquiry 8.3 therefore asks the Seller 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 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 has simply made a presumptive inspection (i.e. presumed the presence of asbestos, which effectively the Seller must do unless it can establish that there is no asbestos present). The information can effectively be obtained by the Buyer's own survey and once the Buyer completes on the acquisition, the Buyer will become a dutyholder and liable to make its own assessment. The Buyer is unlikely to be in compliance with regulation 4 merely by relying on the Seller's assessment.
Enquiry 8.4 Enquiry 8.4 is concerned with the written plan and other records prepared in relation to the duty to manage asbestos. This will provide the Buyer with useful background information, but the Buyer will be under a duty to prepare its own written plan once it has completed the transaction; the Buyer will not be able to rely on the Seller's written plan. The Seller'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 use of the property, proposals for alterations, finances and current condition. However, on the acquisition of leasehold property, the Seller's written plan will provide valuable information about what works the Seller may need to do, and so may be able to charge the tenant for under the service charge provisions. It may also give an indication of the landlord's likely attitude to proposed alterations to the Property, and the need for the landlord to gain access to the Property to carry out works to remove or make safe asbestos in the Property.
The Seller's written plan will also be highly relevant to the Buyer in the context of a business acquisition.
Enquiry 8.5 Enquiry 8.5 is concerned with the presence of substances other than asbestos. It was common practice in pre-contract enquiries to ask the Seller to list what were referred to as "deleterious materials" used in the construction of the Property. This practice was been criticised for concentrating attention on the materials themselves rather than on the way in which they have been used. A substance on its own or used in a particular manner may present no risk but used in a different way, or in conjunction with another material, may be unstable or hazardous.
In May 1997, Ove Arup & Partners, in conjunction with the British Council of Offices and the British Property Federation, launched a guide entitled "Good Practice in the Selection of Construction Materials", providing guidance on good practice for the selection of materials in construction. The preamble explains the need to adopt a new approach to dealing with such materials so that, rather than prohibiting the use of certain materials automatically, good practice is followed in their selection to ensure that they are used appropriately. Adopting this approach, the enquiries do not list particular materials. The function of this enquiry is to ascertain whether a potential problem exists. Whether there is an actual problem will be a matter for appropriately qualified consultants, having regard to British, European and International Standards and Codes of Practice.
Enquiry 8.6 This enquiry is concerned with materials (asbestos or other materials) that have already been removed from the Property. The Buyer should be concerned that any removal of asbestos, for example, has been done in accordance with relevant codes of practice.
Enquiry 8.7 If the reply to this enquiry indicates that buildings have been erected on the Property or that any extensions or major alterations have been carried out within the previous 12 years, the Buyer may wish to raise further specific enquiries. To avoid delay the Seller may consider volunteering details and any relevant information without specifically being asked to do so.
Enquiry 8.9 "Plant and equipment" may include security, access and alarm systems, lifts, escalators, CCTV, building management systems, air conditioning and heating systems. "Reports" may include reports that take the form of answers to formal questionnaires and may relate to construction, alteration, maintenance, repair, replacement, treatment or improvements. The Buyer is primarily concerned with current state and condition but maintenance reports may be the only practical source of information. The Buyer will be interested in all guarantees, warranties and insurance policies under which it may be able to claim in the event of a defect.
The Buyer and the Seller 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 expects to receive and what the Seller 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.
Chattels do not pass and the Seller 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 9.1 and 9.2 It is particularly important that the parties agree whether fixed plant is to be removed on completion or is to remain in the Property. Fixed plant tends to be heavy, difficult to move and expensive and generally will play a significant part in the business or use of the Property. It may not be clear whether it should be treated as a fixture or a chattel, and any misunderstanding between the parties as to whether it stays in the Property on completion or is removed may have serious consequences.
Enquiry 9.3(b) Examples of third party claims which may affect items that the Seller 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 does not own the item in question. In relation to such items there may be some overlap with enquiry 9.4.
Enquiry 9.4 Items which will remain in the Property but which will belong to a third party include telecommunication masts, advertising hoardings, metering equipment and street signs fixed to exterior walls.
Enquiry 10.1 Utilities and services may include:
Water.
Drainage of foul and surface water.
Gas.
Oil.
Electricity.
District heating schemes.
Telecommunications.
Cable and satellite communications systems.
Enquiry 10.2 Although usual for a property to be connected to mains utilities (such as water, drainage, gas and electricity), this is not always so. Also, there may be more than one source of the utility supply. Water may come from a mains supply and a well or be drawn directly from a river or lake. Electricity may come from a private generator instead of or in addition to the mains supply.
If conduits do not run directly from a highway maintainable at public expense, details of the rights to use the conduits should be given in reply to enquiry 3.
Enquiry 10.3 and 10.4 Although the Buyer will not generally be concerned to see supply contracts for mains utilities, it will need to see copies of all supply contracts and consents which either will continue to affect the Property after completion or which it may wish to take over. An example would be a water abstraction licence. Details of all contracts and licences are requested so that the Buyer can decide what may be of interest.
With effect from 1 October 2006, fire safety for most non-domestic premises is 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, employees 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 needs to collect as much information as possible before completion to be as prepared as possible.
Whatever information the seller has may be of limited use. The buyer cannot produce the seller's risk assessment in satisfaction of the buyer'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 Enquiries 14 (Statutory and other requirements) or Enquiry 27 (Notices).
Enquiry 11.1 The Buyer may find the records useful, although they will not absolve the Buyer of 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 itself.
Note that a fire risk assessment may not be a single document, but a collection of documents.
The solicitors acting for the Buyer 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 11.2 This enquiry is aimed at establishing information about fire risk assessments and other information required to be recorded that relates to premises of which the Property forms a part. The information will be relevant for the Buyer who may, on completion, be responsible for co-ordinating fire precautions with others in any building that includes the Property.
Enquiry 11.3 It is possible that there are a number of "responsible persons" in respect of the property. The buyer may find that on completion it must co-operate and co-ordinate with others and may need to give others information. This enquiry is aimed at eliciting information as to what co-ordination and co-operation there is currently.
Enquiry 11.4 and 11.5 This information may be disclosed as part of the response to Enquiry 11.1, but it is worth asking the question directly as in practical terms the means of fire escape is one of the most significant issues for the buyer and for the buyer’s compliance with its duties under the Fire Safety Order 2005. Particular attention will need to be given by the buyer to any agreements that authorise use of the fire escapes. There may be conditions of use; the right to use may be personal to the seller; there may be contractual obligations to maintain the fire escapes, that may be in addition to or go beyond the obligations that the buyer will be under by virtue of the Fire Safety Order 2005. There may be conflicts between the contractual obligations and contractual restrictions on the use of fire escapes and the statutory duties.
Planning law is contained in a number of statutes and subordinate legislation, principally the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990 and the Planning (Consequential Provisions) Act 1990.
Planning permission is required for "development", which encompasses either of two elements:
Building works on the land or to buildings (which includes building, engineering, mining, demolition and other operations on, in, over or under a property), or
A material change of use of the land or buildings.
A planning permission authorising the construction of a building will at the same time authorise its use.
Enquiry 12.1 The importance of establishing that building regulation consent was obtained, where required, and that works were carried out in accordance with the approved plans, was illustrated in Cottingham v Attey Bower & Jones [2000] EGCS 48 (ChD).
Building Regulations completion certificates were introduced into the Buildings Regulations in 1991. The production by the Seller of a completion certificate will be evidence (but not conclusive evidence) that works were carried out in accordance with Building Regulations.
Building regulations approval or completion certificates are not necessary where the work can be self-certified as complying with the regulations. Self-certification can be carried out by someone who is a member of a competent person scheme under the Building Act 1984. For information on the Competent Person Scheme, see DCLG: Competent Person Schemes (www.practicallaw.com/0-381-7744).
Enquiry 12.2 A planning permission must generally be implemented within five years from the date of its grant.
Enquiries 12.3, 12.4, 12.5 Established use certificates are no longer granted. Since 27 July, 1992, the equivalent is a certificate of lawfulness of existing use or development (CLEUD) or a certificate of lawfulness of proposed use or development (CLOPUD) (sections 191 and 192, Town and Country Planning Act 1990). Existing established use certificates are still valid and can be relied upon, however, and so their existence is still relevant for the Buyer. There is a procedure for converting an established use certificate into a CLEUD.
A CLEUD or a CLOPUD will establish that:
An existing use is or a proposed use would be lawful.
Any operations that have been carried out or which are proposed, in, on, over or under the land are, or will be, lawful.
Any other matter that constitutes a breach of condition or limitation subject to which planning permission has been granted, is lawful.
A use, an operation or a breach of condition or limitation will be lawful if:
No enforcement action can be taken in respect of it, and
The use or development or the breach does not contravene any of the requirements of any enforcement notice in force.
The power to issue enforcement notices is subject to time limits (section 171B, Town and Country Planning Act 1990).
Four years: No enforcement action can be taken after four years where the breach of planning control relates to building, engineering, mining or other operations in, on or over land.
Four years: No enforcement action can be taken after four years where the breach of planning control relates to the change of use of any building to use as a single dwelling-house.
Ten years: No enforcement action can be taken after ten years where the breach of planning control relates to anything else.
Enquiry 12.4 The existing buildings on the Property may be authorised by means of an express planning permission, or by a CLEUD or by virtue of the Town and Country Planning (Use Classes) Order 1987 (as amended) or the Town and Country Planning (General Permitted Development) Order 1995 (as amended).
Enquiry 12.5 and 12.6 The existing use of the Property may be authorised by means of an express planning permission, under a CLEUD or under the Town and Country Planning (Use Classes) Order 1987 (as amended) or the Town and Country Planning (General Permitted Development) Order 1995 (as amended). The Property may have a single use or a single use with an ancillary use. Where one use is ancillary to another (for example, storage associated with a shop) a separate permission for the ancillary use will not generally be required. It is possible for the Property to have more than one use where the further uses are not ancillary but are main uses in their own right as, for example, a shop at ground level with a flat above. Separate permissions are required for each main use but each main use may still have its own ancillary uses.
Enquiries 12.7, 12.8 and 12.9 Where planning consent is required for a development (whether building works or a change of use), the local planning authority can take enforcement action if the development is carried out without planning consent. There are time limits for enforcement action. No enforcement action can be brought in relation to building works after four years have passed following substantial completion of the building works. Where the development is a change of use (other than a change of use to a single dwelling house), no enforcement action can be brought after ten years from the date of the breach.
Where, however, a building is listed under the Planning (Listed Buildings and Conservation Areas) Act 1990, there is no time limit for enforcement action in respect of a breach. A breach of listed building control can be enforced against an owner no matter when or by whom the breach was committed. A practical problem may arise because when a property is listed, the listing may fail to record the state and extent of the listing, making it difficult for buyers, sellers and local authorities to establish whether any breach has occurred. Works that need to be considered include both internal and external works to any buildings, and also works within the curtilage of the building.
Enquiry 12.10 Third parties may challenge the grant of a consent or a certificate either by judicial review or by appeal in the courts under procedures provided in the Planning Acts.
Enquiry 12.12 Outline planning permissions are permissions for the construction of a building that are granted in principle, subject to certain "reserved matters". The outline planning permission cannot be implemented until the reserved matters have been approved.
The Buyer will make a local authority and local land charges search. The results should disclose agreements and notices relating to roads, drains, public health matters and repair obligations. The following are examples of the types of agreement and notice about which the Buyer will need information:
Agreements under section 38 of the Highways Act 1980.
These impose obligations on a developer to make up roads and footpaths to a standard required by the local highway authority and to maintain them for a specified period. The road or footpath is then adopted by the highway authority and maintained at public expense. Normally the agreement is supported by a bond to pay for completion of the works if the developer fails to carry them out. Section 38 agreements do not run with the land so, if the Seller is party to one, the Buyer may need to take an assignment of it otherwise the highway authority may close the road which may affect access to the Property.
A local highway authority may agree or resolve to make up roadways or footpaths at the cost of owners of premises fronting the roadway. Full details will be required so that the Buyer is aware of potential liabilities.
Agreements under section 104 of the Water Industry Act 1991.
These impose obligations in relation to sewers similar to those relating to roads under section 38 above.
Planning obligations under section 106 of the Town and Country Planning Act 1990.
These may require a landowner to carry out specified works or impose restrictions on the development or use of land or require money to be paid to a local planning authority. Such obligations are normally entered into as part of negotiations for planning permission and may provide for the making up and adoption of roads and footpaths.
The local authority search may not disclose all relevant agreements and notices.
Enquiry 13.1 Examples of the types of agreement to which this enquiry relates include:
Agreements relating to the construction and adoption of roads, footpaths, drains and sewers.
Agreements relating to the laying of gas pipes, electricity and telecommunications cables, wires and other equipment including transformer substations.
Water abstraction licences.
Enquiry 13.2 This enquiry covers, for example, obligations on the Seller to enter into any highway, water or sewerage agreements or a section 106 planning agreement.
Enquiry 13.3 Examples of what might be included in the reply to this enquiry include a road closure order, a diversion order, a traffic flow order which, if implemented, might affect access to the Property or the ability to park near or deliver to the Property or a food hygiene order, of particular relevance if the Property is a restaurant or hotel.
Enquiry 13.4 Some agreements, such as section 106 and section 38 agreements, cannot be registered by the local authority until they have been completed. Until registered they will not be disclosed by a local authority search but will still constitute overriding interests (see enquiry 4). If the Seller is aware of anything which is not yet, but will be, registered it should be disclosed here, unless it has already been disclosed in reply to enquiry 13.1. There are some matters which are not required to be registered as a local land charge, for example, planning contravention notices and notices of intention to adopt a highway.
Enquiry 13.6 The local authority or other public or private bodies, such as English Partnerships, can make financial grants. These are generally made to promote development and improvement and may be subject to repayment obligations in certain circumstances. The Buyer needs to know what grants have been made, by whom, for how much and the terms of the grant and in particular will need to know about repayment obligations so that appropriate provisions can be made in the contract.
Enquiry 14 addresses potential liabilities in connection with the Property and concentrates mainly on statutory liabilities.
Liability under statute may be strict, which means that the person responsible for the breach will be liable regardless of the state of their knowledge about the breach. This is often the case with health and safety legislation, which is designed to protect the welfare of employees and occupiers of premises.
Liability may, in other cases, depend on the state of knowledge of the person responsible for the breach.
Statute will provide who is responsible for compliance. Liability may rest with the occupier and/or the owner. The owner may be defined to include the landlord, any superior landlord and/or the freeholder. Some legislation, such as fire regulations, extends the meaning of owner to include anyone in receipt of rents and so may include a trustee of the landlord or a managing agent.
Enquiry 14.1 The enquiry is wide and addresses all legislation that may affect the Property. Depending on the nature of the Property and its use, particular consideration should be given to the Occupiers' Liability Acts 1957 and 1984, the Defective Premises Act 1972, health and safety legislation (including the Shops Act 1950, the Factories Acts, the Offices, Shops and Railway Premises Act 1963 and the Health and Safety at Work etc. Act 1974), and liquor and gambling licensing. To the extent not covered elsewhere, the reply should cover breaches of building regulations, breaches of fire regulations, gas safety legislation, highway and drainage obligations, section 106 agreements, planning control, waste storage and management, hazardous substances, advertising control, bye-laws relating to trading and advertisement control.
Enquiry 14.2 This enquiry is not limited to statutory matters. It does not cover works to be carried out to anything other than the Property and so will not include section 38 highway agreements or section 106 agreements unless the land over which the works are to be carried out is included within the definition of the Property.
Enquiry 14.3 This enquiry is designed to catch such things as liquor licences, betting and gaming licences, water abstraction licences and any other activity controlled by law.
Enquiry 14.4 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 needs the information requested as it could have an impact on the Buyer's ability to carry out works or 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. The CDM 2007 allow a single Health and Safety file to relate to more than one building.
Enquiry 14.5 This enquiry 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 should be aware of the broad definition of construction work under the CDM 2007 (see above under Enquiry 14.4).
Enquiry 14.6 and 14.7 An Energy Performance Certificate (EPC) is a certificate containing information about the energy efficiency of a building. The EPC is produced by the seller or landlord or developer and must be accompanied by a recommendation report containing suggestions for the improvement of the energy performance of the building. The obligation to produce EPCs is contained in the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 (www.practicallaw.com/1-244-8955) (EPB Regulations 2007). The requirement to produce an EPC has been phased in, beginning in August 2007 with EPCs for dwellings with four or more bedrooms being marketed for sale.
On 6 April 2008, EPCs became a requirement in connection with the construction, sale or renting out of non-dwellings with a total useful floor area over 10,000 square metres.
On 1 July 2008, EPCs became a requirement for smaller non-dwellings with a total useful floor area over 2,500 square metres.
On 1 October 2008, EPCs will be required for the sale and rent of all dwellings that were not previously affected, and for the construction, sale or rent of all other buildings that are not dwellings.There are several types of building and transaction which are exempt from the need to provide an EPC.
The seller or landlord is required to provide the prospective buyer or tenant with a valid EPC and a recommendation report, free of charge, at the "earliest opportunity". A copy of a valid EPC is sufficient, and an electronic copy is permissible if the recipient consents to receiving the certificate electronically.
The obligation to provide an EPC is triggered by whichever of these events occurs first:
The seller or landlord provides written information about the building to a person who has requested that information.
A prospective buyer or tenant views the building.
A contract is entered into to sell or rent out the building.
The transfer/assignment or lease is completed (where there is no contract)
The seller or landlord must ensure that the ultimate buyer or tenant has received a valid EPC.
The obligation to provide an EPC does not apply if the seller or landlord has reasonable grounds to believe that a prospective buyer or tenant:
Is unlikely to have sufficient funds to buy or rent the building.
Is not genuinely interested in buying or renting that type of property.
Is not someone to whom the seller or landlord would be prepared to sell or rent out the building.
A developer is required to produce an EPC when a new building is erected or where an existing building is converted into fewer or more units and the services (for example, the heating, hot water or air-conditioning systems) in the building are modified. Unless an EPC and recommendation report have been given to the owner of the building by the developer, the building control inspector cannot issue a completion certificate for the works. Certain buildings are not subject to the Building Regulations 2000, but are still within the scope of the EPB Regulations 2007. In such cases, the person who carries out the construction work must give the owner of the building an EPC and recommendation report within five days of completing the construction work.
The general rule is that an EPC is valid for ten years from the date on which it was issued. It will be revoked if a new EPC is issued for the same building. Where there is a valid EPC of the whole building , a later EPC of part will not invalidate the existing EPC of whole, except for dealings with that part alone. For example, on a sale of the whole building the original EPC remains valid, but on a letting of that part, the new EPC is the relevant document. In relation to dwellings, the EPC cannot be more than three years old when the dwelling is first marketed.
Enquiry 14.8 The EPB Regulations 2007 introduced the requirement for 5-yearly air-conditioning inspections, which are intended to promote the improvement of the energy performance of buildings in England and Wales.
Air-conditioning systems with an output of over 250kW must be inspected by 4 January 2009, and those with an output of 12kW must be inspected by 4 January 2011. Where a system was first brought into service on or after 1 January 2008, the inspection must be carried out within five years of when it was first put into service.
The Department for Communities and Local Government has published guidance on the duty to have air-conditioning systems inspected: Improving the energy efficiency of our buildings: A guide to air-conditioning inspections for buildings (www.practicallaw.com/1-382-8426). This guidance is aimed at anyone who manages or controls air-conditioning plant and includes information on:
What an air-conditioning inspection covers.
Obtaining an air-conditioning inspection.
Applying the regulations in practice, including determining the size of an air-conditioning system.
The primary objectives of the environmental legislation are:
Protection of the environment from pollution.
Remediation of existing contamination.
Prevention of future contamination.
Better management of natural resources and promotion of sustainable development.
Enquiry 15 is a general enquiry about environmental issues, aimed at sites with no known environmental problems. More specific questions can be raised if the Buyer's requirements, or the state of the Property, demand.
The fundamental principle of the environmental legislation is that "the polluter pays". The definition of polluter is wide so that it can include parties who have not been directly responsible for the contamination, including a subsequent owner of the land. This is particularly important since Part IIA of the Environmental Protection Act 1990, dealing with contaminated land, came into force on 1 April, 2000.
These enquiries are intended to alert the Buyer to any matter which may need further investigation so the Buyer can be fully aware of what environmental liabilities it may inherit as a result of the Transaction. The cost of remedying damage caused by contamination may be significantly more than the value of the Property and this can make it difficult to identify any arbitrary value below which it can be said that any form of environmental investigation is unnecessary.
The following are examples of the types of hazard with which these enquiries are concerned:
Pollution and protection of the environment.
Health and safety.
Emissions and releases.
Disposal of industrial, commercial or household waste.
Discharges of radioactive waste or chemical or other pollutants or contaminants or toxic or hazardous substances.
Manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any discharges or waste materials.
Control of noise and noise emissions.
Water pollution, including pollution by trade and sewage effluent.
Enquiry 15.2 If any authorisations are disclosed then the Buyer should consider asking for confirmation that:
The authorisations have not been breached.
No upgrade of plant or equipment and no capital expenditure is needed before authorisations can be complied with.
No notice or other communication has been received from an enforcement authority which may materially affect the terms of such authorisations or their continued validity.
Enquiry 15.4 This enquiry focuses on whether the Property has been subject to potentially contaminative uses or whether there is any hazardous material in the Property. It has been deliberately framed widely to avoid the Seller having to form a view on whether or not information given is indicative of a contaminative use.
Enquiry 15.5 The reply should cover both statutory notices and complaints from neighbours.
Enquiry 15.6 The enquiry does not expressly ask for sight of transfer notes relating to waste (which might be numerous) but if there were a concern as to whether waste was being disposed of properly, these could be requested.
Enquiry 15.7 The reply to this should reveal matters such as migrating contamination, dust, noise and other forms of nuisance.
Enquiry 16 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 may need to raise additional enquiries (e.g. CPSE.2, CPSE.3 and CPSE.4).
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 4.
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 16.4 and 16.5).
Enquiry 16.1 Where the Seller is a company, firm or partnership or some other corporate body, the Seller 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 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 should give details of the length of occupation, any payments received in respect of it and any objections made to it.
Enquiry 16.3 Whether the Property is vacant, and the period during which it has been vacant, may be relevant for a number of reasons. For example, it may have an impact on the validity of insurance cover, affect liability to pay business rates and may put the Buyer on notice that squatters may be in occupation.
Enquiries 16.4 and 16.5 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 charge"). For TUPE to apply to service provision charges, 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 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 takes on all rights, liabilities and responsibilities for anything done by the Seller 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 17 concerns buildings insurance as opposed to contents insurance or title insurance. The convention is that once contracts are exchanged, the Buyer takes over the risk in the Property and must therefore insure from that date. In transactions where there is no contract, the Buyer will usually assume the risk on completion.
The information which will be given in reply to this enquiry is likely, therefore, to be of interest where the Buyer is to rely on the Seller's insurance between exchange of contracts and completion or where the existing insurance arrangements will remain in place following completion of the Transaction. This might be so where, for example, the sale is between related companies and the insurance is dealt with under a group company policy, or where the Property is leasehold and the landlord insures.
Where the Buyer is to rely on the Seller's insurance between exchange of contracts and completion, the contract may need to cover noting the Buyer's interest on the policy and the Buyer will need to be clear as to exactly what the cover includes (e.g. loss of rent).
Where the insurance arrangements will remain in place following completion of the Transaction, the Buyer will need full details of the insurance cover effected to check that cover is satisfactory, particularly in relation to the adequacy of the sum insured and whether this is index-linked, the adequacy of insured risks and acceptability of any exclusions. It will also be concerned to check that the policy complies with the requirements of any relevant lease or mortgage, whether the policy is and will continue in force and that the proposed use of the Property will not render the policy void or voidable.
The Buyer will need to check who has the benefit of the insurance policy and ensure that its own interest is adequately protected.
Enquiry 17.3 The types of insurance referred to here may include public liability and employers' liability insurance and insurance for specific items of machinery or equipment.
Enquiry 17.6 Circumstances which may make the policy void or voidable include non-payment of premiums and failure to give all relevant information to the insurance company.
The Buyer will need to know its liability for periodic payments following completion of the Transaction. The main liabilities are likely to be business rates and water and sewerage charges, but there may be others.
Enquiry 18.1 The rateable value of the Property is the value attributed to it for the purpose of calculating the local authority business rates payable on it. This information will be on the rating assessment of the Property and on the rate demands received from the local authority but can also be obtained from the local authority.
Enquiry 18.2 Whether or not the Property is separately assessed is important because if it is assessed as part of other premises that are not included in the Transaction, it may have to be reassessed following completion of the Transaction.
Enquiry 18.3 Local rating lists, which were compiled initially on 1 April, 1990, are revised on every fifth anniversary of that date, most recently on 1 April, 2000. A revaluation will be made on each date the list is revised. To enable the valuation officers to prepare the list, notice may be served on an occupier or owner of a property requiring information about that property. Any correspondence passing between the owner or occupiers of the property and the valuation officer regarding a revaluation should be disclosed in response to this enquiry, including copies of all relevant proposals, notices, returns and appeals.
Enquiry 18.4 The rateable value of a property may be revised at any time due to a material change in circumstances. An owner or occupier of a property can at any time apply to the valuation officer requesting an alteration to the rateable value shown in the rating list or an alteration to any other statement made in the rating list about the property. The valuation officer may also propose an alteration if there have been any alterations or improvement works, works to extend or enlarge the property or a change of use of the property. Copies of all relevant correspondence and documentation should be produced including all proposals, notices, returns and appeals.
Enquiry 18.5 The amount payable for uniform business rates, water rates, sewerage and drainage charges can be obtained from the local authority and the water supply company. If the Property forms part of other premises for which there is only one assessment for business rates and for water, sewerage and drainage rates, that fact should be disclosed in this reply. Local authorities and water companies have a financial year that runs from 1 April of each calendar year. Accordingly, reference to the current year in this enquiry will mean the financial year that started on the most recent 1 April.
Enquiry 18.6 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. Exemption from local authority rates may be given to certain qualifying premises in designated enterprise zones.
Enquiry 18.7 Transitional charging arrangements are concerned with phasing in new rates bills when they are significantly above or below the previous year's bills.
Enquiry 18.8 Examples of the types of periodic charges envisaged by this enquiry include payments in respect of private water supplies, private sewers and private access routes to the Property, rent tithe agreements and chancel repairs. The reply is not expected to include details of rent and service charges payable under a lease of the Property.
Enquiry 18.9 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.
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 may by a member of that organisation. Even if the seller 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 will need details of the BID organisation for management purposes and the buyer 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 will want to know the amount of the BID levy payable in respect of the property. Even if the buyer 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 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 is a landlord it may have agreed with its tenants to be liable for the whole or part of the BID levy payable by the tenants (who will be the rateable occupiers) as an incentive for the tenants to support the BID proposal.
If the property is not currently in a BID area, the buyer will want to know if there are any proposals for the area to become a BID.
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 on or after 12 April 1978 with ten or more bedrooms and certain statutory and other undertakings.
Note that where the Transaction involves the Seller (or Lessor) paying for or carrying out works to the Property for the Buyer (or tenant) as an inducement, the Buyer's capital allowances entitlement may be affected.
Enquiry 19.1 If the Seller is holding the Property as a trader as part of trading stock, because, for example, the Seller is a developer or dealer, it will not have been able to claim capital allowances as any expenditure incurred will not have been on capital account. However the remaining enquiries in enquiry 19 should still be answered as there may be relevant information relating to an earlier owner of the Property.
Enquiry 19.2 The Buyer may be entitled to claim capital allowances on any fixed plant and machinery within the Property. The amount on which such a claim may be based may be an apportionment of the total consideration, but in many cases there are limiting factors. In particular, the amount of the claim may be limited where the Seller, or a former owner of the property (see 19.4 below), has claimed allowances.
If the answer to enquiry 19.2 is "no", the Buyer should request details of the previous owner and ask whether the contract between the former owner and the Seller allocated any sum to machinery and plant.
The original qualifying expenditure will generally be the maximum allowable amount upon which the Buyer can claim allowances on those assets for which a capital allowances claim has been made. There may, however, be assets within the Property upon which a claim has not previously been made.
Where assets are subject to anti-avoidance provisions under Part 2, Chapter 17 of the CAA 2001 (such as sale and leasebacks, connected parties, etc.), the amount of the Buyer's claim may be restricted.
Allowances on plant and machinery are generally given at a rate set out in section 56 of the CAA 2001, unless in relation to expenditure on integral features as defined in section 33A of the CAA 2001, whereby allowances are given at a generally lower rate as set out in section 104D of the CAA 2001. Note that with the introduction of the special regime for integral features under section 33A of the CAA 2001 from April 2008, it is necessary to identify such items separately from other Fixtures, so that the Seller and Buyer can, where required, prepare their tax computations for disposal values and claims for capital allowances appropriately.
Enquiry 19.2 (e): if the proposed disposal value is agreeable to both the Buyer and the Seller, then sections 198 and 199 of the CAA 2001 allow both parties to fix this value by way of a joint election.
Enquiry 19.3 The Seller may still be entitled to make a claim for capital allowances on the Property after completion of the Transaction for a previous chargeable period when the Property was still owned by the Seller. If the Seller were to make such a claim it could result in the application of some of the restrictions referred to in 19.2 above.
Enquiry 19.4 Even if the Seller has not claimed allowances, the Buyer's claim may still be restricted if allowances have been claimed by any former owner of the Property, provided that the former owner disposed of the Property on or after 24 July 1996. It is therefore necessary for the Buyer to be aware of the history of ownership since 24 July 1996 and details of any transaction affecting the plant and machinery now included in the sale.
Enquiry 19.5 For transactions made on or after 19 March 1997, it has been possible for the parties to make a joint election, fixing the amount to be allocated to the Fixtures within a building. This is subject to certain limits, and must not be motivated by tax avoidance. If the Fixtures have been subject to a previous election notice, then the value of that election will limit the level of allowances available to subsequent buyers.
Enquiry 19.6 Any plant and machinery items included in the Transaction that are subject to the long funding lease provisions set out in Part 2, Chapters 6 and 6A of the CAA 2001 could prevent the Buyer from claiming capital allowances on items which are not background plant. If the existence of a long funding lease is disclosed, it will be necessary to examine in detail the constitution of the long funding lease, the parties to it and the consequences of the Transaction on it.
Enquiry 19.7 Any Fixture included in the Transaction that is subject to a nil disposal value by virtue of section 63 of the CAA 2001 cannot be included in a claim for capital allowances by the Buyer.
Enquiry 19.8 Allowances are unlikely to be available to the Buyer in respect of any plant or machinery within the building upon which a tenant has incurred expenditure, or which is subject to an equipment lease where the obligations have not been discharged under section 182 of the CAA 2001.
Enquiry 19.9 Any loose (i.e. not fixed) plant or machinery included in the sale may be the subject of a claim by the Buyer, based on open market value. This may be restricted if sale and leasebacks or other similar arrangements are envisaged.
Enquiry 19.10 Allowances are given at a rate set out in section 104D of the CAA 2001 for plant and machinery that has a useful economic life, when new, in excess of 25 years. Various exemptions for Fixtures within a hotel, office, retail shop or showroom apply.
Enquiry 19.11 Expenditure on the construction of a building in an enterprise zone qualifies for an allowance equal to 100% of the cost. Subsequent buyers may also be entitled to this allowance, if the enterprise zone is not more than twenty-two years old, and the building is either unused, or has been used for less than two years.
Enquiry 19.12 An allowance is available in respect of "industrial buildings", as defined in section 271 of the CAA 2001.
When a building that is classified for these purposes as being an "industrial building" is acquired second-hand but within twenty-five years after its first use (or fifty years where first use occurred before 6 November 1962), the Buyer inherits the Seller’s residue of qualifying expenditure before sale written-off over the remainder of its tax life, or until abolition of industrial buildings allowances in April 2011, whichever is the sooner. The allowance is given not only in respect of the original construction of the building, but also in respect of subsequent alterations and enhancements. Each addition is regarded for the purposes of allowances as a new building, with its own tax life. This enquiry therefore asks for information not only about the original construction of the Property but also in relation to alterations made to it.
The Buyer must acquire the "relevant interest" in the Property to be entitled to make a claim for industrial buildings allowances attached to that relevant interest. If the interest acquired is not a relevant interest as defined in section 286 of the CAA 2001, the Buyer has no entitlement to industrial buildings allowances. The "relevant interest" is generally the interest held by the person who incurred the expenditure at the time of construction of the building. However, it can be an interest that is subordinate to that interest, if the Property has been subject to an election pursuant to section 290 of the CAA 2001 (see Enquiry 19.16).
Enquiry 19.13 An allowance of 100% of cost is given in respect of expenditure on assets (including buildings) which are for scientific research under the Capital Allowances Act 1990 or research and development under CAA 2001. The allowance is not available to a subsequent buyer of the Property but a previous claim for scientific research allowances may affect the Buyer's entitlement to claim the allowance on Fixtures.
If the answer to this enquiry is "yes", the Buyer will need to make further enquiries about this expenditure.
Enquiry 19.14 An allowance of 100% of cost is given in respect of business premises renovation expenditure under Part 3A of the CAA 2001. The allowance is not available to a subsequent buyer of the Property but a previous claim for business premises renovation allowances may affect the Buyer's entitlement to claim the allowance on Fixtures.
If the answer to this enquiry is "yes", the Buyer will need to make further enquiries about this expenditure.
Enquiry 19.15 Capital allowances are available for both plant and machinery and industrial buildings in respect of contributions towards another person's expenditure, and the written-down value of any such allowances will pass to the buyer of the contributor's interest.
Enquiry 19.16 Where a landlord grants a long leasehold (over 50 years) interest in a property for a premium, the tenant acquiring that long leasehold interest will not be acquiring the relevant interest that entitles it to make a claim for any industrial buildings allowances available on the property. In order for the tenant as opposed to the landlord to be treated as the owner of the relevant interest, both parties must within two years from the grant of the long leasehold interest enter into an election under section 290 of the CAA 2001.
Similarly, where a landlord grants a leasehold interest in a property for a premium, the tenant acquiring that leasehold interest will not be acquiring the interest that entitles it to make a claim for any plant and machinery allowances on any Fixtures within the property. In order for the tenant as opposed to the landlord to be treated as the owner of the Fixtures, both parties must within two years from the grant of the leasehold interest enter into an election under section 183 of the CAA 2001.
Most property transactions carried out in the course of a business are within the VAT regime, but this does not necessarily mean that VAT must be added to the price. The most common VAT classifications are standard-rated supplies, exempt supplies and transfers as a going concern. Transactions involving certain types of property may occasionally be zero-rated supplies.
Enquiries 20-26 will not elicit all necessary information about the VAT position but the replies should trigger a series of additional enquiries as appropriate, which can then be referred to VAT experts. To avoid delay, these notes suggest relevant additional enquiries and the Seller is encouraged to volunteer the replies before waiting to be asked.
It is essential to establish if the Seller 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 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.
No VAT is payable where a transaction qualifies as a transfer of a business as a going concern (TOGC).
The following transactions may qualify as a TOGC:
The sale of an investment property subject to one or more leases.
A business asset sale, which includes property assets used in the trade.
Qualification for treatment as a TOGC requires that:
The asset or assets are intended to be used by the Buyer in carrying on the same kind of business (but not necessarily identical) as that carried on by the Seller;
Where the Seller is a taxable person (that is registered or liable to be registered for VAT), the Buyer must already be a taxable person or immediately become, as a result of the transfer, a taxable person;
In relation to a part transfer, that part is capable of separate operation;
The effect of the transfer must be to put the Buyer in possession of a business which can be operated as a business;
The business, or part, transferred must be a "going concern" at the time of transfer, which in essence means that it is a business, whether profit-making or not;
There should not be a series of immediately consecutive transfers of the business; there should be no significant break in the normal trading pattern before or immediately after the transfer; and
Where the Seller has opted to tax, or the supply is the freehold sale of new buildings or civil engineering works which are less than three years old, the Buyer must opt to tax the land and buildings concerned and notify HM Revenue & Customs (HMRC) of that option before the first occasion on which a supply of the Property is made. This may mean that the Buyer must opt to tax the Property before exchange, if, for example, it is to pay a deposit on exchange of contracts to the Seller's representative as agent for the Seller (as often happens in auction sales) rather than to a stakeholder (see Higher Education Statistics Agency v Customs and Excise Commissioners [2000] STC 332).
Note that section 100 of the Finance Act 2007 has changed the rules on the preservation of VAT records where a business (or part of a business) is transferred as a going concern. The requirement in section 49(1)(b) of the Value Added Tax Act 1994 for the seller to transfer the VAT records of the business to the buyer (unless directed otherwise by HMRC), has been repealed for transfers made pursuant to contracts entered into on or after 1 September 2007.
For this reason, there is no longer any enquiry in CPSE.1 about the Seller's intention to apply to HMRC for permission to retain the VAT records relating to the Property following completion of the Transaction.
Under the new rules, where the contract (leading to the TOGC) is dated on or after 1 September 2007, the position on VAT records will depend on whether the buyer takes over the seller's VAT registration number. To take over the seller's VAT registration number, the seller and the buyer have to make a joint application to HMRC. Provided that certain conditions are fulfilled, HMRC may (but is not obliged to) agree to transfer the seller's VAT registration number to the buyer. It is rare, in practice, for a buyer of a business to take over the seller's VAT registration.
If the buyer does not take over the seller's VAT registration, the general VAT law will apply: the seller will be obliged to retain the VAT records of the business for six years (paragraph 6, Schedule 11, VATA 1994 and regulation 31, Value Added Tax Regulations 1995).
New provisions have been inserted into section 49 of the Value Added Tax Act 1994 by the Finance Act 2007, which should ensure that the buyer can gain access to the VAT records of the business. Where there is a TOGC and the seller is required to keep the records, the buyer can require the seller to do the following, so far as is necessary to enable the buyer to comply with its own VAT obligations:
Give the buyer whatever information is contained in the VAT records as the buyer may reasonably specify, within the time and in the form that the buyer may reasonably require.
Give the buyer whatever copies of the documents comprising the VAT records as the buyer may reasonably require, within the time and in the form that the buyer may reasonably require.
Make the VAT records available for the buyer's inspection at whatever time and place the buyer may reasonably require, and allow the buyer to make copies of or extracts from those documents.
The parties cannot contract out of or restrict the buyer's rights.
If the buyer takes over the seller's VAT registration, regulation 6 of the Value Added Tax Regulations 1995 (as amended by the Value Added Tax (Amendment) (No 5) Regulations 2007) provides that the seller must transfer the VAT records to the buyer unless the seller obtains a direction from HMRC requiring the seller to retain the records. Where the VAT records pass to the buyer, the seller will want to obtain an undertaking from the buyer to provide access to the records. Where the seller obtains a direction from HMRC to keep the records, the seller will, from 1 September 2007, be under the same statutory obligation to provide access to the records as applies to a seller on a TOGC where the buyer does not take over the VAT registration.
Enquiry 21.2 Sufficient detail should be provided to enable the Buyer to satisfy itself on the treatment of the Transaction as a TOGC. This will include, for example, providing details of:
Any options to tax;
The precise use of the Property by the Seller; and
On a freehold sale, the period that has elapsed since practical completion or occupation.
Enquiry 21.3 The availability of treatment as a TOGC can be affected by the Seller's circumstances or actions. For example TOGC treatment may not be available if:
The Property is entirely let to a company within the same VAT group as the Seller;
The Seller transfers the Property to another of its corporate group companies which is not within the same VAT group registration and this transfer takes place immediately before the Transaction itself; or
The Seller opts to tax before the Transaction takes place and the Buyer does not opt to tax.
Enquiry 21.5 If the Transaction is a TOGC, it is important to determine if the Property is a capital item for VAT purposes and is within its adjustment period. The Capital Goods Scheme adjustments are designed to ensure that the VAT reclaimed on the original cost of development or acquisition is adjusted over a five or ten year period (dependent upon the length of the interest held or acquired). This is done through clawbacks and it will be important for the Buyer to be aware of any clawback liability.
If the Transaction is not a TOGC, it is important to identify its correct VAT treatment, as certain actions may be required to validate that treatment.
This enquiry is intended to help the Buyer to verify the Seller's view of the correct VAT treatment of the Transaction. The legislation is extremely complex and specific expert advice should always be sought.
This enquiry is intended to help the Buyer to verify the Seller's view of the correct VAT treatment of the Transaction. The legislation is extremely complex and specific expert advice should always be sought.
From 1 June 2008 it is possible for a business to make a "real estate election". The effect of a real estate election is that all properties acquired by the business (or any members of its VAT group) after it has made the election are automatically subject to the option to tax. A business cannot revoke a real estate election although it can elect to revoke the election in relation to individual properties in certain circumstances. HMRC has the power to revoke a real estate election if the business fails to comply with certain notification requirements. It is important that when answering this enquiry, the seller takes into account any real estate election that it may have made.
This enquiry is intended to help the Buyer to verify the Seller's view of the correct VAT treatment of the Transaction. The legislation is extremely complex and specific expert advice should always be sought.
This enquiry is intended to help the Buyer to verify the Seller's view of the correct VAT treatment of the Transaction. The legislation is extremely complex and specific expert advice should always be sought.
Certain property transactions (other than TOGCs) may be outside the scope of VAT. This would apply if, for example, the Transaction is not made in the furtherance of a business. It is important to establish the reasoning to avoid any disputes if it is subsequently discovered that a VAT charge was appropriate. By way of example, the sale of a church by a religious movement which has no business activities is likely to be a transaction which is non-business and outside the scope of VAT.
The Buyer 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 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, landlords' notices of intention to sell the freehold, tenants' notices of intention to buy the freehold or to enfranchise, notices about a change of landlord, or tenant, mortgages and rent review.
Notices about disputes should be included in the reply to enquiry 28.
If the Buyer raises supplemental enquiries in forms CPSE.2, CPSE.3 or CPSE.4, it may be more appropriate to give details of landlords' and tenants' notices in response to those supplemental enquiries. Alternatively the information can be given here and a cross-reference made in the replies to the supplemental enquiries.
The Buyer 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 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.
Enquiry 29.1
The grant of a lease on or after 1 December 2003 is a land transaction for SDLT purposes unless the lease was granted pursuant to an agreement for lease exchanged on or before 10 July 2003 which has not been subsequently assigned or varied.
The grant of a lease may be notifiable to HMRC for SDLT purposes.
Before 12 March 2008, the grant of a lease was notifiable to HMRC if:
(a) the term was for seven years or more and was granted for chargeable consideration, regardless of whether any SDLT was payable; or
(b) SDLT was payable on the grant of the lease or would have been payable but for any SDLT relief claimed by the tenant.
If the grant of a lease with an effective date before 12 March 2008 was not notifiable to HMRC, a self-certification certificate may have been produced to enable the registration at the Land Registry of any easements granted to the tenant under the lease.
Changes to the notification thresholds were announced in the 2007 Pre-Budget Report, confirmed in the 2008 Budget and provided for in section 94 of, and Schedule 30 to, the Finance Act 2008. The changes will have retrospective effect and mean that:
A. The grant of a lease for a term of seven years or more will be not be notifiable and will not require a land transaction return if:
The effective date of the grant is on or after 12 March 2008; and
The grant is for:
A chargeable consideration (other than rent) of less than £40,000; and
The "relevant" rent is less than £1,000.
B. The grant of a lease for a term of less than seven years will not be notifiable and will not require a land transaction return if:
The effective date of the grant is on or after 12 March 2008; and
The chargeable consideration does not exceed the zero rate threshold (meaning that it does not consist of or include any amount in respect of which tax is chargeable at 1% or more or any amount in respect of which tax would be chargeable but for a relief).
C. The assignment of a lease that was granted for seven years or more will not be notifiable and will not require a land transaction return if:
The effective date of the assignment is on or after 12 March 2008; and
The chargeable consideration for the assignment is less than £40,000.
D. The assignment of a lease that was granted for less than seven years will not be notifiable and will not require a land transaction return if the chargeable consideration for the assignment or surrender does not exceed the zero rate threshold (meaning that it does not consist of or include any amount in respect of which tax is chargeable at 1% or more or any amount in respect of which tax would be chargeable but for a relief).
Subsequent events under the lease may give rise to a further obligation to notify HMRC of a land transaction. Examples include:
(a) the variation of the lease that creates a surrender and regrant or which increases the rent payable under the lease;
(b) the settlement or determination of a rent review during the first five years of the term (disregarding rent reviews by reference to the Retail Prices Index);
(c) any contingent, uncertain or unascertained rents payable during the first five years of the term becoming payable, certain or ascertained; and
(d) the first assignment of a lease that is not itself exempt from SDLT where certain SDLT reliefs were claimed on the grant of the lease (see the notes for Enquiry 29.4 below).
The Buyer will need to know the date of the grant of the lease for SDLT purposes. This is:
(a) the actual date of grant unless certain SDLT reliefs were claimed on the grant of the lease (see the notes for Enquiry 29.4 below);
(b) if the original grant was exempt under one of those reliefs, the date of the deemed grant of a lease where a non-exempt assignment has followed the original exempt grant.
The Buyer will need to ensure that all SDLT payable on the lease has been paid and retain evidence that shows the total amount that has been paid. This is because the Buyer will be responsible for the payment of any future SDLT due and, where that future transaction is linked to the grant of the original lease, the extent of the Buyer’s liability to SDLT (if any) may depend on the amount of SDLT already paid.
If SDLT was not payable on the grant of the lease or the grant of the lease was not notifiable, the Buyer will need to know this as subsequent events under the terms of the lease may bring the original grant of the lease within the requirements for notification and the payment of SDLT: for example, where the lease comes to an end and the Buyer remains in occupation of the Property.
For the purposes of any additional land transaction returns that need to be made, the Buyer will need to know the "effective date" of the lease. This will be the earlier of the date of actual completion of the lease and, if there was a preceding agreement for lease, the date of substantial performance of that agreement, for example the date the Buyer was given occupation of the premises.
Enquiry 29.2
This enquiry is relevant where a lease is assigned during the first five years of the term and the grant of the lease was a land transaction for the purposes of SDLT. It applies also on the assignment of a lease where a previous assignment of the lease has resulted in the deemed grant of a new lease (see the notes for Enquiry 29.4 below).
For the purposes of SDLT, the tenant of a lease may be under an obligation to make two land transaction returns where any of the following conditions apply:
(a) there is a rent review during the first five years of the term, excluding for these purposes any RPI rent reviews;
(b) there is any other mechanism in the lease to vary the rent payable under that lease; or
(c) there are contingent, uncertain or unascertained rents payable, for example where there is a turnover rent.
Where any of these conditions apply, the tenant makes an initial land transaction return on the grant of the lease based on a reasonable estimate of the sums that will become payable and, if additional SDLT is payable or the transaction becomes notifiable, a further land transaction return at the end of the fifth year of the term or, where a rent review is agreed or determined before the end of the fifth year of the term or the mechanism for varying the rent is operated, on completion of the rent review or variation.
If the lease is assigned during the first five years of the term, the potential obligation to make the additional land transaction return passes to the Buyer. In order to make any additional land transaction return, the Buyer will need to know the highest amount of rent paid by the Seller in any consecutive twelve-month period.
These provisions apply equally where the lease was granted for a term of less than five years; for example they would apply to a turnover rent lease for a term of four years.
Enquiry 29.3
Future rent reviews may be land transactions, requiring a return to HMRC, if the increase qualifies as an "abnormal rent review". The calculations for assessing this measure the increase in rent since the highest rent on which SDLT has already been paid and the period for which that rent was payable. In many cases this information will be apparent from the lease and the SDLT1 completed on its grant, but not if, for example, there has already been an abnormal rent review on which further SDLT has been paid. For further information on abnormal rent reviews, see the leases chapter of the SDLT manual at http://www.hmrc.gov.uk/manuals/sdltmanual/index.htm.
Enquiry 29.4
This enquiry is relevant where there has been the grant or assignment of a lease at a premium and the whole or any part of that premium is contingent, uncertain or unascertained.
An adjustment to the Seller’s land transaction return may be required when the contingency occurs (or it is clear that it will not occur) or the amount of the premium becomes certain or ascertained.
On the assignment of a lease, the Buyer inherits the Seller’s obligation to make any additional land transaction return required once contingency occurs or the amount of the premium becomes certain or ascertained.
The position is different if the Seller has made an application to defer payment as the obligation then remains with the Seller.
Enquiry 29.5
This enquiry is relevant where one of the following SDLT reliefs was claimed on the grant of the lease:
(a) sale and leaseback relief;
(b) group company, reconstruction or acquisition relief;
(c) transfers involving public bodies;
(d) charities relief; or
(e) any of the reliefs set out in The Stamp Duty Land Tax (Consequential Amendment of Enactments) Regulations 2003.
On the first assignment of the lease where one of these reliefs has been claimed on the grant of the lease, the assignment of the lease is treated as the deemed grant of a new lease from the Seller to the Buyer for the unexpired residue of the term of the original lease unless similar reliefs are claimed on the assignment. If similar reliefs are claimed on the first assignment of the lease, the next assignment of the lease on which none of the relevant reliefs is claimed will be treated as the deemed grant of the new lease from the Seller to the Buyer.
Where the assignment of the lease is treated as the grant of a new lease, the Buyer will be under an obligation to pay SDLT based on the net present value of the deemed new lease.
HMRC has stated that these provisions do not apply if stamp duty, and not SDLT, applied on the grant of the lease and it was the corresponding stamp duty reliefs that were claimed on the grant of the lease.
Where the whole or part of the consideration for a land transaction is contingent, uncertain or unascertained, the taxpayer is under an obligation to pay SDLT on completion of the transaction on its reasonable estimate of the amount of contingent, uncertain or unascertained consideration that will be payable. Where the payment of additional consideration is contingent, the taxpayer must assume that the additional consideration will become payable (regardless of the likely outcome of the contingent event).
If the contingent, uncertain or unascertained consideration will not be payable within the first six months of completion of the transaction, the taxpayer can make an application to HMRC to defer the payment of SDLT on the contingent or uncertain amount. The application for deferral must be made before the taxpayer makes its land transaction return in accordance with The Stamp Duty Land Tax (Administration) Regulations 2003.
If an application for deferral is successful, the taxpayer remains liable for any additional SDLT payable but the taxpayer may want an indemnity from any Buyer from him where that Buyer, and not the taxpayer, becomes liable for the payment of the additional consideration to the original Seller. The Buyer will therefore need to know the additional amount of SDLT that may be payable.
The Commonhold and Leasehold Reform Act 2002 came into force on 27 September 2004 and provides for the creation of "commonhold land" in England and Wales. Commonhold combines freehold ownership of a single property within a larger development, with membership of a limited company that will own and manage the common parts of the development.
Application to register a commonhold can only be made in respect of registered freehold land. Any leases granted over land included within the application will be extinguished when the commonhold becomes operative. The creation of a commonhold also has implications for holders of charges over that land, which in many cases will also be extinguished when the commonhold becomes operative.
Before the Land Registry can register an estate as a freehold in commonhold land, consents are required from a number of categories of person, including freeholders, chargees and tenants. Once given, a consent can be withdrawn at any time before the date on which the application is submitted to the Registrar. Generally a consent will lapse if no application is made within a period of 12 months beginning with the date on which the consent is given.
If a consent to registration of land as a freehold estate in commonhold is given by a person, their successor in title is deemed to have given the requisite consent. This means that if the Seller has given consent to the registration and, before the application is lodged, the Seller transfers the title to the Buyer, the Buyer is deemed to have given the consent. The Buyer can then withdraw the deemed consent, provided that the application has not been lodged at the Land Registry.
Enquiry 31 is intended to reveal whether there are any intentions to register a commonhold that will affect the Property or whether an application has been made. Depending on the replies to the enquiry, the Buyer may want further information or may decide not to proceed with the transaction.