StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Valuation and Law in The United Kingdom - Coursework Example

Cite this document
Summary
This paper discusses the key compulsory issues tied to purchasing and compensating for the acquisition of interests in a United Kingdom provincial town shopping parade, that an acquirer needs to take into consideration. The paper generally holds true for British acquirers of the shopping arcades…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER93.2% of users find it useful
Valuation and Law in The United Kingdom
Read Text Preview

Extract of sample "Valuation and Law in The United Kingdom"

 Valuation and Law Introduction This paper discusses the key compulsory issues tied to purchasing and compensating for the acquisition of interests in a United Kingdom provincial town shopping parade, that an acquirer needs to take into consideration. Since the UK does not have any restrictions in place for foreigners who intend to acquire commercial property in the UK, this discussion generally holds true for both British and non-British acquirers of such shopping arcades, even as taxation issues that are different for non-British and British acquirers remain relevant, and will be touched on as necessary. The implication of the location being in a provincial town is that laws that are relevant outside of London and that apply to locations outside of cities in general are relevant. The literature on land acquisition in the UK notes that there are fundamentally two types of acquisition interests on UK land, one that is freehold, and another that is leasehold Freehold interests are interests that translate to maximum possession and flexibility in terms of handling, making money from, controlling, and disposing the acquired interests, because this implies that the owner of the land has full, unlimited time ownership of the property, and because the owner has the right to lease the land to others in order to gain income from the land possession, if desired. Leasehold arrangements, as the term implies, are land lease arrangements where the one providing the lease has the ownership rights, while the one acquiring the lease does not have such ownership rights, but has time-bound and limited rights to occupy and to use the land. This is so, even as he has the right to solely take occupation of the land for the limited time period of the lease, and there are regular payment considerations and obligations that the land occupier must pay the land owner to continue having legal occupation rights over the property. For this paper, the discussion focuses on full acquisition interests of freehold commercial property (Wragge Lawrence Graham & Co LLP 2015; Penningtons Manches LLP 2015). Assumptions As discussed above, one of the key assumptions is that the discussion generally applies to both local and foreign acquirers of commercial property in the UK, unless otherwise specified. Moreover, the discussion also focuses on the acquisition of freehold properties, and that the shopping parade in the provincial UK town is to be acquired from a freeholder of the property (Richards 2014). That said, the discussion will also include elements that pertain leasehold interests where they are relevant. Moreover, the key focus areas will be on the taxation and valuation issues that are relevant for the acquisition, and the discussion will focus on relevant UK taxation and valuation laws that are applicable, and which are compulsory in terms of conformance for the acquisition to have legal effect (BKL LLP 2015; Gov.UK 2015). Taking a step back, it is worth noting that apart from leasehold and freehold interests, there are other interests of property that are legally recognized in Wales and in England, where this discussion is relevant. These are pre-emptions and options; easements, and licenses. Buying rights and rights of first refusal relate to pre-emptions and options. Rights of way, for the use of cables, for the use of pipes, and similar such rights relate to easement interests. Non-exclusive contractual use arrangements relate to license interests. The assumption here is that such alternative interests are not included in the discussions on interests options for consideration for the shopping parade, and that the focus is on considering the shopping parade in freehold and leasehold contexts in the main (Penningtons Manches LLP 2015). Legal Principles A. General Principles With regard to freehold ownership of a shopping parade, the literature tells us that getting freehold interests on the land implies total possession and use of the property, including the space above the property, as well as the subsoil and the structures that stand on the property. That said, access rights by other parties may constitute some restrictions over the ownership and use of the land, and these will not be discussed in this paper. In general, legal principles of land ownership of freehold properties apply for when the acquiring party is able to get freehold possession of the shopping parade from a previous owner (Penningtons Manches LLP 2015). The legal principles relating to getting leasehold rights over the commercial property relate to the two basic ways by which such leasehold rights can be acquired. One way is via the acquisition of an existing lease from a previous holder, or the acquisition of a new lease granted by the freehold owner of the property. The former assumes that the leaseholder has the right to transfer the ownership of the lease to another party. The latter granting of a new lease may also be made by a current tenant of the property, assuming that the tenant of the property has been expressly given the right to grant the new lease in the terms of his tenancy contract (Penningtons Manches LLP 2015). In terms of evidence of land ownership in general, the reference are documents of such from the UK Land Registry, and property that is so registered in the Land Registry is called Registered Land. Details of registration stipulated in the document from the Land Registry offer definitive proof with regard to who owns the land, and what kinds of titles and rights the owner has on the land, as well as the land extent and the rights that affect and benefit the land. Registration implies certain obligations from the government, including getting all of the ownership details correct and of the registered date being accurate. Where there are problems with regard to the accuracy of the included information on the register, it is the obligation of government in some instances to compensate the land owner for the deficiencies in accuracy (Penningtons Manches LLP 2015). There are required documents relating to the acquisition of interests in the shopping parade, as relevant. If financing is required, then financing documents need to be presented and included in the compulsory documents attached to the acquisition. In freehold acquisitions by outright purchase, then transfer documents and sale documents are required. In purchasing existing lease interests, documents relating to contract of sale, lease security, consent of landlord/owner, and documents of transfer are required. In the acquisition or purchase of a new lease, then lease documents, security of leases and the consent of the owner/landlord are required. These documents are signed and dated upon the completion of the acquisition transaction (Penningtons Manches LLP 2015). In the event of successful acquisition of interests to the shopping parade, there are legal considerations relating to obtaining various consents when the acquiring party has intentions to conduct certain works to modify the property for specific owner purposes. Such consents relate to getting permission to build and to modify from government. Such plans for property modification may need to be included in discussions prior to acquisition, so that any legal hurdles that may get in the way of such planned modifications and improvements may be surfaced and addressed at the onset (Penningtons Manches LLP 2015). B. The Stamp and Duty Land Tax (SDLT), VAT, Business Rates, and Other Taxes and Fees Payment of the Stamp and Duty Land Tax or SDLT is compulsory when it comes to acquiring interests and continuing possession of the shopping parade. This implies that the value of the shopping parade exceeds the threshold value of £150,000. Assuming that the value of transfer of the shopping parade, in the case of an acquisition of a freehold interest in the property, exceeds £500,000, then the amount of SDLT that is compulsory for payment is 4 percent of the transfer value or the transaction value, or the value of the shopping parade, as mandated by law (Penningtons Manches LLP 2015; Gov.UK 2015). On-going rental income for the shopping parade is taxed with no regard to the citizenship status of the party that has come to acquire interests in it. For residents of the UK and UK firms, the rental income tax was 21 percent which was slated to fall to 20 percent, while for non-residents the tax rate is 20 percent. This has implications for gauging whether or not it makes financial sense, from a rental income point of view alone and not from the point of view of gains from any future transfer of interests on the property. This tax is usually deducted from the rent payments before the rent income gets into the hands of non-residents who have come to acquire interests in the land, and this will apply too in the event of the acquisition of interests in the shopping parade. Upon purchase too, the registration fees at the UK Land Registry are compulsory for payment (Penningtons Manches LLP 2015; Richards 2014). There are arrangements where the SDLT is not paid, and these arrangements pertain to legal means to reduce the amount of transfer taxes that are paid for acquiring interests in property, which apply to this case. The literature notes that while the rate applicable is probably 4 percent, assuming that the value of the shopping parade exceeds the threshold, SDLT does not apply to the sale of company shares of the owner of the property, where that company that has acquiring interests on the land is non-British. Moreover, apart from the SDLT exemption, this sale of company shares is not also subject to other kinds of transfer taxes in the UK. This non-British status of a firm is subject to conditions for such classification, including that the members of the board of the firm must be non-British in its majority, and that board meetings of the firm must be held in places outside of the legal jurisdiction of the United Kingdom (Penningtons Manches LLP 2015; Richards 2014). Part of the compulsory taxes to be paid tied to the acquisition of interests in the shopping parade too is the value added tax on the transaction, which is 20 percent of the value of the interest as reflected in the sale document. There are conditions that can be met where the acquisition of the shopping parade is classified as the acquisition of a business or a going concern, in which case the VAT does not apply, and the acquisition costs are reduced. This is subject to meeting the conditions for VAT exemption via that route. Moreover, other considerations relate to whether the acquiring party charges or does not charge VAT to its tenants of shops. These considerations are tied to maximizing income and reducing costs as much as possible, as both charging and not charging VAT to tenants have implications on what the tenant can account for as expenses and rental income (Richards 2014). That said, the general observation is that the acquisition of interests to a property or the sale of such interests does not trigger a VAT charge per se, but that in cases where commercial property interests are acquired, acquiring parties make the usual decision to charge VAT on the property, because such maximizes the income that the owner is able to derive from that commercial property. This consideration, together with the consideration to either treat the acquisition as the acquisition o a going concern to skirt the VAT, are compulsory considerations for the acquiring party to the shopping parade (Penningtons Manches LLP 2015; Richards 2014). Business rates will also have to be accounted for as compulsory taxes that must be paid in the acquisition and on-going operation of the shopping parade. This is basically a tax on the rent income of the property, and which is to be paid in accordance with the rates as they apply to the rest of England that is not part of London, this property being located in a provincial town. There are various forms of exemptions and reductions in business rates that are applicable for different locations in England, and this can be accounted for and applied in order to reduce on-going business rates payments. Assuming that the shopping parade generates rent income that exceeds a threshold, then certain business rates apply, which are around 47 to 48 percent of on-going yearly rent income, and not the purchase price of the property. The idea is that business rates are tied to rent income, and these variables factor into vital issues relating to the viability of acquiring interests in the shopping parade over a period of planned ownership of the land. This is in conjunction with considerations of land appreciation and gains on any future sale of the interests to another party. Strictly speaking however, such financial gains considerations are irrelevant when it comes to discussing the purely legal compulsory aspects of the interest acquisition itself, as the acquiring party may have non-financial gain motivations for acquiring the property (Eddisons 2015). Valuation and Practical Issues There are generally two variables that play into valuation issues in the interest acquisition exercise for the shopping parade. Those relate to one, the acquisition price relative to the future value of the property and any gains to be made from a future sale of the property or the future sale of the leasehold rights as the case may be; and two, the acquisition price relative to the on-going income that can be derived from the shopping parade. These two variables added can be construed as the total financial gain from the acquisition of the property. With regard to the acquisition price, that price may be loosely based on the on-going fair market price for the property. The future price of the property may also be extrapolated using standard valuation methods for such purposes. On the other hand, rent income needs to be considered relative to on-going costs, chiefly VAT and business rate costs, and the kinds of exemptions and reductions that are possible for both taxes, to reduce costs overall and increase the net profits to be had from the on-going rent income. If there is no intention to sell the interests in the future, then valuation issues boil down to whether rent income over a period of time makes it financially feasible to recoup all costs tied to the acquisition of the interest in the shopping parade over a period of time (Penningtons Manches LLP 2015; Richards 2014). Conclusion The primary compensation and purchase issues tied to the acquisition of interests in the shopping parade in question relate to taxation of the purchase transaction in the form of the SDLT, and on-going VAT and business rate payments versus rent income considerations that all play into determining whether or not it is financially viable to undertake the acquisition based on the financial viability of the transaction. This latter assumes that the acquisition is being made with an eye to generating positive returns on the acquisition over a period of time (Penningtons Manches LLP 2015; Richards 2014). 1 References BKL LLP (2015). Investing in UK Property: Important notes for non-resident investors. BKL. [online]. Available at: http://www.bkl.co.uk/how-we-can-help/sectors/property-and-real-estate/investing-in-uk-property/ [accessed 5/10/2015]. Eddisons (2015). Uniform Business Rate. Eddisons.com. [online]. Available at: http://property.joneslanglasalle.co.uk/property-search/property-details.aspx?t=c&id=JLLATC50385 [accessed 5/10/2015]. Gov.UK (2015). Stamp Duty Land Tax. Gov.UK. [online]. Available at: https://www.gov.uk/stamp-duty-land-tax/overview[accessed 5/10/2015]. Penningtons Manches LLP (2015). FAQs- Buying Commercial Real Estate in England and Wales. Penningtons Maches. [online]. Available at: http://www.penningtons.co.uk/expertise/business/real-estate/property-entrepreneurs/property-entrepreneurs-faqs/faqs-buying-commercial-real-estate-in-england-and-wales/ [accessed 5/10/2015]. Richards, G. (2014). Bridging the Atlantic- Non-residents investing in UK real estate- important tax considerations. Berwin Leighton Paisner. [online]. Available at: http://www.blplaw.com/expert-legal-insights/articles/bridging-the-atlantic-non-residents-investing-in-uk-real-estate-important-tax-considerations/[accessed 5/10/2015]. Wragge Lawrence Graham & Co LLP (2015). An introduction to purchasing property in the UK. Wragge-Law.com [online]. Available at: http://www.wragge-law.com/insights/an-introduction-to-purchasing-property-in-the-uk/[accessed 5/10/2015]. Read More
Tags
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Valuation and Law in The United Kingdom Coursework”, n.d.)
Valuation and Law in The United Kingdom Coursework. Retrieved from https://studentshare.org/law/1876176-valuation-and-law
(Valuation and Law in The United Kingdom Coursework)
Valuation and Law in The United Kingdom Coursework. https://studentshare.org/law/1876176-valuation-and-law.
“Valuation and Law in The United Kingdom Coursework”, n.d. https://studentshare.org/law/1876176-valuation-and-law.
  • Cited: 0 times

CHECK THESE SAMPLES OF Valuation and Law in The United Kingdom

The Conflicts of Interests Within the Objectives of Minimum Capital Maintenance

It has often been contended that the provisions of the various European Company law legislation that deal with the share capital of the companies have been formed solely with the object of protecting the rights of one class of the external stakeholders namely the 'creditors'.... “A common rationalization of the share capital provisions is that they protect corporate creditors from the abuse of the limited liability by shareholders” (John Armour 2000) The room for such conflicts between the rights of the shareholders and the protection of the interests of the creditors had always been there in the development of corporate culture over the periods In spite of the presence of various company and insolvency law regulations, such conflicts endure over time and it had also necessitated a periodic review of the various company law provisions governing the shareholders' rights....
8 Pages (2000 words) Research Paper

Housing Market in the United Kingdom

The demand of the housing market in the united kingdom could shift to the left or the right if there are changes in factors that influence the marketplace.... The law of demand states, all factors being equal, that if the price of a good or services increases the overall consumer demand for that good or service will decrease (Investopedia, 2009)....
2 Pages (500 words) Essay

Judges Rule on the Basis of Law

This work called "Judges Rule on the Basis of law" focuses on the recognition of the role of a judge.... nbsp;… The fundamental role of a judge is to preserve an independent judiciary, by applying both the rule of law and the fair application of the law to all, regardless of the religious, social, political, or the economic status and affiliation of the accused (Hasday, 2000:27).... nbsp; The discussion of the issue of public opinion is very important because it serves to create the difference between the ideal judge as espoused by the law, and the real judge as influenced and determined by the real-world circumstances....
8 Pages (2000 words) Essay

The Potential Benefits to Investors Arising from the Switch to International Financial Reporting Standards

There are different Generally Accepted Accounting Principles and examples include GAAP USA, GAAP united kingdom, GAAP Germany, and GAAP Russia.... hellip; It is evidently clear from the discussion that the Security Exchange Commission was established in 1934 through a law that was signed by President Roosevelt....
8 Pages (2000 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us