January 2012 News Articles
Employees will have to pay to bring tribunal claims
Employees wanting to bring tribunal claims will have to pay fees ranging from £150 to £1,750 under new proposals announced by the Government.
Ministers say the move will relieve pressure on businesses and reduce the £84m annual cost to the taxpayer.
The Ministry of Justice has now begun a public consultation on the proposals, which are designed to ensure that those who use the system make a contribution towards the costs.
The consultation offers two options for consideration:
- Option 1: an initial fee of between £150-£250 for a claimant to begin a claim, with an additional fee of between £250-£1250 if the claim goes to a hearing, with no limit to the maximum award; or
- Option 2: a single fee of between £200-£600 – but this would limit the maximum award to £30,000 – with the option of an additional fee of £1,750 for those who seek awards above this amount.
Both options would allow the tribunal to order the unsuccessful party to reimburse the other side’s fees.
It’s hoped that the proposals will discourage unmerited claims and encourage early settlement.
Many employers believe that the current system puts them at a disadvantage even if they are blameless because complainants have nothing to lose by going to a tribunal and have few incentives to choose conciliation or mediation.
The Government fears that excessive claims may be a barrier to employment with firms reluctant to recruit because they fear they could be “taken to a tribunal on a whim” if something goes wrong.
Justice Minister Jonathan Djanogly said: “We believe that people should pay a fair amount towards the cost of their case. Fee waivers will be available for people on low incomes to protect access to justice.
“Our proposed fees will encourage businesses and workers to settle problems earlier, through non-tribunal routes like conciliation or mediation and we want to give businesses – particularly small businesses - the confidence to create new jobs without fear of being dragged into unnecessary actions.”
There were 218,100 claims to Employment Tribunals in 2010-11, a 44% increase on 2008-09. The introduction of fees will bring employment tribunals in line with civil courts where claimants already have to pay to bring a case.
The consultation closes in March, but the fees are unlikely to be introduced before 2013-14.
We shall keep clients informed of developments.
Please contact us if you would like more information about tribunal claims or any aspect of employment law.
Local authorities lose appeal over planning permission for HMOs
Three councils have lost their appeal for a judicial review of the Coalition Government’s decision to scrap the need for planning permission when converting single dwellings into houses in multiple occupation (HMOs).
The need for planning permission was introduced in April 2010 by the last Labour Government after it had conducted a consultation with interested parties the previous year.
However, the new Coalition Government decided that imposing a blanket need for planning permission in such cases could not be justified. It feared it would deter landlords from providing much needed low cost accommodation.
It carried out an informal consultation with key stakeholders and then abolished the planning permission requirement in October 2010 – only six months after it had been introduced.
This led to a call for a judicial review of the decision by three local authorities – Milton Keynes, Oxford and Newcastle. They argued that Eric Pickles, the Secretary of State for Communities and Local Government, had failed to consult councils sufficiently before proceeding.
In giving the court’s decision, Lord Justice Pill said the issue of whether or not planning permission should apply was a macro-political decision. “The Secretary of State was minded to make the orders challenged notwithstanding the strong, articulated objections to them by local planning authorities, of which he was aware.
“The decision to make them was a political decision which the Secretary of State was entitled to make.”
Please contact us if you would like more information about the issues raised in this article or any aspect of commercial property law.
Developers must pay extra after selling land cheap
A development firm must pay more than it bargained for to a local authority after selling on land at below market price to a group company.
The developers bought the land from the authority with a view to creating a business park. The authority retained a share in the open market value of the land, which meant an uplift was payable if the developers disposed of the land by sale or lease, or if they wanted to buy out the authority’s share.
The developers then sold the land to a group company for a notional sum, triggering the uplift clause.
This led to a dispute as to whether the uplift should be calculated on the basis of the actual market value or on the basis of the notional sum paid by the group company.
Surprisingly, perhaps, the contract did not make this clear and so the court had to decide what both sides had intended at the time they made their agreement.
The court held that although the contract was not explicit, the context showed that the intention of both parties was that the base figure for the calculation of the uplift was to be the open market value of the land rather than the actual sale price.
It could be assumed that that was what the parties would have said had they been asked about it at the time.
Please contact us if you would like more information about contract law.
Don’t overlook new tax relief for property investors
Investors buying properties consisting of two or more flats could be spending far more than necessary if they don’t take advantage of a Stamp Duty Land Tax (SDLT) relief introduced in the Finance Act 2011.
The change rectified the situation whereby if an investor bought a property containing several flats from the same seller, the rate of SDLT would be determined by the total amount payable. For example, if there were five flats at £250,000 each then the total purchase cost would be £1.25m.
SDLT would then be charged at 5%, because the total price exceeded £1m. The buyer would therefore be paying £12,500 tax on each flat.
The new system is far more generous. It allows the rate of SDLT to be determined by the average cost of each unit.
In the example given above, the average cost of each flat is £250,000, which falls within the 1% band. The tax on each one is therefore reduced to only £2,500 – five times less than under the old system.
There are conditions, of course. The relief only applies to properties that consist of two or more dwellings, or land on which a property consisting of two or more dwellings is being constructed or adapted.
It may not apply to bedsits because HM Revenue & Customs considers that for a unit to be classed as a single dwelling, it must be self-contained. That view could be open to challenge, however, and there is case law to suggest that the courts may be prepared to consider a unit as a separate dwelling even if it is not self-contained.
There are some other important provisos. The rate cannot fall below 1%, even if the average price of the each dwelling is less than the £125,000 threshold, and the relief doesn’t apply to properties that are subject to a lease or sublease granted for an initial term of more than 21 years.
The relief may also be clawed back if certain changes are made to a property within three years of purchase. For example, if the relief is granted on a property consisting of several flats, it may be taken back if the flats are later converted into a single unit.
The relief may not apply in all cases but where it does, it could provide substantial savings in SDLT.
Please contact us if you would like more information about the issues raised in this article.
When a letter can amount to a written contract
A firm of architects has won a dispute over fees after the High Court ruled that a letter it had sent to its client did amount to a written contract.
The case arose after the architects agreed to carry out consultancy services for a local authority under a framework agreement. The work was to be carried out in two stages.
The first stage was completed without incident but there was a disagreement about fees for the second stage.
The architects claimed they were entitled to charge commission at 5.5% as set out in a letter they had sent to the authority. They argued that the authority had effectively accepted those terms by its conduct in allowing the work to go ahead.
The authority maintained that the overall framework agreement required that commissions had to be renegotiated for the second phase. Those negotiations had not taken place and there was no written contract in relation to paying commission of 5.5%.
The court ruled in favour of the architects. It held that the terms were set out in the letter. The authority had effectively accepted those terms by allowing the work to go ahead. The architects were therefore entitled to their fees.
Please contact us if you would like more information about the issues raised in this article or any aspect of contract law.
New rules aim to prevent risky mortgage lending
New rules to prevent the kind of risky mortgage lending that was common during the housing boom could be in place by next year.
The Financial Services Authority (FSA) wants tighter controls so that people don’t borrow more than they can afford and are properly informed when they take out a mortgage. It says it wants “common sense” standards to apply in future.
An FSA statement said: “The Mortgage Market Review aims to prevent a recurrence of the irresponsible lending which resulted in some borrowers taking on mortgages which only seemed affordable on the assumption that house prices would always rise.
“Many of those borrowers ended up struggling to repay their mortgage and in danger of losing their home.”
The FSA proposals are based on what it calls three principles of good mortgage underwriting:
- Mortgages and loans should only be advanced where there is a reasonable expectation that the customer can repay without relying on uncertain future house price rises. Lenders should assess affordability.
- This affordability assessment should allow for the possibility that interest rates might rise in future: borrowers should not enter contracts which are only affordable on the assumption that low initial interest rates will last forever.
- Interest-only mortgages should be assessed on a repayment basis unless there is a believable strategy for repaying out of capital resources that does not rely on the assumption that house prices will rise.
The FSA says most of the excesses of a few years ago have already been eradicated and controls are now much tighter. However, it wants to ensure that these rules are in place to prevent any problems arising when the economy starts to improve.
Other key features in the FSA’s Mortgage Market Review include:
- Income will have to be verified in every mortgage application.
- Lenders do not have to consider in detail what borrowers spend but cannot ignore unavoidable bills, such as heating and council tax.
- Interest-only mortgages can still be offered as long as borrowers have a credible plan to repay the capital, but relying on hopes of rising property values is not enough.
The FSA is now conducting a public consultation on the proposals and will decide on a final set of rules in the summer. However, it’s unlikely that the new rules will be implemented before next year.
We shall keep clients informed of developments.
Please contact us if you would like more information about the issues raised in this article or any aspect of buying and selling a property.
Till turning 60 do us part – divorce in later life
Divorce among the over-60s is at records levels.
The latest figures show that the overall divorce rate across all age groups fell by 11% between 2007 and 2009.
However, the figure for the over-60s rose by 4.2% to 11,507 over the same period.
There are probably several reasons for this.
People are living longer, more active lives. Many couples find they have grown apart by the time they get to their sixties. Once their children have left home they find there is little left to bind them together and they decide to separate while they still have time to start again and seek new experiences.
It’s always sad to see a marriage come to an end but it seems particularly so when a couple have been together for 30 or 40 years.
Older people face the same general issues that confront all couples involved in a divorce, although some problems will be more relevant than others.
Their children have probably grown up and flown the nest so there should be no concerns about contact arrangements etc. On the other hand, they may have to pay extra attention to issues such as inheritance and tax planning.
It’s likely that before the divorce, the couple’s wealth, including the house, was owned jointly by both partners. When one died, the estate would pass to the other without any inheritance tax issues.
Once they divorce, however, that automatic exemption no longer applies and so they may have to look closely at arrangements to protect their estate as much as possible.
Wills are an important issue for all divorcing couples but especially so for the elderly. If they already have a will in place, it’s likely that they will have left all or most of their estate to their partner. Do they still want that to happen once they divorce? Who do they want to benefit if not their former spouse?
They will need to draw up a new will to reflect their changing circumstances.
The couple will also have to reach a financial settlement. Generally speaking, assets will have to be divided equally.
All the couple’s assets, including pensions, are taken into account when assessing the matrimonial pot. This can sometimes be complicated, especially when it involves pensions that may not become active until a few years down the line. Nevertheless, everything has to be calculated and taken into consideration before arriving at a final settlement.
Looking to the future, many couples may intend to marry again. If so, they are increasingly likely to consider drawing up pre-nuptial agreements with their new spouse.
Pre-nups used to be considered unreliable but they have gained popularity following recent high profile cases in which the courts ruled that they should be enforced unless they were clearly unfair.
As more of the baby boomer generation enter their 60s, it’s likely that the divorce rate for this age group will continue to rise, especially as the social stigma of separation is diminishing rapidly.
Please contact us if you would like more information about the issues raised in this article or any aspect of family law.
Inheritance tax cuts to support charity will start in April
The Government has confirmed that its proposal to cut inheritance tax (IHT) on estates that support charity will be implemented in April.
The plan was announced in last year’s Budget statement. Chancellor George Osborne said that if at least 10% of the estate is left to charity, IHT will be cut by 10%. This would reduce the rate from the standard 40% to 36% for qualifying estates.
It’s hoped that the measure will encourage more people to leave money to charity in their wills.
HM Revenue & Customs has just completed a consultation and said the proposal was widely welcomed by the public, tax planning professionals and charities.
Following the consultation, the Government has confirmed that it will introduce a measure in the Finance Bill 2012 which will introduce a lower rate of IHT of 36% where 10% or more of a person’s net estate is left to charity.
The measure will apply to deaths on or after 6th April 2012. The 10% charitable legacy will be based on the value of the estate after deducting IHT reliefs, exemptions and the nil-rate band.
The public consultation has also led the Government to amend its original proposal as outlined in last year’s Budget statement.
It highlights the following key refinements:
- All assets within an estate will be eligible for the reduced IHT rate if the charitable legacy from that estate, or part of that estate, passes the 10% test.
- For the purposes of this measure the deceased’s estate will be divided into 3 parts or ‘components’, which are broadly: assets that would pass to someone under a Will or intestacy (the free estate), assets which would pass automatically to a surviving joint owner (survivorship property), and assets in a trust (settled property).
- The 10% test will be applied to each component separately and the reduced IHT rate will be applied to those components that pass the test unless an election is made to opt out.
- Where a charitable legacy exceeds the 10% threshold for its own component, it will be possible to aggregate other components by election, and to apply the 10% test and reduced rate to the combined components.
The inheritance tax threshold is currently £325,000. In 2010, IHT was paid on more than 15,000 estates in the UK.
Many people may wish to reconsider their will and their inheritance planning now that the changes have been confirmed.
Please contact us if you would like more information about wills and inheritance tax planning.