Ostentatious wealth is no longer appealing in times of pandemic and many people are looking into their families’ tax arrangements and how to pass on their assets within the family.

How to help out your family with tax-free gifts
The easiest way to help children and other family members is via regular gifts out of income. This is efficient as inheritance tax (IHT) is not charged on gifts made from a person’s ‘excess income’, which is the extra income not required to maintain the person’s usual standard of living. There may be difficulties in proving that the gifts came out of the ‘excess income’ and the advice is to keep detailed records of your regular incomings and outgoings.

Parents can also pay school fees for the grandchildren on behalf of their adult children and these payments can be IHT exempt if they are regular and paid from the excess income. The gifts are also protected if the child divorces or becomes bankrupt.

If the school fees are paid from savings – i.e. not from excess income – the donor will have to survive the gift by seven years to reduce their IHT liability.

How much money is eligible for a tax-free gift?
Based on current rules, it is possible for the individuals to gift assets or cash up to £3,000 in a tax year which will not be included in their estate for IHT purposes at the date of their death. Gifts worth more than £3,000 are called potentially exempt transfers and may be subject to IHT if the donor dies within seven years from the date of the gift.

Parents can gift up to £5,000 to their children as a wedding gift and grandparents £2,500. Unlimited gifts of up to £250 are also allowed to as many people as you like.

Using a family trust to gift wealth
Using family trusts is an alternative to pass wealth down to younger generations, and there is a limit of £325,000 per individual – or £650,000 per couple – which can be ringfenced into a trust without triggering an immediate IHT charge. However, the taxation of trusts is complex and specialist tax advice must be sought before creating new trusts.

How much money should you give as a gift?
Finally, donors must be careful not to give away too much. Their income may have been reduced by the drop in dividend yields or pension funds reduced by the recent market downturn. Parents need to reassess what they need for themselves and not deprive themselves of assets. A word of warning is to only gift what you can afford to lose forever as if you make a gift and take some benefit back – i.e. gift of a property to children but the parent is expecting some income back – then for IHT purposes, this will be treated as if the parent had never made the gift and can lead to tax penalties.

I am an optimist. One of the good things that has come out of this pandemic is probably that people have spent more time together and have focussed their minds on their families’ circumstances, valuable personal relationships, wishing to look after each other. We have seen endless mortality stats and excess deaths, which has probably created the perfect opportunity to revisit issues like transfer of wealth and discuss some fundamental questions.

Our Probate Trusts and Wills team at Mayo Wynne Baxter is here to discuss probate and inheritance tax advice and if you have any questions, please do not hesitate to contact us here.

Civil Partnerships vs Marriage
A Civil Partnership is an alternative way of registering a relationship between two people who are not related to one another. The legal provisions of Civil Partnerships are set out in the Civil Partnership Act 2004. Civil Partnership offers a secular alternative to marriage, although it is possible to have a separate religious ceremony performed after the Civil Partnership is registered. The Marriage (Same-Sex Couples) Act 2013 enables Civil Partners to convert their Civil Partnership into a marriage if they wish.

Following the Supreme Court case brought by Rebecca Steinfeld and Charles Keidan in June 2018, a legal ruling was made allowing Civil Partnerships to apply to both same-sex couples and to opposite-sex couples.

The eligibility to marry or form a Civil Partnership is identical for both same and opposite-sex couples. Both people must be over 16 (with parental consent if under 18), they must not already be married or in a Civil Partnership, and must not be closely related.

Civil Partners cannot, however, refer to themselves as being married. In the same way as a couple wishing to marry, partners must give notice within the local authority where they live 29 days before the formation of the Civil Partnership. Certain religious groups will agree to their premises being used for the registration of Civil Partnerships, but not all, so it is worth checking this before deciding your venue.

A valid opposite-sex marriage formed in the UK will be recognised abroad. However, it is always best to check if your same-sex or opposite-sex Civil Partnership will affect any rights you may have if you move to live overseas.

There are some differences between Civil Partnerships and marriages when it comes to divorce or dissolution. Currently, a divorce or dissolution is obtained by relying on certain facts to prove that Civil Partnership or marriage has broken down irretrievably.

In the case of marriage, there are five facts, which are adultery where the applicant finds it intolerable to live with the respondent, unreasonable behaviour by the respondent, desertion for 2 years, separation for 2 years with the consent of the respondent and separation for 5 years.

To obtain a dissolution of a Civil Partnership, the facts that can be relied upon are the same as for marriage, except for adultery, which is not available.

Civil Partnerships and Tax
Civil Partners are entitled to the same exemptions as married couples in relation to Inheritance Tax, Capital Gains Tax, Social Security Benefits and pension benefits. Civil Partners are also recognised equally with married couples in relation to life insurance. Civil Partners can also be entitled to automatically inherit their partner’s assets, including their pension.

Couples who decide to cohabit, without a legally binding, recognised relationship status, will forego these financial benefits.

What are my rights in the UK?
Civil Partners are entitled to the same property rights as married couples in the UK. On dissolution of the Civil Partnership, they are entitled to the same financial remedy Orders in relation to sale or transfer of properties, pension sharing, and maintenance.

Civil Partners also automatically acquire Parental Responsibility for their children by virtue of their Civil Partnership. Civil Partners can apply for orders under the Children Act 1989 in relation to the arrangements for the children where there is disagreement on the breakdown of the relationship. Civil Partners can also apply for financial provision for the children under Schedule 1 of the Children Act 1989. These rights are identical to those of married couples.

As can be seen, entering into a Civil Partnership will provide you with benefits, both financial and otherwise, akin to being married.

If you have any questions or would like to obtain advice about your position, the Family Team would be happy to hear from you.

When a person dies without a Will, the law states who will inherit. This law is known as the rules of intestacy. The law is the same for everyone, and there is a strict order of priority for inheritance, which broadly follows the family line. It does not take into account individual family circumstances and cannot be changed without the agreement of the beneficiaries who inherit. It is essential to prepare a family tree when dealing with the estate of a person who has died without a Will, to make sure that the estate is distributed correctly. Although this is a brief introduction to the order of priority and inheritance, the rules of intestacy can be complicated and should consider taking legal advice before dealing with the administration of the estate.

Married couples
Where one half of a married couple dies, the surviving spouse will inherit from their estate. What they inherit depends on the size and nature of the estate, and whether the deceased also had any children.

Where the deceased had no children, the survivor will broadly inherit all the deceased’s assets, subject to some exceptions, such as joint property owned with another person.

Where the deceased had a spouse and children, if the value of the estate is under £270,000, the surviving spouse will inherit the entire estate. If over £270,000, the assets will be split between the surviving spouse and the children. The surviving spouse will receive the first £270,000 in the estate, as well as all the deceased’s personal possessions. Anything left over will be divided into two. The spouse will take half, and the deceased’s children will inherit half.

Children
Where the deceased had no surviving spouse but did have children, the children will inherit their parent’s estate equally. If any of them have died before the deceased, leaving children of their own, those children will inherit in their parent’s place.

Remoter relatives
If someone dies without a spouse or children, their wider family will inherit. In priority order, their parents, siblings, nieces and nephews, grandparents, aunts and uncles or cousins will inherit. If there is more than one person in the class (i.e. if the deceased had two surviving parents), they inherit equally. If they leave no surviving family, the estate passes to the Crown. Friends and loved ones who are not blood relatives do not inherit. Once someone from the class has been identified, it is not necessary to look any further, so if the deceased’s parents survive them, they inherit the entire estate, and the inheritance does not filter down the list.

Cohabiting couples
Unfortunately, the intestacy rules do not provide for couples who are not married, no matter how long they have been together. If your partner has died and you were not married, you will not inherit their estate under the intestacy rules. The exception to this rule is joint property, for example, a house or bank account in both names, which may pass to the survivor. It is important, if you are in this situation, that you take legal advice as we will be able to advise you of your rights and entitlements.

We know that every family is different, and the rules of intestacy can seem unfair. If you do not have a Will, it is important to make one, to ensure that your estate is distributed in accordance with your wishes. If you know someone who has died without a Will and the intestacy rules does not result in an adequate provision for their loved ones or dependents, we may also be able to help you.

The first thing to say is that COVID-19 has not changed contract law. The same rules apply now as have always applied.

In a very small number of special situations, the existing rights of enforcement have been temporarily suspended. For example, landlords are not currently allowed to begin eviction proceedings for tenants who are up to 3 months behind in their rent. But the underlying obligation to pay rent has not gone away.

Other than those special (and temporary) situations, the law is applied (and sometimes blatantly ignored, yes, I am looking at you, airline industry) in the usual way.

So, you have not performed your contractual obligations, or a customer has not performed theirs: what are your next steps?

The first point to make is that contract law has never been a fan of the Old Testament principle of “an eye for an eye”. If the other side from you on a contract has not met their obligations, that does not allow you to ignore yours. More on this later.

The second point I would like to make is that contract law views each contract between parties as free-standing. You might have 200 contracts outstanding (e.g. if you supply a supermarket chain), but you cannot set-off. Setting off means “I owe you 10 under this contract, but you owe me 5 under that other contract, so I will just pay you 5, and we will call it quits”. Do that and you will be in breach of contract if the other party does not agree to the set-off.

Here are the steps I would take to analyse your situation if you consult me:

What Does Your Contract Consist of?
The first part of your analysis of where you stand in a potential contractual breach situation is to know what your contract actually consists of. Some contracts are self-contained documents drawn up by people like me. But many are messy things comprising an email thread, perhaps some WhatsAppp messages, some standard terms and conditions off your website and what was said during a very strained telephone conversation with the other party. A contract can be formed orally, in writing or through your actions, or a mix of these.

Who Are the Relevant Parties?
A classic contract is between party A and party B. Real life is more messy. Other parties can become involved (family members, group companies, executors administering a Will, etc.). Look to see who did what, who is the person doing the breaching, and who is the ‘victim’ (that is not a term we use in contract law, but it works as shorthand here). If all the parties are throwing around allegations like confetti, then some parties may find themselves both ‘perpetrator’ and ‘victim’ at the same time.

What is the Actual Breach?
People often conflate bad, dishonourable or immoral behaviour with a breach of contract. The two are not usually connected (although the law will not recognise the existence of a contract for an illegal purpose, so you cannot sue somebody for failure to carry out a hit that you paid them to do). On the other side of that same coin, being right is not a bullet-proof vest. You can be totally in the right but legally in the wrong. What contract law does is force you to honour the terms of your agreement, regardless of whether it is stupid, distasteful, economically ruinous for you or just the worst deal ever.

So, identify the actual breach by reading the contract very, very carefully. The precise meaning of every word potentially counts. People who skim read contracts clearly like taking risks.

Is the Breach Major or Minor?
I mentioned earlier that just because the other party has breached their obligations under the contract does not allow you to automatically ignore or breach yours. What you can do depends on how serious the breach is. If it is a major breach (they have not paid) then the default position is that you are entitled to end the contract immediately and claim damages. If it is a minor breach (you promised to deliver 10,000 cups, but actually delivered 9,998 or 10,002 then the law says you must either continue the contract and claim damages if you have suffered any loss from the breach or just carry on and ignore the breach. If it is a major breach and damages would not be a sufficient remedy (e.g. the funeral home will not return mum’s ashes) you can ask the court to force the other party to do what they promised to do – which is called seeking specific performance.

I said “…the default position…” because often contracts will address ahead of time what happens if certain obligations are not met. Depending on how the contract is written, it may not even amount to a breach, it may just take the contract down a different route.

Does Your Contract have a Force Majeure Clause?
An FM clause, if you have one in your contract, usually addresses what happens if something major (like, COVID-19) comes along and stops one or both parties from fulfilling their contractual obligations. What happens depends entirely on what the FM clause says. Some just freeze everything for a few months, others allow termination, others require the parties to find alternative ways to perform the contract. The most effective, but also the most boring to read, will cover all these things. Prior to COVID-19, pandemics were not really on people’s minds, and so many FM clauses do not cover them, rendering the clause irrelevant. FM clauses are not implied (‘implied’ means that the court will assume that the clause is in the contract even if you don’t add it).

Is the Obligation Allegedly Breached Mandatory or Discretionary or Conditional?
Look very closely at the wording used:

– “Party A shall deliver 10,000 cups to Party B within 30 days…” is pretty definite, and so will be hard to wriggle out of.

– “Party A may deliver 10,000 cups to Party B within 30 days…” or “Party A shall use reasonable endeavours to deliver 10,000 cups to Party B within 30 days…” or “Provided Party B has done XYZ, then Party A shall deliver 10,000 cups to Party B within 30 days…” all give a lot more wriggle room!
Does it Look Like the Other Party Will Breach?
Previously I have said that if the other side does a major breach of the contract, then you can either end the contract and sue, or continue to perform the contract and sue (or indeed ignore the breach completely and just carry on).

But what if you know the breach is coming, it just hasn’t happened yet? If you stop performing first, then maybe they can allege you are the one in breach.

Well, the law has a remedy called “anticipatory breach”. Provided you can show that they were going to breach (or at least justify it as a reasonable belief), you can be let off your obligations. So, if your obligation was to deliver 1,000 beef burgers to a fast food restaurant, but you knew the restaurant was closed because of lockdown and there would be no one there to take delivery, then you would not be expected to waste time and money loading and driving a van full of burgers to an empty shop. The moral is don’t focus just on you – what about them?

Next, We Look Outside the Contract
If the wording of the contract itself does not help your position, then next we look at some legal principles that you may be able to rely on. A word of caution though, for the most part, the wording in a contract is sacrosanct. The courts do not try and look at the intention of the parties if the clear and ordinary meaning of the words used (assuming they are not context-specific jargon) is clear.

I need to give a small lawyer’s caveat here. These principles are old. Some are positively ancient. That means they have been poured over by the courts for generations. The law is complicated and subject to numerous exemptions, special circumstances, caveats and conditions. To see whether it will apply in your situation requires an analysis of your situation and its unique facts.

The Principle of Frustration
As a starting point, if performance of a contract becomes more difficult or uneconomic, tough – the party who fails to perform is liable in damages.

Frustration is an exception to this. A contract may be terminated on the basis of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract, or transforms the obligation to perform into a radically different obligation.

This is the closest the law gets to implying a force majeure clause, but although apparently similar, they are not the same thing at all.

Generally speaking, a ‘frustrating event’ is an event which:

occurs after the contract has been formed;
Is so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract;
Is not due to the fault of any party to the contract;
Renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.
The doctrine has been around for over 150 years, and as be developed by various court decisions, some of which actually contradict each other (migraine time for lawyers) – so the law is quite complex, but in essence, frustration may apply, if, as a result of COVID-19, performance of the contract has become legally or physically impossible through no fault of the parties.

It will not be frustration:

If the contract deals with the situation (e.g. there is a relevant force majeure clause); or
If the parties to the contract should have foreseen (or did foresee) the frustrating event, when they made the contract.
The exact circumstances of each case will be crucial. By way of example, if a sports clothing company contracted with a TV channel to show adverts during the half times of specific football games which because of COVID-19 were then cancelled, the sports company would have a strong argument to claim frustration.

BUT they would not be able to rely on frustration if their contract with the TV channel simply stipulated the times and dates when their adverts would run (those times and dates having been chosen to coincide with the football matches’ half-times of course).

In the former case the matches no longer existed and therefore the relevant break time did not exist either. In the latter case, The TV channel was still able to run the adverts at the agreed dates and times except they might be sandwiched between old soap repeats instead – but because the contract could be completed there was no frustration (in the legal meaning of the term anyway…).

The consequences of a contract being deemed frustrated by the court after a court case is that the contract ends automatically and immediately, without any action by the parties, who then have only very limited rights of redress from each other (basically the losses fall where they fall).

The Principle of Illegality
A principle of English law is that the court will not enforce a contract which requires something illegal to be done (e.g. a contract to kidnap somebody).

When as part of the COVID-19 lockdown, the government ordered various businesses to cease trading such that they could not continue in business without breaching that order (and thus be acting illegally) then those businesses could potentially seek relief from claims against them under the doctrine of illegality.

The problem is that the doctrine has been established through various court decisions, some of them (yes, you’ve guessed it) contradictory.

Therefore, the starting point is to review the statute or other regulation that makes the act illegal. Then decide whether the statute prohibits performance of the contract or just part of it, and if just part of it, whether that could be worked around in a legal manner. For example, many cafés were able to keep operating by providing a takeaway service, so quite a few of their contracts may not have been illegal to perform, even if in real life actual performance was heroically pointless and economically ruinous. Those things are not illegal. As with force majeure and frustration, illegality cannot be relied upon just because it makes compliance with contractual obligations difficult or uneconomic.

Are There Any Technicalities That Can Help?
For those of my colleagues who spend their time litigating contracts, there appears to be a hierarchy of defences/attacks.

At the top is: contract interpretation – does the actual contract tell you whether you are in breach of not?

Next, you look to see whether there are any legal principles you can rely on.

Failing both of those, the next step down on the ladder is looking to see whether there are any technicalities that can help you even if the actual case is not to your advantage. Some of the things lawyers look at are:

Does the Contract Have Any Trips-ups or Traps?
Previously we looked at analysing the contract to see whether or not there was actually a breach. There is a second level of contract analysis that may be relevant if there is indeed a breach. These are the clauses in the contract that business-people tend to assume are peripheral, almost to the point of irrelevancy. There is even a term for many of these clauses: boiler-plate clauses. They are often given scant regard because the popular conception is that they are unimportant.

It can be a big mistake to rely on popular conceptions when it comes to the law. In contractual terms, the court treats every single clause as being of equal importance.

An example of another popular misconception is the concept of the non-executive director. That is a short-handed business term used to describe directors who are not really involved in the day-to-day running of the business, and so who can (in theory at least) step back and consider the bigger picture.

Except the truth is that in law you are either a director or you are not.

In terms of legal compliance, obligation and legal liability there is no difference between a non-executive director and the managing director – as many NEDs find out when things go wrong, and they find that they are not treated any differently from the ‘executive’ directors who actually caused the problem.

In contract terms, this equality of clauses can catch people out very easily. If buried away in the boiler-plate notice provisions is a sentence or two that says:

“Both parties shall be deemed to have waived their right to take action for any breach unless they serve notice to the breaching party within 28 days of the date on which they became aware (or should have become aware) of the breach.”

Even more insidious, the clause might go on to say that if they do serve notice they have to serve it addressed to the company’s registered office. It is all too easy to overlook such a provision if the company’s main place of business is not its registered office. So, on a minor technicality like that, strong and major claims for breach may fail.

Another common provision which is often overlooked is a dispute resolution clause which requires mediation or arbitration. In my experience, when emotions are running high and one or both parties are demanding the matter go straight to the highest court in the land, such provisions are ignored. But the court will not ignore them and will most likely throw out any claim brought without even giving it proper consideration.

Another technicality that catches people out frequently is something called “deemed waiver”. The law assumes that if there is a contractual dispute then the parties will act rationally and with consideration. In my experience, that is rarer than you might think.

The messy reality of commerce means that things may fester for quite some time before becoming an open conflict. However, the court expects parties to respond immediately and decisively to major breaches of contract. Where they do not (i.e. most businesses) they run the risk of being deemed to have waived their right to complain later. In other words, the court says

“Party A broke the contract in the most serious manner, but for the next three months you carried on with business as usual: you lost your chance to complain, it is too late.YOU did not treat it as serious, so do not ask us to (you hypocrite you…).”

Last Chance Saloon
If none of the above assists, then you may find yourself, as so many do, so often, having to play the ball instead of the man – in other words, your claim or your defence is rubbish, so you are going to have to see if there are any weaknesses in your opponent you can manipulate or smaller ancillary principles you can pull in to your advantage.

The first is a simple one – was the contract on either side properly signed by a sufficiently senior person with the proper authority – it’s surprising how often this is an issue.

Next, look beyond the strength of the claim to see what the consequences of winning/losing are.

The purpose of damages in contract law is to put the wronged party back in the position they would have been in had the breach not taken place. Calculation of damages is an incredibly complex area, but for the purposes of this article you should assume that if you brought a court case for breach you would look to be awarded the profit you would have received had the contract been performed. So, rubbish expected profits = rubbish damages.

The court normally looks to pay out your direct loss, not your indirect or consequential loss. So the fact that you claim that you would have used the profit to invest in Bitcoin just before its latest bubble surge and so your loss is actually a hundred times greater than just the lost profit on the contract is a hard sell to make to a generally sceptical court.

Further, you will need to take into account the legal principle of “mitigation of loss”. If the other party was going to buy your 1000 fresh, organic, beef burgers for (say) a profit of 10, then you cannot sit back and claim 10 if you could have sold those beef burgers, even at a fire sale price of 3 to, say, a hospital canteen. The court will expect you to have done so. It will expect you to have at least tried to lessen (mitigate) your loss. It is likely the court would award you 7 as a result.

Since the court likes to award for actual loss, not paper loss, then it is important to see if the wronged party had insurance. If they had insurance, then they may not have suffered any loss other than the cost of the insurance premium. It is very unlikely that both the court and the insurance company will payout.

Another factor is the nature of the legal wrong. There are three main types of legal wrong that people sue each other about:

Contract claims
Claims in tort (of which negligence is the best known)
Claims in equity
The first two are what are called legal claims – in other words, they are claims asking for money. The third claim is an equitable claim. It is asking the court to use its power to either force somebody to do something (specific performance, mentioned earlier) or to force someone not to do something (an injunction). Equitable claims, by their very nature, tend to be more complicated and nuanced. The court is also generally more reluctant to force somebody to do something or not do something because the sanction for failure to comply is usually gaol (or jail if you are under 50).

I said earlier that in contract law the court does not care about morality unless it is a major issue. That is not true for equitable claims. There is a saying that someone who makes an equable claim must do so with “clean hands”. That doctrine, and a few others like it, basically mean that the court will be reluctant to grant somebody’s equable claim if they themselves have been acting poorly. This comes back to the behaviour of your opponent and may torpedo their claim.

The final major factor to consider is the one which probably determines more potential claims than anything else – the cost of bringing a legal action.

The cost in time, money and emotional stress can be absolutely phenomenal. Only the very smallest tip of the dispute iceberg makes it into court. The majority of claims are never pursued because of the cost.

Even when claims are pursued, the majority of people who win a legal case feel like they have lost. They were owed 10, the court awarded them 8, their legal fees were 4 and the business they lost by litigating instead of doing business was 5. Even though they won, they ended up with -1.

Another popular misconception is that the loser pays the winner’s legal fees. Typically (and for reasons that are outside the scope of this article) losers typically reimburse only around 60% of a winner’s legal fees – that is assuming they pay anything at all, and do not just go into insolvency or ignore the court order.

Conclusion
So, other than the advice to think very carefully before engaging in litigation, what is the main takeaway from this article?

It is that a contractual dispute can be a battle fought across many battlegrounds – some of which you are only dimly aware of, but which may determine the outcome.

That leads me onto a personal opinion formed after many years’ observation: law is just a tool and litigation is just a tool. They are tools used by people. The carpenter decides how the wood is worked, not the chisel. The same in litigation. Many a strong case is either lost (or more likely goes nowhere in the first place) because the client does not like confrontation, does not have the money, does not want the matter to get into the press, does not want to devote the huge amount of time it would take to bring a case. Equally, I have seen people with very poor claims or defences succeed because of their aggression or persistence or willingness to spend the time and money just to grind the other side down.

Without in any way diminishing the often life-changing implications of breach of contract, it really often seems to play out like a poker game. How you present yourself and your attitude can be more important than the quality of your claim or defence (especially if it will take time and money to even work out the strength of your position).

Obviously this is fairly irrelevant if you are serving or going to be sued by the government or Facebook. But for smaller disputes where the deciding persons (often called the “controlling minds”) have personal skin in the game, and it is not just another file on their desk, then working out how they will act/react (if I can) will inevitably be one of my first considerations.

Although this article of necessity strayed into the field of litigation, I am a commercial lawyer and when I am involved in contract disputes it is usually with the hope of avoiding litigation. Those are the cases I like!

Don’t take the gamble with your Ground Rent…

Have you been approached by your Landlord to vary the Ground Rent in your Lease? Was Taylor Wimpey your Developer? Do you deal with Estates and Management or Landmark? These are just three of the companies that we are aware of that have been contacting their Lessees (flat owners) to offer a Deed of Variation varying the Ground Rent provisions in their Lease.

An increasing number of mortgage lenders will now not lend on flats where the Ground Rent doubles every 5, 10 or 15 years. Our advice generally is to not accept any Ground Rent that doubles throughout the term.

In addition, an increasing number of mortgage lenders will also not lend on flats where the Ground Rent is between 0.1% and 0.5% of the market value of the property.

Another lesser known issue is that when the Ground Rent of a flat is £250 or more a year (£1000 or more a year in central London), it may fall within the definition of an Assured Shorthold Tenancy and the Landlord has a mandatory ground for possession should the flat owner fall into arrears. The Courts do not have the power to stop or prevent possession on this ground (known as the Ground 8 Possession problem). We now know that a number of high street mortgage lenders will also not lend on a property where this risk is present.

In our experience, Taylor Wimpey, Estates and Management and Landmark are (in certain circumstances at least) offering to vary the Ground Rent so that rather than doubling, the Ground Rent increases in line with the Retail Prices Index. This is done by way of a Deed of Variation and then registered at the Land Registry against your title. If you have a mortgage, we will need your lender’s consent to the Deed of Variation.

In addition, a number of Landlords have signed up to a Government pledge to remove doubling Ground Rents from their leases. If you follow the below link, you can find out if your Landlord has signed up to the pledge:

https://www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders

The only way to be rid of the Ground Rent entirely is to serve a Notice on your Landlord claiming your right to a statutory lease extension under the Leasehold Reform Housing and Urban Development Act 1993. If you have owned your flat and been the registered owner at the Land Registry for 2 years then you qualify for this right. In addition to extending the term by 90 years, your Ground Rent is reduced to a peppercorn, which is zero. You will have to pay your Landlord a premium in return for the additional years and reduction of rent and their legal and valuation fees (as well as your own).

At Mayo Wynne Baxter we have a specialist Leasehold Enfranchisement Team that practices in this area; we have dealt with a vast number of Lease extensions and Deeds of Variation. Please do not hesitate to get in touch with the team if you wish to discuss your Ground Rent, or, indeed, any query about your Lease.

Lord Templeman was well known for his bold and significant contributions to English Law. One of his most profound was the ‘golden rule’ established in Kenward v Adams [1975] CLY 359:

“In the case of an aged testator or a testator who has suffered a serious illness, there is one golden rule which should always be observed, however straightforward matters may appear, and however difficult or tactless it may be to suggest the precautions be taken; the making of a Will by such a testator ought to be witnessed or approved by a medical practitioner who satisfies himself of the capacity and understanding of the testator, and records and preserves his examination and finding”.

Following case law established this, not as a rule but as good practice and a relevant consideration in circumstances where the testator’s capacity is likely to be contested.

When Lord Templeman made his own Will he was 88 years old and suffering from mild dementia and short-term memory loss. However, there was no medical practitioner present at the time his Will was prepared.

Lord Templeman had two children from his first marriage. Following the death of his wife Margaret, he married Sheila. She had two children from her previous marriages.

Upon his marriage to Sheila, Lord Templeman moved to Exeter and lived with Sheila in her home ‘Mellowstone’, which Sheila had built with her previous husband.

In 2004 Lord Templeman executed a Will and Codicil which reflected the Will of his wife. Sheila died on 11 June 2008. On 22 August 2008 Lord Templeman executed a new Will. This Will left Mellowstone to Sheila’s grandchildren.

The claimants, Lord Templeman’s own children, contested the 2008 Will on grounds that there was no rational explanation for the change to his testamentary wishes and that he did not sufficiently appreciate the effect of the change on his own family and so he lacked testamentary capacity.

The court found that there was no evidence to suggest that Lord Templeman’s mental functioning was impaired in 2008 to any significant degree and that Lord Templeman was aware of his previous Will and Codicil because they were kept to hand in his office and he is likely to have remembered them. The court also found that Lord Templeman was close to Sheila’s grandchildren. Furthermore, the court noted that Lord Templeman was a strong and decisive person.

On the issue of whether Lord Templeman should have followed his own golden rule, the court said it was evidence “of the commonplace that people who are able dispassionately to give good advice to others do not always follow such advice themselves”. Given Lord Templeman’s intellectual resources, and the rational terms of the 2008 Will the court did not find it surprising that Lord Templeman’s mental capacity was not medically assessed.

The court also noted that “the test of testamentary capacity does not depend on a testator’s ability to judge to a nicety the relative merits of the rival claimants, or judge correctly to what extent their needs have already been met from some other source. It depends on having capacity to appreciate those persons who have a claim and to decide fairly between competing beneficiaries, making provision for some and not for others” when the issue of the grandchildren having already been provided for by Sheila was raised.

The court concluded that Lord Templeman did have testamentary capacity at the time his 2008 Will was prepared, and it was admitted to probate.

The issues raised in this case are not unique – particularly the difficulties between children and step-children and it demonstrated the difficulty in succeeding in such a case. One of the main lessons from this case is that impaired short-term memory and slight dementia does not mean that a testator does not have testamentary capacity.

Furthermore, the court found that it was not surprising that the solicitor instructed to prepare the Will by Lord Templeman had not sought approval from a medical practitioner, and that even if he had followed the golden rule, this does not guarantee that litigation would have been prevented.

If you are unsure if your Will could be contested or think there might be a need to contest a Will then call our Contentious Probate team on 0800 84 94 101 who can explain more.

The Difference Between Lasting Powers of Attorney & Deputyship
In the Deputyship Department one of the most common questions clients ask us is “What’s the difference between Lasting Powers of Attorney and Deputyship?” The answer is fairly straightforward – a Lasting Power of Attorney (LPA) is a document that you sign whilst you still have mental capacity, appointing someone to be your Attorney to act on your behalf. A Deputyship is when the Court appoints someone to be your Deputy (similar to an Attorney) to act on your behalf, once you have lost mental capacity. Both arrangements appoint someone to act on your behalf when you can no longer manage your affairs, but one takes place before losing capacity (LPA) and one takes place afterwards (Deputyship).

Lasting Powers of Attorney
There are two types of Lasting Power of Attorney, one which deals with your property and financial affairs and one which deals with your health and welfare decisions. You can have either, or preferably both, and you can have the same or different Attorneys for each. Once the documents are signed by both you and your Attorney(s) they also need to be signed by a Certificate Provider, who is a professional person (ideally your GP) or someone who has known you for longer than 2 years. The document is then sent to the Office of the Public Guardian for registration and, once returned, can be used immediately if you lose capacity to make decisions or manage your own affairs (or in the case of a property and financial affairs appointment for convenience if, for example, you were on holiday and needed something signed). You can include various clauses in your LPA, such as giving your Attorneys the power to defer decisions regarding your stocks and shares to a portfolio manager, or not allowing your Attorneys to use the document until a GP has confirmed that you have lost capacity.

Deputyship
A Deputyship Order can only be issued by the Court of Protection. If an individual loses capacity to deal with their own affairs and they have not made a Lasting Power of Attorney then an appropriate person can apply to the Court to be appointed as their Deputy. A Deputy has similar responsibilities to an Attorney, with some additional duties because they have been appointed by the Court.

A Deputyship application is made up of a minimum of four forms which provides the Court with all the necessary information it needs to make an informed decision. The forms are extensive and include details of the protected person’s personal circumstances; their full financial details; a medical opinion confirming lack of capacity and details of the proposed Deputy’s personal and financial circumstances. These forms are sent to the Court with an application fee. At least three people in the protected person’s life must be notified of the application and these can be family, friends and/or their GP if necessary. Once these people have been notified there is a statutory waiting period of four weeks within which they can raise any objections to the application.

Once the notice period has expired the application will be placed in the Court queue to be examined thoroughly and signed off by a Judge. Before an order can be issued the Deputy must pay the first annual bond premium which protects the protected person against losses from Deputy fraud. Once the bond is in place the Court will issue the final Deputyship Order, which is the document which gives the Deputy authority to act.

A Deputy is required by the Court to keep complete records of all income and expenditure of the protected person and to complete an annual report on the anniversary of the Deputyship Order including all of this information.

Costs and Timescales
As you will have gathered, the Lasting Power of Attorney process is much simpler and quicker than that of a Deputyship application.

Our current costs for a Lasting Power of Attorney are £500 plus VAT for one document, £750 plus VAT for two and £1,000 plus VAT for both finance and welfare documents for a couple. A registration fee of £82 for each document is payable to the Office of the Public Guardian. Registration takes roughly two months to complete.

We estimate our costs for a straightforward Deputyship application at between £2,000 and £2,500 plus VAT. In addition to our costs the Court application fee is £365, the annual bond payment is generally between £200 and £400 and there is an annual supervision fee also payable to the Court of £320 (unless the protected person’s assets are below £21,000 when the fee amounts to £35 per annum).

A Deputyship application takes roughly six months from initial instruction to the issue of the final order. During this period the protected person is no longer able to make decisions for themselves or sign cheques or financial paperwork, but neither is the Deputy as they do not yet have authority, leading to a protracted period of ‘no man’s land’ where no-one can settle expenses, enter into new contracts etc.

We are always keen for clients to sign Lasting Powers of Attorney to avoid the necessity of a Deputyship Order later on in life. Any of our Probate Trusts and Wills Practitioners can assist you with your Lasting Powers of Attorney documents. However, when it comes to Deputyships we have a highly experienced Deputyship Team, who specialise in applications to the Court, annual reporting and the day to day running of Deputyship matters for both elderly clients, adults lacking capacity and brain damaged infants. Because our team are dealing specifically with these matters on a daily basis they are able to deal with your matter more quickly and efficiently than other firms who may only deal with these types of matters sporadically. With most professional costs incurred in connection with Deputyship matters being assessed by the Court before settlement, you could pay the same professional fees for an excellent service as for a less efficient service elsewhere. You can meet our Deputyship Team by clicking here

Tracy Rowden

Associate & Chartered Legal Executive

When you make the decision to move home but you need to sell one home to buy the next, like the majority of home movers, the process generally starts with getting your home valued by one or more estate agents. You have chosen your agent, now you need that offer to be able to start the whole process, a process in England and Wales which is often criticised for being unnecessarily slow. Because our solicitors are both legal professionals and providers of a customer-focused service they understand that communication is key to alleviating these frustrations but it is also possible for the home seller to use the time between entering the market and accepting an offer to instruct a solicitor and therefore be instrumental in cutting the overall transaction time by weeks.

There are two or, if you are a leaseholder, three essential forms provided by the Law Society that must be completed in order to be sent to your buyer’s solicitor. These forms are the Property Information Form, the Leasehold Information Form and the Fittings and Contents Form, legally known as TA6, TA7 and TA10. They are lengthy and often require the seller to provide information and evidence of certain things, things that a buyers solicitor is likely to ask for down the line if they are not provided with an initial contract package. Some of the information you will not be able to provide perhaps until you have found your next home as you may not know what you need to take from your current home but the majority of the information you will be required to provide you should be able to obtain.

Common items of information that take sellers time to find or obtain are often things like planning permissions, building regulation certificates, guarantees, electrical and gas certificates and insurance policies etc. Leasehold sellers often struggle with things like providing evidence of consent for alterations and finding out who actually deals with things like block insurance and aspects of management. If these things are collated prior to finding a buyer we will often see a number of weeks come off of the time taken for the conveyancing process to be completed.

As a firm Mayo Wynne Baxter can help you to get these few steps ahead by taking your formal instructions to act for you in your sale at the point of you marketing your home. On receiving your instructions we are obliged to run Anti Money Laundering checks which are done on receipt of your identification documents, we can then send out your initial letters with the aforementioned forms for you to complete without the pressure that having to find all the relevant information in a short space of time may put you under if you wait until you find your buyer.

People are often concerned that if they do this they will incur fees but apart from the £6 per person it costs for the Anti Money Laundering checks we are able to get you this far into the process at no cost with the view that once your buyer is found we will be in a position to send a full contract package weeks earlier than if we had to wait for all the required information and forms to be completed after you had accepted an offer. This means that you will move quicker just by engaging us to act for you at the point that you put your home up for sale rather than waiting until your buyer has been found.

Our friendly and approachable conveyancing team are homeowners themselves, so fully understand what it feels like to buy or sell a house. We specialise in international property so we can help with an overseas move or holiday home purchase.

Leasehold: ‘People who buy Leasehold Properties are being misled and taken advantage of’ say the CMA
An update on this article can be found here.

The CMA (Competition and Markets Authority) have today released the result of their enquiry into whether leasehold homeowners have been unfairly treated and prospective buyers misled by housing developers.

The main concerns when they started their enquiry were:

– Escalating ground rents that have led to leaseholders not being able to sell

– Misleading information about the cost of buying the freehold – for example, being told at purchase it will cost a minimal sum, only for leaseholders to find a short time later that the cost is much higher

– Misleading information about the difference between freehold and leasehold

– Onerous leasehold contract terms

– Unreasonable and excessive fees for shared areas with only expensive and costly ways to contest those fees

The CMA have found ‘worrying evidence that people who buy leasehold properties are being misled and taken advantage of’ (Andrew Cocelli – the CMA’s Chief Executive).

Interestingly the CMA say that they will shortly be taking their own enforcement action directly in the sector in relation to those companies that it believes have broken consumer protection law. They have not specified what this will involve, but it is assumed that they may be looking at asking businesses to sign legal commitments to change the way that they conduct their businesses in future.

What does this mean for trapped leaseholders though?

The recognition by the CMA of the difficulties that leaseholders are facing is, no doubt, welcome. It will make buyers think very carefully about whether to purchase a leasehold property in future. However, does this actually help you if you are experiencing difficulties with your leasehold property now?

The short answer is – probably not just yet.

The pressure on developers and landlords to offer some assistance to leaseholders who find themselves in difficulty is increasing. You only have to go on social media and search for #leasehold to see the depth of feeling from consumers.

Taylor Wimpey has had a ‘leasehold assist’ scheme in place for some time which essentially involves converting doubling ground rents (which lenders may not accept) to RPI increasing ground rents (which lenders have not yet rejected). We are also aware of some Landlords who have been offering similar deeds of variation to alter the ground rent increases in leases where lenders have indicated they are too onerous to lend on thereby becoming unsellable – though these are often at the expense of the leaseholder who has to pay a substantial premium and so are still not ideal.

We hope that the CMA’s involvement may result in other organisations committing to similar schemes that may help leaseholders currently in this position and to preventing these issues in future.

What can I do if I have an issue with my leasehold property?

If you want some information on your options then we are here to help:

Escalating Ground Rents – leases can be varied if the parties to them are able to agree. Alternatively, if you exercise your right to a lease extension then the ground rent will be reduced to a peppercorn. Our Enfranchisement team can advise you on the options open to you.

Misselling/Misleading information at the point of purchase or lease extension – if you feel that you were mis-sold to or were given incorrect information at the point of purchase our Professional Negligence experts can advise you about any potential action you may have against your former advisers, or the developer that sold your property to you.

Buying the Freehold – If you own a house then you have the right to purchase the freehold of your house under the Leasehold Reform Act 1967 and if you are a flat owner then you can get together with your neighbours and force your Landlord to sell you the freehold under the Leasehold Reform Housing and Urban Development Act 1993. Our specialist Enfranchisement team are here to advise you and guide you through the process.

Unreasonable and excessive fees – There are a number of ways to contest unreasonable fees that are being charged by your Landlord under your lease. The Property Tribunal is a useful resource with the power to determine issues between residential landlords and leaseholders particularly in relation to charges being raised.

Alternatively, if you’d like to have control over these costs we can advise you on obtaining the right to manage your own building if you are a flat owner. Unfortunately, this right doesn’t apply to houses.

I’m a freeholder and I’m still experiencing these problems – what about me?

There is so much emphasis on ‘leasehold’ properties that one could be forgiven for thinking that freehold properties are the answer to all of these problems. Unfortunately, that is not always the case.

Most freehold properties enable the owner to manage their own repairs and services so that you can do what you want, when it is convenient for you, without needing to ask permission from a third party. However, increasing numbers of freehold properties are being sold with a requirement to pay towards communal areas of the estate on which they are built and the charges raised are set by a third party – i.e. a management company, the developer, or a third party that purchased the estate from the developer. There may also be restrictions in the transfer deed stating that you can’t alter the property without permission.

Many homeowners find themselves being asked to contribute estate charges at a level which they consider to be unreasonable and to pay premiums just to get consent to alter their homes.

The owner of a leasehold property can apply to the Property Tribunal for a determination of the reasonableness of the service charges or any other fee their Landlord demands. If the Landlord can’t show the sums are reasonable then the Tribunal can decide that the Tenant doesn’t have to pay those fees. Freeholders cannot apply to the Tribunal in the same way and instead have to apply to the County Court. This is a much more onerous and expensive process which means most freeholders find themselves simply accepting that they will have to pay up the sums demanded not matter how unfair they seem.

Not only that but the consequences of not paying can sometimes be just as, if not more, draconian than those which befall a leaseholder. If the charge is by way of an ‘estate rentcharge’ then the owner of the rentcharge can take possession of your property or obtain a lease over it in their favour if you don’t pay the charge for more than 40 days, even if it has not been demanded. The leaseholder in a similar situation can ask the Property Tribunal for help, the freehold owner can’t and there are only limited grounds to contest.

If you are a freeholder who is experiencing problems then we are here to help too!

Contact us on 01273 477071