Landed Estates and Heritage Property webinar series
Successful landed estate management is becoming increasingly complex for landowners and managing agents to navigate. Our four-part webinar series explores ‘hot’ topics of risk and opportunity that go hand-in-hand with the running of landed estates and heritage properties.
Part 1: Property
The first webinar in the series provides a detailed update on a wide range of property related matters. Waste management is discussed, with a focus on The General Binding Rules 2020 that govern the use of septic tanks, set by the Environment Agency. To follow is a run-through of the considerations when letting land for equestrian use, farm business tenancies and an equine property update. Hazard maintenance is the third topic, which is particularly useful for architects, engineers, surveyors, managing agents and arboriculture experts. Finally, there is an introduction to the Homes for Ukraine Scheme and the key legal points to consider.
Today’s webinar is all about matters property related, covering septic tanks, horses, falling trees and housing Ukrainian refugees.
Today’s panel is made up of Naomi Nettleton, who is a partner in the Real Estate team. Naomi specialises in the commercial property elements of landed estates and rural properties, with particular expertise in the events sector.
Naomi has the glamorous job of talking to you about septic tanks today and, in particular, the rules that are now live in relation to septic tanks that drain to surface water.
Our next speaker is Kate Eckley, who is a senior associate in the Private Property team with a particular interest in equestrian matters.
Today, Kate is going to talk to you about what to think about when letting out property for equestrian purposes.
Our third speaker is Manoj Vaghela, who is a litigation partner with over 30 years’ experience of cases relating to real estate and land and usually involving architects, engineers, surveyors, managing agents and arboriculture experts.
He also has an inside track on the insurance market; today he will talk to you about private nuisance claims involving trees and the ramifications of what happens when landowners and managing agents get it wrong.
Finally, Sam Lear, who is an associate in the Real Estate team. Sam advises on a range of commercial and residential disputes and also specialises in telecom matters. But following an influx of queries, Sam will be providing a brief introduction to the ‘Homes for Ukraine Scheme’ and will provide some starting points for consideration for those considering entering the Scheme.
Part 1: Septic Tanks
We have had quite a few clients that have been caught out by this, so I thought it was really worth flagging to everyone. I only have five minutes so I felt it important to flag up the main issues, put it up and then you can come to us if you have any questions
What is a septic tank?
A septic tank is an underground watertight container which collects sewage and wastewater from a property where that property is not connected to mains drainage.
One thing it is not, is a treatment plant. It’s effectively a tank that sits in the ground. It collects the sewage; the liquid elements go out and the solid elements stay and are then collected by a man in a lorry (it could be a lady in a lorry).
The general binding rules
The General Binding Rules 2020 that govern the use of septic tanks were set by the Environment Agency in a bid to protect England’s natural water resources, such as rivers and streams and, in particular, the rules state that discharges from septic tanks directly to surface waters are prohibited. So, it’s important that you try and work out if your septic tank is discharging into ground or if it’s discharging into surface water.
Septic tanks that drain to surface
Now, because septic tanks that directly drain into surface waters are now prohibited, it’s important that these are replaced or upgraded as soon as possible. And the way to do that could be to connect into the mains if you are near enough to do so (although in most cases is unlikely given that you are already on non-mains drainage). Because if there is no mains near you, you could install a drainage field or a British standard compliance soakaway system so that the septic tank can discharge to the ground instead or you could replace your septic tank with a sewage treatment plant. This will work in a similar way to a septic tank; however, the treatment part uses mechanical parts to treat the water to a higher standard so that it can be discharged into the waterway.
Now, although these rules say 2020, you actually are obliged to comply with them now and the deadline for doing so, the government did extend it, but even with its extension it’s still September 2020. So, if this is on your radar and you have got septic tanks that do drain to surface waters you need to have a look at this.
As well as the general rules about upgrading, you also need to be aware of the general binding rules in a wider sense. I haven't got time to talk about those in depth, however, the discharge can only be two cubic meters or less a day. And this is because the general binding rules allow domestic small volume septic tanks to discharge to not need a licence, but you can only get the exemption from the licence if you fall into this classification and one of those things is that you discharge only two cubic meters a day or less. It’s domestic sewage only; now that’s actually quite a wide sense. We have clients who have pubs, hotels, offices within their estate, listed buildings and landed estates and all of those are still OK – they are still domestic sewage. The key thing is that there must be no trade effluent going out into the system. The system must be correctly installed and regularly maintained and have the right capacity. But if you get your system replaced with a known provider, that should all be OK.
Some other rules to bear in mind are that the discharge must not be within or near a designated sensitive area. Now that is particularly relevant for those areas where there might be boreholes or springs that are used by the public for drinking water or for food production. You can understand why that might be the case. The other thing to bear in mind is that the discharge into the surface water must be made into surface waters that normally have flow throughout the whole year. So, in order to have a look at this you might get an expert to stick a camera around in a very dry summer month during July – September and have a look to see if there’s water because there needs to be water flowing freely throughout the year(s) so that nothing stays stagnant.
Potential liabilities for pollution / rights and easements
I'm not going to have time to talk about these, but remember that if you are not doing this, not only can you be fined or for other penalties, but there are potential liabilities that you are polluting not only the land where you are discharging (which could be your own land) but also other land if you are discharging into surface water and that water is flowing away. And also to bear in mind where those flows might be going or where the septic tank is to make sure you have got the right rights and easements to (a) install your tank and its pipes and (b) run those pipes and that drainage over other people’s land.
Part 2: Considerations when letting land for equestrian use
Farm business tenancy?
I'm going to talk about equestrian lettings. Given the type of Estates that you are managing and that we are dealing with, it’s not inconceivable that at some point somebody is going to come along and ask you for a tenancy on the land for their horses or to lease some facilities, stables or otherwise, for their commercial or personal use. So, the purpose of this talk is to assist you in navigating the various arrangements that equine occupation may call for and in what circumstances you should deploy them.
So, because we are talking about horses and horses are animals, one of the things we often see is people automatically turning to the farm business tenancy regime to document the arrangements. However, for the reasons that I will set out, you should exercise caution before proceeding down this route.
Commercial or common law tenancy?
So, going quickly back to basics, for a tenancy to qualify as a Farm Business Tenancy (FBT), it must meet the business condition, i.e. there must be commercial farming on all or part of the holding as well as either the agricultural condition or the notice condition, both of which require, amongst other things, that the tenancy be wholly or primarily agricultural at the outset.
What do we mean by agricultural?
Again, going back to the Agricultural Tenancies Act 95, the definition of agricultural includes the breeding and keeping of livestock as well as the use of land as grazing land. And it’s really the livestock definition which starts to cause us problems in the equestrian tenancy world and cause them to fall foul of this regime because unless you are keeping the horses for the production of meat (unlikely in this country) or for pulling a plough, then this isn’t the place to start your equine tenancy. You might say, and quite a few people do, well okay but the definition includes using the land as grazing land, so surely it’s an FBT. Well, no, because just because the horses are grazing that really falls foul of the wholly or primarily test by simply grazing, not to mention the fact that for most circumstances the land will be used not just to feed the horses, but also as somewhere to keep them and so it’s for this reason we would urge you to exercise caution before thinking about granting an FBT where horses are concerned.
So, most likely you are going to be in the realms of either a commercial or personal arrangement. So, commercial, if somebody is operating an equine business, such as a livery yard, competition yard, training yard, the correct arrangement in this setting would be a commercial lease governed by the Landlord and Tenant Act 1954; remembering of course that that regime offers tenants security of tenure and therefore being careful to contract out of that arrangement prior to entering into the lease. If there is no business element, then it’s a personal leisure recreational arrangement where a simple common law tenancy will probably suffice.
I thought it might be good if we just went through a few scenarios just to see which kind of arrangement would apply in each scenario.
Scenario 1: Mr Speechly wants to graze his horses for a short period of time on your land.
The appropriate arrangement here is a grazing licence. It’s a simple licence, simply permitting him to graze his horses. There is no exclusivity of possession and you, as landlord, remain responsible for all the repairing and maintenance obligations while also continue to claim your BPS.
It’s where he wants to graze on a more permanent basis that quite often we see this FBT confusion coming in, but the key is to go back to the reason for the grazing – is it a business reason or is it just for personal leisure use? In rare cases you might have no FBT but very, very rare, much more likely, a commercial or common law tenancy.
Scenario 2: someone wants to use the premises as a training yard
This would be a fairly simple contracted out 54 Act commercial lease. You might have some gallops on the side, again, nothing agricultural about those – purely a commercial arrangement. So, a contracted out 54 Act lease would be best.
Scenario 3: a farmer who has a dairy or sheep operation, but he also has some horses in training on the side or point to pointing or under rules.
In this scenario you do have your farming operation and so you could grant an FBT but we would recommend contracting that out just to stop it tipping into the commercial lease regime and we would also recommend that FBT notices be served at the outset.
Scenario 4: finally, someone who has aspirations to start a livery yard on the land
So, again, a purely commercial arrangement which would call for a contracted out 54 Act lease and then just remembering that the arrangement between him as the operator of the livery and his liveries would be one of licensor and licensee.
Part 3: Trees: maintenance and liabilities
The Law of Nuisance
An occupier of land owes a general duty of care to a neighbouring occupier in relation to a hazard occurring on his land whether that hazard is natural or manmade. Now you all know that’s Leakey and the National Trust and the standard of duty required is that the occupier should do what’s reasonable to expect him to do in his individual circumstances. And what’s reasonable between neighbours and then reasonable foreseeability.
So, trees are a subset of nuisance, falling trees and the relevant legal principles were set out by Peter Coulson in the Stagecoach Southwestern and Hind case. I’ll summarise them for you, five things:
- First, the owner of a tree owes a duty to act as a reasonable and prudent landowner.
- Secondly, such a duty doesn’t amount to an unreasonable burden or force the landowner to act as the insurer of nature; but you’ve got to act if you see a danger.
- Thirdly, a reasonable landowner should carry out informal inspections on a regular basis.
- Fourthly, in certain circumstances, get an expert in, get an arboriculturist in.
- Fifthly, how much money you’ve got, the resources you’ve got will have relevance to the way in which the law decides whether you discharged your duty in looking after these trees.
Poll v bartholomew
Why is it important? What do trees do? Well, trees fall down. What about trees near highways?
Well, let me talk about the famous case of Poll v Bartholomew.
In that case, Mr Poll was a motorcyclist riding merrily and he ran into a tree that had fallen from the landowner’s land, hurt himself, he sued. Common ground that the landowner was responsible for the maintenance of the tree and secondly that the tree had fallen as a result of a combination of an innate structural defect and high winds.
What then happened is that the Judge had to decide whether a competent inspector with ordinary tree knowledge would have discovered this fungus that harm the trees. You could not see it; it was all hidden away. So, the issue there was whether because these trees were ash trees the landowners should have been put on notice and in that case despite having employed a forestry expert to inspect the trees, the court found that wasn’t enough. The trees needed to be inspected by somebody more qualified with specialist tree knowledge to satisfy the duty of care. So, in that case, the landowner, despite having a forestry expert in place, was found liable. So, that’s pretty scary, but it gets worse.
Gross negligence manslaughter
The examples I am going to give you after this are real examples I have been involved in.
So, the nightmare scenario, what happens if a motorist dies when your tree falls on them?
I had an occasion where a landlord was called in by the police, interviewed under caution for the offence of gross negligence manslaughter. What is that?
- Firstly, you have to see whether there is a duty of care.
- Secondly, if there is one, was the person concerned responsible for acts or omissions leading to a breach of that duty?
- Thirdly, were the circumstances truly exceptionally bad so that it would lead an ordinary person to conclude that this was grossly negligent and required criminal sanction?
- Fourthly, did that breach of duty cause or contribute to a death?
- Fifthly, would a reasonably prudent person conclude that there was an obvious and serious risk to life because of the failure to manage these trees properly?
This is a serious offence.
Sentencing? Well, at the lowest level, has a starting point of two years, but with a typical range of one to four years. So, a landowner whose tree falls onto the highway, and hasn’t maintained it properly, is vulnerable, not just financially vulnerable, but this is serious.
What else? Perhaps we have got an estate management company – is that a way round it? Well, not really, because you have got a law related to corporate manslaughter. So, if it’s held that the company in question was managing the land responsible for the trees and owed a duty of care, then, again, there will be finding of corporate manslaughter; another criminal offence but with significant fines depending on the size of the company. So, for example, a small company, with a £2m to £10m turnover, a fine of between £500,000 to £2.8m. A medium company with a £50m turnover, a fine of between £1.2m - £5m. And a large company would be exposed to a fine of £3m to £12.5m. So, as I have said, serious stuff.
Health and Safety at Work Act 1974
The last bit is the Health and Safety at Work Act. This is quite interesting because if a tree falls and hurts somebody, all that the police would have to show is a material risk to the health and safety of non-employees. Once you do that…trees fall down…it’s an ash tree at a wrong angle, then the burden of proof is reversed. It’s upon the landowner and his managing agents to establish that they have taken all reasonable steps.
Health and safety fines are between £700 to £450,000, depending on the severity of the offence.
Taking reasonably practicable steps to avoid problems
It’s not all doom and gloom. I have given you extreme examples, but there are lots of practical steps that can be taken. So, if you have an estate with a lot of trees, particularly trees abutting the highway, just make sure that your forestry expert is aware of the cases of Poll and the Abrimelo. They are two good legal cases. We can send you copies; let us know.
The health and safety executive has produced a SIM note – have a look at that on managing trees; that tells you what to do. Most importantly, not only inspect regularly but keep written records.
Part 4: Property Litigation
Homes for Ukraine scheme
Rather heart-warmingly, I have had quite a few queries from various clients about housing Ukrainian refugees. It is regrettable that as a litigator I am here to throw notes of caution in respect of the Scheme that was introduced which some of you may know as the ‘Homes for Ukraine’ Scheme (“the Scheme”) that was introduced on 14 March 2022. This allows UK property owners, including businesses, to volunteer a room or a self-contained property for an identified Ukrainian national and their immediate family to live in for a minimum of six months rent-free, although, there is an optional £350 per month offer as a thank you payment.
There is detailed guidance on the government website about this and this is very important to consult with very useful documents and I would urge that every scenario is different, and we would strongly advise taking proper advice before proceeding too far down this route.
Turning to the fundamentals, a UK sponsor will need to firstly have a residential spare room or separate self-contained unoccupied accommodation that will not become statutorily overcrowded. For instance, this might be the case of two people of the opposite gender have to share a bedroom for instance.
Secondly, the accommodation has to be available for six months or more.
Thirdly, the sponsor will need to complete a form which will act as a visa application.
Fourthly, the sponsor will need to check the legitimacy of the incoming tenant in accordance with the right to rent rental rules.
Unless the sponsor can name and identify the individuals, their only option with the Scheme is to record their interest via the government portal. Some other practical points – if you are a company, there would need to be a nominated point of contact to provide a passport on behalf of the company entity and it is anticipated that the local authorities will carry out various DBS checks and inspect the property before the arrangements are put into place.
Turning to the accommodation requirements, the most important thing is that the sponsors are able to provide at least six months of stable accommodation. This can be an occupied home as long as it’s safe, heated and free from health hazards and gives their guests adequate access to bathroom and kitchen facilities. The sponsor should also consider how many people they can accommodate in each property so that they has sufficient space. Two people should not be in one room unless they are adults, co-habiting partners, a parent and a child, two siblings of the same gender if over 10 years old, two siblings regardless of gender if they are aged under 10. Individuals who didn’t previously know each other should not be given the same room. The government guidance gives a comprehensive list of requirements relating to the amenities and safety of the property and these ought to be observed carefully.
Points to consider
After all of that, if a sponsor was keen to get involved, there are other things to consider, and this is where the legal bit comes in.
It is important to check what consents are required either from a freeholder, landlords or other bodies, for instance the Charity Commission if you're a charity. If the sponsor is not the freeholder, they will need to observe the terms of any leases. Often these leases contain covenants not to sub-let without the consent of the freeholder or head leaseholder and these still need to be met regardless of these unusual circumstances. Usually, an application for a licence to sub-let will be required and there are often minimum terms that have to be considered.
If you are sharing a property this can be even more difficult because sometimes there are absolute covenants against sub-letting part only of properties. If the shoe is on the other foot and the sponsor is the freeholder or landlord, they will have to be careful not to inadvertently waive consent requirements if they have a tenant who wishes to house refugees. This is because there is a risk of being unable to enforce the same covenants down the line. Therefore, I would strongly urge that any waiver is properly documented and emphasis as a temporary and specific variation of the lease in each case.
The other regulatory things to consider such as HMOs (houses of multiple occupation). This applies to houses or flats where there are three or more people from two or more households who share facilities such as a kitchen or bathroom. In such cases, HMO licences might be required from the local authority. Therefore, you should take care to ensure that you check with the local authority to whether they would be willing to waive sexual requirements given the extreme circumstances.
So, assuming all that is satisfied, let’s turn to the documentation. It is important to document every kind of tenancy arrangements and it’s important that the correct documents is entered into. Thankfully, the government portal contains best practice agreements, and these are useful starting points. As no rent is being charged, if self-contained, it will not be an assured tenancy but a common law tenancy, therefore an excluded tenancy agreement ought to be used. If you are sub-letting parts or sharing occupation, it might be better to use an excluded licence agreement.
So, all in all, there are quite a few things to consider and if you have any questions please feel free to get in touch with me.
Back to Tristram Van Lawick
Thank you all very much and thank you Sam for that uplifting heart-warming talk after the sheer terror of Manoj’s talk.
We have time for one or two questions. There have been some questions flooding in throughout the webinar.
Picking a few questions:
For Manoj: is it not enough for us to use our usual tree surgeon to look after our affairs?
Answer: the answer is it depends on the expertise and qualifications of your usual tree surgeon, and, most importantly, where the trees are. So, if they are by a highway be concerned. Also, certain types of trees, such as ash which have these fungal growths underneath; but other than that, generally you are fine. It is common sense, but we all know where the dangers are. That is what I would recommend.
For Sam: how can I terminate an agreement if it doesn’t work out?
Answer: the model agreements provide termination provisions. I have mentioned there is a minimum term of six months and then they recommend a two months’ notice period thereafter. The government has anticipated cases where the relationship simply does not work out and in such cases they advise that you get in touch with the local authority and they might seek alternative arrangements, but I would imagine that would only really apply in the more extreme examples.
For Kate: if I let a farm on a ten year FBT where at the beginning it was genuinely a farming tenancy, but the tenant did also have a small racing yard on the holding, and now, on the course of the term it is fair to say that the predominant business is a racing yard with an ancillary farming operation, what sort of tenancy should I use to renew the letting?
Answer: the trainer has had a bit of success by the sound of things over the course of his first FBT, so the focus in that case of the use has changed and the tenancy has become much more commercial nature. That said, you could probably keep him on the same sort of FBT arrangements as he was on before but being really careful to include the provisions in it to make sure that it’s contracted out of the security of tenure provisions that the 1954 Act provides for just in case it were to inadvertently tip into that more commercial regime. The short answer is yes, FBT but make sure to be very careful about including those exclusion of tenure provisions.
Part 2: Financing
This episode focuses on financing, a particularly prevalent topic as interest rates continue to increase. The webinar is tailored to those who have taken out borrowing or are considering borrowing, and useful points of contemplation are highlighted. Areas covered: Loans being made by trustees to beneficiaries, residential mortgages, trustee borrowing, deeds, tax and raising finance against art and luxury assets.
Hello and welcome to this Landed Estates and Heritage Property webinar. My name is Henry Fea and I'm a partner in our tax trusts and succession team. Before we start, there are a couple of housekeeping points to mention. You will all be muted automatically throughout the webinar, but this is an interactive session, and we would love to hear from you throughout. So, if you have any comments or questions, please do type them into the chat box. If we don't have time to answer your questions during this webinar, then someone will contact you afterwards.
This is the second in a series of four webinars in which we will discuss topics which are relevant to those who are involved in the management of Landed Estates and Heritage properties. We have invited colleagues with a wide range of specialisms to speak on a number of topics all of which we hope are of interest to you.
The subject of this webinar is financing and the people who are speaking today are listed on the slide.
Haley Lalsing is a senior associate in our private property team. She often acts on residential lending matters acting for private banks individuals and trustees.
Isobel Young-Herries is a senior associate in our banking and finance team. Isobel works on Commercial transactions and has good experience of arranging financings to landed Estates which are often held in trust structures.
Hannah Connors is an associate in our tax trusts and succession team. And as a farmer's daughter, she has a particular interest in working with rural businesses and landed estates
Finally, Petra Warrington is a senior associate in our art and luxury team. The team advises clients in relation to transactional matters such as sales and purchases of art, collection management and luxury asset financing as well as resolving disputes.
As you know until recently interest rates have been at historically low rates. Trustees may have been tempted to borrow to expand existing businesses to diversify into others or perhaps just to have access to a pot of cheap cash to invest in a stock exchange portfolio.
Indeed. I've heard it said that trustees may be in breach of trust for not considering borrowing when rates are so low. The recent increase in interest rates has however changed the landscape somewhat.
These talks today are therefore aimed at those who have taken out borrowing or are considering borrowing and I hope will highlight some useful points to consider.
First up is Haley in our private property team to talk about loans from trustees secured on residential property.
Part 1: Loans from Trustees
Security = residential mortgages
In the private property team, we are often asked to deal with loans being made by trustees to one or more beneficiaries. For example, in a Family Trust situation. There are several legal issues that we need to consider. Firstly, we need to check the trustee to ensure that the trustees do have an express power to make loans to beneficiaries on favourable terms for example, not standard commercial terms. In situations such as these the security is often a residential property.
For example, I have recently dealt with the situation where the trustees were making a secured interest-free loan to a beneficiary. Let's call her Bella. Sometimes trustees lend money to assist towards a property purchase. But in this case Bella actually already owned a London flat and money was being advanced other purposes.
Residential Mortgages are heavily regulated and the law in this area is complex. These types of mortgages will be regulated mortgage contracts. So, we must always consider regulatory issues. However, the lender here the trustees, didn't require any special authorisation for example from the FCA because the activity was not carried on by way of business nor did there need to be any special wording in the mortgage deed itself. This isn't always straightforward. However, it's important to consider each matter on a case-by-case basis.
Who owns the property?
If the security is to be a charge over residential property then the owner needs to grant that charge to the lender trustees. In the case that I dealt with Bella was not the sole owner of the property. Bella was the beneficiary who was receiving the loan.
She also jointly owned the property with her husband. Let's call him Harry. The mortgage deed had to be signed by both Bella and Harry, but Harry was not a direct recipient of the loan. This means that there was a slightly different type of legal document required to be signed which we call a third party legal charge. It was also important to ensure that Harry received independent legal advice. He was not the party receiving the loan money. There is no reason for him to burden his share of the property with a charge.
The trustee lenders required Harry to obtain independent legal advice explaining the mortgage and this is a standard procedure, something that vendors often require. If the trustees ever needed to enforce their security in the future, they need to know that their security, i.e. the mortgage, will be effective. In this situation, there's always a risk that someone in Harry's position might say that they were unduly influenced by Bella to sign up to the mortgage deed so that she could get the loan money. If Harry could establish undue influence the mortgage wouldn't be binding upon him.
Consent from third parties
This must always be considered. Bella and Harry's property was already charged to Barclays. This meant that the trustees had to obtain Barclay’s consent before the trustees could take their own charge over the same property. This can evolve involve additional time and cost.
Sometimes the first lender will simply consent to the second charge being registered against the title. But sometimes they'll require a formal deed of priority to be signed by the mortgagors, the first lender and the second lender. In Bella’s case the property was a flat in London. Nearly all flats are long leasehold titles and that was the case here. It would be unlikely for a long residential lease to restrict charging, but the lease might contain a covenant requiring the tenant to give notice of any such dealings to the landlord simply as an administrative matter and the lease should therefore be checked in each case.
Due diligence – how much detail?
So institutional lenders taking a charge over residential property, for example, High Street lenders will always require full due diligence. They want to know that the property has good and marketable title and that they can easily enforce their security, i.e. sell the property if borrowed or [unclear words]. That might not be required in the case of say a Family Trust. There are some basic investigations and protective searches that we would always carry out, but the extent of the due diligence will be determined by reference to the particular case in hand.
Part 2: Trustee borrowing
Power to borrow?
In the banking team, we often work with our private wealth colleagues to look at trust structures that want to borrow money. We see both private and institutional Banks lending money to Landed Estates where trust structures are common and the issues that arise are different to those that arise when lending to corporates and so we are going to cover some key points to consider when there's a trust in place as the borrower on a transaction.
Firstly, from a trustee’s perspective, we want to actually confirm that the trustees have the power to borrow and you want to be doing that before contacting any potential lenders. Trustees derive their powers from two sources – the general law of statute – notably you’ve got the Trustee Act 1925 and the Trustee Act 2000 and then the trust deed itself.
Trustees have restricted power to borrow under the general law and it’s usually the trust deed that then extends those powers and qualifies them in specific circumstances.
Looking first at the general law, borrowing for certain limited purposes would be permissible; some examples of these are if the Trust short of cash then trustees may borrow in anticipation of trust income being received provided that there is a proper basis for their expectation the necessary income will be forthcoming by the time the repayment is due.
Trustees may also borrow unsecured in an emergency. So, an example might be staving off repossession of trust property by a mortgagee with a view to then selling at a better price in the future. What would not be permitted is borrowing to meet expenditure in excess of income where the need for it arises from the trustees’ own carelessness. So, while it's important that the trustees are aware of their power to borrow, in the same way, all lenders will want to conduct due diligence process when lending money to any borrower to check that they are also capable of borrowing. They will want to check whether the borrower has the capacity to borrow and grant security and there must be no restrictions in place which would stop the lender from being able to take enforcement action if they need to.
Keeping the trust deed confidential
Differences between English companies and trusts are that English Companies Articles of Association are a matter of public record and can be found on the internet at Companies House. Whereas trust deeds are confidential documents and often include a wide range of terms that trustees may not want to disclose to the lender as they don't relate to the trust's capacity to borrow or take security. And so there might be a consideration about whether disclosing the whole trust deed is appropriate. In this scenario, there is a solution which is that the Trust’s solicitors may provide a legal opinion confirming the points that the lender will want to check as part of their due diligence process and other confidential terms that the trustees might not want to share aren't therefore shared with the bank. This may also be a cost-effective solution as it's likely that the Trust’s solicitors will be familiar with the trust deed and therefore will be able to provide these confirmations in a more efficient way rather than the bank's solicitors who will have to review the whole trust structure and trust deed from scratch.
Ensuring trustees liability is limited
So, on that point, trustees should obviously consider choosing a lender that can lend to the Trust on the terms that suit the requirements of the [unclear word] that time. And the lender understands trust arrangements and is familiar with lending to such structures would be really invaluable particularly considering the speed of execution and also transaction costs.
An example of that is where they would have previous experience relying on a legal opinion to confirm the trustees’ power to borrow. That would be a really helpful element to have had previous experience. Once you have established that the trustees have the ability to borrow then the next stage is to look at the trustees’ limitations on liability. This is important because trusts have no legal personality of their own. The trustees will be contracting with the lenders in their personal capacity. So, it's important that it's clear in both the loan documentation and through the trust deed that the liability of the trustees during their appointment and also after their retirement is limited only to the assets of the Trust.
We often use wording in loan agreements to make this clear and it's actually very necessary. But in particular trustees should be aware of their liability, if lenders are trustees, to make any subjective statements, for example concerning solvency. In every situation all trustees must ask lenders if they can limit their liability to the assets of the trust. On retirement it's a slightly different position. By operation of law, the trustees’ liability may continue in relation to those obligations that arose during their term of appointment. But the key point to note here is that once a trustees has retired, they no longer own the Trust assets and therefore they could be financially exposed if the lender took action against them after they retired as a trustee from the Trust. So, retiring trustees should contractually limit their liability to the lender to make sure that on retirement they don't have any further obligations in terms of the financing. But if that happens this may be a point of negotiation because the lender may want the new trustees to take on the liability of the retiring trustees. So that will be something that you'll need to discuss with the lender at that time.
Trustees should also be aware of case law that states where trustees retire, and a smaller number of Trustees are appointed in their place then arguably the retiring trustees will not have validly retired. And therefore, they could and should be included as trustees in any loan and security documentation going forward. So, it is possible for trustees to argue that notwithstanding that case, the Trustees have been validly retired it would be prudent to avoid such a situation if possible and if it is unavoidable then specific advice should be sought on that point.
Payments to beneficiaries
Another point of negotiation that often comes up is any restrictions on payments to beneficiaries; lenders will usually expect to have their debts repaid before anyone else and that includes beneficiaries of the Trust. As a result, lenders may look to restrict payments to beneficiaries before the loan is repaid in full, in a similar way as they may restrict distributions to shareholders if this was a company. Trustees therefore should consider whether this is a fetter on their discretion as trustees. In addition, if the Trust is structured as a bare trust where beneficiaries have an immediate and absolute right to both capital and income then the trustees will be unlikely to agree such provision and that will be a point of negotiation in the loan documentation. If payments are restricted, then a point of negotiation with the bank may be that during the term of the loan certain permitted payments may be made to the beneficiaries and that can always be raised.
Cross collateralisation and overreaching
It's also worth noting that a lender may require certain structures to be put in place in order to protect their position and provide valid security. Trustees may be able to accommodate these requests, but they should also consider the implications of what's being asked for because this may cut across tax planning for example. Two common structures that we often see lenders asking for are structures where the beneficial ownership is overreached. So, in this situation put on property transactions the disposition of a property which also includes the granting of security provided that the loan is advanced to two trustees or a third party at the two trustees’ discretion the beneficial ownership in the trust in the properties are overreached and only the legal owners of the property, i.e. the trustees, will need to be party to any security document. If the correct wording is not included and the correct structuring is not put in place, then the lender may request that the beneficial interest is also charged and therefore the beneficial owners will also have to sign the charge documentation. That may be administratively difficult and so the lender would prefer that two trustees are appointed. So, in that case two trustees may need to be appointed before the security is actually taken. More controversially, we have also seen a situation where a lender wanted several trusts to guarantee each other's interests. This is an issue where there's one trust that has been settled by another trust and they are all guarantors. There are several significant tax consequences if the beneficiary trust provides a benefit to the settlor trusts and therefore cross collateralization and cross indemnities between such guarantors may not be possible. And it will be a point of negotiation with the bank to protect their position and give them sufficient security but also making sure that the structure of the Trust is preserved.
Two party rule
So, at this point I thought it was worth mentioning the two-party rules. So obviously we have been talking about commercial lenders, but it may also be possible for trustees to borrow from another trust or indeed from an individual. In this scenario, it's important to ensure that the transaction doesn't fall foul of the two-party rule. The two party rule states that, subject to statute, a person cannot contract itself or convey property to itself.
The two-party rule therefore could apply in principle to transactions that are entered into by a trustee acting in their capacity as trustee, with themselves acting in their personal capacity as well as transactions where you have a trustee in the capacity as a trustee of one trust acting in a transaction in their capacity as trustee of another trust. So, the latter would be common with a professional trust companies where they would act in respect for more than one Trust. So I suppose where this is relevant to us today is that this rule could apply in relation to a loan between trusts, of which there is a common trustee, or in relation to a loan made from the trustees to a beneficiary who is also a trustee.
So, the two party rule is essentially a subset of the general rules that restrict self-dealing which are put in place to protect beneficiaries from unscrupulous trustees. It's common for those to be express provisions in the trust instrument which permit self-dealing in certain circumstances and also with safeguards in place. So those safeguards might be ensuring that a fair market value is confirmed by an independent valuer and also that there is an independent trustee able to give their consent.
Finally, I just wanted to talk briefly about tax. So [unclear words] perspective is that it is always important to consider the tax implications of borrowing. One example is if we have a relevant Property Trust where there's an upcoming 10 year charge, we would want to think about whether the outstanding loan would reduce the value that is subject to inheritance tax of that date. And it's worth noting that where liabilities are used to finance relievable property; so, property, for example, that qualifies for agricultural property relief or business property relief those wouldn't be deductible for inheritance tax purposes, even if they were secured against non-relievable property. Something to watch out for.
Part 3: raising finance against art and luxury assets
I am going to briefly talk about generating funds from assets that you might not automatically consider when looking to raise finance. We at Charles Russell Speechlys are fortunate to have a leading practice in art and luxury assets and particularly strong expertise in asset lending.
What are luxury assets?
The typical assets that are used as a security for this type of finance might include fine art and antiques (and that's also musical instruments) watches and jewellery vintage couture, particularly handbags, wine and vintage vehicles. And we have recently seen (despite or perhaps because of the pandemic) a rise in the value of luxury assets, particularly watches and wine and record sales volume set at major auction houses although like any market there are mixed performance in certain sectors of the art and luxury market and there are particular categories that are consistently strong and stable and financial institutions are willing to lend against them.
For landed estates and heritage properties, which are already asset rich, it is always worth considering whether those assets might be a viable alternative for raising funds. And when working with the right players in the market, we find that financing can be a relatively quick and easy route to short to medium-term funding.
Where you have valuable capital tied up in the contents of a heritage property borrowing is a useful way to release in the short term that capital for other uses that could be a building project such as renovating the Visitor Centre or the gift shop or purchasing farming equipment that is going to increase future income.
Cost of borrowing
Depending on the contents and value of the collection and the terms of the loan, borrowing against assets that will retain or increase in value over time is certainly a better option than selling parts of the collection and obviously maintains the integrity of the collection and if it's done properly, if it's structured properly, it can be done in order to avoid those objects losing any special inheritance tax status such as conditional exemption.
Art lenders tend to focus on the most liquid and stable parts of the market when assessing whether to lend and that is of course because if anything goes wrong, their usual recourse is to sell the assets. The manner in which the assets are sold can be considered in the drafting of the loan agreement and we do find that if a borrower prefers that the lender attempts a private sale first before considering auction routes that if a particular auction house is preferred due to a long-standing relationship that can usually be accommodated in the drafting of the loan agreement. Most finance providers prefer blue-chip impressionist modern and contemporary works but others do consider old Master paintings provided that the paperwork is in order and that there are expert opinions about the authenticity and attribution of the works and that support those features most. Most finance providers will provide finance against jewellery, and there are specialist providers in relation to vintage cars.
So, it is important to know who to approach and how to find the most competitive terms. Commercial banks and private banks are increasing their offerings in this area and auction houses have also recently extended their loan businesses. So, although we do see that there are often strings attached to borrowing from auction houses.
Banks tend to offer lower interest rates and charges but other providers may be more flexible about the terms of the loan. Some key issues for borrowers to consider are of course the cost of borrowing. We have seen lending against assets range from as low as 2% per annum; that for example was in relation to two Ferraris that the borrower was able to keep at home during the course of the loan and continue racing, but rates can go as high as up to 20% per annum. And of course, that's really more glorified pawnbroking than anything else and so lending costs are usually around 4% to 8% per annum.
There are certainly some lenders in the market that we work with and do recommend and there are others that we would certainly discourage clients from working with so do due diligence in the area and expert advice is always recommended.
Loan to value ratios
Another issue to consider is the loan to value ratio, and we typically see ratios of 40 to 60 percent for art and cars, although with wine that can rise as much as 80% and value is generally assessed at the low auction estimate which is of course lower than the insurance estimate or retail value. The reason it's at low auction estimate is because that's usually the route that the vendor takes if there's a default on the loan and so it allows the lender to manage their risk and pricing accordingly.
Keeping assets in situ
Now the third key issue to consider is whether the borrower can keep the property in situ. For example, can the painting stay on the walls during the term of the loan and this largely depends on whether the lender can satisfy itself about the security being taken over the assets and in some circumstances the lender does insist on taking possession of say the painting. If it does take possession the cost of borrowing is usually less because the
risk profile is more advantageous to the lender. And I should mention that if for some reason it's not possible to retain possession during the term of the loan this is not always a disadvantage because while a lender has possession of the art, it will be safely stored, and insurance and storage costs will be undertaken by the lender so that can be a bit of Silver Lining. There's also some incredible digital technology available to produce really accurate 3D facsimiles of works and it is possible to commission perfect reproductions of paintings and sculptures so that the rooms are not there during the term of the loan. And there are a couple of providers that we do work with and we have really seen in the past that they produce some outstanding reproductions and visitors actually cannot tell the difference between the originals and the reproductions.
Back to Henry Fea.
Thank you very much Petra and thank you to our other panellists. Very interesting talks showing the full range of options available to those involved with landed estates and heritage properties - from the standard borrowing against residential property and land to borrowing against these interesting luxury items. It's interesting here. There's a there's a strong Market in that.
We ask people to send in their questions and we do have with a couple minutes left to put so a couple of these questions to you.
For Isobel: a question about security and what's the process for taking security when borrowing?
Answer: just to pick up on for example Petra’s points of discussion, it’s important to note that if you are taking security over movable chattels, it depends on whether you are a company or an individual. If you are a company, you can take a chattels mortgage and that can take pretty much any form and is registered at Companies House.
However, if it's an individual that's giving security over their movable assets, such as art and cars for example, then the form of security is very strict because it's governed by the Bills of Sale Act 1878 Amendment Act 1882, which is quite an archaic act. So, we would always recommend specific advice is sought at that point because you have to follow a very strict form for it to be valid.
Thank you. And a final question for Hannah. And this is perhaps a question for someone who is a personal trustee:
For Hannah: how can trustees further protect themselves from liability in relation to the non-payment of loans?
Answer: I think it's obviously a very relevant point. Some examples that we have seen recently, would be that you have non-family trustees entering into separate indemnities with family members to ensure that the repayments are done and not made out of the pocket of those non-family trustees, so just having those separate agreements in place. And another option would be it seems to be a bit of a move to corporate trustees acting by directors rather than a trustee acting in a personal capacity. So, I think there are two ways to mitigate against that risk.
Part 3: Managing Risk
Managing risk is the subject for the third episode, beginning with a detailed employment update that covers modern contracts, living with Covid-19 and The Employment Bill. The second speaker covers corporate trusteeship from two perspectives: Mitigating risk in terms of the professional cost associated with the change of trusteeship and looking at the question of liability for trustees. Trustee removal is then discussed as it is a frequent topic to arise in the administration of trusts involving Landed Estates and/or agricultural property. To round off the episode, our knowledgeable solicitors give a detailed insight into family governance, charters and suggestions of how to manage issues that occur when family members have differing opinions about their landed estate.
Hello and welcome to our Landed Estates and Heritage Property webinar. My name is Sara Wilson and I'm a legal director in our Employment, Pensions and Immigration team. This is an interactive session and we love to hear from you throughout. If you have any comments or questions, please do type them into the chat box. If we don't have time to answer your question during this webinar, someone will get in touch with you afterwards. The webinar is also being recorded and will be circulated.
This is the third in a series of four webinars in which we will discuss topics which are relevant to those involved in the management of Landed Estates and Heritage properties. We have invited colleagues with a wide range of specialisms to speak on a number of topics all of which we hope are of interest to you.
The subject of this webinar is managing risk. The people who are speaking today are listed on this slide. I will be speaking first. I head up the Employment team in Cheltenham. We are regularly called upon to advise Landed Estates and Managing Agents on a range of matters from day-to-day HR queries through hiring and firing, employment tribunal claims and supporting teams on the employment aspects of large private property sales and business transfers.
Katie Talbot is a legal director in our Private Client team and she advises on all aspects of Private Client work. Her core focus is advising on strategic planning, conditional exemption and heritage property issues for Landed Estates.
Oliver Auld is a partner specialising in trust probation related disputes. He often acts in either contentious or non-contentious court proceedings involving landed estates and/or agricultural property held in trust.
Henry Fea is a partner specialising in tax, trusts and succession matters and heads the Landed Estates and Heritage Property team across the firm.
And finally, Harmon Bains is an associate in our Private Client team and he advises high-net-worth UK-based and internationally mobile clients on their UK trust tax estate and succession plan matters. So, as you'll know only too well life on the Landed Estate or Heritage Property is a juggling act of managing the myriad of risks and opportunities open to them. Our talks today highlight just a few of the areas we are asked to advise on regularly and which we would like to share with you and are aimed at supporting you manage some of the risks faced by Landed Estates. So, whilst I have the floor I should talk first about some of the issues we are seeing arising context of landed Estates in the employment arena and then we'll move on to talk about what's coming down the line in employment law before I pass on to my colleagues.
Part 1: Employment
So, my first point in relation to employment law is Section 1 statements and this is essentially just a reminder to everyone to ensure that their employment contracts are up to date. We regularly encounter scenarios where there's either no contract of employment or it's extremely old and out of date.
It helps employer and employee have a modern contract which sets out both parties rights and obligations. In addition, from April 2020 (and you could be forgiven because of what was going on in the world at the time for missing this), new rules were implemented into the Employment Rights Act 1996 on that date which now require all employment relationships to be covered by an [unclear words] statement setting out a list of specific terms and conditions of employment and these must include references to points that you might not already have in your standard contracts of employment. So just a few examples: details of training provided by an employer and details of paid leave. So, for example, maternity and paternity leave.
It's best for this one to be set out in a formal employment contract, but it can take the form of a letter of engagement. But the terms must now be given in one document and sometimes can be given later in instalments. The majority must be in this one document which must be given to all employees or casual workers no later than start of employment. If the particulars change or if there are any changes to terms and conditions the change must be notified at the earliest opportunity and no later than one month after the change. This is really important, and it means that employers must keep on top of their employment terms.
So a recommendation from me is to check your employment contracts as a matter of course but specifically in relation to those ones that you might have given since April 2020 just to check they have all the information that they're required to.
Sanctions for non-compliance: they will come in where an employee or a worker brings a successful separate claim in an employment tribunal and they can show that they were not provided with a compliant witness statement. They may be awarded up to four weeks.
And just one final point on employment contracts. We very often see employees who are housed on an estate and there will often be no documentation to record that. So again, it will be really helpful to have a little audit of what documentation you have in place for your employees, check that they have the correct documentation in relation to property. So if it's a valid service occupancy, make sure that's written - it could be an AST or some other form of right to reside in the property.
Living with Covid-19
The next point I wanted to briefly cover is some of the ongoing issues associated with living with Covid in the workplace. Sadly, Covid hasn't actually gone away, even though all remaining restrictions, including the duty to self-isolate and free testing for the general public has, so the government has now placed an increased emphasis on those with Covid-19 symptoms to exercise their own personal responsibility to keep others safe and likewise employers have their own duties to keep staff and visitors safe too.
Health and Safety Risk Assessments
The main point here is keep up to date with your health and safety risk assessments and although there's no longer requirements to consider Covid-19 in these assessments in the workplace, your employers health and safety obligations do still include statutory and common law duties to provide a safe place of work and the need to consider risks workers face and do everything reasonably practical to reduce those risks.
So, continue with your risk assessments, follow all health and safety executive guidance, and it's clearly sensible to still think about Covid-19 transmission when carrying out risk assessments and this could include anything from advising employees to work from home as a precautionary measure if they have any cold or flu symptoms, paying for Covid testing and continuing with your infection controls.
Where you have somebody that works in an office, for example, it's probably very easy to work from home if they have cold and flu symptoms (because obviously not many people are testing anymore), but that's clearly slightly more difficult if you're on a Landed Estate and you need people to turn up to work and so your regular issues of sanitizing and keeping social distancing if that's required and then just really thinking about how the risk assessments apply to your own specific workplace are important.
What you do if an employee tests positive
You need to obviously to comply with health and safety duties, encourage those employees to stay at home following Public Health guidance. You may want to introduce a requirement for employees to inform you if they've had a positive test or they feel unwell and to get them to follow periods of self-isolation.
If you know that somebody who has attended the workplace has tested positive, colleagues should still be warned that they have been in contact with someone who has now tested positive. And if it's not realistic, to keep that person's identity anonymous, reveal no more information about that person than absolutely necessary. Again, you may want to consider asking employees to work from home. If the household contact test positive again. This might not always be possible in your own environment. Be aware that you shouldn't count any absences due to Covid towards your HR trigger points in any sickness absence policies.
And as with many things the sick pay regime has changed back to how it was pre-covid. So, employees with Covid-19 are now only entitled to receive SSP from day four of their absence from work if they're unwell and not at all if they are self-isolating but not unwell with Covid-19. So, this really creates a bit of a tricky scenario because if a self-isolating employee is unpaid, the employer will run the risk of a potential infected employee failing to perform their positive Covid-19 and they will continue to attend work and receive full pay. So, it's worth considering your policy on this and whether you might encourage people to stay away and pay them or pay. And we have a briefing note on all of the issues in relation to Covid-19 and if you would like a copy of that then please do get in touch and we will send it to you.
The Employment Bill
And so finally from me what's coming down the line in terms of employment law legislation. Well, there's quite a bit. I won't touch on it all now, but things that might be a particular interest are that we are waiting for some pieces to come into force from the long-awaited Employment Bill which includes topics such as flexible working. A recent government consultation considered making flexible working the default position for employees. And so these proposals…these are agile working so this is not a matter of whether people can work from home or from the office if they can do the job easily from either. This is about flexible working relating to days of work and hours of work etc. These proposals don't extend to creating an automatic right for employees to work-flexibly, but they do include a number of measures to broaden the scope of the right while retaining the basic system which involves conversation between employer and employee about how to balance work requirements and individual needs. The main change I think of importance is the removal of the requirement for 26 weeks service before an employee can request flexible working. And so that means an employee on day one of employment could be able to make the request.
Family friendly legislation
And finally, just in relation to our family friendly policies and in relation to redundancy protection for women and new parents, currently if you are thinking of making a woman on maternity leave redundant she must be offered a suitable alternative vacancy if there is one, so she effectively goes to the head of the queue in any group redundancy situation if there's a single suitable alternative role available to that group. And so these proposals are to extend the period of redundancy protection for people and it will come into force from the point at which the employee notifies the employer of the pregnancy and will last until six months after the end of the employees maternity leave. That protection will also be extended to those returning from adoption leave and shared parental leave. And so that's quite an important change which is coming down the line. We don't have any dates for any of this yet but please watch this space.
Part 2: Corporate Trusteeship
Individuals as trustees
I'm going to be looking at corporate trusteeship from two perspectives: firstly, mitigating risk in terms of the professional cost associated with the change of trusteeship. And secondly and more importantly looking at the question of liability for trustees. So, many Landed Estates are held in trust and traditionally the trustees of those trusts have been individuals with the estate land and other assets held in their individual names in their capacity as trustees. Their signatures are therefore needed in the event of land being charged or transferred for example. And when an individual trustee retires or dies all the trust assets then need to be transferred into the new and continuing trustees’ names. On large Estates this can involve the preparation and signing of a great deal of land registry transfer documents, bank mandates etc. It can also lead to complications where for example land is charged as security for borrowing on the Estate and therefore the banking and security arrangements all need to be reviewed and updated and this comes at some associated professional cost and often at an unexpected time, for example, if a trustee suddenly dies.
As a result, some Landed Estates have moved in recent years to a corporate trustee structure where a trust corporation or more commonly because it is simpler and cheaper. Two trust companies are created who take on the role of trusteeship and whom legal title to the trust's land is then vested. How is this set up? Well individual trustees retire in favour of two trust companies which act as trustees in their place. Typically, the directors and shareholders of those companies are the existing trustees. Legal title to the land and assets is then transferred into the names of those two companies. Two companies is needed in the case of land to ensure that good receipt can be given in the event of a future sale of that land. There are no tax consequences to set up this structure. So, what are the benefits? Well, continuity of trusteeship, saving that professional cost. As and when directors of the trust companies change, there will be a little bit of corporate paperwork to do but there won't be the enormous exercise of updating land registry titles and banking arrangements. It's also easier to identify which trust owns which land. For many Landed Estates the same individuals are Trustees for multiple trusts.
So, to give an example, land owned by Trust A could be transferred to corporate trustee companies A1 Limited and A2 Limited and land belonging to the B Trust could be transferred to B1 Limited and B2 Limited - you get the point. Contracts and other paperwork can also be signed more easily because a company can be bound by one director. So those who need instructions from the trustees can be satisfied with receiving instructions from that single director. But, and this is very important, that does not absolve the director from discussing decisions with his co-directors. Care needs to be taken when drafting the Articles of Association for these new companies that Protocols for decision making do not alter the balance of power and authority within the trust, because, typically, for private trusts, trustees must act unanimously whereas directors of companies can act by majority.
As well as the administrative and practical benefits corporate trusteeship can offer better protection. Individual trustees can be exposed to personal liability. In practice, they are offered some comfort under the trust deed by means of an exoneration clause often supplemented by either trustee indemnity insurance or a personal indemnity offered by the settlor or creator of the trust or one or more of the beneficiaries depending on the structure in circumstances of that trust. The corporate veil of the trust company provides an additional layer of protection because a trust company's liability is limited to the trust assets in the hands of the company at any given time.
Some Landed Estates have moved to more of a halfway house where the trusteeship remains in individual's names, but the trust land and assets are held by two trust companies who hold purely as nominees for the individual trustees. The steps needed to implement the structure are essentially the same. It achieves all the administrative benefits of the corporate trustee option, but decision making remains guided by the individual trustees. For some estates this distinction remains important. Although in practice it should not be decisive. Under the corporate trust option decision-making under the Articles of Association for the companies should align with the powers conferred under the terms of the trust. Over the last 12 months we have implemented both structures for estate clients. But my sense is that as estates become more comfortable with the concept of corporate trusteeship, they will move to the full corporate trustee option.
Part 3: Trustee removal
I'm going to touch upon an area that we come across fairly frequently in the administration of trusts involving Landed Estates and/or agricultural property. That is where that there's a need or a desire amongst some or more of the beneficiaries to replace their trustees.
Trustees must not just manage the estate but also its relationships with its beneficiaries and so it is perhaps unsurprising that disagreement and differences of opinion can spill over into formal dispute from time to time. While trustees of Landed Estates are generally appointed with a long-term view in mind, they will nevertheless be well aware that their role is as custodian of the trust's assets will be temporary. Many trustees will be in a position to choose the date of their departure and plan accordingly. Alternatively, if they are asked to retire and are willing to do so the process can usually be managed effectively. The appointment and retirement of trustees is generally a straightforward process. To the extent that is it is not expressly dealt with in the trust deed, there are statutory powers granted to trustees to enable them to appoint new trustees and to retire. The situation becomes more complex where the trustee is unwilling or unable to retire for whatever reason.
Only in rare cases will we find that the trust deed provides a particular individual with the power to remove trustees and only the court has the power to remove trustees under statute. If the trust does provide another party with the power to remove the trustee, it is usually granted to either the settlor or a protector who is empowered with various consent powers or more active powers in relation to trust such as removal.
It is a power that usually must be exercised in a fiduciary capacity and should not generally be exercised capriciously. The court has the power to remove and appoint new trustees under section 36 and 41 of the Trustee Act 1925 in a number of specific circumstances. These include where the trustee has been made bankrupt, the trustee has lost capacity or in the case of a corporate entity, it has been dissolved or where it is considered inexpedient, difficult or impractical to appoint new trustees and for the trustees retire without the assistance of the court. The court also has the power to remove trustees and appoint a replacement where it is considered to be in the best interest of the beneficiaries and the administration of the trusts under the court's inherent jurisdiction in the administration of trusts. It is in these latter two circumstances where the court has most discretion. Generally speaking, where there has been a loss of trust and confidence in the trustees by the beneficiaries, the court will usually order their removal whether or not the trustee is at fault for the breakdown in the relationship.
This can put the trustee in a difficult position where they must balance the harm and destruction that will be caused to the trust administration by a change of trustees versus the destruction that will continue to be caused by a breakdown in the relationship between the trustees and the beneficiaries. It is important to bear in mind in this context that a dislike of your trustees is not a sufficient basis on which to seek their removal.
It must be a loss of trust and confidence between the beneficiaries and their trustees that is in in fact impeding the proper administration of the trust. Other circumstances in which trustees may be removed include where there is a deadlock amongst more than one trustee causing inaction at trustee level on the basis that the trustees must make decisions unanimously or where the trustees have a conflict of interest in relation to the administration of the trust and any decisions that they make are potentially void on the grounds of a conflict.
The decision of whether to retire is a fiduciary one and a trustee must act carefully when threatened with an application to be removed. They could face a personal costs order if they oppose the application and the court finds that they should have retired. Litigation can be an expensive process and the decision to refuse to retire should not be taken lightly. Situations in which trustees may reasonably consider they should oppose the application include where there is a dispute amongst the beneficiaries and one faction of the beneficiaries seeks the removal, but not the other or where the proposed replacement of the trustee is not considered appropriate. The power to appoint a new trustee where it rests with the trustee themselves is again a decision that they must exercise in accordance with their fiduciary powers, and it's a potential breach of trust if they appoint a trustee who is simply inappropriate for the role.
The role of a corporate trustee which Katie has described in detail is an interesting dynamic in the context of trustee removal. Trust companies with limited liability can insulate to some extent the trustee directors from liability for cost of litigation in these circumstances. Beneficiaries also can either seek to remove a trustee or pursue avenues of removing individual directors of the company, depending on the appropriate circumstances of the case.
The corporate trustee can also provide a mechanism within its articles for the removal of Trustees. Directors, in particular circumstances, it's common in some trust structures for there to be automatic retirement of Directors for example who then have to be put up again for reappointment creating a mechanism by whereby directors do not have ongoing unfettered control of the trustee for long periods of time. So those are the run through of the issues in relation to the trustee removal in the context particularly of beneficiaries and family disagreement.
Part 4: Family governance and charters
Harmon and I are going to talk about family governance and why family governance is necessary and how does it manage risk?
Some Landed Estates are owned by individual family members and whilst this is a simple structure the owners will nonetheless feel that as custodians of the estate they owe duties to others - to their children, to future generations, to the local community and possibly even to the nation. As Katie said, many Landed Estates are owned by trustees possibly in combination with individual owners and this adds a layer of complexity because trustees owe duties to act in the best interests of all their beneficiaries who may include minor children and future generations. Other estates are owned through companies which are in turn owned by individuals or trustees or both. So, companies have boards of directors who have legal and fiduciary duties to run the company. So corporate governance deals with the way in which a company is directed and controlled, family governance is concerned with the governance of the family and its relationship with both the legal owners of the Landed Estate and if, applicable, the boards of directors, which run any underlying companies. In particular, it deals with the issues which are typically covered in a family Charter or Constitution which Harmon will talk about in just a moment.
The structures that are commonly encountered are…they will depend upon a variety of factors, the more generations that are involved or the more sensitive group dynamics there are, the more complex and robust the family governance structure will need to be. A typical structure will start off with a Family Council and this is made up of elected representatives of the wider family, i.e. different branches and different generations.
It forms a bridge between the family and the trustees and the board of directors and it reports to and receives the views of the family assembly so that the whole family feel that they have a voice. It draws up family policies and long-term goals for the family and may be responsible for drawing up the family charter. The Council sits alongside the trustees and board, but it is different to them. The latter are legally responsible for taking decisions, but they ought to take into account the views of the Council. Voting is often on a one member one vote basis to reflect fairly the views of the family as a whole and a matter may need a 75% majority or a simple majority to be passed.
The next common structure and is a family assembly and this is a meeting of all the adult family not just the owners which in-laws may or may not be asked to attend. It's usually held annually and it gives the family, particularly the next generation, the opportunity to learn about the estate and its activities. It's informal often and the main aim is to build relationships between family members. And in terms of other structures that are involved, obviously there's trustees and the directors of any company. There may be in an estate office, a family office, a charitable foundation or even a venture capital or enterprise fund, any governance arrangements need to incorporate these structures.
Family Charters are statements of intent that the family sign up to in relation to a family estate and its operations serving almost as a mission statement. They typically set out how their family wishes the estate to be run, the family's goals and the long term strategy for the estate the family’s relationship with the estate and its underlying businesses. For example, criteria for employment within the estate office or in the underlying family operations and core values to which the family will adhere. As you can tell, these are broad, non-legally binding principles relating to the family’s policy on certain matters.
Some key provisions you would typically expect a Family Charter to address are the Family Council body itself, who should be entitled to sit on the Family Council and will those seats be fixed: say, should each branch of the family be given a seat and/or temporary seats say elected members of the family assembly sitting for a term on the Family Council? And how will the election procedure be built in?
Will there be simple majority voting when need to exceed a certain percentage threshold? There may also be key business and family governance decisions reserved for wider family assembly input. Many Landed Estates are owned by family trusts, and it needs to be a sensitive interaction between the Family Council and trustees. The Charter should not attempt to and indeed a Family Council cannot in any event fetter the trustees’ discretion.
The Charter should just guide trustees and exercise in their discretion. For example, most trustees grant very broad powers of investment and a Charter could require the application of an ESG lends to Investments made.
What happens if family members want to sell or gift their interests in the estate? The family would typically sign up to a pre-emption agreement at the same time by which the family would be given first refusal to purchase and the departing family member would receive cash in place of their interests so as to keep the estate within family bloodlines. The decision then is how restrictive will this be? How would a price be calculated? Should the estate be given an opportunity to purchase and what about sales outside of the family as a last resort? And regarding succession on death, should a family member be permitted to leave their interest in the estate to their spouse or should the wills of family members contain protection mechanisms such as a discretionary will trust?
And might the Charter make prenups or cohabitation arrangements a compulsory requirement, which at least takes away some of the emotion of having a prenup. The family should have a policy on dividends and more so, reliance upon it by some family members versus re-investment into the estate or the need to build up a pot of cash to purchase the shares of departing family members.
Over time you could expect family conflicts say, regarding how the estate is run and the decisions it takes, non-adherence to the Charter or feelings of exclusion by those less involved in family operations. You might therefore see a flexible dispute resolution procedure allowing family discussions to bring family members back into the fold followed by resorting into an independent mediator if they are left unresolved. And regarding the Charter itself, at what age should the next generation be encouraged to become a party to the Charter? Say, signing a deed of adherence to the Charter upon their eighteenth birthday. And what about timescales for reviewing and amending the Charter, such as annually for the first three years and in every five years thereafter.
Finally many families have described the process of drawing up a chart as invaluable, ensuring they are unified in their approach to the estate and that its operations are being driven in the right direction.
Back to Sara Wilson
Thank you, Henry and Harmon and to all our other panellists for those talks. I hope you found those useful. I'm conscious that we are getting to the end of our time but we did ask if you had any questions for our panellists and I do have one or two here that I can put to the panel. So, if we can ask Katie the first question that I have:
Katie: can the director of a Trust Company find him or herself personally liable?
Answer: In theory, the answer is yes, but in practice the courts to date have resisted any attempt to pierce the corporate veil if you like.
There was actually a case called Gregson that looked at this. This was a case where individual trustees had retired in favour of a Trust Company. And shares in a family company had been transferred into the ownership of that Trust Company. The family company then went bust and the beneficiaries were very upset and tried to argue that the Trust Company had failed to diversify the trust assets and were negligent. But because the only asset the trust company had was the shares and they were now worthless they decided to bring a claim against the directors of the Company. The court said no, they weren't prepared to look beyond the assets of the Company. So that was quite a strong indication that, for now, as a director, you're fairly protected, but I think the practical advice must be look at the nature of sort of the role you're taking on, the assets, the risks you might be exposed to and think about indemnity insurance.
Thank you Katie. And here's one for Oliver.
Oliver: in what circumstances can a professional trustee safely resist an application for their removal?
Answer: the key question there is the word “safely” and I think that there are always going to be circumstances and risks involved in resisting an application for your removal because of the potential that the application goes against you and you are removed and you face potential costs orders against you which the court deems not to be a proper use of trust money. So you're not entitled to your costs out of the trust fund and also you're required to pay the other side's costs. So there is real risk in opposing an application to be removed as a trustee.
The circumstances in which it could be prudent to stay on as a trustee in the face of opposition, as I've mentioned before, is where you have perhaps the support of one faction of beneficiaries and not the other. A common scenario is where there's conflict between a life tenant of a trust and the remainder beneficiaries where there's always going to be tension that any trustee in that position is going to have to manage and in those circumstances the trustee might consider that they ought reasonably to stay on and that is the proper exercise of their powers, but as with any trustee decision, they have to think through the decision carefully and take into account all relevant considerations including taking proper consultation from all of their class of their beneficiaries.
Sara: I think we've probably just got time for one more:
Henry or Harmon: how can the views of minors, deceased or incapacitated family members be represented?
Answer: you would typically look to appointing somebody to sit on the family assembly to represent those views and it’s up to the family whether they have voting power or not. So for minors, you would look to their parents or guardians. For deceased members, you might look to their surviving spouses or partners who might know what those views would have been. For incapacitated persons, you would look to their appointed attorneys.
Part 4: Opportunity
This is the final instalment in the series and the theme explored in this episode is opportunity. An interesting overview of current topics: ESG, responsible business and sustainability is provided by our first speaker. To follow is another prevalent subject for landowners, Biodiversity Net Gain (BNG). BNG is a measurable improvement in biodiversity brought about by the creation or enhancement of habitats in association with development. Our next presenter discusses new trends such as solar, wind and battery storage as today’s landowners are often approached by developers proposing to pay better than agricultural values in return for the rights to generate electricity on their land. The final speaker of the series explores the wider commercial opportunities which may be available to landed estates and particularly historic houses in the event sector as a form of estate diversification.
Hello, everyone and welcome to our Landed Estates and Heritage Property webinar series. My name is Kerry Stares, and I'm a partner at Charles Russell Speechlys leading our responsible business and ESG program, more on that in a moment.
This is an interactive session, and we really want you to ask questions. We want to hear from you. If you have comments or questions, please do type them into the chat box as we go along. If we don't get a chance to answer your particular question during this webinar, then someone will get in touch with you afterwards to follow up.
This is the final instalment in a series of four webinars looking at issues relevant to those who are involved in the management of Landed Estates and Heritage Property.
We have invited colleagues with different specialisms to speak to you on a number of topics, all of which we hope are of real interest to you. The subject of the last, the third webinar, in this series was risk and so to complete the picture and provide some much needed balance today. Our broad theme is opportunity.
I am going to introduce the broad theme of environmental, social and governance or ESG. What is it and what is driving a focus on ESG issues for businesses and organisations in all sectors including landed Estates and Heritage Property? I hope that will set the scene really nicely because as you will see my colleagues are each talking about an ESG-related opportunity in the context of Landed Estates.
Then I'm going to hand you over to Tristram Van Lawick, who is a partner in our Private Property group and who heads up our Agricultural and Landed Estates property practice. Tristram advises landowners on a range of issues and in today's session he's going to focus on the concept of biodiversity net gain.
Next up will be Phil Webb, a senior real estate lawyer in our Cheltenham team who specializes in landowner developments and diversification projects, particularly renewable energy and strategic land transactions. Phil's going to talk to you about some of the opportunities that arise from solar energy projects.
Lastly, you are going to hear from Richard Davies who is a commercial lawyer with a particular focus on the entertainment, sports and events sectors. Richard advises on event hosting arrangements, supply agreements, ticketing and consumer rights matters, and his clients include Ascot racecourse, the Royal Horticultural Society and a number of historic houses. And which is going to talk to you about commercial opportunities both to make the business of landed Estates more diverse and sustainable, but also to open up access to our national cultural heritage to more diverse groups.
Part 1: ESG
Let me start then by setting the scene
I am sure it is not news to anyone joining this webinar that businesses and organisations of all kinds and in all sectors are now operating in a world that is much, much more conscious of environmental and social impact.
And there is a huge amount of jargon and terminology out there to describe this impact Focus. Sometimes it's called sustainability, sometimes responsible business and sometimes ESG. And I should say that among the group of people who do jobs like mine, there is a great deal of heated debate about the precise meanings of these terms and the differences between them.
For the purposes of today, I am going to simplify and just use them all broadly and interchangeably to mean a business’s impact on people and planet. Because whatever you call it, this focus on sustainability and impact is now everywhere and is dramatically changing the landscape of commercial risk and opportunity and our slide here pokes a bit of fun at that fact about how ubiquitous the language of sustainability is, but the central message is a serious and a very real one.
So, what then is driving and sustaining this ESG Revolution? Well, there are a number of driving forces I think, they are all interlinked, and they all reinforce and feed off each other. In the time I've got available today I'm just going to touch on four of them
So, first governments and regulators everywhere, including in the UK, are taking a much more proactive and a much more interventionist approach on ESG issues and they're using a range of different levers to do that.
In recent years, we have seen an explosion of law and regulation on this subject. A large part of that law and regulation requires ESG-related disclosures. In other words, it requires organisations of all kinds to disclose more and more information to the public about their environmental and social impact.
And a good example of that in the UK, for example, is the emerging or the evolving law in relation to net zero transition plans. At the end of last year, just before the COP 26 conference in Glasgow, the UK government announced that it would introduce a law to require a broad cross-section of UK businesses to publish their net-zero carbon emissions transition plans, and we expect to see those changes come into effect over the next two to three years, but of course businesses need to be thinking about that now and taking action to future proof their operations. That's law and regulation that requires more disclosure of ESG information. But some legislation goes further than that and seeks to change the way in which businesses operate by imposing ESG-related conditions and a good example of that is biodiversity net gain, which is a concept enshrined in the UK's new environment act and Tristram is going to talk to you more about that in a moment.
The second driving force I would point to strongly is the investment community; investors of all kinds are ramping up their focus on the environmental and social credentials of the businesses that they invest in, and that's not just shareholders. Shareholders are focused on this issue, but it also includes Banks and other types of lender who are increasingly embracing what's called sustainability linked finance and that's broadly speaking where the borrowers cost of capital is reduced if it meets certain environmental and social targets. In other words, having good environmental and social credentials as an organisation is no longer just a nice-to-have it may well be a very savvy and practical way to bring down your finance costs.
The third driving force on my list for today is customers and clients who are using their influence to drive better practice by businesses. So, on the consumer side, we know from high profile surveys that consumers are increasingly prioritising companies and brands and products with strong sustainability credentials and directing their custom in that direction. But commercial counterparties as well are focusing here. You may well have seen in the press in recent months reports of large supermarkets writing to all their suppliers asking them to meet certain environmental requirements as a condition of doing business.
And the fourth factor I wanted to touch on is the general public and the press and a much greater broader awareness and level of education on ESG issues. And that creates huge scope for reputational risk for organisations who are ignoring this and getting it wrong, but on the flip side and the theme of our webinar today, it creates great opportunity for organisations who are getting it right, who are looking at this, who are investing in stronger ESG credentials in an effort to differentiate themselves and to gain competitive advantage.
So that's my brief sketch of the ESG landscape. I'm now going to hand over to Tristram to talk in a bit more detail about the concept of biodiversity net gain.
Part 2: Biodiversity Net Gain (“BNG”)
In the five minutes that I have available to me, I will gallop through four key questions that are pertinent to landowners in respect of BNG. I appreciate that there will be a range of experience in the audience from those who are fully up to speed with the proposals. So those who are familiar with the acronym not the detail exactly.
What is BNG?
Biodiversity net gain (or BNG) is, as borrowed from the local government association's website, a measurable improvement in biodiversity brought about by the creation or enhancement of habitats in association with development.
Government policy is that development should result in the natural environment being put into an improved state from that in which it was prior to the relevant development. And the way in which they have decided to achieve this is through a mandatory BNG regime. Put very simply, it introduces a system under which a developer will calculate the biodiversity value or units of the proposed development site and then calculate the value post development, taking into account all onsite and offsite measures and the net result must a gain in the biodiversity value.
What are the current proposals?
Looking at the current proposals, as set out in the government's consultation paper all development should result in BNG of at least 10%. Although local authorities will have discretion to increase that minimum figure either at a local or site level.
For the avoidance of doubt, the development in this context has the meaning given to it by the Town and Country Planning Act. This will apply to any development with the exception of permitted development and householder applications such as extensions. There may be other narrow exemptions, but it is not government policy to have broad exemptions to the BNG requirement.
The Proposal is that the biodiversity net gain should be achieved by on-site mitigation such as green sites etc. and the creation or enhancement of local offsite habitats. Where the required gain cannot be met by these measures, off-site habitats further afield can be used or, as a last resort, the government will make statutory credits available while this new regime finds its feet.
As BNG will be mandatory for development, it adds another layer to the planning process. As part of the planning application, a developer will have to submit a BNG plan which provides the calculations to show the minimum 10% gain and biodiversity value, provide details as to how and where that gain will be achieved and finally provide evidence that the units are registered to the proposed development.
What does this mean for landowners?
Market analysis carried out for the government's consultation paper suggests that there will be an annual demand for in the region of 6,200 off-site units with a combined value of £135m pounds. The expectation is that the BNG regime will create a new market in which landowners can sell BNG units to developers and the parties will be free to negotiate terms of the required agreements and the prices.
In order to take advantage of this new market, a landowner must firstly have land that is appropriate to create or enhance an off-site habitat, and that is capable of resulting in BNG. Secondly, be able to commit that land for a minimum period of 30 years, which is the current intended minimum period. Thirdly, be able to make the land available to a developer whether that is through a new agreement with a developer or by disposal to the developer of the freehold or leasehold. And finally register the site with proposed development on the BNG site register.
What are the key considerations for landowners?
If a landowner wishes to make any land available, they should think carefully and seek advice were necessary on the following:
(a) Does allotting the land on your estate for BNG tie in with your overall strategy and plan?
(b) Are you happy you are potentially taking it out of agricultural production for example?
(c) Do you actually have the ability to make the land available? So, is the land let and if it is do you actually have the ability to deliver to the developer or does your tenant actually have a valuable asset as part of their tenancy? This is also a point to bear in mind when granting new tenancies and also on conducting any tenancy reviews.
(d) Consider the pricing structure of the payment. The cost will be negotiated and will have to cover, as a bare minimum, the cost of any establishment, maintenance costs and of course costs of lost earnings from the land.
(e) How is the payment going to be secured? If the payment is annual or a phased payment of a lump sum, you will want security from the developer that they can actually pay, whether that's a charge or a bond.
(f) Secondly, what happens if planning is refused? As part of the planning application, the land will have to be tied up for that particular development as part of the BNG plan. So, you as a landowner will want to be able to walk away from the agreement with the developer in the event that planning is refused or the development doesn't go ahead.
(g) And thirdly, ensuring that any costs or liability stemming from the development are fully absorbed by the developer and cannot be passed on to you, i.e. all costs that you will incur under the agreement should be factored into the price paid by the developer.
Part 3: New trends
I'm sure that many of you I'm watching will have been approached by developer or other third party proposing to pay better than agricultural values in return for the rights to generate electricity on your land. The range of technology to do so is expanding but we're still largely looking at solar, wind and battery storage at the moment. The government is still trying to work out how enthusiastic we should be regarding onshore wind, and you will be aware of biomass projects as well.
We don't advise on a developer’s financial strength (that's very much one for surveyors and accountants) but it is an important consideration. What we suggest though is that you try to establish the developer’s intentions early and how likely the project might be to come to fruition. You should ask whether the developer knows what the spare grid capacity is locally; if there's no capacity, it suggests a very speculative project and what looks appealing today might simply lock up your land for the duration of an exclusivity agreements and option.
Any payment might end up seeming very small if you lose another opportunity to develop the land. Typically, a renewable energy project starts with an exclusivity agreement so that the developer can investigate the site further.
If initial surveys are favourable, the landowner and developer enter into an option agreement in return for the payment of an option fee. If consents are agreed connection retained the options exercised, the landowner grants a lease of the project site, in return the developer will pay a rent. This is usually fixed by reference to acreage and/or outputs and possibly includes a share of income.
You should also consider rent review options, indexation is common, and you may see a provision to re-base fixed rents in future by reference to open market values, although this might be upwards and downwards and not just an upwards only review.
I would like to highlight an alternative legal structure however, which could generate a capital return as well. As with the residential strategic lands, the landowner and developer enter into a promotion agreement, the developer seeks planning permission and grid connection in the usual way at its own cost. If successful, the developer takes the project to market. What's different from the conventional structure is that on the sale of the projects after the developer’s costs are reimbursed and the landowner grants a lease to the developer the parties share the net proceeds of sale. This is less common but could deliver a better financial return for the landowner, delivering the capital receipt as well as long-term income. We do not necessarily expect this structure to be widespread, but it is something to consider.
You should also make sure that the legal documents take into account any future land proposals. You may know that the rights sought by developers can be very broad. If the landowner’s properties is defined by reference to a title number for very large expanse of lands, there could be future issues when looking at alternative projects.
It's always worth being as specific as possible in your documents. If that's not possible, you can't provide very accurate plans as to exactly where access roads are etc will be you should exclude specified categories of land, for example land earmarked for other developments. And any land that could be used for environmental land management or biodiversity net gain should be retained or subject to a reservation to use that land in future. In our experience developers are amenable to such proposal, subject to specific terms and making sure that you can't interfere with the project.
As Tristram has touched on, you'll know that BNG requirements ought to be stipulated in all development projects. This will therefore include energy projects. Care should be taken as to the likely the location of the proposed BNG works and the extent of the boundaries and the project documents. Make sure that the rights granted under the option of the lease are not so broad as to unwittingly bring any of the parts of your estate into play. To the extent of site works required, you should consider appropriate financial terms. And this may generate a second source of income from the project.
You should also consider whether any lands to the project could be used for environmental and management or other stewardship works. The operator will not want anything to interfere with the project, so no tall trees, no solar panels, but there may be lands around the edges that's not otherwise contributing.
You should expect to discuss who will carry out any work or pay for it and then who will benefit from grants or other payments. We've seen one recently where it's a 50/50 split proposed but other arrangements will no doubt be available. You'll also need to consider the interface between any works and existing stewardship obligations.
This is potentially another source of Revenue when considering the projects.
Part 4: Commercial opportunities and customer experience
I'm going to be speaking about the wider commercial opportunities which may be available to Landed Estates and particularly historic houses in the event sector. Many properties will already have events businesses and others that may not be considering them and post-covid the last two years understandably have been a difficult year for the event sector, but things have rebounded, particularly with consumer appetite.
And one of the ESG benefits of an event business is it can open up estates to a much wider group of society to enjoy Heritage Properties or to access the estate. For example, some of the estates we work with who run food and music festivals for example from land which is part of the estate can attract a completely different demographic to the types of people who might ordinarily visit the properties as part of say organised tours of Heritage houses for example. And also in the events business sustainability is a big focus. You hear more about sustainability than perhaps is actually put into practice and sustainable events are part of the challenge with that as well. So, making sure that claims can be substantiated so if an event is being promoted as a sustainable event, is it actually and that's something which is a challenge for those in the event sector but in the time available, I'm just going to touch on a few of the different ways, which the commercial opportunities can be exploited via events or the wider customer experience and commercial opportunity.
The first one I'd like to feature is weddings. Many properties will have a wedding business or may be considering it, most often they will just host receptions and maybe licence premises for holding wedding ceremonies and that can limit opportunities. It can limit the opportunity to actually be a venue if they are no licensed wedding premises in in the vicinity.
And that has been a challenge historically with the very restrictive regime about where wedding ceremonies can actually be held. So, if like me, you've probably been to a large number of fake weddings where people hold a ceremony which isn't actually a legal ceremony just because of the legal restrictions around that. The reason I mention this is because changes are on the way, the law commission has been reviewing the regime for wedding licensing and looking at relaxing these restrictions to allow people to be married at home, to be married in outside locations, which was something which has been brought in as part of the covid restrictions.
So, for example, previously even licensed wedding venues, outside weddings were not permitted, which is a bizarre of quirk in the law, but that's something which until recently we lived with. The proposals are for any properties to be able to hold weddings, whether that's outside or inside and that will potentially open up the ability for larger number of properties to hold weddings and to hold the event from start to finish. So, rather than just hosting part of the day of reception it will allow an expansion of that. These changes are not yet with us, the laws haven't been changed but the law commission is due to send their final reports in summer this year and then the laws should be changed thereafter. So, that's a sort of watch this space for an opportunity if that's potentially relevant.
The second area I'll touch on is digital transformation and that is an area which is very, very diverse and can apply to a large range of opportunities - whether that's house visits, ticketed events, gardens etc or properties which have for example exhibits and operate more like museums for tours for example. Digital transformation is impacting pretty much every business we work with across any sector. It's about evolving business models
and accessing your opportunities. It's not just about having an IT strategy and making sure that your systems work. It's really about developing businesses in a way which can exploit further opportunities. For example, some of the places that we see this with estates and historic houses is in their online presence.
How do they access the wider world in terms of websites, potentially e-shops? Ticketing, for example - can you sell tickets ahead of time, take payments so that you have certainty about numbers of visitors or at least some baselines that you know in the week ahead that you will have some visibility of visitor numbers. For example, this can be social media channels, direct marketing, digital marketing. So, do you have a database of people who have visited you in the past?
What do you do with that data? And you exploiting that to the full? Can you target particular groups? For example, if you want to encourage more visits from young families, potentially pay for advertising in the local area could be something which is considered, and digital opportunities creates a much richer opportunity to do that. We also see for example hybrid, physical and digital attractions; so that may be in gardens having posts with QR codes which give the visitors information about what they're seeing, the plants the trees the properties etc, that sort of integration of the digital and the physical attraction or purely online say, for example, catalogues of artworks or other objects, which may be in a collection and allows for example researchers or people who are interested before they visit or after they visit to get more details about these things can increase engagement and increase interest in the attraction.
The keys to this is choosing what's right for the business. So, you know, what are the right opportunities, what is going to help, what is the technology which might take the business to another level and choosing the best third-party partners to do that with. Off-the-shelf solutions available for things like payments, ticketing. There's some very sophisticated off-the-shelf products which may be suitable.
Choosing the best parties for that and as a lawyer, we always like to say getting the right contracts in place to make sure that that's robust and underpinned, particularly as a lot of these areas touch on use of personal data, which can be a big concern for lots of businesses. So that's a very brief whistle-stop tour, but hopefully some food for thought on the types of opportunities that are available.
Kerry Stares: Thank you, Richard, Tristram and Phil.
We've got four minutes to pick up questions and thank you to those who've sent questions through we've got rather a lot. So, I'm going to I'm going to try to narrow it down to three and that's let's take our questions in the order of our speakers. Tristram: I said this was a jog and an acronym-rich territory and I think this question bears me out!
Tristram: Will I be able to enter into a BNG agreement over land that is currently in a CSS agreement and how will this interplay with ELMS?
Answer: I think the thrust of that is if you are receiving payments for land that you put into a CSS benefit or ELMS in the future that comes in would you also be able to basically sell BNG units over the same land? The simple answer is yes, with a qualified ‘but’; but I don't have time to go into that ‘but’ in great detail, but the general rule is you can't be paid for the same thing twice. So, if you're getting government money for establishing capital works, you can't then sort of double-account for that and be paid for those same Works through your BNG payment, but whoever that was if they want to get in touch we can discuss it in more detail.
Phil: Are there any other financial issues to consider when entering into a solar project?
Answer: the short answer is tax; make sure that if you are considering a project you get tax advice early because there could be impacts on allowances in terms of relief or inheritance tax and it is worth getting done sooner rather than later in case it needs to feed into any other estate planning issues.
Richard: Can you say a bit more about how digital transformation is being used in practice?
Answer: Yeah, absolutely. To give you an example. This isn't actually a client that we work with, but this is somewhere I visit as a paying customer, which is a Farm Park not far from where I live and in the last year or so, they've introduced an online ticket purchasing system, which is very easy to use.
Previously, you turned up at the car park and handed somebody some money and they gave you a little paper ticket or raffle tickets to show that you paid. Now, you book your time slot, you pay online, very easy. The other thing that this has allowed them to do, is to collect my marketing consent so that they can email me with seasonal events that they're running whether that's come and choose your Christmas tree, we've got a pumpkin picking field at Halloween. And I can see how that moving into the digital world has enabled them to get me there more often. So, that's exactly the sort of digital transformation that a lot of businesses are currently engaging in which shows just how it can be effective.
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Inheritance tax impact in cross-border estates: leaving your Swiss or UK property to your heirs
We take a look at the inheritance tax rules activated on the passing of Swiss or UK real estate to heirs on death.