Next Gen Development Lifecycle Series Session 3: Post-acquisition Part I (webinar transcript)

The webinar recording can be listened to at our Real Estate Hub.

CR:  Hello, and welcome to part three of Ashurst's Real Estate NextGen series focusing on the development lifecycle.  For those of you that don't remember me from earlier sessions, I'm Charlie Reid, and I'm a senior associate in the Planning Environment Team here in London Ashurst.  The idea behind this series is to provide an introduction to the key stages of the lifecycle of a development project looking at it comprehensively across key property disciplines.  So real estate, construction, tax, finance, the lot.  Ashurst Real Estate NextGen Group is led by associates for associates and the objective is to break down a development project into bite-sized chunks and demonstrate how all of the different property disciplines interconnect with each other and inform each other.  So over the first two sessions we have together considered pre-acquisition and acquisition stages of our notional development project.  We've thought about how the transaction should be structured, tax implications arising, we've diligenced our site and we're now the lucky owners of the land we wish to develop.  This week, we're moving forward to the post acquisition phase and this is the exciting bit, this is delivery.  How do you overcome all of the constraints identified at the acquisition stage to realize the opportunities, create transformational change and importantly, generate value.  There's a lot to cover.  And so we've broken this phase into two really punchy sessions.  Today, we're going to keep it highbrow.  We're covering rights to light, finance and tax.  And then next week we're going to be down in the mud on site thinking about planning, environment, and construction.  As usual we've got a variety of speakers lined up.  So today we've got Chloe Marshall, a Senior Associate in our Real Estate team and she's teaming up with Kim Clifford a fellow Senior Associate in our Real Estate Disputes team to talk to rights to light.  Laura Burt who you may remember from our first session is back and she's going to top-up our tax knowledge.  And Sara Winter, a Senior Associate in our Real Estate Finance group is going to speak to finance considerations.  We'll be picking up questions at the end and you'll notice on the slides as we go the email address for the NextGen mailbox.  So please do send any questions that occur to you to the mailbox as we go or alternatively you can use the chat box function on the GoToWebinar software.  So without further ado, I will hand over to Chloe and Kim.

CM:  Thanks Charlie and that lovely introduction and thank you all for joining us today on this surprisingly bright Wednesday morning.  So as Charlie just touched upon, over the next 20 odd minutes Kim, Laura and myself are going to delve into the wonderful world of rights to light.  Charlie if you could click onto the next slide.  So when most people hear rights to light they can understandably think, "Ugh, it's overly complicated, it's very expensive and ultimately quite time, intensive to address", and whilst we're absolutely not going to say that's wrong, we are going to try and cut through these conceptions going back to the basics of rights to light and hopefully really arming you with tools to better prepare yourself when dealing with rights to light.  So over the next few slides I'm going to look at a very practical level what a rights of light is; how one can obtain a rights of light; who can attain the right to light and finally why should you care about rights to light?  So Charlie if you could click on.  Perfect.  So what is a rights to light?  Well, a right of light in its essence is an easement that gives a landowner the right to receive light through defined apertures in the building on his or her land.  So let's break that down a little further.  An easement is a right that benefits one property and burdens another and an aperture is an opening of a building.  For example a window or a skylight.  So building that back up again, a right of light is essentially a right that benefits one property and burdens another by giving the benefiting property the right to receive light through a window on their building.  An important point to flag here is that you can't acquire a right of light in respect of land that has not been built upon.  The idea is that such a broad right is deemed to be too indistinct to form the subject matter of a grant.  So the takeaway here is that undeveloped land cannot acquire or benefit from a right of light across other land.  There must be a building on that benefiting land which benefits from access to light.  So in practice rights of light arose as an issue on developments when you, the developer, want to release the potential of your lovely site and you want to build up but this ultimately decreases the light to your neighbouring properties.  And the point here is that it's not just a decrease to light, it's a decrease to an insufficient level for the ordinary and normal use of the rooms within that neighbouring property.  So that's what a right of light is in a nutshell.  Let's move on to the next slide which is how can I establish a right to light?  Well rights of light can come into being either immediately, and that can be express grants or implied grants, which is shown on the slide, or it can be over time and that's prescription.  So tackling these in the order that you're most likely to see.  Let's start off with prescription because this is the most common route that I tend to see.  Now there are three kinds of prescription but we're not going to delve into the nitty gritty of prescriptions on this slide just because quite frankly it can take hours to really tackle it.  So the key point I'm drawing your attention to here is under the Prescription Act 1832 and this is where you need to establish that your neighbouring properties have enjoyed a continuous uninterrupted light for a period of over 20 years and this 20 year period is calculated back from the date on which the action challenging or asserting the right was begun.  Now prescription normally happens when light passes over one person's land into another person's land through a window.  So that's prescription.  Implied grant is the next most common route for establishing rights to light and implication essentially boils down to section 62 of the Law of Property Act 1925 which operates across conveyances.  And under that umbrella term conveyances you can find freehold transfers of whole or part and also the grants the leases.  And the key point here is that unless section 62 is expressly excluded from that transfer or that lease then the transferees or the lessees will gain any existing rights that existed at the date of the transfer or grant.  So if rights of light existed at the date of that transfer or that lease they will take that.  So that's implied grant.  Finally there's express grant and actually this is very uncommon for rights to light and really I'm only including it for your benefit just because it is a way that you could potentially establish the right to light.  But in reality you're more likely to see an express grant in the context of a land transfer where an owner of land will maybe have a large bit of land and now transferred to a purchaser a small part and they'll grant that small part a right of way over their attained land and it doesn't have to be a right of way it can be a right of drainage or a right of support.  So that's express grant.  So they're the three key limbs you need to think about but in practice you're probably still thinking, "Well how do I establish whether my neighbouring properties have a right to light?"  The simple answer to that is you're going to instruct a right of light there and they're going to go off and they're going to identify the neighbouring properties affected by your proposed developments and they'll produce a report and you can then digest that and flick it onto your lawyers who will then review the various titles that have been identified in that report.  And they'll look through that to see whether there's anything on those titles that has potentially released those rights to light.  And that actually linking back could the implied Grant because if they're looking at a leasehold title they will obtain the lease and they can look through and see whether section 62 has been expressly excluded in which case they can rule that limb out.  So that's how you establish a right to light.  Let's move on next to who can establish a right to light?  The key point I want to draw your attention to here is, rather uniquely to right of light, you need to consider not just the rights of the landowner but also the occupiers.  Right of light can be acquired by a tenant for their own benefit and this is because of section 3 of the Prescription Act 1832 which requires actual enjoyment of the light which the tenants do.  So importantly you need to instruct your lawyers when they're due diligencing the neighbouring affected properties that they check both the freehold and the leasehold interests to ensure that when you approach your strategy you have considered all the potential parties.  So over the last couple of slides I've mentioned the legal due diligence that will be undertaken by your solicitors and we thought here actually it might be helpful if we showed you on the next slide an example of this report that your solicitors might put together.  So Kim is going to discuss through this slide which is an example of the report and really pull out what will be flagged.  So over to you Kim.

KC:  Thanks Chloe and good morning everyone.  So yeah as Chloe said we thought it would be helpful for you to practically see what we'd provide you with following our review.  So in the blue section at the top we would review each freehold property.  And in there, as shown on the slide, we would talk through who the registered proprietor is, were there any rights of light deeds, conveyances, transfers or other documents that are listed on the title that help us work through what possible rights are there at freehold level.  We also note how many leases there are and whether there are any registered charges and we do that because that can be relevant for any releases of rights of light that we're going to come on later today.  At a leasehold level we also undertake a review of the lease as Chloe said to confirm any rights that could be acquired by the tenant.  And that's shown in the green, amber and red kind of traffic light system which we used to flag the level of risk at that leasehold level.  So you know whether that is a right that needs to be investigated further or whether you need to look into some kind of strategy.  We also, as set out on the slide, look at the freehold risk assessment and give you a high/low risk.  So again you know the level there and that can inform your strategy.  So like we said this report is prepared.  We then use that in conjunction with the surveyor's support to help inform strategy.  And Chloe is now going to move on to talk through the consequences of right of light.

CM:  Thanks Kim.  So we've addressed what a right of light is, how you can acquire a right of light and who can obtain a right to light.  So let's now ask the question that you should all be asking, "Well why do I care about rights to light?"  Well if it's not obvious already, if you were to proceed with your development and build up and that person, your neighbouring properties have a right to light and you're infringing that light, then your encroaching another party's right and there are legal consequences to this.  Now Kim is going to touch upon this in slightly more detail further on in this session but, as indicated at the slide, there are two remedies for breach of a right of light.  So firstly, an injunction, which in a worst-case scenario could result in you having to cut down part of your development and this might be something that you've heard about them when linked to rights to light.  It can also be damages whereby you agree to pay compensation.  I just want to point your attention on injunction that an application to court can be made either at any time before the development is completed which seems quite obvious whereby someone is seeking an order to prevent the development from continuing but also quite interestingly an application to court can be made after the development has completed whereby someone is seeking an order to either demolish or cut back your development to prevent the interference with their rights to light.  Obviously that being said the court does have discretion and, as you can see on the slide, they can ultimately decide to award damages instead of an injunction were they consider that best to do so.  So that's why you care.  That's now move on to some practical steps to how you can deal with them.  So on the slide you can see three options and this is absolutely not an exhaustive list.  We just thought it would be helpful to basically go through the most common ones that we see and we advise our clients on.  Ultimately when you speak to a solicitor they might come up with a bespoke solution which could ultimately be a hybrid between deeds of release and insurance.  So tackling the first one we've got our deeds of release and this is a really valuable option because normally somebody with a right to light will agree to release their right for money or potentially works and by works really I'm just drilling down to a skylight installation or enlarging some windows.  Within this deed it will address the extent of the release and this could be pending to an agreed profile drawing and it will also include a variety of warranties and an indemnity from your adjoining owner which would confirm a full release with no other parties needing to join.  The point here is that this option does unfortunately mean you have to negotiate with your neighbours and it does alert them to a right that they might not otherwise have known about which you might think isn't a great solution but if you've spoken with your rights of light surveyor and they've identified a number of high risk properties you might consider this the best route for you because it is the most expressed direct route.  Linked to this is obviously that this can be a very time consuming solution because ultimately negotiating with your neighbours.  They might not be working to your timeframe so you should factor in this time delay into your development.  The second option is insurance.  Now not all developments are insurable, but if they are, insurance can play a great role in the developer's strategy by allowing essentially the project to start without waiting for the right of light issues to be finalized and it can transfer the financial risk to the insurance company.  If you do proceed with this approach you need to share and agree your strategy upfront with the insurer as they will want to oversee the strategy and ultimately approve when you approach adjoining owners.  The point here is that you do release an element of control over your development but you might consider this the best route for you.  Again just linking this back to the report that Kim touched on.  That report is actually what you most likely will send to insurers; they'll then look through that and it can ultimately be appended to the policy.  So that's deeds of release and insurance.  Kim's now going to tackle lights obstruction notices.

KC:  Thanks Chloe.  So yes light obstruction notices or LONs as they are commonly known is a kind of notice that can be registered as a local land charge against the land that is potentially acquiring the right of light.  Now it's a two stage process as to be able to register a notice a developer has to obtain a certificate from the Lands Chamber of the Upper Tribunal that grants the right to make the application.  So again it's a time element here.  Now the effect of this note is to create a hypothetical obstruction of light over the building and it has the same effect as if there's a physical impediment, so if a building had gone up and blocked a right of light.  So if the notice remains in place for at least a year without being challenged then they see sufficient interruption to cancel any years accrued by the neighbouring landowner before the end of the 20 year period.  Now we have to be honest, these notices are frequently unused in practice and this is for two reasons.  First of all they only deal with rights of light acquired by prescription under the Prescription Act so they don't address any other methods of acquiring right to light that Chloe mentioned earlier at the start of this session.  And secondly, as the notice has to be in place for at least a year, there's often a timing issue and it doesn't fit into the development schedule or a developer wants to move on with the development much quicker.  So that just means that, as I said, they're not frequently used but they are an option available if time is on your side.  So if you could just move on to the next slide please, Charlie.  Great, thank you.  So now what we thought we'd do is look at the position if strategies aren't deployed to deal with rights of light.  As Chloe mentioned earlier there are two remedies.  The first being an injunction and the second being damages.  Now we are going to have to go through a bit of case law here I'm afraid.  I fully appreciate that that isn't the most willing of prospects just before lunch on a Wednesday.  However please do bear with me as I've really tried to reduce this down to the really key landmark decisions on the slide.  So when you hear your advisors talking about court  decisions they're more familiar to you and also I think it's important to flag that there's some really fundamental lessons here.  The developer should always have in mind when they're proceeding with the development where there's rights to light issues.  The first thing to learn is that an injunction can be granted, as Chloe said, anytime even after the development is completed and been let if rights of light haven't been dealt with.  So it's not a case that the development is up this goes away.  And the second point is conduct and the conduct of a developer is really, really important if the court is asked to exercise its discretion as to whether there should be an injunction or damages awarded.  So let's dive into the case law.  The first big decision on the slide was before the Court of Appeal in the Shelfer case way back in 1895.  And in that decision, the court considered its ability to award damages in lieu of an injunction in nuisance cases and it came up with the working rule that you hear repeatedly in almost every right of light case and this is the full requirements of when damages should be awarded and an injunction refused.  So those four requirements are, first of all, where there is only a small injury.  Second of all, whether injury is capable of being estimated in money.  Thirdly, where the injury could be adequately compensated by a small money payment and finally where the court considers that it would not be oppressive to grant an injunction.  Now you're going to be really glad to hear that we're not going through every case since 1895.  As I've said we're going to fast forward straight through to 2010.  And this is the case of Heaney, and second case on the slide.  Now this is a case where a judge applied the Shelfer guidance an awarded an injunction rather than damages and this highlights the first important lesson that I mentioned a few moments ago.  As the court here awarded an injunction, notwithstanding that it was commercial development that had to be cut back, and it had been completed, and also two full floor had been let at that development.  Now at this stage many developers were really quite surprised by this decision and alarmed at the injunction being granted.  Especially as Mr Heaney, in this case, had been talking with a developer for some 18 months while the development had started and been completed.  Now notably here this decision was actually being appealed, however settled privately, so we won't ever know what the outcome of the appeal would have been.  But it's an interesting case that flags the point, as I say, that your development once completed, there is still a risk of an injunction there.  As I said, the Shelfer test is very old and in 2014 the case of Coventry v Lawrence was a fundamental case to consider that four part test.  Now this case concerned noise nuisance in relation to residential premises caused by a motor circuit, cross racing.  And so it's not the kind of case you'd naturally assume that I'd be talking to you today in a rights of light talk.  Nonetheless the case is really important as it set a precedent in relation to nuisance cases and rights of light as well.  Here in the Supreme Court, Lord Neuberger suggested that a much more flexible approach is required when assessing whether damages should be awarded and he thought that the Shelfer guidance has been applied really restrictively to that point.  So where are we since Coventry and Lawrence.  So there's been three cases, well big cases, in the courts in relation to rights of light.  In one case the court awarded damages and in two they awarded an injunction.  So to be quite frank it's really unclear as to how the courts are viewing their current preference on remedies at the moment.  That being said, if we take the final case on the slide of Beaumont and Florala.  The High Court here this year declared that a building owner was entitled to an injunction against a neighbouring landowner even though the development had completed two years, yes two years, previously.  Now the court made that decision because it held that the defendant had gone ahead with the development full well knowing the risk and that he had acted in a really unfair and unneighbourly manner.  So the court did note as well that the scheme could have been modified by the developer and that they didn't do so because they were looking to make as much money as they can which, you know, isn't surprising to any of us on these developments.  They also really focused on the fact that they thought that the claimant didn't want damages.  They weren't trying to exhort out of this situation as much money as they can and they genuinely had a concern about the loss of light to their building.  So that, the Court said, was really fundamental.  So this is the second point that I flagged right at the session, you know, the take home point, and I'm going to reiterate again, is that the injunction was awarded here as a result of the conduct of the developer and that is why that is so critical to be aware of.  In that case that we've just spoke of, like in Heaney, I mentioned that the property had been completed and let but the tenant wasn't a party to those proceedings.  So just to let you know how the court dealt with that, the court said that Beaumont could have the injunction provided that they join the tenant into the proceedings and they also convince the court that the injunction should be granted against the tenant.  Now the court did give Beaumont a way out though and they said that if they didn't want to proceed with having to prove the injunction against the tenant they could have damages as a remedy in the alternative.  And they did also say that if the junction application against the tenant failed, again they could also be awarded damages.  So that's how the court resolved that practical issue.  If we could just move onto the next slide then please, Charlie.  Thanks so much.  So taking that little canter of case law through that we've just spoke about.  What should a developer think about when approaching rights of light?  So the first point is it is really critical to obtain specialist advice from your surveyor and legal advisers early on, and I'm not just saying that because it's convenient for us, it's, you know, you really need to know the impact of your development, and deal with rights of light before you start if you want to avoid an injunction risk.  The second point, as set out on the slide, is that it's important to identify potential owners early.  This can be a significant process, Chloe's touched upon, and it's really vital for any strategic decisions you make.  And, you know, practically you need to know who you're dealing with if you're going to go and negotiate a right of light release and it's just better to have that information upfront.  Finally, and I know I've said it many times but it's conduct, is to be mindful of it.  The later negotiations are concluded and conducted the higher the risk of an injunction.  And so it's really beneficial to start thinking about this early subject to any insurance requirements, as Chloe has flagged, because your insurer may say that you can't approach neighbouring landowners.  Being mindful of this and approaching early can also help flush out whether a neighbouring landowner is after damages or whether they've got a genuine concern that might factor into the ability of the court to grant an injunction.  So, again that's something helpful.  I'm now going to hand over to Laura, who's now going to discuss the tax consequences that can occur with releases of rights to light.

LB:  Thanks, Kim.  Good morning, everyone.  My name is Laura Burt and I am an Associate in the Tax Division here at Ashurst.  I'm going to talk to you today about two tax points to be aware of in respect to rights to light.  SDLT and VAT.  SDLT and VAT normally only arise where, as mentioned in Chloe's example one, a developer enters into an agreement such as a deed of release with the adjacent landowner in which they agree to release their right to light and the developer agrees to do something in return.  I'm going to start with SDLT mainly because it's more straightforward.  The key point to be aware of is that SDLT may be payable in respect of a release of a right to light.  SDLT applies on the acquisition of a chargeable interested in land and chargeable interest for these purposes is defined as including the benefit of any obligation, restriction or condition affecting the value of an estate or land.  It therefore includes a right to light in addition to the acquisition of a freehold or leasehold interest.  The owner of the title interest is the person who is releasing the right to light.  The question is then, on a release, who is the buyer and who is the seller.  This is helpfully defined in the SDLT legislation which confirms that on release the purchaser is the person whose interest or right is benefitted or enlarged by the transaction.  This is the developer.  We therefore now know that we have an acquisition of a chargeable interests and who the purchaser is.  The only remaining question is what is being paid for the purchase.  Whether SDLT is payable or an SDLT return needs to be filed with the Revenue will depend on the amount of consideration you pay the adjoining landowner to release their right to light.  Tax will only be payable if the consideration will be greater than the nil rate threshold which is 150,000 for commercial property.  As we discussed in session one, SDLT is not only chargeable on cash payments, SDLT is chargeable on anything which is money or money's worth.  Therefore if the adjoining landowner agrees to release their right of light in return, for example, for the developer installing skylights or enlarging their windows, the market value of those works will be a chargeable consideration for SDLT purposes.  Finally, just as a reminder that SDLT would be payable within 14 days of the date the agreement or deed of release is entered into so that you need to think about this as soon as possible.  If we could have the next slide please Charlie.  I'm now going to come onto VAT.  The VAT position is unfortunately much less clear and there's currently a great deal of uncertainty about how a release of right to light should be treated for VAT purposes.  I'll come on to discuss that uncertainty in a second.  But by way of reminder, as discussed in the previous session, suppliers for VAT purposes are either taxable, either standard rated, or zero rated or exempt and suppliers of land are normally exempt subject to the option to tax.  In respect the rights of light the current position, based on HMRC guidance, is that the surrender of a right to light is an exempt supply of land subject to the option to tax.  So far so good.  The problem comes, because HMRC have indicated that they disagree with our current guidance and that they intend to update their guidance to say that a release of right to light should no longer be treated as an exempt supply of land.  What this is telling us is that they disagree with our current guide and they've not told us what their new view is causing lots of academic debate among tax lawyers.  And whilst that's interesting, at least for tax lawyers, we're still missing the key view which is HMRC's view.  The debate is whether a release of rights light should be treated as a supply of land or a taxable supply of services.  Our view is that the better view is that consistent with the SDLT  treatment.  It should be treated as a supply of land.  Charlie if I could have the next slide please?  If it's a supply of land, it will be a supply by the adjoining landowner to the developer and it will be taxable if an option to tax has been exercised by the adjoining landowner.  The question then becomes, either which plot of land does the adjoining landowner need to exercise the option to tax.  Is he making a supply in connection with his own land i.e. the blue land on the diagram or in connection with the developer's land, the green land on the diagram?  There are, again, conflicting views, and again, HMRC have decided not to indicate to taxpayers what their view is.  Our view is that the better view is that the release of the adjoining landowners' right to light should be viewed as a supply of the developer's land, so the green box on the side.  This is on the basis that what the adjoining landowner is surrendering is a restrictive right over the developer's land.  In our view the supply would therefore only be taxable if the adjoining landowner has exercised an option to tax over the developer's land.  This is only likely to happen if the adjoining landowner previously owned the developer's land and is therefore much less common than the alternative view that the relevant option to tax is the option to tax over the adjoining landowner's own land.   Just one final point to remember is that that will only be chargeable where consideration is paid for the release of the right to light and that's cash consideration, or non-monetary consideration, and know that will be payable if nothing is paid.  That brings me to the end of my section.  Just to sum up the key takeaways are (a) to think about SDLT because it may be payable on a release to right of light and also first think about VAT because it may be chargeable on an agreement to release the right of light, but particularly in respect to the VAT it's important to talk to the adjoining landowner as soon as possible to agree an approach because of all the uncertainty in the law.  I'm now going to handover to my colleague, Sarah, who's going to talk about real estate finance and the development of ongoing relationship with London.  Thank you.

SW:  Thanks, Laura.  So we're now going to put rights to light to one side and move on to the relationship with the lender.  So you may have spent weeks negotiating your facility agreement; you've had your completion drinks and you are hoping that you can now put that facility agreement in your bottom drawer and forget all about it.  Well I'm here to tell you that unfortunately that's probably not going to be the case and we will start by looking at some top tips to ensure that you have a fruitful and wealthy and mutually beneficial relationship with your lender.  Charlie, if we can look at the first slide.  So number one is to communicate frequently with your lender. Keep your lender up to speed with what's going on in your business, and that will be critical to ensuring that you have a successful relationship.  The borrower should be proactive about reaching out to their lender advance notice about any material events or changes to their business that may have an impact or may be of interest to the lender.  We then move on to tip number two which is to create a mutually beneficial relationship.  Now, banks are in the business to earn a reasonable return and pushing your bank for every last penny is not really going to create a mutually beneficial relationship in which both parties are best at mutual success.  In many cases, the bank is providing you with capital to allow the business owner to grow their business at a faster pace than you would be able to do without the outside capital.  So when the bank feels good about that relationship they are more likely to help manage you through a difficult and tough situation.  So, for example, we've seen a lot of our borrowers be impacted by the Covid-19 pandemic and they've been approaching their lenders for financial covenant waivers or for waivers for certain breaches that may occur under the facility agreement as a result of, for example, tenants no longer paying their rent.  And lenders feel good about helping their borrowers when they feel that they are getting something from that relationship.  So perhaps rewarding your bank with ancillary business whether that be cash management, deposits, credit cards, is important for them.  And additionally it's important to note that banks do you look at the broader relationship when pricing the loan.  So doing more business with your bank will help you get the best possible return.  The third point to mention is to read and understand your loan agreement.  So I know it's long and it contains lots of legal jargon but it is incumbent upon borrowers to know what is in their loan agreement.  So we see lots of borrowers designate somebody to be in charge of monitoring compliance with that loan agreement.  So not only are they looking at whether, you know, today's date, they can meet their financial covenants, but they also need to be looking at and assessing whether they will be in compliance with financial covenants based on their projected performance and they need to be thinking ahead to the next four quarters.  They also need to be thinking about the business plans.  Are they planning on acquiring assets, incurring capital expenditure making distributions?  Then they need to consider whether there's any limitations on the loan agreement in actually being able to undertake those activities, and if so, they need to seek approval from the bank in advance.  It is critical to do that to maintain a long term relationship with your lender.  Now during the life of the loan changes to the parties' positions, regulations and or the market may cause parties to revisit the terms of the loan agreement.  There are a number of reasons why a borrower may approach its lenders to request amendments to the facility agreement.  For example you may need to increase the facility, you may want to amend repayment terms or you may want to revise your financial covenants.  In some cases the request to amend the facility agreement will arise when a breach has occurred or is about to occur.  So a borrower looking to seek a permanent amendment or a one-off waiver will typically be looking to document these in an amendment agreements or an in an amendment and restatement agreements.  Changes that are more temporary in nature are typically dealt with by way of a waiver letter.  Now whether a lender is prepared to agree to the amendments will be a commercial decision.  However there are a number of key legal and practical issues that all parties need to consider.  And the next slide, Charlie please, is a useful checklist for all to work their way through.  So, it may sound obvious but you need to ensure that you're reviewing the correct documents.  You need to check that you've got complete and up-to-date agreements, that they contain all of any kind of historic amendments or waivers that may have occurred, and that you're looking at the latest set of documents.  You then need to provide to your lender full information about the proposed amendments and waivers so that they can consider the request.  The lenders may decide upon you going to them for that amendment or waiver but further due diligence is required and/or that they need to go to credit and seek approval to what you're requesting.  On the borrower side, you need to consider whether there are any constitutional consequences that will need to be addressed.  So, for example, if the request relates to an increase in the facility amount would that be a breach of an existing borrowing limit in the constitutional document.  If so then that will need to be addressed.  Has there been an event of default?  And this is why you are now seeking an amendment or a waiver.  If so then you need to think about whether that triggers cost default provisions in other agreements with third parties.  Is it across broader elements?  If so it may be necessary to instruct local council and that may have an impact on the proposed timing and the cost of that amendment or waiver.  Then, we look at whether an amendment is being requested following a breach of the facility agreement or whether it's actually being requested in anticipation of a breach.  If the amendment is being requested to avoid a breach of the facility agreement, consider the issue that has given rise to the request is a potential event of default.  What impact does that actually have on the facility agreement?  As a result of a potential event of default, are you now prohibited, for example, of making disposals or distributing cash up to your shareholders? If you're seeking that amendment because you've actually breached your facility agreement, then the lender may want to reserve their rights and they may serve a reservation of rights letter while they consider their actions.  Now, is this an amendment or a waiver?  So as I mentioned, if a lender is agreeing a permanent change to a facility agreement, that's typically documented as an amendment.  A waiver is more of a one-off basis.  It could be with or without conditions and that will typically be drafted in a short form wave letter.  Now, a standard amendments clause in a facility agreement will typically provide that amendments will only be effective if they are in writing and they are signed by or on behalf of each party to the relevant document.  The amendments clause in a facility agreement will also dictate whether you need all lender consent or whether it's a majority lender decision.  Typically a borrower is liable for all costs and expenses of the lenders, and its advisors incurred in connection with an amendment.  Lenders may generally require the borrower to satisfy a number of conditions precedent before the amendments become effective.  The conditions precedent will vary depending upon the amendments and the requirements of the lenders but you do need to factor that in because again it may have an impact on timing and costs.  For some conditions precedent that we may see or corporate formalities there may be specific financial information such as updated financial statements or forecasts, updated valuations, expert reports, and additional security or guarantees.  Now as I say, the conditions precedent are transaction specific but it's just worth bearing in mind that if there are conditions attached to the amendment or waiver it will be the borrower's responsibility to satisfy those conditions.  Now, when you are amending or waving a facility agreements you need to consider the impact on guarantees and security.  So you need to consider the extent to which the amendments to the facility agreement change the nature of the guarantors or security provider's obligations, and varying facility agreements about guarantor consent or without getting new security or security confirmation, may actually discharge the guarantee that was originally provided.  S lenders and their legal counsel are typically quite hot on checking these points and will often require that for substantive changes that are being made to facility agreement. The guarantor provides written consent to those amendments and the security provider again provides a security confirmation confirming that the security extends to the obligations in the facility agreement as they have now been amended.  And then finally, we just need to consider post execution matters.  So, this is most likely to be relevant if new or replacement security has been taken and so it will be necessary to ensure that all perfection and registration requirements are met.  There may have been some conditions to the amendments or waivers that you weren't able to satisfy in time and they became conditions subsequent.  So you need to make sure that you address those and deliver those in accordance with the timeframe that's been documented in the amendment or waiver letter.  And then you also just need to deal with any original documents and/or prepare or date bibles that may have been prepared at the time of the original financing.  So, Charlie, I think we're back now to you to give us some questions to the panel.

CR:  Yeah!  Thanks Sarah.  That was really interesting and as a planner who, sort of always is looking at a development project from the other end of the telescope I always find it incredibly interesting to find out or learn about how sort of physical issues you might be dealing with or hurdles you might be trying to overcome on a site and have wider ramifications say on the commercials or on a tax basis. There's been a handful of questions, actually, and while finance is still fresh in our minds I might pick up on one that I think is probably aimed at you, Sarah.  The question is, is it possible to future-proof the facility agreement in respect to future amendments and restatements so that existing security doesn't have to be retaken?  So, I think that's actually quite relevant to what you're just talking about.

SW:  Yes it is.  It's actually a question that we commonly get from our borrower clients.  They often take, wants to incur the time and the cost of having to retake the security and guarantees and so when they document the facility agreement first, time round they want to try and, as the question says, future-proof that facility.  Now unfortunately I'm going to give an answer which puts me on the fence but it's very dependent on a transaction-by-transaction basis.  So whilst the finance documentation will contain copious boilerplate wording which purports both to define the scope of the surety's obligations and scope, so far as is possible, the future events will not cause those obligations to be avoided.  Whether or not they actually need to retake security and guarantees is not really a clear-cut answer to that question.  And as I say it does need to be looked at on a case-by-case basis.  But just to give the audience a bit of a kind of high level overview of the sorts of amendments which may impact on the security.  If you are largely increasing the debt amount or you are agreeing substantial extensions to the scheduled maturity of a loan, I think that would be in the red category of the risk that the existing security package is vulnerable to challenge and it would be prudent to retake security.  Where I would say we're in the amber zone and we should be proceeding with caution, that would be if there's your resetting financial covenant ratios or there's a surety, the surety of the individual.  So there we would suggest retaking security and that would be a kind of our first position but if there's strong pushback you may be able to get yourself comfortable with security and guarantee confirmations.  And then where we would say securities are likely to be affected by amendments, and you're in the green zone as it were, this is where there's minor amendments to correct errors in documents.  So the waivers are more of a kind of technical default in nature or you are making limited increases to the debt amount or the debt maturity.  So you not, you know, you made perhaps the extending by a month or two but certainly not for five or six years.  Unfortunately, it's a transaction-by-transaction basis that you need to consider the answer but you can try and do all you can when you put in place the original facility to try and future-proof it as much as possible.

CR:  Thanks Sarah, that's really interesting.  A couple more questions have come in and actually tie into the first half of the talk which was about rights of light, and I think this one's probably Chloe question not a Kim one.  So the question is, someone's asked, if I'm entering into a deed release as a developer, is there a way that compensation I'm paying to the neighbouring owner can be kept confidential?  This is quite an interesting point.

CM:  Yeah and thank you whoever raised this because this is actually something I was thinking of addressing in one of my slides.  And yes, absolutely, you can keep your compensation confidential.  And this is something that frequently clients will ask us to do.  Normally how we would approach this is enter into a separate compensation deed where that's kept totally confidential, there are quite strict confidentiality provisions, and that really just remains between the developer and the adjoining owner that then obviously frees up the deed of release to then be registered at Land Registry and ultimately the adjoining owners can share it around, unfortunately, which is what they tend to do in practice, and by total confidentiality existing in the deed of release too.  So the short and sweet answer is yes, you absolutely can keep the compensation amount separate from the deed of release.  That's quite a nice question.

CR:  Nice And clear.  And to keep it fair I'm going to chuck the last question to Kim.  If there is a freeholder and a tenant with a long lease of a neighbouring building, how is any compensation divided?  Tough one.  

KC:  Okay.  Thanks Charlie.  Okay how to explain this?  So I think what we need to take this back to is, and it's actually quite an important point, is that a right to light is enjoyed by a building, and that sounds really odd to say a building who enjoys the right of light, but the way to think about it is the compensation pot, in effect, is for the whole building.  So then the split between a freeholder and leasehold, assuming they've both got rights to light, is then divided out of that pot in accordance with something that sounds quite technical, but they're called Parry's valuation tables that surveyors are very familiar with.  But in essence it will just look at how that pot is divided.  So if you're a tenant who's got a long lease, you enjoy that property more frequently and so that means you're entitled to a bigger part of the pot.  Whereas a freehold will have a smaller part of the pot because you know they're not there on a day-to-day basis.  They haven't got the immediate right to occupation.  So it's all about how the plot is divided.  But the thing to remember is, you know, the right of light is enjoyed by the building.

CR:  Great, thanks, Kim.  I'm conscious of time.  It's getting on to 10 to 12 and maybe we should wrap it up there and I don't think there's much more for me to say except thank you for everybody for tuning in and just to remind you that this was the first part of the post-acquisition phase talk and so we're going to be running, normally these talks run fortnightly, but we're going to run an extra one next week just to do part two looking at environment construction and planning matters.  So we hope you can join us again then.  Thanks very much.