New Commercial Property Standard Enquiries (CPSE.1 Version 3.3) were published on 28th February 2014. A new Enquiry 32, purportedly dealing with capital allowances, was introduced and this replaced the existing Enquiry 19.
As CPSE.1 has become the set of enquiries that most solicitors now adopt on commercial property transactions, a number of solicitors have asked us to comment on whether or not we consider them to be fit for purpose from a capital allowances perspective. To answer that question, we have had to consider what we believe their purpose to be. We believe that the main purposes of pre-contract capital allowances enquiries should include:
- Establishing whether or not the Buyer could become entitled to claim plant & machinery allowances in respect of fixtures upon their acquisition of a property from a Seller, either directly from that Seller, or via a former owner of the Property; and
- To provide sufficient information to allow the Buyer to estimate the potential value of those capital allowances and establish any potential restrictions on the amounts claimable; and
- To ascertain what mechanisms need to be put in place to allow the Buyer to become entitled to those capital allowances.
It is our view that Version 3.3 CPSE 1 enquiries are not comprehensive enough to ascertain the level of detail necessary to establish much of the above. We are therefore of the opinion that Enquiry 32 of CPSE. 1 (Version 3.3) are NOT fit for purpose, if that purpose is the purpose as outlined above. Accordingly, we will not be advising our clients to rely solely on the answers to these enquiries.
Capital allowances pre-contract enquiries need to determine not only what the Seller has done or has not done, but what the Seller COULD have done. In our opinion, the latest CPSE.1 (Version 3.3) enquiries do not adequately achieve this and in fact, could actually be detrimental to establishing that position. We consider that many of the questions will elicit the response from the seller of either “Not Applicable” or “The seller cannot provide this information and the Buyer should rely on their own further enquiries”. As such, we believe that they will become unworkable on a practical level and will not provide the information sought.
- Solicitors acting for a Buyer of a commercial property are best placed to contractually secure the Seller’s commitment to do what is necessary to allow the Buyer to maximise the allowances available.
- After 31 March 2014 Buyers have a maximum of 2 years from Legal Completion to have completed the steps necessary to become entitled to claim all of the capital allowances in a property purchase.
- Prior to exchange this can be a contractual requirement, thus ensuring the Buyer’s entitlement to allowances is protected.
- After exchange (in the absence of a contractual requirement) this will only be possible with the Seller’s co-operation (who may wish to share in the benefit of the unclaimed allowances and thus reduce the benefit of the allowances to the Buyer who will suffer a loss as a consequence of inadequate contractual protection).
- 2 years after Legal Completion this will not be possible at all, with or without the Seller’s co-operation and unclaimed allowances will be irrevocably lost to the Buyer and all future Buyers.
Capitus has developed a service for solicitors (see here) which includes asking our own comprehensive enquiries, interpreting the responses to those enquiries and advising on a strategy that puts the Buyer in the best possible position to secure entitlement to capital allowances . Crucially, this also applies to Buyers who are non-taxpayers e.g. pension funds and who may subsequently sell the property to a taxpayer. The service specifically addresses the complex capital allowances issues which must now be considered and removes risk from solicitors acting for Buyers.
In conclusion, for solicitors advising on commercial property transactions after 31 March 2014, we recommend that consideration is given to the following points:
- Consider limiting the scope of engagement with clients to specifically exclude advising on capital allowances and advise clients that you consider their interests would be best served by engaging capital allowances specialists to advise on this aspect of the transaction
- If this is not possible, for whatever reason, one should proceed on the basis that, in our considered opinion, replies given to new enquiry 32 of CPSE.1 Version 3.3 may not adequately protect the Buyer’s position without further specialist interpretation.
For further information or to arrange a training seminar explaining the new rules and how they impact on solicitors dealing with commercial property transactions, please contact us.