Who's a Jew -v- Who's a Brit

Interesting Fact: I am not British. I am Irish, born to an Irish father and a British mother. Despite having lived in the UK for most of my adult life, having paid taxes and observed and paid the price (only minor motoring offences) for breaking British laws I am not automatically entitled to be classed as a British citizen or to become naturalized as a British citizen.
In order to be apply for naturalization in Britain there is a seven part test as follows:

• you are aged 18 or over;
• you are of sound mind;
• you intend to continue to live in the United Kingdom;
• you can communicate in English, Welsh or Scottish Gaelic to an acceptable degree;
• you have sufficient knowledge of life in the United Kingdom;
• you are of good character; and
• you meet the residential requirements

Exact details can be found on the UK Border Agency web-site

The two most interesting ones are the requirement of knowledge of life and being of good character. If you can show you know what it is to be British and are law-abiding you should be fine.

Yesterday, the Court of Appeal issued a ruling that a Jewish school was in breach of Race laws by refusing entry to a boy whose mother had undergone "conversion" under the auspices of Progressive Judaism. This judgment has been lauded by civil liberties campaigners and the reform and liberal jews. However, without wishing to disrespect the Lords of Appeal, their judgment is flawed and will hopefully be overturned by the House of Lords.

The real question that this case is considering is:

Who defines who a Jew is?

And it is for this reason I have set out above the criteria for deciding whether someone can become a British Citizen. I do not argue with those criteria nor with the fact that it is for the British Government to decide who can and cannot become British citizen.

Similarly, I would strongly argue, it is not for the British courts to decide who and who is not a Jew. The Court of Appeal did not rule that it was unlawful to have a school who only admitted Jews. Rather it decided that the basis on which the school decided who and who is not a Jew was unlawful. If allowed to stand such a decision undermines the basis of any faith. But ignoring that argument, the Court of Appeal's decision that the school's basis was unlawful was also wrong.

JFS (the school in question) is bound by the Court of the Chief Rabbi in deciding on the eligibility of a proposed student. The Court of the Chief Rabbi likely defines a Jew as someone:

• whose mother was born Jewish; or
• whose mother converted to Judaism; or
• who has him/herself converted to Judaism

True, on that basis someone whose mother was born Jewish but not practicing in the slightest would be allowed in whereas someone whose mother was not born Jewish, had never converted but kept all the laws would not be allowed in. But this does not preclude someone from converting and therefore does not, of itself, amount to discrimination.

As part of the conversion process which takes, I believe, up to 7 years (not disimilar to the minimum period of residency in the UK required for British citizenship) convertees must agree to abide by all the laws and regulations and show that they mean it (not dissimilar to the requirement of knowledge and good character for British Citizenship).

Now, would you expect a conversion to be allowed of someone who is not prepared to commit to all the laws and regulations? I assume not in the same way as you would not expect citizenship to be granted to someone who refused to agree to follow the laws of Britain or club membership to be given to a member who refused to follow the club's rules.

Ah, you will say, but this person's mother did convert. Wrong, she converted to a religion called Progressive Judaism which is fundamentally different from Orthodox Judaism. In doing so she did not agree to be bound by and follow all the laws orthodox Jews are bound by. Should I be entitled to set-up a new religion which has some similarity to Islam but changes the rules to suit my feelings and views and then claim that anyone who says I am not a Muslim is discriminating against me? Of course not - the only people who can define who is a Muslim are the Imans and religious leaders.

That progressive judaism started some time ago (reform judaism started in the early 18th century) does not change the fact that it is a new religion that has sought to throw off the boundaries and restrictions imposed by orthodoxy to appeal to the masses' need to assuage their guilt on failing to follow the rules and laws.

In summary, if the law allows a school to permit entry only to Jews the Courts have no right to turn that position on its head by ruling that anyone who calls themselves a Jew must be permitted entry. Anyone is entitled to convert to Judaism but they must agree to accept the laws that come with the name - M's mother was not prepared to accept such laws and so chose to become a Progressive Jew. If I created a new country and called it New Britain (sic) and named its citizens British I think they would be given short shrift if they tried to enter Britain claiming to be British citizens. Being Jewish is no different.

IFAs and the end of the commission income (See FT.com)

As reported in the FT the FSA are intending on putting an end to commission based compensation for independent financial advisors (IFAs). Instead all IFAs would need to agree a fee with the client and that fee could either be paid upfront or deducted from the investment. It has been hailed as a wonderful step forward for the man on the street seen as adding further protection. However, as someone who uses IFAs I am not quite so sure the benefits of such regulation outweight the downside.
I have had an IFA for a number of years. When I first started out with my current firm remuneration was, at my option, commission based. This meant that I paid nothing for their services and they got nothing from providing services unless I actually bought some form of investment. As a result of their advice I purchased life insurance, critical illness cover and started saving properly into a pension. I would never have done this without the advice of my IFA and I am pretty certain I would never have gone to see an IFA if I would have needed to pay.
However, a couple of years ago my IFA changed the basis of our arrangement so that it no longer received commission. Instead I pay an annual retention fee (£1,200 plus VAT) and then if they place investments for me I pay a lump sum for their advice (they may still be able to get commission if I agree but I cannot remember).
I must say that the service and advice I am getting has improved since this new arrangement was put in place (although this might be more a result of my personal advisor changing and the new advisor simply being a lot better). However, £1,410 is a lot of money to pay just to have someone meet with you 2 or 3 times a year and tell you that you should try and save more, utilise your ISA allowance to the full even when you have no liquid assets and that cutting your pension contributions risks ruining your ability to retire.
True I have received helpful advice. They arranged for my pension investments to be changed; they drafted the letter to HMRC to ensure I was benefitting from tax breaks on my pension contributions. Does this justify the cost?
Very difficult to say and when things are tight is this not just a luxury that I should get rid of? I could have done these things myself but just didn't get round to it - why should I when they were being paid for it!
One thing I can say is that if I was contacted by an IFA for the first time and invited to come for a free chat but warned that if I did want to instruct them I would have to pay I would say, "Thanks but no thanks - I can manage on my own".
Therefore, whilst the Government's move might save some people from the clutches of unscrupulous poor advisors making bad recommendations purely for the commission, it will also likely lead to an increased number of people who do not have adequate protection in place for emergencies or retirement both of which will ultimately mean a bigger tab for the Government to pick up.

CML slashes repossession forecasts - are they right to?

The FT this morning carries the news that the CML has slashed its repossession forecasts for the year. Let me give you a brief precis of what it says:

The CML lowered its forecast for property repossessions in 2009 to 65,000 from its previous estimate of 75,000

The CML said:

Although the economic backdrop remains challenging, the vast majority of homeowners continue to meet their monthly payment obligations. The large cuts in interest rates have benefitted many, making it easier for households who suffer a loss of income to continue to pay their bills.

This is all very nice and, indeed, the CML may be correct that their original forecast was wrong. However, do not read into this message, as many undoubtedly will, that, to quote the song by Yazz, "The only way is up" for residential property prices - I think that there must be at best stagnation and at worst (or even better for those hoping to buy) further falls to come.

The fundamentals

The boom in residential property prices was caused by a number of different factors. The most important of these were:

• demand (especially within London and the South East)
• disposable income (bonuses)
• cheap lending
• belief that values could continue to grow
• lack of housing stock

Let's consider some of these fundamentals in turn and the outlook

1 Demand

Demand for property was very high towards the height of the boom. This demand was fuelled by:

• more people looking to buy their own home
• the buy-to-let market
• expectations of windfall profits
• immigration and migration to London and surrounding areas

Most of these factors no longer exist. The buy-to-let market is still available if you have the cash to invest and are prepared to take the risk. There is no longer an expectation of windfall profits as people will be happy just to make a reasonable profit and keep a roof over their heads. Large job losses in the financial and services sectors and general downsizing resulted in and will continue to result in a decrease in movement into the UK and we may even see emigration and certainly migration away from densly populated and expensive areas such as London.

2 Disposable Income

Apart from Tube workers who believe they have a right to inflation busting pay-rises whilst the rest of the world goes to hell, most people are facing stagnant pay (or pay cuts in real terms). At the top level of the market (the banking, legal and other professionals) where pay was boosted by bonuses for so many years the size of the important bonus (if it exists) is significantly lower. Therefore, in terms of ability to pay monthly interest and/or repayment sums the amount that can be paid is less. Further the lack of job security means that the inflexible nature of owning a property with a mortgage is less attractive to, otherwise, mobile individuals.

Put in simplistic terms, there is significantly less money out there even before you consider the availability of debt.

3 Cheap lending

Not sure I even need to spell this one out. However there are actually two factors to this. First there is the fact that prior to the credit crunch the margins banks imposed on their mortgage deals were paper thin. Tracker rates below base rate were available. The reason for this was that with the magic of securitisation banks did not expect to hold on to their loan book for long so what did they care if the initial rates were 'loss-making'.

However, the Government and the Bank of England (along with other world economic leaders) have forestalled an immediate crisis caused by a sudden jump in the cost of borrowing by cutting interest rates drastically (0.5% in the UK). For those on base rate tracker deals this has resulted in them paying almost nothing (some are literally paying nothing). For those on fixed rate deals, when those deals have ended they have come on to a standard variable rate on average between 4% and 5% (about the level their fix was at in 2007). The CML has expressly stated that this is a major factor in their expectations being revised.

But interest rates cannot stay this low for too long. Predictions of deflation and very low inflation (below the BoE target of 2%) have thus far proven false. CPI is still above the target rate of 2% although the BoE have justified avoiding any rises on the basis that deflationary risks outweigh inflationary ones. This is probably correct in the immediate short term but as inflation begins to creep in (petrol prices are up significantly and at the end of the year VAT reverts to 17.5%) how long will the BoE be able to sit back and not act?

When the BoE does react (and even if it is not for a year from now) those homeowners who have been sitting on standard variable rates are in for a rather nasty surprise. Those rates will go up quickly (and quite possible faster than the base rate). Many who bought or refinanced in 2007 will find themselves in difficulty. New mortgage deals will not be open to them as the equity in their homes is likely to fall below the 25% level required to get a decent affordable deal and those fixed rate deals will continue to increase in expense. Meanwhile the interest payments will seem unaffordable as incomes stagnate and the cost of living rises.

In such circumstances will a bank avoid repossessing whilst there is potentially some profit in a sale which would cover its expenses when waiting will mean triggering a real loss on its books as values potentially fall and arrears mount? Will borrowers avoid selling to realise a small amount of equity whilst the arrears begin to rise and renting is a realistic option?

Conclusions

There is some inevitability that interest rates will rise again. Many suggest this might happen sooner than expected. When this does homeowners, loaded up with debt from the boom years which they are unable to refinance at affordable rates, will be forced to consider selling or defaulting. This will result in more properties coming on to the market on a distressed basis and this will further depress prices.

House prices in London and the South East may have cooled off but they have not really fallen. That fall will happen unless someone can wave a magic wand to make the debt disappear. As someone looking to buy I selfishly hope that magic wand does not work!

_____________

Addendum: Check out the FT on Fitch's report that 10% of borrowers are now in negative equity. If you classed negative equity at 90% LTV (on basis that you cannot borrow 90% today) I wonder how many then fall into the trap?

Pinsents – first firm to offshore work of qualified UK lawyers | News | The Lawyer

Pinsents - first firm to offshore work of qualified UK lawyers News The Lawyer

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Am I about to be outsourced to South Africa?

I awoke this morning to read in The Lawyer that Pinsent Masons is the first firm to send real legal work (i.e. work that qualified associates would do) to a company in South Africa. Outsourcing is not new to law firms and nor is outsourcing off-shore. However this is a first as it means real legal work going off-shore and judging by some of the comments made by my peers on TheLawyer.com they are not happy about it!

This is a fascinating development in the provision of legal services. I think that there is little argument that to a large extent geographical location is no longer an important factor in the provision of any services apart from those requiring you to be in a specific place (e.g. a plumber). So why did lawyers possibly consider themselves different? Afterall, in some ways our jobs are even more easily transferable across the globe. I could be writing this blog, reviewing and drafting documents and reports and generally conducting my work life from anywhere on the planet (and, I suspect, from the International Space Station as well) - my clients do not care where I am as long as they can get hold of me when they need to!

So what is the big issue?

Well I think that there is a difference between a firm based in another country with limited or no office in the UK providing legal advice from a cheaper base and a firm existing properly in the UK and outsourcing legal work to another company in another country to cut costs. In the first case, from trainee up there is the potential to get exposure to all parts of transactions. The only thing that might be partially lacking is client contact although this would increase as you became more senior and your skills would develop accordingly.

However, in the second form, which Pinsent Masons has adopted, there is a whole chunk of work experience that is now being removed from trainees and junior lawyers. One cannot play down the importance of that kind of experience in developing a well-rounded lawyer. The ability to run a transaction well can only come from the experience of being a tiny part of a similar transaction and seeing the effect that decisions made at the higher level have further down the chain.

Am I surprised?

Of course not. The increasing dichotomy between partners' needs to keep profits growing and clients' needs to see fees fall meant that something had to give. Law firms have to find a cheaper way of conducting business especially in the current climate and this is one way to go.

Will it affect quality?

This is an impossible question to answer as often quality is dependent on the individual as much as the company employed. However, the fear of failing to impress a given supervisor will be lost as will concern regarding damage to brand. Again, these are not tangible things which can be measured.

Is this the end (or at least the beginning of the end)?

Who knows. I do not see it as being possible to remove the human touch, certainly at the higher value end of the spectrum. Clients want specific lawyers for specific deals. The problem is, as pointed out by a number of comments on TheLawyer.com, what effect will the outsourcing of the low value work to cheaper locales have on the experience required for the next generation of lawyers just starting out? Could it ever be positive?

Don't the partners and clients know this?

I think they do but at the end of the day we now live in a short-term view society. This has been highlighted as one of the main causes of the financial crisis. Partners and managers are not worrying about the effects of something in 10 years' time but rather the benefits that will be achieved in 2-4 years' time. Some may also suspect that the whole fees issue is a short term one and once the economy recovers it will disappear.

The problem is that whilst it might be true that law firms will not be expected to further cut fees it is highly improbable that they will be able to significantly increase them either. Further, if you were a partner in a firm who had outsourced work to South Africa and you could now increase your fees and either (i) bring more work back on-shore at a higher recoverable cost or (ii) keep it off-shore and make more profit, which would you opt for?

Reform the planning system . . . again!

Those of you who follow me on Twitter will already know that The British Chambers of Commerce have just released "Planning for Recovery" which is their views on the problems with and solutions for the planning system in the UK if we are to get out of the current doldrums.
The report is very well set out highlighting in separate chapters:

1. The relationship between the planning system and its effect on businesses
2. The current planning system and its shortcomings
3. Reforms to the planning system already on track
4. Recommendations for further reforms to help speed recovery

There is little doubt that the need for planning regulation will automatically result in delays and frustration. The report highlights a number of cases where the delays have been hideous, for example, Heathrow Terminal 5 where a formal planning application was lodged in 1993 but consent was only finally given in 2001.

Broadly the idea of reforming the planning system to enable applications to progress more quickly especially on large infrastructure projects where the needs of the many can often outweigh the needs of the few is one with which I agree. Further, on a street level removing the obstacles to sensible extensions and loft conversions to enable families to grow within houses rather than having to move would hopefully help keep house prices better regulated. However, I do wonder the deliverability of any such reform. It seems to me that loosening the reins in order to speed things up will only lead to minority views being totally ignored. Also, contrast the current calls for greater regulation in the financial industry as a result of the credit crunch with the calls for the loosening of regulation (not necessarily in planning) in the construction industry to help it get back on its feet - is the construction industry not partially to blame for the current situation?

On a slightly separate point, I do not feel that the current predicament of much of the construction industry is, of itself, any justification for reforming the planning system to enable them to get back on their feet. Factors in developers getting into so much trouble were taking on too much debt, being overly optimistic in their predictions and forecasts, overvaluing their assets and generally not doing a good enough due diligence and financial plan job. Should we really reward such poor judgement?

So, whilst I support reform to reduce delays it should not be at the cost of the minority voice nor merely to save those who showed poor judgement but rather to benefit those who acted with due care and attention. Now if someone can come up with such reform I will be impressed. Any ideas let me know . . .

The Power of Sale - what use if not used?

I have been advising on a lot of insolvency transactions of late; now there's a surprise. One thing that does continue to surprise me is banks' unwillingness to sell by use of their power of sale. Let me explain . . .
When a bank takes a mortgage over a property it will, normally expressly in the mortgage and also by statute, have a power to sell the property. If it sells the property then not only will this automatically release its own mortgage but it will also overreach (get rid of in layman's terms) subordinate charges and other encumbrances created after the bank's mortgage and without it's consent. A sale by a receiver or administrator will not have this effect. Therefore, on the face of it a sale by the mortgagee is the most effective way to transfer the property clean. So why not always use it?
I think there are two reasons. One is incorrect and the other is a case of shutting the gate after the horse has bolted.
The first is that mortgagees are rightly concerned about becoming a mortgagee in possession as this creates a real risk of liability. This is a big reason why mortgagees appoint receivers. During the boom banks became so unused to the idea of powers of sale that they now misunderstand and think that exercising a power of sale requires a mortgagee to be in possession - it does not.
The second reason is that banks do not want the bad publicity that goes with foreclosure, repossessions, etc. They believe that if they sign the transfer deed they will be outed as the nasty bank repossessing peoples' homes.
Why is this a case of "shutting the gate after the horse has bolted"?
Well for starters I am not sure that banks collectively could do much more to damage their current reputation (rightly or wrongly) of being greedy, short-sighted and generally responsible for the disastrous global financial mess we are in.
However, on a more individual basis, does a bank really believe that hiding behind a receiver protects its reputation? Do they really believe that, when a receiver sells, we don't know that it was the 'nasty' bank that put them in place.
So come on banks, if you are going to repossess peoples' house at least have the guts to do it in openly - we know who you are anyway - at least that way the buyer has a better chance of getting a cleaner title.

CRC is coming - time to take action

The Carbon Reduction Commitment is about to bite. It will place obligations on owners and occupiers of buildings to reduce the use of energy thereby reducing the carbon footprint. This will have cost implications and will also need to be addressed in the landlord and tenant relationship.
The BPF has just brought out a guide to the CRC for Landlords and Tenants. All landlords and tenants are urged to read this guide - it's contents may surprise you. Judgement is entity based not property based and once an entity is caught by the rules it will be responsible in respect of any property for which it has the supply contract with the energy provider. A Landlord would be wrong to think that it will be for its tenants, as the main user of the electricity supply, to comply - who is responsible depends on who is the counterparty with the electricity supplier for the property even if the landlord has installed sub-meters so he can recharge tenants based on use.
The guide provides useful tips on how to set-up oneself administratively to ensure compliance can be achieved. The work involved is likely to be time consuming and landlords and tenants should ensure that their leases allow for recovery of such costs through the service charge.
Further questions on recovery need to be considered in respect of the purchasing of "allowances".
The fact that CRC is based on group entities and not on buildings adds significant further complications. This has major ramifications in terms of the need to anticipate changes during a year and also how JV interests are dealt with. For tenants this can mean that as their landlord's identity changes the relevance of CRC and potential cost to it will also fluctuate.
Another issue for tenants who fall within the legislation is the difficulty of managing their energy use in properties where their leases restrict the work they can do. Time for rent review surveyors to sharpen their arguments on this front.
There seems little doubt that the implementation of CRC will greatly increase the burden (both administratively and financially) on owners and occupiers of property. The cost of saving the planet continues to rise - the cost of not saving it is, most would argue, far greater!

Setting the Landlord Free

English land law has a lot of idiosyncrasies; mainly as a result of how it has developed over many centuries. Two of these are the idea of privity of contract and privity of estate. In very simple terms these ideas mean that once you sign up to a lease (whether as landlord or tenant) you remain bound to comply with the terms of the lease even after you have disposed of your interest (either selling the reversion or assigning the lease) and that in order to ensure any new tenant would be directly liable to a landlord direct covenants with the landlord are advisable.
Now any slightly bright spark might notice that this could create a bit of a problem. For example, imagine you (A) take a new lease for 20 years of an office. After 10 years you have outgrown your offices and so you take some new offices and assign your lease to someone else (B). Seven years later that someone else goes bust. You remain liable for the rent in respect of your old premises and whilst you will have, if properly advised, received an indemnity from B since B is now bust this is of little value.
In recognition of this fact an act was passed in 1995 called the Landlord and Tenant (Covenants) Act. The first thing to note about this Act is that it only applies to leases created on or after 1 January 1996. The main effect of this Act was to make it so that Tenants were automatically released from their covenants on assignment of the lease. As a sop to the Landlord lobby a mechanism was inserted so that the landlord could keep the outgoing tenant on the hook as a guarantor of the incoming tenant but this could last for one assignment only.
In terms of Landlords being automatically released the Act did not provide for this - the logic being that leases rarely (if ever) give a tenant any control over a landlord disposing of its reversionary interest and so a tenant could find itself with a straw-man landlord failing to perform significant obligations. However the Act does provide for an ability for an outgoing Landlord to seek a release which must be given if reasonable.
Whilst at one point it was considered that as a result of the Act it was now impossible for Landlords to avoid continuing liability in advance a case in which went to the House of Lords in 2005 confirmed this was not so. In London Diocesan Fund v Avonridge Property Co. Ltd [2005] 1 WLR 3956 the House of Lords confirmed that with the correct drafting there was nothing to stop the Landlord and Tenant agreeing (as was the case before the Act) that once the Landlord has disposed of his reversion to the Lease he would not longer have liability for breaches of the landlord covenants.
Surprisingly, use of this mechanism is not automatic in the market. The most likely reason for this is that very few leases contain particularly onerous landlord covenants so the risk to the landlord of a lease coming back to haunt it is relatively remote. However where a landlord is granting a lease which does contain more onerous landlord covenants consideration should quite probably be had to including such a clause. Lawyers acting for tenants should pick up on the clause and advise their clients of its effect. I suspect most will not be bothered as many might be surprised to have learnt that without this clause they did have a claim.
Another example where this clause may be considered is where an Insolvency Practitioner is granting a lease and wants to ensure that the liability is limited to the period that the reversion remains vested in the insolvent entity.

Buying and selling land . . . without proof of title

Conveyancing! Thanks to a wonderful organisation called the Land Registry the process of deduction of title has generally been a lot easier of late. But there are still large parts of the country which are unregistered and even many small pieces of land which have been in the same corporate ownership for many decades. For these pieces of land the Land Registry does not hold much information (maybe details of some Land Charges).
No for these properties we must rely on the deeds. On that basis you would assume that those deeds would be treated as gold by the owners of such property for without the deeds there is no proof of title and without proof of title you are going to struggle to sell the land.
So I am now in the rather unhelpful position of acting where the deeds appear to have been lost with no copies available and the client wanting to sell a piece of land. When I come up with a solution to this problem I will let you know . . .