Registered number: 01850944
SF T105 LIMITED
FINANCIAL STATEMENTS
INFORMATION FOR FILING WITH THE REGISTRAR
FOR THE YEAR ENDED 31 MARCH 2023
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SF T105 LIMITED
REGISTERED NUMBER: 01850944
BALANCE SHEET
AS AT 31 MARCH 2023
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Debtors: amounts falling due within one year
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Creditors: amounts falling due within one year
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Total assets less current liabilities
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SF T105 LIMITED
REGISTERED NUMBER: 01850944
BALANCE SHEET (CONTINUED)
AS AT 31 MARCH 2023
The financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies regime and in accordance with the provisions of FRS 102 Section 1A - small entities.
The financial statements have been delivered in accordance with the provisions applicable to companies subject to the small companies regime.
The Company has opted not to file the statement of comprehensive income in accordance with provisions applicable to companies subject to the small companies' regime.
The financial statements were approved and authorised for issue by the board and were signed on its behalf on 11 October 2023.
The notes on pages 3 to 10 form part of these financial statements.
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
SF T105 Limited is a private company limited by shares, incorporated in England & Wales (registered number: 01850944). The registered office and the principal place of business address is Prospect Place, Moorside Road, Winchester, SO23 7RX. The financial statements are presented in Sterling, which is the functional currency of the Company. The principal activity of the Company during the period was that of property investment.
2.Accounting policies
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Basis of preparation of financial statements
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The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Section 1A of Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
The following principal accounting policies have been applied:
These accounts have been prepared on the going concern basis on the understanding that the intermediate parent comapny, SF Funding Limited, will continue to financially support the Company. At the period end, creditors total £1,749,571 (2022: £1,833,762), of which £1,387,854 (2022: £1,448,087) relates to group undertakings.
The Director has considered the legislative changes disclosed in note 3 and is of the opinion that taking into account the group support referred to above the Company is expected to have adequate financial resources to continue as a going concern for the forthcoming year. The group of which the company is part has sufficient liquidity in its structure to meet liabilities as they fall due.
When arriving at this conclusion the Director has considered the impact of Building Safety legislation and Leasehold Reform:
Building Safety Legislation
The Building Safety Act 2022 received Royal Assent in April 2022. It is intended to improve safety standards in buildings within its scope (broadly, multi-dwelling units greater than 11 meters in height) and to protect homeowners in full or in part from the costs of remediating historical building safety defects.
On buildings over 18 meters in height it is expected that either Government or developer funding will be available to ensure necessary remediation of these properties can be undertaken. For buildings between 11 meters and 18 meters in height the developer is expected to be primarily responsible for funding the necessary remediation. Homeowners are only liable to contribute in limited, prescribed circumstances. Where funding gaps remain, freeholders may incur a responsibility to provide funding. However, government has made available a number of new routes to freeholders to recover any outlay from parties such as developers, product manufacturers, warranty insurers and others involved in the original development, design or construction of buildings.
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
2.Accounting policies (continued)
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Going concern (continued)
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Building Safety Legislation (continued)
The new remediation funding regime is in its early days and considerable uncertainty remains on its operation and effect and on how tribunals and the courts will interpret relevant provisions. Knowledge gaps remain around the full extent and cost of building remediation, particularly in medium rise (11-18 meter) buildings, where analysis is generally at a less advanced stage.
However, should this new requirement to fund the remediation of building defects create financial hardship to the freeholder it will prevent the achievement of the Government's policy objectives to resolve the building safety crisis.
In July 2023 applications to the Cladding Safety Scheme (CCS) were opened. This is a new initiative launched by government to fund the remediation of building safety defects associated with unsafe external wall systems on buildings 11 meters and over in height which do not qualify for current government funding schemes. However, the CCS is aimed at external wall systems defects only, potentially leaving other fire safety defects unfunded. The group of which the Company is a member has made several applications to the scheme. Further clarification on timing and application of funds is awaited from government.
The Director, having considered the provisions of the Act, the uncertainty over how and when these provisions will be implemented and their impact on the group of which the Company is a member does not believe that the Act has a material effect on the Company's ability to meet its liabilities as they fall due for a reasonably foreseeable period.
Leasehold Reform
Parliament has enacted legislation, the Leasehold Reform (Ground Rent) Act 2022, which prevents the inclusion of a ground rent in excess of a peppercorn on new residential long leases. The Act came into force on 30 June 2022 and for retirement properties on 1 April 2023. The legislation does not apply retrospectively although does create restrictions on the ability of the Company to generate rental income beyond the existing term of current leases. As such the impact of preventing the creation of future ground rents under the Act is not expected to have a material effect on the ability of the Company to meet its liabilities as they fall due for a reasonably foreseeable period.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. The following criteria must also be met before revenue is recognised:
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
2.Accounting policies (continued)
Rendering of services
Revenue from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all of the following conditions are satisfied:
∙the amount of revenue can be measured reliably;
∙it is probable that the Company will receive the consideration due under the contract;
∙the stage of completion of the contract at the end of the reporting period can be measured reliably; and
∙the costs incurred and the costs to complete the contract can be measured reliably.
The Company’s holding of investment property comprises freehold reversionary interests and these
are initially measured at cost and subsequently measured at fair value. Changes in fair value are
recognised in the Statement of Comprehensive Income.
These assets, as their name implies, represent interests held in the freehold land on which third party developers have built and sold long leasehold properties. As such these assets are more akin to financial investments, as they generate income in the form of annual ground rents along with other
ancillary income streams.
Recognising the unusual nature of these investment properties and the lack of a regular market for
significant portfolios of such assets, which are in distinct contrast with the more regular “bricks and
mortar” investment properties, the director is of the opinion that the best approximation to fair value
for these properties is provided by a discounted cashflow valuation of the income streams generated
by these assets. The valuation of the entire freehold reversionary interest portfolio is undertaken by
independent valuers specialising in this type of asset.
Valuations of this nature are particularly volatile, demonstrated by the decrease in valuation of £258K in the current year. The director also recognises, given the unusual nature and lack of a regular market for significant
portfolios of such assets, that these carrying values may not be realised should the Company seek to dispose of any or all of the investment properties.
Further details are given in note 6.
Short-term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
2.Accounting policies (continued)
Short-term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
Tax is recognised in profit or loss except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the balance sheet date in the countries where the Company operates and generates income.
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Judgments in applying accounting policies and key sources of estimation uncertainty
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In the application of the Company's accounting policies, which are described in note 2, management is
required to make judgements, estimates and assumptions about the carrying values of assets and the
liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revisions affect only that period, or in the period of the
revisions and future periods if the revision affects both current and future periods.
The key sources of estimation uncertainty that have a significant effect on the amounts recognised in the
financial statements are described below.
Valuation of investment properties
A key accounting estimate in preparing these financial statements relates to the carrying value of the investment property which is stated at fair value, as valued by the independent valuers. However, the valuation of the investment property portfolio held by the Group, of which the Company is a member, is inherently more subjective, as it is made on the basis of valuation assumptions which may in future not prove to be accurate, the risk of which is heightened due to the potential legislative changes noted below.
The Government, through the Department for Communities and Local Government, now known as the Department for Levelling Up, Housing and Communities (DLUHC), The Competition and Markets Authority (CMA) and the Law Commission, have undertaken a series of consultations on and reviews of the residential property market with a focus on the legal framework surrounding the freehold and leasehold classes of property interests. The Leasehold Reform (Ground Rent) Act 2022 came into effect on 30th June 2022 and fulfills the commitment to “set future ground rents to zero”. The provisions only apply to new lease arrangements and therefore the Group’s existing income is unaffected. However, it may prove difficult to introduce new ground rent in future should the requirement arise.
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
3.Judgments in applying accounting policies (continued)
DLUHC have also proposed changes to the law governing leasehold enfranchisement. These proposals, which have not yet been enacted, include changes to the rights of leaseholders in relation to leasehold extensions and freehold purchases as well as changes to the manner in which ground rent would subsequently be determined. The implementation of legislative changes arising from these reforms could materially reduce the level of income generated by the portfolio of investment properties. Uncertainties also exist on the ultimate shape of any legislation, or its timetable, following the advent of a new Prime Minister and ministerial team. As stated above, further details are expected to be announced in the Kings Speech later this year.
The Group is of the view that the proposed changes (as currently formulated) would be very damaging to the residential property market and against the interests of consumers and other property owners. Public announcements by government and proposals in the Law Commission's report have recognised that any proposals to make wholesale reforms retrospectively pose real problems with respect to the contravention of human rights legislation, around impairment of legitimate property rights. The potential cost implications to government through possible compensation has been well rehearsed in the ongoing public debate. As such the director’s expectation is that the impact of reforms will be greatest for future leases and not those already in existence, which will reduce the financial impact on freeholders.
The Competitions and Markets Authority (CMA) has reviewed potential breaches of consumer protection law in the leasehold market. The CMA considers that lease terms which cause the ground rent to double every 10 or 15 years constitute unfair terms. The Group voluntarily entered into undertakings with the CMA to remove such clauses from the majority of any relevant leases held and the Group concluded discussions with the CMA during the financial year. The impact on the value of the Group’s investment properties is reflected in the Balance Sheet. The Group entered Framework Agreements with the developers who created the leases that were the subject of the CMA investigation. The Framework Agreements resulted in the receipt of payments from those developers which were in excess of the costs expected to be incurred by the Group in meeting the requirements of the CMA undertakings.
The Group continues to work with other leaseholders owning leases with similar provisions to vary such lease terms to RPI based review calculations. A significant number of such lease across the group have already been varied in this way.
An intrinsic element of the long-term forecasts is the continuing rental income and lease extension premiums generated by the property assets held by these subsidiaries. The potential legislative changes raised above may affect these forecasts to the extent that the underlying assumption is no longer valid.
However, the financial consequences of any changes are too uncertain to enable the director to reasonably estimate the impact of such changes on those forecasts. It is assumed that the current methodology continues to represent a fair value of these assets and the ability to meet the long-term obligations is not compromised.
Details of the principal assumptions applied in the valuation of the investment properties are set out in
note 6.
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The average monthly number of employees, including directors, during the year was 2 (2022 - 1).
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
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Freehold investment property
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The investment properties represent a portfolio of freehold reversionary interests that generate ground rents as
the principal income stream.
As at 31 March 2023 the investment properties were valued at £1,316,305.
The valuation has been carried out by independent valuers. The basis of the valuation was to project and discount the income streams generated by the portfolio over a period of 45 years. The principal assumptions used in the valuation were:
• Reference sterling interest rate swaps based on the SONIA (Sterling Overnight Index Average)
benchmark, provided with reference to directly observable data.
• Funding margins, provided with reference to recent comparable transactions.
• No allowance for taxation in projecting the ground rent cash flows.
• Future rental uplifts modelled as and when they are expected to occur in accordance with leases.
• Projected RPI (Retail Price Index) rate, provided with reference to directly observable data.
• HPI (Household Price Index) projected rate, provided with reference to the projected RPI rate
which are found to be acceptable to lenders in this sector.
• PSEI (Private Sector Earnings Index), this has been set at 0% as a conservative assumption.
• Leases with 10-yearly or 15-yearly doubling clauses are modelled based on initial ground rent
amounts stated in each lease with no increases on any future date.
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If the Investment properties had been accounted for under the historic cost accounting rules, the properties would have been measured as follows:
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
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Amounts owed by group undertakings
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Prepayments and accrued income
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Creditors: Amounts falling due within one year
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Amounts owed to group undertakings
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Accruals and deferred income
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Allotted, called up and fully paid
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100 (2022 - 100) Ordinary shares of £1.00 each
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The Director is currently assessing the potential impact of the Building Safety Act 2022 referred to in note 2.2. Given the nature of the legislation, it is not currently clear what the likelihood or amount of any potential liability to fund the remediation of building safety defects may be. Therefore, no provision has been included in these financial statements.
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Related party transactions
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FRS102 does not require disclosure of transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
Within trade debtors at the year end there was a balance of £12,937 (2022: £5,685) due to a related company.
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SF T105 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2023
he smallest group to consolidate these financial statements is SF Funding Limited. The registered office and principal place of business of SF Funding Limited is Prospect Place, Moorside Road, Winchester, SO23 7RX.
The auditors' report on the financial statements for the year ended 31 March 2023 was unqualified.
The audit report was signed on 11 October 2023 by Neville Newman (Senior Statutory Auditor) on behalf of Harris & Trotter LLP.
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