Registered number: 07458396
SF P101 LIMITED
FINANCIAL STATEMENTS
INFORMATION FOR FILING WITH THE REGISTRAR
FOR THE YEAR ENDED 31 MARCH 2024
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SF P101 LIMITED
REGISTERED NUMBER: 07458396
BALANCE SHEET
AS AT 31 MARCH 2024
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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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Provisions for liabilities
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SF P101 LIMITED
REGISTERED NUMBER: 07458396
BALANCE SHEET (CONTINUED)
AS AT 31 MARCH 2024
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 26 September 2024.
The notes on pages 3 to 12 form part of these financial statements.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
SF P101 Limited is a private company, limited by shares, incorporated in the United Kingdom and registered in England and Wales (registered number: 07458396). The Company's registered office address and the principal place of business 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 year 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 FRS 102 'The Financial Reporting Standard applicable in the UK and the Republic of Ireland' and the requirements of the Companies Act 2006. The disclosure requirements of Section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view.
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 company, SF Funding Limited, will continue to financially support the Company.
At the end of the period the net liabilities of the Company were £295,772 (2023: £539,171), of which £6,098,272 (2023: £6,380,279) of creditors relate to group undertakings. There were no debtors relating 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 11 meters in height it is expected that either Government or developer funding will be available to ensure necessary remediation of unsafe cladding systems can be undertaken. Developers will be primarily liable for non-cladding safety defects. Leaseholders are only liable to contribute in limited, prescribed circumstances. Where funding gaps remain, freeholders may incur a responsibility to provide funding. However, the government has made available new routes for 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. The group of which the Company is a member is pursuing for each relevant building the most appropriate funding routes available, in the interests of both freeholders and leaseholders.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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. Some uncertainty remains on how tribunals and the courts will interpret provisions relevant to freeholder funding obligations. 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 since priority has correctly been given to Higher Risk (>18 meters in height) buildings.
The most likely area of freeholder exposure relates to non-cladding defects, which do not qualify for Government funding and are therefore dependent on other potential funding sources summarized above. Intensive lobbying has taken place to educate policy makers on the unintended consequences to wider building safety policy which would result from freeholders being financially impaired by remediation funding obligations.
The Director, having considered the provisions of the Act, the uncertainty over how and when some provisions will be implemented and interpreted, and uncertainty around potential freeholder funding exposure and consequent 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 at least 12 months from signing of the financial statements.
Leasehold Reform
The Leasehold Reform (Ground Rent) Act 2022 prohibits the inclusion of a ground rent in excess of a peppercorn on new residential long leases. This 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. The prohibition of the creation of future ground rents is not expected to have a material effect on the ability of the Company to meet its liabilities as they fall due for at least 12 months from signing of the financial statements.
The Leasehold & Freehold Reform Act 2024 (“LFRA”) was passed and obtained Royal Assent in May 2024 as the last piece of legislation enacted before the last parliament was prorogued. The premise of LFRA is to provide Leaseholders with more rights and protections and to make extending leases or buying freeholds easier and cheaper.
However, while LHFRA is now law, its provisions are not yet in force and it is not clear when the necessary secondary legislation will be in place. This includes key areas such as valuation methodology, on which consultation may be necessary. In view of the Government’s other legislative priorities, it seems likely that outstanding issues will be addressed in 2025/2026.
A proposed cap on existing ground rents, a centrepiece of the previous Government’s legislative priorities, did not feature in the final Bill. The new Government’s position is that it will “tackle unregulated and unaffordable ground rent” and, more broadly, make Commonhold the default tenure. It is at present entirely unclear when and how the Government might address these issues.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
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:
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.
Interest income is recognised in profit or loss using the effective interest method.
Finance costs are charged to profit or loss over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
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Current and deferred taxation
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The tax expense for the year comprises current and deferred tax. 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.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except that:
∙The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits; and
∙Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met.
Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
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 increase in valuation of £10,242 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 5.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
2.Accounting policies (continued)
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.
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.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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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.
Past Governments, 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.
The LFRA was passed and obtained Royal Assent in May 2024 as the last piece of legislation enacted before the previous parliament was prorogued. The premise of the LFRA is to provide Leaseholders with more rights and protections and to make extending leases or buying freeholds easier and cheaper.
However, while the LHFRA is now law, its provisions are not yet in force and it is not clear when the necessary secondary legislation will be in place. This includes key areas such as valuation methodology, on which consultation may be necessary. In view of the Government’s other legislative priorities, it seems likely that outstanding issues will not be addressed until 2025/2026.
A proposed cap on existing ground rents, a centrepiece of the previous Government’s legislative priorities, did not feature in the final Bill. The new Government’s position is that it will “tackle unregulated and unaffordable ground rent” and, more broadly, make Commonhold the default tenure. It is at present entirely unclear when and how the Government might address these issues.
The Group is of the view that the proposed legislative 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 move to make wholesale reforms retrospectively presents contraventions of human rights legislation, around impairment of legitimate property rights. The potential cost implications to government through possible compensation, the effect on the reputation of the UK as an investment environment, and the impact on the pensions industry, have 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.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
3.Judgments in applying accounting policies (continued)
The CMA has reviewed potential breaches of consumer protection law in the leasehold market. It 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 5.
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The average monthly number of employees, including directors, during the year was 1 (2023 - 2).
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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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 2024 the investment properties were valued at £6,219,455.
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.
• Historical RPI as published by the Office of National Statistics.
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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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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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SF P101 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2024
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Charged to profit or loss
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The provision for deferred taxation is made up as follows:
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Gain on revalued investment property
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Related party transactions
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FRS 102 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 £104,792 (2023: £37,510) due from a related company.
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The 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 2024 was unqualified.
The audit report was signed on 26 September 2024 by Neville Newman (Senior Statutory Auditor) on behalf of Harris & Trotter LLP.
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