Real Estate Focus - December 2024

High Street Rental Auctions – a non-statutory update

The high street rental auctions (HSRA) legislation came into force on 2 December 2024, and the government launched its non-statutory guidance on the same day. 

In our November edition we posed the question as to whether or not local authorities will have the means or ambition to tackle such a time-consuming and complex process - the “ministerial forward” preceding even the introduction to the guidance seems to echo these sentiments, with an impassioned message pointing out the “critical role” which HRSAs will play in “spurring regeneration, revival and renewal on a local level”, acknowledging the “time and effort” it will take to achieve and the “scale of the task” faced. 

Aimed at local authorities, commercial landlords and their lenders, local businesses and community groups and commercial agents, the guidance sets out some important further detail to help navigate interested parties through the process from start to finish.  The key points to note are as follows: 

• Timescales - the HRSA process is expected to take between 22 and 24 weeks from initiation to completion. 
• Preliminary considerations - when considering whether a HRSA will be appropriate, local authorities should consider whether premises meet the requirements of the legislation, or whether alternatives might be more appropriate, noting the required time and resource. 
• New Burdens Payment – local authorities should consider applying for the ‘new burdens payment’, a central government fund to compensate local authorities for costs incurred in the implementation of HSRA powers during a three year transition period, expected to be £5,223 per HRSA. The guidance sets out how this payment should be calculated and how to apply.
• Preliminary steps – the guidance refers to preliminary actions to be taken by local authorities prior to implementing the HRSA process, including the street / area designation, establishing the vacancy and local benefits conditions, engaging with landlords to obtain information about the premises and surveying the premises to assess the suitable high street use and/or the works needed for the premises to reach the ‘minimum standard’.
• Notice periods - landlords will have a chance to make their own arrangements to enter into a tenancy to begin within eight weeks of service by the council of an initial notice. 
• Auction Period – the local authority has 12 weeks to auction the premises and complete the tenancy contract. 
• Process flowchart – the guidance contains a useful process flowchart setting out specific timeframes for notice periods and the auction period, including what actions parties should take. 
• Collaboration – local authorities should work proactively with landlords to bring properties back into meaningful use. 
• Non-proactive landlords – it is a criminal offence (with a potential fine up to level 4 on the standard scale (currently at £2,500)) for a landlord not to respond to requests for information about premises without reasonable excuse or to give false information in response to such requests.
• Lenders – tenancies entered into via a HRSA are considered to have lenders’ deemed consent, which may also help fill premises where lenders’ conditions would otherwise limit a tenancy taking place at market rent. 
• Suitability – HRSAs will not be suitable for all high street premises and the guidance provides some examples including: 
  • large department stores may be subject to long-term complex redevelopment plans and may be negatively impacted if included in a HRSA process;
  • premises affected by significant structural or repair issues, which contain combustible cladding, or have serious condensation or damp issues are likely to fall outside the scope of HRSA, even where these issues are discovered during the HRSA process.
• Vacancy register – local authorities are encouraged to create a register identifying potential vacant premises to be considered for HSRA.
• Minimum Standards and landlord’s works – the guidance confirms the ‘minimum standard’ as being “a condition which is safe, secure and with any significant occupational risks removed or managed”. There is further guidance in relation to carrying out the landlord’s works to bring the premises up to the minimum standard, and the consequences of failure to do so.
• Example documents – the guidance includes templates and forms of letters to use during the HRSA process.

It is important for property owners with vacant commercial premises on high streets to be aware of the HRSA process, and the details and complexities involved. Whilst collaboration and engagement with local authorities is encouraged, non-proactive landlords face potential adverse consequences in terms of liability and loss of control. 

Reforms to the Energy Performance of Buildings Regime – Consultation

On 4 December 2024, the government launched a consultation on reforms to the Energy Performance of Buildings (EPB) regime. This initiative aims to support people in better understanding and managing the energy performance of their buildings whilst achieving key national goals including reaching net zero by 2050, alleviating fuel poverty and enhancing building standards across the country. 

Background and key areas of focus

The EPB regime was established under the Energy Performance of Buildings (England and Wales) regulations 2012, and serves as a foundational measurement tool for assessing the performance of buildings, thereby encouraging energy efficiency improvements in homes and commercial property. Given the change in the environmental landscape and advancements in technology, the government is committed to engaging with a large variety of stakeholders involved in the regime in order to align it with up to date climate objectives, advanced technology and consumer and market expectations. 

The consultation outlines proposed reforms to enhance the EPB regime in five critical areas:

• updating Energy Performance Certificate (EPC) metrics;
• refining requirements for EPCs and Display Energy Certificates (DECs);
• improving data management protocols;
• strengthening quality control; and
• revising Air Conditioning Inspection Reports (ACIRs).

Updating EPC metrics

The government recognises that current metrics do not provide a sufficiently rounded picture of a building’s performance (and consequently do not sufficiently support policy objectives). It therefore proposes using the following range of EPC metrics to provide a more complete picture:

• Energy cost – helping individuals understand the financial implications of a building’s energy efficiency in order to make informed decisions about potential improvements.
• Carbon – an estimate of the carbon emissions arising from the energy used in the building.
• Energy use – insights into overall energy consumption and identifying areas for energy efficiency improvements.
• Fabric performance – assessing the thermal performance of a building’s envelope and promoting the importance of well-insulated, comfortable and energy efficient spaces.
• Heating system – information on the efficiency and environmental impact of a building’s heating source and encouraging adoption of cleaner heating technologies.
• Smart readiness – assessing the potential to integrate smart technologies to optimise energy consumption and the ability of consumers to benefit from cheaper smart tariffs.

For domestic EPC use (essentially residential), the main proposed metrics are fabric performance, heating system, smart readiness and energy cost. For non-domestic property the government proposes to maintain the carbon metric as the single headline metric for EPCs as this remains in line with net zero objectives and maintains consistency in light of the minimum energy efficiency standards (MEES) which are underpinned by the EPB regime.

Use of multiple complimentary metrics marks a significant change from the current system of a single metric rating, and following a programme of research, the government will consider how best to present the information to enable users to understand their compliance with regulations, and support decision making with considering energy efficiently retrofit options.

Requirements for EPCs and DECs

Validity periods - an EPC is currently valid for 10 years, and is only required at the point of build, sale or grant of a lease. Consequently many EPCs do not need to be renewed at the end of their validity period. To reflect the average length of occupiers in the domestic and non-domestic sectors, and give landlords the opportunity to capture upgrades to their properties more easily, the government is considering reducing the validity periods, including whether these should apply to existing EPCs. 

Trigger point - the government proposes to introduce a new trigger point when an existing EPC expires.

Marketing a building for sale or rent – a further amendment is proposed so that a building should not be marketed for sale or let without an EPC. This removes the current ability to allow a maximum of 28 days following marketing before an EPC is produced. 

Heritage buildings – the proposal is for an EPC to be required for all heritage buildings, the justification being that owners will have appropriate information to assess any energy performance recommendations, and prospective tenants and buyers will be provided with information beneficial for their decision making. The intention is for a balance to ensure EPC recommendations are tailored appropriately to consider the nature of heritage buildings, recognising that, where MEES are involved, owners of heritage buildings should not be mandated to install unsuitable / uneconomical measures.  

DECs - DECs and DEC recommendation reports (DRRs) are required for public authority buildings if they have a total floor area of over 250 m². If the useful floor area is 1,000m² or less, the DEC and DRR are valid for 10 years. If it is greater than 1,000m², the DEC is valid for one year, with the DRR valid for seven years. The government is intending to reduce the validity period for DECs and DRRs from 10 to seven years (for buildings between 250 – 1,000 m²), and DRRs from seven years to five years for buildings more than 1,000 m².

EPC and EPC Data 

Opt-out from EPC Register - the government considers energy certificates should be available to all prospective buyers, tenants and enforcement bodies, and is therefore proposing to remove the option to opt-out of certificates from the EPC Register. 

Data sharing – it is intended to remove general prohibitions on the sharing of Register data to allow the Register dataset to have wider utilisation, and support a broader range of policies and initiatives. 

Managing EPC quality 

Data quality and standards – along with proposals to replace existing methodology to calculate EPC ratings, the government proposes to improve the training, guidance and development of energy assessors to ensure greater accuracy of inputting data and a reduction of assessor fraud. 

Compliance and enforcement – working with local authorities to ensure more effective enforcement generally, the government also intends to double the penalties for breaches of the EPC regulations with the maximum penalty for breach in respect of a non-domestic property increasing from £5,000 to £10,000. It is also proposed that timescales within which fines can be imposed should be increased, potentially in line with MEES regulations so that penalties could be issued for up to 18 months following breach (an increase on the current six months). 

Air conditioning inspection reports 

Air conditioning inspection reports (ACIRs) are mandatory inspections, carried out by accredited air conditioning energy assessors at regular intervals not exceeding five years, for all air conditioning systems with an effective rated output of more than 12kW, including those which control ventilation, humidity and air cleanliness. They provide building owners or managers with information regarding the operational efficiency of air conditioning systems and recommendations to improve performance, thereby saving energy and reducing operating costs. The consultation explores methods to increase compliance by increasing penalty charges, and re-designing ACIRs to simplify the data in order to fully engage system operators. 

Comment

It is notable that the consultation is silent on any proposed changes to the sub-standard ratings under the MEES regulations. It also does not reference the June 2021 consultation on the non-domestic private rented sector MEES and proposed implementation of the EPC future target. It may be that these aspects of the EPB regime (which has been the subject of much controversial opinion in the market) will be part of a separate consideration. 

In the meantime, this current consultation proposes some important changes for the property sector, particularly EPCs, which should hopefully bring the regime in line with current market, policy and technological considerations. 

The consultation period ends on 26 February 2025, and details of the consultation and how to respond can be found at Reforms to the Energy Performance of Buildings regime. 

Permitted insurance fees for landlords, freeholder and managing agents – consultation

The Leasehold and Freehold Reform Act 2024 (LFRA 2024) contains provisions for regulating insurance costs that can be charged to leaseholders as part of a variable service charge, establishing powers to enhance transparency of service charges, and allowing leaseholders to better scrutinise and challenge unfair costs.   It also creates powers to address concerns of leaseholders regarding the justification and accountability in respect of fees charged to leaseholders for arranging and managing insurance. 

On 2 December 2024, the Ministry of Housing and Local Government (MHLG) launched its consultation to address these issues in advance of secondary legislation necessary to bring these parts of the LFRA 2024 into force. 

Consultation summary

The consultation identifies problems with the current system for charging insurance costs (including fees for arranging such costs) to leaseholders, namely: 

• Bad value for money – landlords and managing agents may choose insurance brokers who secure a product which is not necessarily the best value option for leaseholder, but which offers the highest return to the landlord or managing agent. 
• Lack of transparency – this is identified as a significant barrier to leaseholders in identifying whether they are paying inflated premiums or for excessive remuneration of landlords or managing agents. 

The huge increase in buildings insurance premiums following the Grenfell tower tragedy has made issues of transparency and value for money more pressing.  

LFRA 2024 addresses these and other concerns by introducing a broad package of measures giving powers to increase fairness and transparency of costs charged to leaseholders. Examples include: 

• a ban on payments that are made to landlords / managing agents (usually in the form of commissions) from being charged to leaseholders, with only fair and transparent fees being passed directly to leaseholders, defined as a ‘permitted insurance fee’; 
• provision of more detailed insurance policy information to leaseholders; 
• exclusion of a range of insurance costs being charged to leaseholders with the exception of the ‘permitted insurance fee’, the detail of which is to be confirmed in secondary legislation.

Consultation responses 

The consultation seeks views on four key aspects of the LFRA 2024 provisions on insurance fees: 

• Current practice – experiences of parties throughout the supply chain on current practice regarding insurance payments.
• Permitted insurance fees proposals – what should constitute the parameters of the permitted insurance fee charged by landlords and property managing agents to leaseholders (bearing in mind the proposal to allow landlords and managing agents to only charge a separate fee for their services directly to leaseholders, rather than commission sharing by brokers). 
• Additional criteria for permitted insurance fees – whether the existing framework for challenging unreasonable service charges (set out in the Landlord and Tenant Act 1985 (LTA 1985)) is sufficient to ensure leaseholders can properly challenge excluded service costs where necessary, and whether the permitted insurance fee should be subject to additional criteria to ensure it is proportionate and fair, or that the ‘reasonable test’ in the LTA 1985 is sufficient. 
• Implementation considerations – what implementation changes, challenges and costs are anticipated in moving from existing remuneration practices for the managing and arranging of insurance. 

Comment and Next steps 

Given the significant changes posed by LFRA 2024 regarding the payment for services rendered in organising and arranging insurance, it will be important for landlords and managing agents to be aware of these and to prepare accordingly. 

The consultation period ends on 24 February 2025. Details of the consultation and how to respond can be found at Permitted insurance fees for landlords, freeholders and property managing agents.

Energy security and the land rights and consenting processes for network infrastructure projects – response and proposals following call for evidence

On 1 December 2024, the government published a summary of responses to its 2022 call for evidence (the Call for Evidence) seeking views on the land rights and consents processes for electricity network infrastructure in the UK (the Response). 

Land rights and consenting processes are undertaken by network operators to obtain the consent of landowners and/or occupiers to access land to build and/or maintain network assets whilst ensuring the rights of landowners and local stakeholders are protected. They are essential elements of the fundamental infrastructure projects to increase the capacity of the grid thereby allowing more renewable energy connections, critical to reaching the UKs legally binding target emissions by 2050.  

The aim of the Call for Evidence was to help establish whether current land rights and consenting processes for the UK’s electricity network infrastructure are fit to accommodate a rapid, transformative change to the electricity network in the coming decades. 

Facts 

Key outcomes of the Response include the following: 

• Scope – most respondents cited negative experiences with the land rights and consenting processes with a desire for reform, ensuring a balance of infrastructure needs and the impact on landowners and communities. 
• Voluntary wayleaves and easements – there were concerns that rapid increase in network build would result in an increase in the number of land rights agreements needed and leading to further delays. 
• Necessary wayleaves – concerns included the high cost, lengthy duration and complexity of the process, and lack of transparent information. In addition, it is thought the process would struggle with a rapid increase in network, with possible grid constraints, complications with renewables deployment, and inadequacy to cope with large-scale electric vehicle projects. 
• Voluntary purchasing and leasing of land – delays, uncertain timeframes and costs were noted as issues and many stakeholders raised concerns about landowners demanding ‘ransom payments’ above market value. A rapid increase in network build may exacerbate current issues with the process, leading to an increase in demand on land and resulting in landowners demanding higher prices and increased costs, ultimately leading to the Compulsory Purchase Order (CPO) process being used more frequently.  
• Compulsory purchase of land – respondents found the CPO process complex, costly and lacking in certainty in respect of timescales. There were calls for the process to be modernised, and improvements made to its efficiency and expediency. 
• Section 37 Consents – this is the consenting process used for certain new overhead lines under the Electricity Act 1989. Some respondents highlighted prolonged approval times and the requirement to acquire land rights (before making an application) causing project delays, with a rapid increase in network build likely exacerbating these issues.
• Permitted Development Rights for substations – respondents considered that increasing the development size threshold for substations would reduce timeframes and costs and therefore be a good solution to the future demands of customers. 
• Code of Practice – a key suggestion was to introduce an industry Code of Practice to underpin legislative changes and establish requirements for network operators interacting with landowners, thereby providing a standardised approach to negotiations alongside Alternative Disputes Resolution. 

Government response

The government has confirmed its intention to implement new policy changes and to conduct further consultations, as required, to help meet its objectives regarding net zero power. 

In the interim, the government has announced several reforms to the land rights, CPO, and section 37 consenting processes, including the following: 

• an industry-led voluntary Code of Practice to be delivered as a Memorandum of Understanding, outlining the expected behaviours of parties during the voluntary negotiation process between developers and landowners; 
• DESNZ to publish updated, more transparent, guidance on how stakeholders can best approach the necessary wayleaves process; 
• a reconvening of the ADR taskforce to deliver proposals to resolve compensation disputes between landowners and network operators, as required under the Electricity Transmission (Compensation) Act 2023; 
• updated guidance on the CPO process to reflect the Levelling Up and Regeneration Act 2023 CPO process reforms, and enhanced guidance on surveying powers available to acquiring authorities; 
• DESNZ to update guidance to bring clarity on the use of CPO powers under the Electricity Act 1989, emphasising that CPO powers by transmission owners should be used as a last resort following attempts to acquire land through negotiations; 
• consideration of how best to update existing guidance on the approach to a section 37 process application, as well as clarifying the roles and responsibilities for interested parties involved; 
• introduction of a new process for low-risk section 37 consent applications and enhancements to the online portal, with a view to improving performance and reducing delays. 

Comment: 

The expectation is that there will be a doubling in demand for electricity by 2050. As such, the rapid deployment of network infrastructure, including renewable energy connections, is critical to reaching the UK’s legally binding target of net zero emissions by 2050, with the government anticipating it will need around four times as much new transmission network in the next seven years as has been built since 1990. Land rights and consenting processes will play a critical role in ensuring the UK can build the network infrastructure required to deliver net zero and guarantee energy security.  

Other important developments

Remediation Acceleration Plan 

Launched on 2 December 2024, the Remediation Acceleration Plan sets out the steps the government intends to take, working with various stakeholders including the Building Regulator, Homes England, local authorities and others to: 

• increase the pace of building remediation; 
• identify buildings at risk; and 
• better protect residents and leaseholders. 

The principal aim is for all higher risk buildings (18m+) with unsafe cladding in a government funded scheme to be remediated by the end of 2029, and buildings higher than 11m with unsafe cladding to either have been remediated, or have a date for completion otherwise landlords will be penalised. 

A number of measures are set out to achieve this including (amongst others) the following: 

• introducing legal obligations on landlords to remediate unsafe cladding who could face severe penalties for failing to do so;
• giving regulators robust new powers to enforce remediation;
• providing funding for regulators to crack down on bad actors; and
• producing a long term strategy by Spring 2025 to accelerate social housing remediation.

Overhaul of planning committees to get Britain building

On 9 December 2024, the government announced its ambitions to undertake a major overhaul of local planning committees as part of the measures to tackle the housing crisis. Its Working Paper on the issues refer to three main actions:

• a national scheme of delegation – this will see a change from locally organised schemes, to a national scheme providing a standardised consistent approach to the delegation of decisions in all local planning authorities;
• dedicated committees for strategic development (larger developments bringing long term change to an area) – the government seeks views on local planning authorities establishing smaller dedicated committees focused on strategic development in the relevant area;
• mandatory training for planning committee members – the government is considering introducing mandatory training for planning committees to ensure members clearly understand planning principles, property and new issues.

National Planning Policy Framework 

On 12 December 2024, the government unveiled its highly anticipated National Planning Policy Framework reforms, setting out the government’s planning policies and how these should be applied. 

Key aspects include:

• mandatory housing targets for councils totalling 370,000 per year with higher targets for areas with the highest lack of affordability and greatest potential for growth;
• a requirement for councils to take a brownfield first approach to new development;
• councils to review green belt boundaries to meet new mandatory housing targets and prioritise low quality ‘grey belt’ land;
• any green-belt development adhering to government’s ‘golden rules’ requiring developers to provide necessary infrastructure as well as a premium level of social and affordable housing; and
• a £100 million fund for councils to help them update their local plans, review their green-belt land and employ 300 extra planning officers.