Real estate focus UK

Introduction

A round-up of some key legal developments in England and Wales for the real estate sector.

In this edition we take a look at the possible end of no-fault evictions in the private rented sector (PRS), the regulation of event fees, development versus town and village greens and new best practice on service charges.

PRS: is the end in sight for no-fault termination?

In July 2018, the government consulted on replacing assured shorthold tenancies (ASTs), the most common form of tenancy in the private rented sector (PRS) with a three-year fixed term tenancy (see our July 2018 Focus). 

But consultation responses showed that there was no consensus on imposing a certain tenancy length, with tenants favouring different lengths depending on their circumstances and landlords preferring the status quo.

The government reacted by announcing in April 2019 that it would instead “introduce a generational change to the law that governs private renting” and consult on putting an end to no-fault evictions.  

Currently, landlords can evict tenants giving two months’ notice once their fixed term contract has come to an end under the fast-track no-fault procedure in section 21 of the Housing Act 1988.  Anecdotal evidence suggests that landlords use the section 21 procedure as a default as it is faster and less cumbersome than regaining possession through the courts under the section 8 procedure for terminating a tenancy on specific grounds, such as non-payment of rent. 

The government’s headline-grabbing proposals are to

• Change the legislative framework by removing the section 21 no-fault eviction process 
• Strengthen and supplement the grounds for eviction under section 8 
• Simplify processes to make it easier to gain possession through the courts.

Controversial or common sense? Much will depend on the detail but we anticipate strong views in  response to the consultation. No date has yet been given for its publication but we will keep you posted.

Regulation of retirement home event fees

The government confirmed at the end of March 2019 that it would implement Law Commission recommendations on event fees charged in the context of retirement properties.  

Retirement properties are usually sold on a leasehold basis, with leases often requiring the leaseholder to pay a fee on certain events such as sale, sub-letting or change of occupancy. 

Following a consultation exercise prompted by the government, the Law Commission concluded that event fees can cause major problems for leaseholders: they may be hidden in complex leases, charged unexpectedly, disclosed too late in the process or their financial consequences are not appreciated.  

However, the Law Commission has not called for a total ban as event fees do have their benefits, not least as they can make specialist housing affordable by deferring part of the payment for services until sale. Instead, it recommends regulation through a new Code of Practice which could be enforced directly by consumers.  

The recommended Code would restrict when event fees can be charged and require landlords to provide standardised, transparent information at an early stage in the purchase process. 

The proposals also include

• An online database to provide event fee information to prospective buyers
• A cap on the fees charged for subletting or change of occupancy  
• A ban on event fees if a resident’s partner or carer moves into the property  

The government has said that it will implement the recommendations with two caveats: it wants to commission research on how best to establish the suggested online database and to give further consideration to the recommendation that no event fee should be paid if a partner or carer moves in.

At the time of writing we await details of timing but given that this expanding market is confusing and opaque, the sooner we have clarity the better for all concerned.

(Village) green light for developers

The question put to the Court of Appeal in the test case R (on the application of Cooper Estates Strategic Land Ltd) v Wiltshire Council [2019] EWCA Civ 840 was: what does it take to identify land as ’for potential development’” in a development plan?

The significance of this is that, if a development plan identifies land for potential development, the right to apply for registration as a town or village green (TVG) is suspended.

The effect of registration as a TVG is effectively to sterilise land for development and there have been justified concerns that applications for registration have been made for the sole purpose of blocking development outside the planning system. 

These concerns are exacerbated by the fact that TVGs are not merely those greens hosting cricket matches in the summer. A TVG has been defined to include scrubland, car parks, golf courses, quarries, playgrounds and rocks – and the list continues to expand. 

Responding to these concerns, the Growth and Infrastructure Act 2013 removed the right to register land in England as a TVG if a trigger event has occurred. One such trigger event is if “…a development plan document which identifies the land for potential development is adopted”.  

In this case a landowner faced with an application to register part of its land as a TVG argued that a trigger event had occurred as the land was part of a larger area to which the presumption in favour of sustainable development applied in the development plan. Wiltshire Council argued that this was not sufficient to “identify the land for potential development” for the purposes of the trigger. 

The judge held that ’potential’ was a broad concept and not to be equated with likelihood or probability. The fact that the land in question had not been specifically identified for development did not matter: that it was subject to a presumption in favour of development was sufficient. This broad interpretation was in line with the underlying policy that the protection of recreational land with development potential should be a matter for the planning system and not TVG registration.

The threat of registration of certain areas of land as a TVG has been a thorn in the side of developers for many years so this decision will be warmly welcomed.

New best practice on service charges now live

A reminder that the Royal Institution of Chartered Surveyors (RICS) Professional Statement: Service Charges in Commercial Property (first edition), which sets out best practice in the management and administration of service charges, is now in force and applies to all service charge periods commencing from April 1, 2019.

The Professional Statement includes nine mandatory requirements for RICS members/firms regulated by the RICS involved in the management of service charge accounts

• All expenditure that the owner and manager seek to recover must be in accordance with the terms of the lease.
• Owners and managers must seek to recover no more than 100 per cent of the proper and actual costs of the provision or supply of the services.
• Owners and managers must ensure that service charge budgets and explanatory commentary are issued annually to all tenants,  
• … must ensure that an approved set of service charge accounts is provided annually to all tenants
• … and that a service charge apportionment matrix is also provided annually.
• Service charge monies must be held in one or more discrete bank accounts.
• Interest earned on a service charge account must be credited to the account.
• When acting on behalf of a tenant, practitioners must advise their clients that if a dispute exists any service charge payment withheld by the tenant should reflect only the actual sums in dispute.
• When acting on behalf of a landlord, practitioners must advise their clients that following a resolution of a dispute, any service charge that has been raised incorrectly should be adjusted to reflect the error without undue delay.

These requirements are underpinned and supported by a set of core principles and detailed best practice recommendations and guidance, including sample service charge reports.

While the Statement is intended to provide guidance on the negotiation and drafting of leases, it cannot override lease terms. RICS members may therefore find themselves stuck between a rock and a hard place if any of the mandatory requirements differ from the contractual requirements in a lease.