Real Estate Focus: January 2022

Landlord and tenant: Commercial property

The Commercial Rent (Coronavirus) Bill aims to tackle the issue of unpaid commercial rent built up by tenants forced to close by measures taken in response to the pandemic.

The Bill will ring-fence “protected rent debts” and requires parties to work together to agree terms for payment or, if resolution is not possible, to refer the matter to arbitration. The Bill includes a new legally-binding arbitration scheme.

The new arbitration scheme is expected to come into force on March 25, 2022. Existing temporary restrictions on landlords pursuing rent arrears through forfeiture, Commercial Rent Arrears Recovery or the commencement of winding-up petitions have all been extended until the end of March 2022, to coincide with the Bill’s anticipated commencement date. 

There have been numerous recent cases in the High Court involving debt claims by landlords of commercial premises to recover COVID-related rent arrears, with judgments generally in favour of the landlords. We have heard on the grapevine that the tenants in some of these cases have appealed to the Court of Appeal and that their cases are due to be heard in February 2022.

More generally, the Government confirmed in June 2021 that a review of commercial landlord and tenant legislation will be launched to consider a broad range of issues including the Landlord and Tenant Act 1954 Part II and different models of rent payment. No further news as yet but watch this space.

Landlord and tenant: Residential property

The Leasehold Reform (Ground Rent) Bill is progressing through parliament. It is expected to receive Royal Assent in the coming months. 

The Bill’s stated purpose is to “end the practice of ground rents for new leasehold properties”. As introduced and with some exceptions it applies to long leases of a dwelling for a term exceeding 21 years. Landlords of such leases must not require the tenant to pay any rent that exceeds an annual rent of one peppercorn. 

In early 2021 the Government announced a further package of reforms including:

• A right for leaseholders of houses and flats to extend their lease by a maximum term of 990 years at a zero ground rent.
• Making it cheaper, fairer and easier to exercise leasehold enfranchisement rights (being a leaseholder’s right to buy their freehold or extend their lease).
• Reforms to encourage take-up of commonhold in place of long leases. 

A consultation was launched on January 11, 2022 seeking views on reforms to leasehold enfranchisement, the right to manage and improvements to the commonhold regime. The consultation closes on February 22, 2022.

“Renters’ reforms” including the abolition of section 21 ‘no fault’ evictions and a new ‘lifetime’ tenancy deposit were confirmed in the Queen’s Speech in March 2021. The Government has stated that a White Paper will be published sometime in 2022.

The Government intends to extend the obligations imposed on landlords in the private rented sector by the Smoke and Carbon Monoxide Alarm (England) Regulations 2015, to take effect later this year.

Across the border, it has been announced that the Renting Homes (Wales) Act 2016 will come into force on 15 July 2022, radically transforming residential tenancy law in Wales.

Property development

A new Residential Property Developer Tax (RPDT) takes effect on April 1, 2022. RPDT is designed to raise revenue to support the replacement of defective cladding on residential property. With some exemptions, RPDT will be at a rate of 4% on profits above £25 million per group. 

A new Building Safety Levy is also expected to come into force in 2023. The draft Building Safety Bill contains a power for the government to impose a new Levy on developers wishing to construct certain “higher risk” buildings. Higher risk buildings are defined as buildings with at least two residential units, care homes and hospitals that are at least 18 metres in height or have at least 7 storeys. Proposed exclusions currently include affordable housing.

A press release published on January 10, 2022 by the Department for Levelling Up, Housing and Communities announced that leaseholders of “medium-rise flats” will not face costs in relation to dangerous cladding. Instead the industry has been given two months to agree to a financial contributions scheme to fund such costs, failing which “if necessary, the Government will impose a solution in law”.

Other provisions in the Building Safety Bill (see our July 2021 Real Estate Focus) include:

• An extension of the limitation period for claims against construction parties/developers. The proposed extension was originally from six to 15 years with retrospective effect but the above press release indicates that this may be further extended to 30 years.
• A new Building Safety Regulator to oversee a more rigorous regime for higher-risk buildings and to enhance safety and performance in all buildings. 

A New Homes Quality Code was published on December 17, 2021. From January 2022, house builders and developers who build new homes will be expected to register with the New Homes Quality Board. Registered developers agree to follow the Code and to be subject to a New Homes Ombudsman Scheme. 

New building regulations come into force on June 15, 2022 requiring the installation of electric vehicle charging points in new and renovated buildings in England. 

Real estate tax

Developments in 2022 (and beyond) include the following:

• Reforms to the legislation governing real estate investment trusts (REITs) to remove some restrictions and burdens come into force on April 1, 2022. 
• From April 1, 2022 the annual chargeable amounts for the annual tax on enveloped dwellings (ATED) will rise by 3.1%.
• Non-UK resident trusts which have acquired UK land after October 6, 2020 will need to register with the Trust Registration Service by September 1, 2022 regardless of whether they are liable to pay any UK tax.  
• The Government is consulting on reforms to the way in which SDLT applies to mixed property transactions (that is, those which involve both residential and non-residential property) and also on the introduction of restrictions on the availability of multiple dwellings relief. Comments are invited by February 22, 2022.
• HMRC is considering options for simplifying the VAT option to tax.
• The annual investment allowance (AIA) provides an enhanced deduction of 100% of the cost of qualifying expenditure on plant and machinery. The AIA was introduced with a £200,000 annual cap but this was temporarily increased to £1 million.The Chancellor has announced that this increase will be extended until March 31, 2023.
• The main rate of corporation tax will rise to 25% from April 1, 2023. The existing 19% rate will be preserved for companies with small profits (less than £50,000).  
• The Chancellor announced new business rates reliefs in the autumn 2021 budget. These include a property improvement relief to take effect in 2023; a new exemption for renewable energy and heat; a freezing of the business rates multiplier for 2022-23; and a one-year relief for retail, hospitality, and leisure. In addition, business rates revaluations will take place every three years instead of every five from 2023. 
• The Government has published draft legislation to introduce a new regime for the taxation of qualifying asset-holding companies, intended to make the UK a more attractive location for asset holding. 

Energy Efficiency in the PRS

Minimum energy efficiency standards (MEES) for landlords in the private rented sector have been in force since April 1, 2018. These provide that, with some exclusions and exemptions, a landlord cannot grant a new – or renew an existing – tenancy of a property if it does not have an EPC rating of E or higher.  
Since April 1, 2020 private sector residential landlords have not been able to continue to let a sub-standard property. Landlords of commercial premises with tenancies already in place on April 1, 2018 must comply from April 1, 2023. 

The Government has issued four consultations to raise the energy efficiency bar by introducing:

• A framework for a minimum EPC B rating for privately rented non-domestic buildings in England and Wales by 2030. 
• A minimum EPC rating of C in the domestic private rented sector, the preferred option being to require new tenancies to achieve a C rating from 2025 and all tenancies from 2028. 
• A national performance-based framework for rating the energy and carbon performance of large commercial and industrial buildings. 
• Improvements to home energy performance through mortgage lenders.

Consultation responses are “currently being analysed” in each case, so we should expect further developments in 2022.

Electronic Communications Code

The Electronic Communications Code 2017 governs the relationship between network operators and site owners/occupiers in respect of access rights to install and keep electronic communications apparatus on land. Proposed wide-ranging reforms to the Code to tackle some problem areas are set out in Part 2 of the Product Security and Telecommunications Infrastructure Bill (see our December 2021 Real Estate Focus). Progress is expected in 2022.

The Telecommunications Infrastructure (Leasehold Property) Act 2021 seeks to address the difficulties that operators face when wanting to install apparatus in apartment blocks but landlords fail to respond to requests for access. The Act will come into force when regulations to underpin it are made, very likely to be in 2022. 

In the meantime several Code disputes between landowners and site operators are scheduled to be heard in the Supreme Court at the beginning of February 2022.

Environment

On November 9, 2021 the Environment Act 2021 received Royal Assent. The Act sets out new post-Brexit statutory environmental principles and establishes an independent environmental watchdog, the Office for Environmental Protection, tasked with holding public authorities, including ministers, to account for breaches of environmental law. It comes into force piecemeal.

Miscellaneous

Judgment is awaited in Fearn and others v Board of the Trustees of the Tate Gallery, heard in the Supreme Court in December 2021: if visitors to the Tate Modern public viewing platform can see straight into the interior of neighbouring flats with floor to ceiling windows, does this amount to an actionable private nuisance?  

The National Security and Investment Act 2021 establishes a retrospective regime for reviewing transactions with a potential “national security risk”. Most land transactions will not be affected but a small minority may be within scope. The Act came fully into force on January 4, 2022.

The Registration of Overseas Entities Bill was first published in July 2018 but has made little progress of late. The Government has confirmed that it will go ahead “as soon as parliamentary time allows”. Once it does, as currently drafted any overseas entity that owns, or wants to own, UK land - residential or commercial - will be required to identify its beneficial owners, register their details in a new register and update that information annually. 

Please contact us for more information on any of the above topics.