Real Estate Focus – May 2024

General Election: implications for leasehold reforms

In what many saw as a surprise move, a General Election has been called for 4 July 2024. As a result, parliament was prorogued on 24 May, 2024 and outstanding public bills were required to be considered and dealt with before then.

Two of those bills related to proposed key reforms to leasehold law: have they survived?

The Renters Reform Bill, which contained proposals to abolish fixed term tenancies and to introduce a single system of periodic tenancies, was slow in making its way through parliament, not least as it also included highly controversial and well-publicised proposals to abolish section 21 ‘no fault’ evictions. The Bill has fallen by the wayside and has been dropped.

The Leasehold and Freehold Reform Bill, on the other hand, has survived and has now become law. The Act is wide-ranging and, notably, bans the sale of new leasehold houses, save in exceptional circumstances.

It also (amongst other things):

• Makes it cheaper and easier for existing leaseholders in houses and flats to extend their leases, buy their freehold, or take over the management of their building;
• Increases the standard lease extension term to 990 years;
• Increases the 25 per cent ‘non-residential’ limit preventing leaseholders in mixed-use buildings from buying their freehold or taking over management of their buildings, allowing leaseholders in buildings with up to 50 per cent non-residential floorspace to do so;
• Requires greater transparency on service charges, with leaseholders to receive minimum key information on a regular basis, making it easier to challenge;
• Replaces buildings insurance commissions with transparent administration fees; and
• Grants freehold homeowners on private and mixed tenure estates similar rights of redress as leaseholders, by extending rights to transparency over their estate charges and rights to challenge charges paid.

The Bill was rushed through despite being considered by many as “imperfect” as it stood. We don’t yet know when these changes will take effect.

It will be interesting to see whether renters reforms and ground rent reforms (which also didn’t make the cut) will make an appearance in the King’s Speech at the start of the next parliament on 17 July 2024.

Opposing business lease renewals on ground (f): tactics for tenants?

Tenants occupying premises for the purpose of their business are entitled to seek a new lease on the termination of their current lease under the Landlord and Tenant Act 1954 (the Act) unless the lease is “contracted out” of the security of tenure regime.

However, there are various grounds on which the landlord can oppose the grant of a new lease, including the ground contained in s.30(1)(f) of the Act (ground (f)). This entitles the landlord to resist the grant of a new lease if it has a genuine “firm and settled intention” to redevelop the premises comprised in the “holding” or to carry out substantial works of construction and requires vacant possession to do so.

Ground (f) has generated a considerable amount of litigation, notably S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 6. The landlord in that case designed an “artificial” scheme of works which had no real commercial purpose other than to satisfy ground (f) and therefore to obtain possession of the premises. The landlord acknowledged that it only intended to carry out the works if the tenant did not vacate the premises voluntarily. The Supreme Court held that this was not good enough: ground (f) envisages that the landlord must intend to do the works regardless of the tenant’s stance.

Man Limited v Back Inn Time Diner Limited [2023] EWHC 363 (Ch) is another case in point. Showing the requisite intention for a successful objection under ground (f) has both a subjective and an objective element. The latter includes the availability of finance.

The court held that a “reasonable prospect” test should apply here: the landlord needed to show that it had a real or reasonable, as opposed to a fanciful, prospect of being able to obtain the finance to redevelop within a reasonable time after the termination of the lease. On the evidence, the landlord had failed to disclose sufficient information to prove its case.

Another novel ground (f) issue arose recently in Sainsbury’s Supermarkets Limited v Medley Assets Limited (County Court). The tenant sought a new lease of business premises pursuant to the Act. The landlord opposed the grant on ground (f).

The premises comprised several floors and a basement, but the tenant only occupied the ground floor. The landlord’s opposition was based on an intention to develop the upper floors.

One of the issues for the court in this case was the extent of the “holding”. This is defined in the Act as the premises occupied by the tenant or its employees. The Act provides that where a renewal lease is ordered by the court, the property to be comprised in that lease is the “holding”, unless the landlord requires it to be the whole of the original demise, if that is more extensive.

The tenant argued that the “holding” was only the occupied ground floor. On the other hand, the landlord argued that it was the whole property, as it had elected that any new lease should be of the whole of the original demise.

The court agreed with the tenant, concluding that, for the purposes of considering ground (f), the premises comprised in the “holding” were only the occupied ground floor.

As a result, the proposed landlord works did not engage ground (f) as they did not amount to the redevelopment of, or substantial works of construction to, the ground floor that required vacant possession of that floor. The landlord’s opposition to the grant of a new lease must therefore fail.

Interestingly, from a tactical perspective, if a court is subsequently asked to determine the terms of a new tenancy in these circumstances, the holding would be determined “by reference to the circumstances existing at the date of the order”. Arguably, therefore, the tenant may be entitled to a renewal lease of whole, regardless of the landlord’s wishes, if it expanded its occupation into the whole of the demise by that date.

Levelling-Up and Regeneration Act 2023: April update

In the January 2024 edition of the Real Estate Focus, we reported that extensive changes to the planning system are introduced by the Levelling-up and Regeneration Act 2023 (the LURA).

As anticipated, steady progress has been made during 2024 so far: January saw the entry into force of various compulsory purchase provisions; biodiversity net gain came into force in February; planning data provisions came into force in March; and a raft of enforcement measures in April. We set out below a summary of the provisions that came into force on 25 April 2024 and which apply in England.

Significantly, the LURA aligns the time limit for enforcement action for all unauthorised development in England and sets the immunity period at ten years.

Temporary stop notices can be served by local Planning Authorities (LPAs) that suspect unauthorised works are being carried out on a listed building. The notice requires the works to stop temporarily so that the LPA can investigate the suspected breach and decide if action needs to be taken. The LURA extends the duration of all temporary stop notices from 28 to 56 days. Furthermore, the LURA introduces enforcement warning notices. These can be served by LPAs that suspect a breach of planning control, but there is a reasonable prospect that planning permission would be granted if an application for permission was made.

The LURA also restricts some appeals from being brought on the ground that a retrospective planning permission should be granted. These appeals cannot be brought if an enforcement notice is issued after a planning application is made. Appeals against enforcement notices or relating to certificates of lawfulness issued by LPAs can be dismissed under the LURA, if it appears to the Secretary of State that the appellant is causing undue delay to the progress of the appeal. Moreover, the LURA increases the financial penalties for non-compliance with the enforcement of planning conditions or a section 215 notice (maintenance of land).

Two provisions that are not related to enforcement also came into force in April. First, the obligation on developers to engage in the consultation process before applying for planning permission is made permanent under the LURA. Secondly, the LURA empowers the Secretary of State to make provisions to require or allow planning applications (and associated documents) to be submitted electronically, and to be prepared or endorsed by a person with particular qualifications or experience.

For further advice and details of the LURA, please contact Partner, Sarah Fitzpatrick, or associate, Alysha Patel.

Knotweed in the Supreme Court

A case involving Japanese knotweed on land has reached the Supreme Court despite the relatively modest amount of damages at stake.

In Mark Christopher Davies v Bridgend County Borough Council [2024] UKSC 15, knotweed growing on the appellant’s land encroached into the respondent’s adjoining property. The respondent succeeded in a claim in nuisance against the appellant and the issue before the Supreme Court was: were damages payable by the appellant for the diminution in the value of the respondent’s land caused by that nuisance?

The Court of Appeal had found that they were: if the value of property is diminished as a result of an interference with the owner’s quiet enjoyment or the land’s amenity value caused by the (non-trivial) encroachment of knotweed from adjoining land, damages for diminution in the value of the property were available.

The Supreme Court disagreed. This was a question of causation: in this case, an actionable private nuisance arose in 2013, when the appellant was, or ought to have been, aware of the risk of damage and loss of amenity to the respondent’s land. This awareness arose as a result of publicly available information about knotweed at the time, largely in the form of an RICS information paper published in that year on the duty in private nuisance in relation to the spread of Japanese knotweed.

The evidence clearly indicated that knotweed had encroached on the respondent’s land well before then and there was no evidence that the appellant’s breach of duty from 2013 onwards had caused or increased the diminution in value of the respondent’s land - there was no causal link between the appellant’s breach of duty and the diminution in value claimed.

The damages in issue here amounted to £4,900 and the judge in the Court of Appeal had commented that, if that was all that was at stake, the proportionality of the proceedings having got so far in the courts would be questionable. However, “the point of principle about recoverability was important, particularly given the number of knotweed cases”.