Real Estate Focus – September 2024

Construction update: BSA-related changes in JCT construction contracts

The Building Safety Act 2022 (the BSA) is widely considered to be the largest legislative change in building safety regulation in a generation. Its impact is felt across the built environment, particularly by those engaged in developing and managing buildings.

Since April 2024, the Joint Contracts Tribunal Limited (otherwise referred to as the JCT) has been releasing an updated suite of its construction contracts, which seek to address some of the challenges and market shifts in recent years, including obligations under the BSA.

Below we review the key BSA-related changes to the JCT 2024 editions, focusing on the JCT Design & Build Contract 2024 edition (the JCT D&B). However, the issues discussed generally also apply to the other JCT 2024 forms of contract which have been, or will be, released.

The BSA and related regulations has driven employers to make significant amendments to the previous editions of the JCT D&B to address BSA issues, particularly in relation to projects caught under the BSA higher-risk building regime (HRBs). It was hoped that the JCT’s updates to the 2024 suite of contracts would address the obligations on parties arising from the BSA but, perhaps disappointingly, the JCT has only made adjustments to reflect the new duty holder regime under Part 2A of the Building Regulations 2010 (introduced by the Building Regulations etc. (Amendment) (England) Regulations 2023) (the Building Regulations), which imposes obligations on parties involved in the design and construction of building works.

The JCT D&B treats the BSA duty holder regime in the same way as the CDM duty holder regime by combining their amendments into one provision, which could create confusion for those not familiar with the specific obligations and requirements under the CDM Regulations and the Building Regulations. The terms “principal designer” and “principal contractor” under the two different regulations are used interchangeably and whilst the name of the roles may be the same, the duties are separate and distinct with nuances that are important to each role.

A number of matters have not been addressed in the amended JCT D&B, most notably:

• The amended JCT D&B is silent on the requirements for HRBs. It does not address the additional legislative requirements for HRBs on the basis that design and construction work relating to HRBs is just one type of project for which the JCT D&B contract may be used. Therefore, parties undertaking HRB projects will need to consider what bespoke amendments to the JCT D&B they require in order to address the BSA, such as the golden thread of information and the new Gateway regime.
• Professional Indemnity Insurance (PII). Parties can now agree sub-limits and exclusions to PII. This amendment has been made with the aim of better reflecting the current insurance market. However, the amendments do not address that the contractor may need to maintain PII for a longer period to cover its extended design liabilities under the BSA and the Defective Premises Act 1972 (DPA), as amended by the BSA.
• Limitation periods. The amended JCT D&B does not address the extended limitation periods for certain types of claims under the BSA and/or the DPA. Therefore, where express limitation periods are included, parties will need to carve out the extended liability period under the DPA and BSA. Notably, the DPA provides that any term of an agreement which seeks to, or has the effect of, excluding or restricting the operation of its provisions, or any liability arising by virtue of any such provision, will be void.

In summary, the JCT amendments are not as extensive as anticipated. Therefore, parties will still need to tailor the JCT D&B (and other standard form JCT 2024 editions) to address the needs of their projects, such as the parties’ obligations where the project is an HRB and the contractor’s extended design liabilities under the BSA.

For further information please contact partner Donald Warnock or senior associate Rae Ahmed.

Modifying restrictive covenants preventing development

There has been a spate of recent cases relating to applications to the Upper Tribunal (UT) for the modification or discharge of restrictive covenants preventing building and development.

Section 84(1) of the Law of Property Act 1925 gives the UT power to discharge or modify any restriction on the use of freehold land on being satisfied that one or more statutory grounds are met by the applicant. If they are, the UT has the jurisdiction to modify or discharge the covenant and must then decide whether to exercise its discretion to do so.

In Lackey v Pearce and another [2024] UKUT189 (LC), the applicant had obtained outline planning permission to build an additional dwelling in the “generously sized” rear garden of their property, which was part of a residential estate built in the mid-1970s. However, the houses on the estate, including their property, was subject to a restrictive covenant preventing the erection of additional dwellings.

The applicant applied for the restrictive covenant to be modified to permit the proposed development on statutory ground (a): that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case that the UT may deem material, the restriction ought to be deemed obsolete.

In determining whether the restriction ought to be modified, the UT was required to take into account the development plan and any declared or ascertainable pattern for the grant or refusal of planning permissions in the relevant area, as well as the time at which and context in which the restriction was created, and any other material circumstances.

Taking these factors into account and assuming on the facts that the original purpose of the restriction was to retain lower density development and therefore the amenity of spaciousness within the estate, the UT concluded that that object had been achieved and continued to be achieved by the restrictive covenant. The covenant ought not therefore be deemed obsolete and it had no jurisdiction to modify it.

An application to modify a restrictive covenant was also unsuccessful in Patel and others v Spender and others [2024] UKUT 62 (LC). In this case, the properties on a residential estate in Docklands developed in the late 1990s were subject to a restrictive covenant not to add or alter the property in any way so as to affect substantially its external appearance.

The applicants all owned properties on the estate and sought to modify the covenant to allow them to carry out various construction projects, including ground and loft extensions. Again, they failed to satisfy any of the statutory grounds for doing so, including ground (aa): that the continued existence of the restriction would impede some reasonable use of the land and secured no practical benefits of substantial value or advantage to the neighbours with the benefit of the restriction; and also ground (c): that the proposed modification would not injure those neighbours.

Amongst other things, the UT regarded “the avoidance of the thin-end-of-the-wedge effect, preventing even further erosion of the design and character of the estate, as a practical benefit of substantial advantage” to the neighbours.

Land owners benefiting from similar restrictive covenants will undoubtedly be relieved by these decisions, particularly given the emphasis on more housebuilding and the prevalence of extensive structural home improvements.

Renters’ Rights Bill

Introduction

With the previous renters’ reform bill being abandoned by the former government, Labour has decided to take up the mantle quickly into its new term, with the new-look Renters’ Rights Bill (the Bill) being introduced into Parliament on 11 September 2024.

Much the Bill will feel familiar, with the abolition of no-fault evictions remaining the most headline-grabbing feature. However, there are some crucial differences, including the axing of any transitional period for changes to be implemented for existing tenants.

Here we highlight the key aspects of this lengthy Bill.

Key features

• Abolition of section 21 evictions - as the law currently stands, by virtue of a “section 21 notice” a landlord can evict a tenant without having to provide any reason, giving the tenant two months’ notice. The court is then required to make a mandatory order for the tenant to leave if it does not do so within the notice period.

Abolition of section 21 notices was one of the main drivers for the previous government in implementing the Bill. However, following extensive lobbying from landlords, a clause was introduced so that the ban would only come into effect once reforms of the court system were in place.

The Bill, however, will axe section 21 evictions for new and existing properties as soon as the Bill comes into force. The tenant will, however, be able to end the tenancy by giving 2 months’ notice with the end date aligning with the end of a rent period.

• Other grounds for possession - landlords will be able to end tenancies, but only in specific circumstances set out in section 8 of the Housing Act 1988, as amended by the Bill. These include:

- where a tenant is at fault, for example damaging the property, being in substantial arrears of rent or committing anti-social behaviour.

- where a landlord reasonably requires possession of the property for the purposes of selling or moving into the property.

• Restrictions on obtaining possession - except in relation to tenant anti-social behaviour, landlords will not be able to gain possession if they have not complied with obligations in respect of rent deposit protection, or registering their property on the private rented database (see below).
• Protections for tenant - tenants will benefit from a 12-month protected period at the beginning of a tenancy. During this time, a landlord is not able to evict them, move in or sell the property. There will also be new protections for tenants who fall into rent arrears with an increasing threshold where the tenant must have at least three months’ arrears both at the time the notice is served and at the possession hearing (previously it was two months).
• Abolition of fixed terms - fixed term tenancies will be abolished, meaning that all existing and new tenancies will become periodic.
• Rental bidding to cease - there has been a growing trend (particularly in bigger cities where demand outstrips supply) whereby landlords force tenants to bid for their properties, a practice known as “blind bidding.” This has led to tenants sometimes paying rents in excess of £100 extra per month over the asking rate.

The Bill attempts to end this practice by prohibiting landlords and agents from asking for or accepting offers above the advertised rent, with local authorities having the power to impose civil penalties of up to £7,000 on landlords and anyone acting on their behalf for breaches.

• Appeals to increased rent - currently landlords can increase rents to market price, and this aspect will not change. However, under the Bill, tenants will have the opportunity to appeal excessive above-market rent increases with recourse to an independent tribunal.
• Private Rented Sector Landlord Ombudsman - a new Private Rented Sector Landlord Ombudsman will be introduced as soon as possible after Royal Assent, designed to provide quick, impartial and binding resolutions to tenants’ complaints against their landlords. All private landlords renting their properties by assured or regulated tenancies will be required to join the service, and local authorities will have powers to act against those who do not join, or who market a private rented sector property without being members of the service. This will include civil penalties up to £7,000 for initial breaches, and up to £40,000 or criminal prosecution for continued breaches.
• Private Rented Sector Database - all landlords of assured and regulated tenancies will be required to register themselves and their properties, along with certain required information, on a new Private Rented Sector Database. Again there will be civil and criminal penalties available for initial and continuous non-compliance.
• Requesting a pet - any request by a tenant for a pet in the property cannot be unreasonably refused. However, landlords can require pet insurance to cover property damage caused by pets, with proposed amendments to the Tenant Fees Act 2019 giving landlords the opportunity to recover from the tenant reasonable costs of any insurance taken out to cover damage to property by pets.
• Tenants with children or in receipt of benefits - the Bill will make it illegal for landlords or agents to discriminate against prospective tenants in receipt of benefits or those who have children. This will extend to ensure that any terms in mortgages and superior leases restrict the letting of a property to private renters without children or who are on benefits, are of no effect.

• “Awaab’s Law” - Awaab’s law was put in place by the previous government following the tragic death of toddler Awaab Ishak, but this only applied to social landlords. The Bill includes provisions whereby this is extended to the private rented sector, and sets out clear timeframes within which landlords must inspect and repair hazards in order to make homes safe.
• Decent Homes Standard (DHS) - the DHS set the minimum standards that social homes are required to meet, and has been in place since the early 2000s. The Bill will apply DHS requirements to private rented sector properties, with the local authority having a range of enforcement mechanisms available.
• Rent re-payment orders – these deter landlords from non-compliance and give tenants the opportunity to take action against landlords. Under the Bill, they will be extended to superior landlords, with the penalty being doubled to 2 years’ rent and repeat offenders will have to repay the maximum amount.

Comment

It is widely agreed that change in the private rental sector is needed, and the changes proposed by the Bill will certainly give greater protection for tenants.

However, there remain significant concerns on a number of levels. Aside from the recent increase in evictions, a number of the changes (particularly the immediate abolition of section 21 notices), could have an adverse impact on the private rental market, deterring investment and limiting growth in a sector in which the creation of additional housing is critical.

To date, the new government has provided no detail regarding its proposals to reform and further resource the courts and tribunal system which will inevitably receive an increasing number of applications from both landlords and tenants under the Bill. This was a significant concern considered by the previous government when trying to progress the former renters’ reform bill.

We will be keeping track of changes to the Bill as it makes its way through Parliament.