2023 is set to be a landmark year for the real estate industry, with major legal developments expected and new legislation coming into force.
These changes are analysed below, with Shoosmiths’ experts examining the legislation and its implications on developers, investors, occupiers and others operating across the real estate sector.
Economic Crime (Transparency and Enforcement) Act 2022
All overseas entities that are registered proprietors of land in the UK and (in the case of England and Wales) acquired that land since 1 January 1999 are required to have made an application for registration on the register of overseas entities at Companies House by 31 January 2023.
This corporate registration regime is enforced by new civil and criminal penalties and by the land registration system.
31 January also marks the end of the transitional period under the Act, during which most disposals of land made by an overseas entity have been unrestricted. Going forward, that will not be the case.
Disposals of land caught by the Act are the transfer of registered land, the grant of a lease for a term of more than seven years and the grant of a legal charge.
Land Registry restrictions have been added to the registered titles of overseas entities - preventing registration of any of these ‘restricted disposals’ unless the overseas entity is first registered on the register of overseas entitles, or one of a very limited range of conditions can be satisfied.
Where title to land was registered to an overseas entity between 1 January 1999 and 1 August 2022 (in England and Wales), the transitional period has meant that these restrictions do not bite and so most disposals of property have unaffected so far. With the transitional period ending on 31 January, any application to register a restricted disposal made after that date will be caught be the title restriction. This is the case even if completion of the transaction took place on an earlier date.
Since 5 September 2022, no overseas entity acquiring or owning freehold or leasehold land for a term of more than seven years has been able to make an application for registration as proprietor of that land at HM Land Registry unless until it has first registered in the register of overseas entities
With the registration deadline of 31 January fast approaching, over 11,000 entities have registered on the register of overseas entities at Companies House, but this is less than a third of those expected to register.
Failure to apply by the end of the transitional period will be a criminal offence as will any disposal of land in breach of a Land Registry or statutory restriction.
Delays in land transactions are to be expected where registration has not been dealt with and overseas entities should act now to ensure the requisite application to register is made. For further information: Overseas Entities: the real estate effect and Economic Crime Act – when does it bite?
Minimum Energy Efficiency Standard
The Minimum Energy Efficiency Standard (MEES) has applied to the granting of new leases and lease renewals since April 2018, but it has not, yet, applied to properties that have already been let. From 1 April 2023, it will do so, and landlords will be in breach of MEES requirements if they continue to let a commercial property that has an EPC rating below E unless:
- they have made all possible cost-effective energy efficiency improvements prescribed by the MEES regulations, or
- an exemption applies.
Most exemptions last for only five years, although they can be claimed more than once. Any exemption must be logged onto a public register with supporting documentary evidence.
In view of these new rules, awareness of MEES and careful due diligence is critical when acquiring tenanted properties. Landlords are assisted by a six month window after acquisition before compliance is required but, in practice, that exemption is short. On expiry, landlords must have carried out the required improvements or have registered their own exemptions; exemptions are not inherited.
With the expansion of MEES, landlords must consider how they will meet the costs of improvement works they carry out and whether it is appropriate to bear these costs, pass them on or share them with occupiers. Whether that will be permissible will depend on individual leasing arrangements.
Looking ahead, further changes to the MEES regime are expected, most notably the raising of the minimum standard to EPC B by 2030. For more information: MEES: the next stage.
Charities Act 2022
Provisions in the Charities Act 2022 relating to the disposal of land by charities are due to come into force in Spring 2023.
Ownership of land in England and Wales by charitable organisations is extensive and varied. Some large charities own significant open space; stocks of housing land are owned and let by social landlords registered as charities and charity shops are a familiar feature of the high street.
Regardless of the size of the land holding, any disposals of land held by charities in England and Wales will be impacted by the Act. It will also be of relevance to those acquiring land from charities.
The new provisions are expected to introduce a proportionality into the statutory requirements for charity land disposals. They will entail a softening of the rigid rules that currently relate to pre-disposal advice, allowing charities to instead take less prescriptive advice on land disposals from a larger pool of people with requisite expertise, including suitably qualified people within a charity. It will also remove the obligation for charity trustees to certify in their individual capacity in the document transferring title that the relevant requirements under the Charities Act 2011 have been met.
The key principle remains that charities should take steps to maximise the value of the land of which they dispose. There is now likely to be fewer and easier hoops to jump through to attain that goal.
Building Safety Act
The Building Safety Act (BSA) came into force last year, but 2023 is likely to see the implementation of many of its provisions. For those developments that will impact the design and construction of higher-risk buildings please read: 2023 predictions: What’s on the horizon for construction?
Additionally, Part 4 of the BSA will come into force by October 2023.
This part of the BSA identifies new duty holders known as 'Accountable Persons'. All occupied higher-risk buildings must have at least one clearly identifiable Accountable Person that is responsible for registering the building as a higher-risk building, assessing and managing building safety risks and taking all reasonable steps to prevent and limit the impact of those risks materialising.
The extent of those obligations will be further defined by secondary legislation.
A consultation on the proposed extent of the duties ended in October 2022 and the results of that consultation and detailed legislation are awaited. A further consultation on the appointment of building safety directors to resident-led management companies is also in progress.
The results of these consultations and proposed legislation will be important for building owners that are accountable persons, as they will have a wide range of new duties under the Act.
Biodiversity net gain
New biodiversity net gain (BNG) requirements are expected to come into force in November 2023.
The legislation is set to be enforced as part of the Environment Act 2021. It will require all new developments in England and Wales, bar a few exceptions, to deliver at least 10 per cent BNG – covering commercial and residential projects, while also impacting local authorities and developers.
The National Planning Policy Framework already requires local authorities to consider opportunities for contributing to and enhancing the natural environment in their plan-making and decisions, but this new mandatory requirement will ensure the issue is not outweighed by other competing considerations and a greater consistency of approach across planning authorities.
This mandatory requirement will be secured by a new standard planning condition and the BNG must be maintained for a minimum of 30 years following completion of the development.
Developers need to be aware of and prepare for this requirement now. For more information: Planning for new biodiversity net gain requirements in England.
Renters Reform Bill
The Renters Reform Bill was announced in the White Paper “A Fairer Private Rented Sector” in June 2022. The proposals form part of the government’s levelling up agenda and are aimed at reforming the private rented sector - putting a stop to unscrupulous landlords and sub-standard properties and improving tenant security.
The proposals are far-reaching and will affect everyone operating in this sector. The headline reforms promised by the government include:
- The abolition of Section 21 ‘no fault’ evictions and reform of grounds for possession
- The delivery of a new, more secure, tenancy structure that will replace Assured Tenancies and Assured Shorthold Tenancies, and
- Increases to rent will only be permitted once each year on two months’ notice and the government will end the use of rent review clauses.
Full detail of the plans will not emerge until legislation is introduced into Parliament later this year. For initial thoughts on the White Paper please refer to: A positive renting experience – Government private rented policy evolves.
Levelling Up and Regeneration Bill
The Levelling Up and Regeneration Bill looked set to falter for a short time in autumn 2022, but is firmly back on the agenda and has its second reading in the House of Lords on 17 January.
Many of the Bill's provisions relate to reforms of the planning system, as analysed by Shoosmiths’ experts: How will the Levelling Up and Regeneration Bill change planning?
Shoosmiths is following these proposals closely, as they develop together with associated changes to National Planning Policy Framework, which is currently being consulted on.
There are two key features that will directly affect property owners and developers:
1) The new rental auction provisions will give local authorities the power to regenerate high streets and town centres. Under these proposals, where property in a designated regeneration area has been vacant for a stipulated period of time, local authorities will be able to hold a rental auction to find a tenant for the property, enter into a letting agreement and, potentially, let the property in the name of the landlord.
For more information on this change: Regenerating the high street.
2) The creation of a register of land interests in which to record development agreements and other land agreements that give third parties control to direct how the land will be used. The government has consulted on its proposals to create a land control register: Who’s in control? Consultation on greater transparency about the terms of land agreements.
The Bill’s provisions lay the groundwork for implementing the register, but the detail will be included in regulations and there is uncertainty over which agreements will be caught by the register or how much information will need to be included in it.
Further reforms have been announced, but the real estate sector is awaiting legislation.
It remains to be seen whether 2023 will see any progress made in relation to the reform of Commonhold title, the abolition of the sale of new leasehold houses, a review of commercial landlord and tenant law and reform relating to residential lease extensions and enfranchisement.