Statute or guidance? The BSA continues to vex.

Two recent decisions on the Building Safety Act 2022 (“BSA”) have shone a light on the continuing difficulties being experienced by the courts in interpreting its provisions, when viewed against the genesis of the Act and the government’s own guidance. 

The first, known as the Smoke House [2024] decision, shows the difficulty in determining exactly how the height of a building is to be measured. 18 metres/7 storeys is the magic number for the purposes of the BSA, as it designates a Higher-Risk Building, and thus engages a raft of leaseholder protections and developer obligations.  Supplemental 2023 Regulations to the BSA even go to the lengths of explaining how to measure buildings and how to treat rooftop machinery and plant when deciding if it constitutes a ‘storey’.  The regulations only require rooftops which contain nothing but plant/machinery to be excluded from the calculation.   Armed with this, the FtT in Smoke House (para 59-91) found that an open rooftop which contained both a roof garden and plant/machinery should be counted in the number of storeys. The problem? The government’s own guidance, published 21 June 2023, says:

A storey must be fully enclosed to be considered a storey. The roof of a building should not be counted as a storey. Open rooftops such as rooftop gardens are not considered storeys and should not be counted as such when determining the number of storeys or measuring the height.

As the FtT pointed out, this is directly at odds with the statutory provisions, and also undermines the purpose of the BSA which is to consider residents’ safety in the event of a fire.  A person might just as easily be in the rooftop garden when a fire breaks out, as a flat.  Why, then, shouldn’t it constitute a storey? However, the FtT held that it did not have the jurisdiction to determine whether a building is, or is not, a Higher-Risk Building.  Subsequent commentary from MHCLG has stood by the guidance.  With buildings coming in an endless variety of designs, it may not be long before this issue crops up again.

The second decision, Nuernberg v Adderstone [2024] (full judgment awaited but see Falcon Chambers’ summary here), concerned the criteria to be met for a leaseholder to qualify for certain protections under the BSA, and specifically, how many properties they can own and still qualify. Section 119(2) of the BSA says:

“A lease is a “qualifying lease” if—

(a)  it is a long lease of a single dwelling in a relevant building,

(b)  the tenant under the lease is liable to pay a service charge,

(c)  the lease was granted before 14 February 2022, and

(d)  at the beginning of 14 February 2022 (“the qualifying time”)—

(i)  the dwelling was a relevant tenant’s only or principal home,

(ii)  a relevant tenant did not own any other dwelling in the United Kingdom, or

(iii)  a relevant tenant owned no more than two dwellings in the United Kingdom apart from their interest under the lease.”

Read literally, and applying the usual rules of interpretation, this means a qualifying leaseholder can either own no more than 3 properties in England and Wales (but need not live in the Relevant Building in question) or can own more than 3 properties, but only the flat in which they live can have a qualifying lease.  And the FtT found accordingly. 

The problem? The FtT in the first instance Triathlon Homes [2024] case had reached a different conclusion, saying (at para 26) that the conditions are in effect cumulative – the leaseholder must live in the flat and own no more than 3 properties in total in order to have a qualifying lease.  To be fair, the FtT in Triathlon was more focused on various other knotty BSA issues and this part of the judgment is arguably obiter, which might be just as well, since para 941 of the Explanatory Notes which accompany the BSA matches the conclusion in Nuernberg:

“The provision at subsection (2)(d) means that a leaseholder will qualify for the leaseholder protections for their properties if they own up to three properties in the United Kingdom in total. If more than three properties in total are owned, then the principal home qualifies for the protections, but the other properties do not.”

It is always a vexed question how much reliance a court can place on explanatory notes and government guidance when trying to interpret statute, and we may have to wait for further judgments to give us some definitive answers.  In the meantime the FtT will have to continue to grapple with the complex drafting of the BSA, ever mindful of the tragic reason it was enacted in the first place. Where Parliament has so deliberately chosen to move the goalposts of the landlord/tenant relationship, it is understandable that the policy objectives behind the Act are carrying great weight with the courts. 

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Will unlawful development trigger CIL?

The Community Infrastructure Levy – many people dislike it and for good reason. It is complex, confusing, and most importantly, unforgiving.

The CIL Regulations are procedural and require various notices to be submitted to the Collecting Authority (“CA”), including the submission of a commencement notice “no later than the day before the day on which the chargeable development is to be commenced”. Failure to do so will result in a surcharge becoming payable. 

A developer recently appealed a surcharge which had been imposed by the CA after the CA had deemed development to have commenced. The developer appealed, claiming the breach which led to the surcharge did not occur. Their reasoning was that as condition precedent conditions had not been discharged prior to the works commencing, the works carried out were not those permitted by the planning permission. Instead, they were in respect of a separate development. The separate development did not benefit from planning permission and so the works were unlawful. As such, no commencement notice was required. 

The Inspector considered whether commencement of a chargeable development had in fact occurred. Case law states that a development is commenced following a ‘material operation’. Such an operation must be more than ‘de minimis’ when considered in the context of the development as a whole.  The Inspector found that “whilst the work might fall within the scope of a material operation… the access is insignificant when considered in the context of the whole residential scheme”. The works did not pass the ‘de minimis’ test and the Inspector concluded that a chargeable development had not commenced.  On that basis, the appeal was successful. 

Sadly, the Inspector declined to opine on arguably the more interesting point as to whether implementation has to be lawful in order to trigger CIL. 

The underpinning CIL legislation relies on development being “…commenced in reliance on planning permission”, with “chargeable development” defined as “…the development for which planning permission is granted”.  

However, what happens if development is commenced unlawfully?  It is a well established principle that development which has been carried out in breach of pre-commencement planning conditions is incapable of lawfully commencing development.  The CIL Regulations are silent on this point.  In the absence of explicit authorisation, it is certainly arguable that no charge could or should be levied by a charging authority.  Obviously, once the position is regularised, then CIL will be payable.  

Whilst this is not permission to commence development unlawfully (!), it is a reminder to seek legal advice when it comes to CIL as nothing is ever straightforward!

 

 

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Victoria Towers comments on the rise of the multi-let and mid-box market for Property Week

Multi-let and mid-box industrial and logistics developments serve a vast array of tenants, from small-time mechanics offering car tune-ups to delivery firms seeking last-mile distribution centres. And while this section of the market might not attract the biggest industrial and logistics occupiers paying top market rents, it has started to gain a reputation for high rental growth and for delivering decent returns for investors. It is also seeing occupiers seeking higher-quality units. 

Alongside the comments of other real estate leaders, Victoria Towers adds her thoughts where she warns that the emergence of higher-quality units in the market has made potential occupiers “more forthright” in their demands and willing to break off negotiations on lets.

“If negotiations get too complicated or they are not agreeable, they will go down the road to another estate. There is competition out there and tenants are keen to find the right space, but on their terms.”

Read the full article, including the thoughts of other real estate professionals, in Property Week’s Industrial and Logistics supplement published on 25 October 2024.

There is competition out there and tenants are keen to find the right space, but on their terms.

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The rise in non-financial misconduct should be a cause for concern – Jo Keddie quoted in Insurance Day and MLex

Whilst the Budget may have dominated the headlines over the past few weeks, some news that may have passed you by, but worth highlighting is the publication by the FCA of its long-awaited survey covering non-financial misconduct. 

The survey of over 1,000 investment banks, brokers and wholesale insurance firms found that the number of reported allegations of non-financial misconduct had risen between 2021 and 2023.  I have shared my thoughts on these concerning statistics with Insurance Day and MLex. 

Of concern is the worrying increase in sexual harassment, discrimination, and bullying reports since employees returned to the office post-pandemic. With new legislation effective from 26 October, aimed at preventing sexual harassment in the workplace it is hoped that at least this type of unlawful behaviour will come into sharper focus with regulated businesses as they take steps to comply with the new legal requirements.

It is troubling to read that where non-financial misconduct has been upheld there were rarely financial repercussions for the perpetrator. The FCA’s publication of these statistics makes it appropriate, if not necessary, for non-financial misconduct to become a more important feature of annual pay reviews especially in the context of bonuses. 

However, I am pleased to see the importance placed by the FCA on Settlement Agreements not being used to prevent public interest disclosures to it by departing employees. It is also encouraging to read that the FCA is aware of the important but nuanced role which settlement agreements play in the context of non-financial misconduct.

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The Budget 2024: SDLT on second homes set to rise at midnight

“The government is supporting first-time and main home buyers by increasing the Higher Rates for Additional Dwellings of Stamp Duty Land Tax from 3% to 5% from 31 October 2024. These higher rates apply to purchases of second homes, buy-to-let residential properties and companies purchasing residential property and the increase will provide those looking to move home or purchase their first property with a comparative advantage over those purchasing additional property. This is expected to result in 130,000 additional transactions over the next five years by first-time buyers and other people buying a primary residence. Those who exchanged contracts prior to 31 October 2024 are not affected by this rate increase”
Autumn Budget 2024

With all the rumours circulating about tax changes in the first Labour budget, an increase to the higher rates of SDLT was not on the list. The surprise announcement means not only a long and late night for most property lawyers, but yet another deterrent for domestic and overseas investors in the residential property market – where the top rate of tax is virtually now on par with VAT for those who are residents overseas. This will lead to the inevitable consequence of less rental stock at a time when the rental market is already facing challenges, and when being a landlord becomes increasingly less attractive with ever changing legislation.

This adds to the list of quirks to be aware of when purchasing a UK home. Visit our latest campaign hub to learn more.

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ESG development puzzle – are lawyers the hidden piece?

As the EGI ESG Summit kicks off next week, this is an excellent piece from EGI looking at the delivery of net zero real estate. As John Davies, head of sustainability, at Derwent London says: “it is like inflating a balloon and trying to stop the air from leaking out”. Good intent can seep out between design and operation. 

Notably, Davies comments on the role that professional advisors have to play – as the industry pays more attention to the “operational” phase on the net zero journey (e.g. with the increasing prevalence of NABERS). 

He cites the typical dichotomy between occupier aspirations (e.g. for sustainability certifications) and the natural aversion, which can often be advisor-driven, to lease provisions that are perceived as intrusive or onerous. 

I think it’s a valid point. All parties must align on the same pathway, with an understanding of motivations and rationale for specific provisions e.g. the sharing of operational data. This is all the more true with an increasing focus on operational performance, where all parties must buy into the process – even if that includes the acceptance of lease provisions that were once never encountered. 

Plus, it is not just Davies that makes the point. Kathryn Barber, head of ESG, Orchard Street Investment Management: “When it comes to leases, it is vital to work with the solicitor to make sure they have understood the CRREM scorecard the fund must maintain and then work out what that looks like in terms of requirements on the lease and incoming occupier.”

So perhaps stating the obvious – lawyers and agents have such a significant piece to play in the puzzle. We can’t afford to be the missing piece. We must keep that balloon afloat. 

  

“It is a unique situation that we are trying to work out and the transactional services – the agents and the lawyers – are all very critical in helping decode that for an occupier and explaining that they do not need to be afraid of it.”

https://www.egi.co.uk/news/piecing-together-the-esg-development-puzzle/
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Owen Spencer quoted in Property Week on the role of the government’s industrial strategy for film and TV studios

Owen Spencer, Counsel in the Commercial Real Estate team, has been quoted in Property Week where he welcomes the government’s recent industrial strategy and its aim to consult with businesses – however, he warns there is much more to be done to preserve the sector’s growth. 

He calls for greater tax incentives to attract more international productions and for urgent attention to be paid to the shortage of skilled crew. He points out that there is little point in building millions of square feet of studio space unless you have crews to work them.

He goes on to warn, that in the South East, where the majority of studios are concentrated, the power supply issues could limit growth. The growing influence of AI in the film and TV sector should not be underestimated and calls for the UK to become a centre for AI skills as this would be a force multiplier across many sectors, not least in the creative industries. However, he cautions, AI significantly increases the demand for power.

The full article, published on 23 October 2024, can be accessed here behind a paywall. 

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Jo Keddie shares her views with the FT on reforms needed to the UK employment tribunals and enforcement regime following the UK worker’s rights bill

The UK’s employment tribunal system, already under strain, is set to face more pressure due to the recent reforms to workers’ rights. These significant reforms, include “day one” job rights, ending fire and rehire practices, and modernising trade union laws. However, without proper enforcement these changes will be ineffective.

Head of Employment and Partnerships, Jo Keddie’s comments on the impact of the reforms were quoted in the Financial Times article: Lawyers and MPs warn UK workers’ rights push will fail without enforcement reforms. Jo expresses “serious concerns” about the impact of the reforms. In particular, the new right for workers not to be unfairly dismissed from the start of their employment, will likely lead to an “influx” of claims and that without urgent resources, “there will be further delays and cancellations” in the tribunal system.

The article highlights that the open caseload in employment tribunals rose to 37,000 single claims by June, an 18% increase from the previous year. The government estimates a 15% rise in claims due to the reforms, adding 4,750 claims annually. To address this, the government plans to create a new Fair Work Agency, to alleviate some of the burden on tribunals.

Jo Keddie, partner at law firm Forsters, said she had “serious concerns about the impact” of the government’s planned reforms. In particular, Keddie said the creation of a new right for workers not to be unfairly dismissed from the start of their employment would result in a claims “influx”.

https://www.ft.com/content/8094ad63-f791-4e29-9169-5c6d647eb6b9?FTCamp=engage%2fCAPI%2falert%2fChannel_signal%2f%2fB2B
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Clarity around grey-belt land is crucial, what do we need to know?

I authored a piece for Property Week which explored the proposed introduction of grey-belt land in the National Planning Policy Framework consultation – highlighting some of the concerns raised by respondents.

“For the purposes of plan-making and decision-making, grey-belt is defined as land in the green belt comprising previously developed land and any other parcels and/or areas of green-belt land that make a limited contribution to the five green-belt purposes, as defined in paragraph 140 of this framework, but excluding those areas or assets of particular importance listed in footnote 7 of this framework, other than land designated as green belt.”

The definition raises key points including:

  1. A lack of clarity in the definition means the interpretation is likely to be played out at appeal and in the courts, taking longer and incurring additional costs. 
  2. By way of example, it is not clear whether the ‘limited contribution’ limb of the definition applies to both ‘previously developed land’ and ‘other parcels of green-belt land’, or just the latter? 
  3. There was a lot of scrutiny over the proposed ‘golden rules’ that grey-belt land will need to comply with to facilitate planning permission being granted. Concerns have been raised that the government is placing responsibility on the private sector to improve existing local shortfalls, and not only to mitigate the impact of their developments. Examples of this may include a number of public sector bodies, from health trusts to police authorities, looking for developers to fund deficits through financial contributions. 

The government would be wise to take its time to ensure the drafting of the grey-belt provisions is as clear and as precise as possible, otherwise there are likely to be greater delays in the delivery of its much-promised housing.

Read the full article in Property Week here.

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Central London Property – trophy assets?

With the speculation surrounding the upcoming budget leading to sensational headlines about the exodus of the wealthy leaving the UK, is there any truth in this? There are numerous factors affecting the changing population, with many of whom leaving being non-dom. These range from tax to lifestyle benefits, but not everyone is saying goodbye to the UK.

Speaking to The Telegraph, I provided an insight into the current Central London property market, and how there are still benefits to retaining a bolthole here.

“Many clients continue to hold their properties as investments or trophy assets – somewhere to stay when they invariably spend some time in London throughout the year. So we haven’t seen the fear of tax changes result in a glut of properties coming to the market”

Key takeaways from the discussion with numerous experts are that while some are indeed leaving the UK and setting up home in more economically advantageous countries, such as Dubai and Singapore, the property market isn’t inundated with new listings – showing there is still a charm to Central London and the UK. 

Read the full article in The Telegraph here.

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Making Hay from Carney

Mark Carney’s recent comments about the impact of negative zero and stranded assets have led to quite a few column inches, with the FT’s Lex column (£) on Monday looking at the link to EPC “B” by 2030. Never one to ignore a bandwagon, I thought I would share some thoughts arising from the article and its comments:

  • Law versus practice – while there is currently no legislative requirement to hit this target, in practice we are seeing investors and institutions treat it as a requirement in order to de-risk their assets. The comments also suggested a general acceptance that EPC “B” was the new standard.
  • Preparation pays off – the article refers to some big players, British Land and Landsec, who have disclosed precise numbers for their transition to net zero.  Landsec have set aside £135m for its ‘net zero transition plan’, while British Land estimates approximately £100m is required to bring the 42% of its assets currently sitting with lower than a “B” up to standard. Two thirds of British Land’s costs are expected to be recoverable through the service charge. British Land own or manage a portfolio with an estimated value of £13bn (their share being £8.7bn according to their website) while Landsec’s sits at £10bn. In that context the figures highlighted are extremely reasonable and that will not be down to luck – energy efficiency has been on the horizon and risk register for as long as I can remember, and the best advised and run entities have been working on it for even longer. The hard yards that these institutions and their teams have put in are paying off.  
  • EPC “B” is not for everyone – the legislation around minimum standards currently exempts various types of properties from the requirement, including importantly where the only improvements that could be done would not meet the seven year payback test (i.e. they would cost more to carry out than they would save in energy bills over seven years). The article does not cover this, but it is an important point to remember amongst all the headlines. We also should not forget that not all occupiers are the same; some rely on the slightly tired or scruffy assets, as they provide options for creatives, start-ups, and businesses that operate on tighter margins in less flashy, but still important parts, of the economy. That diversity is also what makes life more interesting. 

Regardless of the moveable legislative feast, in our experience the industry really is grasping this issue and the people involved are motivated to try to improve things for themselves and for future generations. With progress in the last few years I am cautiously optimistic that things may not be as bad as the doomsayers think. 

See our Sustainability Page for more on EPCs, MEEs, and the Sector Race to Net Zero.

About 70 per cent of floor space in England and Wales currently has an EPC rating of C or below, estimates Knight Frank.

https://www.ft.com/content/199acbae-f7ef-475b-90ad-985eb25fe6f6
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Discharging covenants: not a “piecemeal” of cake

news fallback

The case of Patel & Ors v Spender & Ors [2024] UKUT 62 (LC) (15 March 2024)  is a warning to aspiring developers wishing to discharge or modify restrictive covenants to get their ‘ducks in a row’. 

The developer applicants did not succeed with an application under s. 84 of the Law of Property Act 1925 to modify covenants affecting their land. Their argument that the covenants no longer secured practical benefits of substantial advantage failed because: 

  1. they lacked an agreed plan between them to undertake the works at the same time; and 
  2. they did not demonstrate that each of them could immediately fund their respective part of the development; and 
  3. given the above, any future remedy for injunctive relief would not have any ‘teeth’.

The Tribunal considered the risk that a ‘gap toothed’ and ‘piecemeal’ development might arise, which would be inconsistent with the architecture of the estate and street scene. On this basis (and on a thin-edge of the wedge argument not considered in this article) the Tribunal did not consider that it had jurisdiction to modify the covenants.  

Background

The five applicants owned a run of 11 terraced properties in St. David’s Square, London.  The Square comprises numerous blocks of flats, bounded to the south by the Thames and to the north and east by terraced housing. The development has a particular architectural style of brickwork and patterns which runs through not just the terraced housing, but also the blocks of flats.

The applicants wished to undertake two sets of alterations to the premises. To extend the ground floor kitchen/dining areas to the rear, and to convert the loft space of the properties to habitable rooms with shower facilities (creating four bedrooms where there had been three).

The properties are burdened by restrictive covenants against additions or alterations. These covenants form part of a building scheme across the whole square and, as a consequence, any one of the 104 other flats or houses in the development could object to the application. 

The decision

An application to modify the covenants and allow the proposed development was brought under s. 84(1) of the Law of Property Act 1925 on grounds (aa) and (c), these being respectively that:

  • the covenants continued existence would impede a reasonable use of the land for public or private purposes; and 
  • that the proposed modification would cause no injury to the persons entitled to the benefit. 

The Tribunal was concerned that the five applicants may not all immediately be in a position to undertake the works in ‘one go’. The costs per property were estimated to be in the order of £50,000.00, and with various applicants of varying financial means and who might do the works at different times, there was a high chance of a ‘gap toothed’ form of development arising that would be at odds with the existing uniformity of the estate.   

The applicants did offer a covenant that they would undertake all of the works at once, but the Tribunal was not persuaded (for the reasons set out above) that this would be effective. Enforcing this would be difficult with so many parties and factors that could not be controlled.

The warning to developers here is to make sure your plans are in order (beyond simply obtaining a planning permission), before applying to the Tribunal. In assessing whether covenants secure benefits of substantial advantage the Tribunal will consider the risks and realities of the development, and a hypothetical development scenario that may arise from those risks. To that end, being able to demonstrate that scheme is deliverable assumes considerable importance, especially when there are multiple applicants.  

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The biggest upgrade to workers’ rights in a generation? Labour introduces its new Employment Rights Bill

The Labour government is due to publish the first draft of its Employment Rights Bill today, fulfilling one if its key manifesto pledges within 100 days of being elected. They have already announced some of the key proposals in Parliament and via a press release. The Bill sets out a raft of proposed changes to the employment law framework in Great Britain and has been described by the Deputy Prime Minister Angela Rayner as “the biggest upgrade to rights at work for a generation”.

Yet, despite the furore surrounding the Bill, question marks persist about the timeframe for its implementation. The government has indicated that most of the Bill’s key reforms will not pass into law until 2026 or 2027. Until that time, the Bill is likely to be subject to extended periods of Parliamentary debate and public consultation, reflecting the scale of the changes proposed. That process may water down the proposals and therefore, as currently drafted, the Bill may be the strongest reflection of Labour’s vision for employment reform. 

The actual content of the Bill is largely as expected, building upon the policy promises made in Labour’s Plan to Make Work Pay earlier this year. However, the Bill is not without its surprises and some key omissions. Chief amongst those is the government’s proposal to introduce a statutory probationary period of which is anticipated to be around nine months, during which time employers can follow a lighter-touch approach when dismissing staff. Provisions relating to the “right to switch off” and to introduce a single status of worker are notably absent in comparison to the original plans.

The headline proposals of the Bill are as follows:

  1. Day 1 protections
    From day one of their employment, employees will benefit from protection from unfair dismissal. The current two-year qualifying period required to bring an unfair dismissal claim will be removed.  The detail of Labour’s proposals around a statutory probationary period will therefore become extremely important. 
     
  2. Zero hours contracts 
    The Government has proposed a clampdown on ‘exploitative’ zero-hour contracts. Workers on low and zero hours will be provided with the right to receive a contract reflecting the hours that they regularly work.
     
  3. Enhanced family leave
    From day one of their engagement, workers will be able to benefit from rights such as parental leave and sick pay. 
     
  4. Statutory Sick Pay overhaul
    The lower earnings limit and the initial three-day waiting period for receiving statutory sick pay will be removed, meaning that workers will be able to receive statutory sick pay from their first day of absence. 
     
  5. Fire and re-hire
    Safeguards will be introduced to protect employees against ‘fire and re-hire’ and ‘fire and replace’ practices, although it does not appear that they will be made entirely unlawful.

 

 

The bill will bring forward 28 individual employment reforms, from ending exploitative zero hours contracts and fire and rehire practices to establishing day one rights for paternity, parental and bereavement leave for millions of workers.

https://www.gov.uk/government/news/government-unveils-most-significant-reforms-to-employment-rights
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Summary judgment in “unopposed” lease renewal proceedings

news fallback

Pleased to have secured summary judgment on behalf of our client, in circumstances where the landlord refused to engage in unopposed lease renewal proceedings. 

We made the summary judgment application after we had filed and served our client’s witness and expert evidence and the landlord had failed to serve theirs.  The Court decided that the landlord had wilfully not participated in the litigation process and found in our client’s favour on the term, rent, and all other material terms on the basis that there was no viable alternative but to accept our client’s evidence. 

Interestingly, the Court even made provision for one of the partners in our firm to sign the lease on the landlord’s behalf because it anticipated that the landlord would refuse to do so.

An unusual case (even the most reluctant of landlords or tenants still tend to comply with the Court’s directions and partake in the process), but a reminder of the efficacy of a carefully deployed summary judgment / interim application, and the importance of submitting admissible and CPR-compliant evidence.

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Some “aren’t going to make it”

It’s a rather bleak assessment from former central banker, Mark Carney- those “stranded” real estate assets that will not keep apace with the regulatory transition to Net Zero. And as the FT reports, he doesn’t hold back: “There will be people…who either implicitly or explicitly think that these timelines are going to shift, or that somehow or another it is not going to become a binding constraint. But that is a big risk to take.”

This follows industry calls, reported in EGI news, for clarity on EPC rules. As Flora Harley, head of ESG research at Knight Frank, says: “We just need certainty. It’s the one thing investors and asset owners really want and need to make these sometimes-big investments. If we get that clarity, there will be more impetus to act and we can move faster.” Clearly, Carney thinks there is no time wait for that certainty. 

Yet there is reason for industry optimism. The FT article and this EGI article both cite AEW’s recent research report on climate-related risk in the European real estate sector – predicting that the costs of hitting Paris Agreement targets will be almost 30% higher than its 2023 thinking and that the current energy intensity of European buildings is 31% behind Paris 2050 targets. But with predicted annual returns, as Hans Vrensen, head of research and strategy for Europe at AEW, says: “…even if investors need to catch up and meet more challenging decarbonisation capex targets going forward, they remain achievable.” Many will no doubt hope so.

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Tax Reliefs for EIS and VCT Investments Extended Until 2035

Exterior of large financial building

New regulations have been introduced bringing important changes for investors in the Enterprise Investment Scheme (EIS) and Venture Capital Trust  (VCT) scheme. 

These tax reliefs were set to expire on 6 April 2025. They have now been extended for an additional 10 years to 5 April 2035. This means that qualifying investments in EIS and VCT shares made before that date will benefit from tax reliefs (provided other conditions are met). The extension took effect on 3 September 2024.

As a result, investors who invested in qualifying companies through the EIS or VCT schemes will continue to enjoy tax benefits, such as income tax relief, until 2035, so making these schemes even more attractive for long-term investment planning. While, from a business’s perspective, start-ups and growing companies that rely on investment through the EIS and VCT schemes will benefit from continued access to capital.

With the extension providing stability for investors and businesses and encouraging investment in high-growth, high-risk companies, the measure ensures that the EIS and VCT schemes are likely to remain key in the UK’s efforts to support small businesses and encourage entrepreneurial investment well into the 2030s.

 

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The alternative medal table

At the recent Paris Olympics and Paralympics, surely I cannot have been the only sport fan closely watching the day-to-day fluctuations in the medal table? Perhaps most interestingly, would France outperform GB? Did France ultimately get the upper hand (hint: see below)?

Yet on a recent visit to France, I also considered another point of comparison. Looking at numerous car parks with solar PV overhead, an uncommon sight in the UK, it struck me that our continental neighbours are perhaps well ahead of the game in one critical area – the path to net zero commercial real estate, and in particular, regulation to “drive” that transition.   

So where, arguably, does France demand a gold medal?  Well, mandating solar is one such area, with requirements to install 30% of solar panels on any new non-residential buildings with a footprint bigger than 1,000 sq m and in coming years, install solar panels over car parks bigger than 1,500 sq m. Perhaps something to follow on this side of the English Channel? Notably, the BPF’s “Towards Net Zero: Challenges, opportunities, and policy recommendations” cited this as “best practice in action”, alongside a policy recommendation from the BPF on increasing on site renewables.

Yet perhaps the medals shouldn’t stop there. France’s Décret Tertiaire mandates energy consumption reduction in buildings over 1,000 sq m – an obligation to reduce energy consumption of 40% by 2030, 50% by 2040, and 60% by 2050. Again, cited by the BPF as “best practice in action”. All validated by data – with mandatory owner/ occupier commitments on disclosure. 

So whilst as reported by EGI (“Government moots EPC rule relaxation”), the government is looking at loosening anticipated energy efficiency targets, perhaps, as part of its “review” of those regulations, it should look over the Channel for not just inspiration, but also a reminder that it is at risk of being left behind in the regulatory “race” to net zero. 

nb final table…

Olympics        
France 16 26 22 64
Great Britain 14 22 29 65
Paralympics        
France 19 28 28 75
Great Britain 49 44 31 124

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Day One Rights? The Financial Times shares detail of Labour’s anticipated Employment Bill

As we await further detail of the new Labour Government’s hotly-anticipated changes to employment law, the Financial Times has reported on one of the most eye-catching pillars of its planned reforms: the idea of ‘day one’ protections from unfair dismissal. 

Under the current law, the Employment Rights Act 1996, employees are not eligible for protection from most forms of unfair dismissal until they have accrued two years’ continuous service. Labour’s proposal to remove that service requirement entirely would potentially represent a sea change in employee relations. 

As speculated, however, the Financial Times’ reporting suggests that employers will be able to fairly dismiss employees for failing to meet expectations within a probationary period of up to six months.

Nevertheless, even in this form, the proposed legislation is likely to require employers to exercise a higher degree of care in recruiting and then managing new hires.  In particular, we are yet to receive detail of what will constitute a fair probationary process.  That may well be considerably more involved, and require more active performance management, than many are currently familiar with.

At present, there remains a considerable degree of uncertainty, despite these latest reports; we will be keeping a keen eye on further news and the draft legislation, and providing additional updates as Labour’s proposals progress. 

 

Companies will be able to keep new hires on probation for up to six months under a compromise Labour plan despite an election pledge to give employees “day one rights”.

https://www.ft.com/content/c399f7e9-7a31-4a3d-b964-8baf7fab596e?accessToken=zwAGIn5uSbWgkdPDmffpejFKPdO5ZIuvf6tZbg.MEYCIQCnzzJz0LL_aNKagf4unSefNiWSBhjCyOakWhUKkOWegQIhALt9t9jUZl0TYyVzBDhVDqpGsxRBES34a22ofDp2fJkw&sharetype=gift&token=045da974-ba26-4c05-ab0c-cd98479c5326
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The Winds of Change: lifting the ban on onshore wind projects

In a recent article for Property Week, I joined industry experts in speaking on our evolving landscape in regards to the changing stance on onshore wind.

In Rachel Reeves’ inaugural speech as chancellor, she indicates her intent on equalising onshore wind in the renewable energy realm. Despite the prevalence of this renewable energy source in Scotland, there are caveats and reservations on the practicalities of implementing this throughout England.

Here are our planning takeaways:

  1. An initial difficulty lies in appropriate sites – identifying and mapping suitable locations for large developments will incur substantial more effort than proportionally small land parcels. However, with the evolution of wind turbine technology since the implementation of the initial ban, sites for onshore wind farms may be more abundant than ever before?
  2. Negotiations between renewable energy providers and landowners will be a challenge to overcome. A lot of time has passed since these initial conversations, many may have to start again from scratch.
  3. Comparisons may be drawn between photovoltaics (solar) with regards to public opinion and acceptance of renewable energies in close proximities to homes. However wind-turbines are far more visual and may incur more push-back than anticipated. Homeowners may be more receptive if there is a tangible benefit to them.
  4. This may be a key to unlocking industrial or new settlements outside of the urban environment. There is potential to overcome the difficulties of connecting sites to the National Grid, and bringing benefits to the community, by including this renewable energy source in site planning. 

It’s very early days yet, and there are many planning considerations to take into account before onshore wind farms start appearing across England, however this development is encouraging and gives yet another insight into the plans of the Labour government. 

The full article can be read here.

“Historically, what we’ve seen are agreements with landowners about bringing these sorts of things forward,” he says. “What will be interesting is how long those options have been maintained. Effectively, is everybody going to have to start from scratch? I think they’ll be reigniting those discussions. No one was expecting [the ban] to be removed so quickly.”

https://www.propertyweek.com/markets/winds-of-change-3
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Retrofitting – are national planning policy changes afoot?

The Government has launched a consultation on the role of retrofitting and demolition in development. Following the High Court M&S decision in this area earlier this year, it is clear that national planning policy and guidance does not currently prioritise retrofitting over demolition. The consultation is broad, seeking views on when retrofitting is considered in the development process, to the reasons why demolition is chosen over retrofitting. 

The environmental benefits of retrofitting are clear. However, they are not the only consideration. What can be achieved through retrofitting is usually limited by the structural bones of the building. In many cases, these simply will not allow for reconfigurations that are viable, particularly in the current economic climate. 

It will be interesting to see the findings of the consultation, and whether they will lead to a change in national planning policy. It is difficult to imagine a position where retrofitting is mandated over demolition. It would seem more likely that the requirement to demonstrate that retrofitting has been properly considered will be strengthened. Otherwise, constrained sites will become the ugly ducklings, decreasing in value and becoming the outdated relatives of snazzy new kids on the block. 

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UPDATE – The Renters’ Rights Bill introduced to Parliament

Following its publication on 11 September 2024, the Renters’ Rights Bill (“the Bill”) has already received first hearing and looks set to become law before the new year.

Whilst we can be reasonably confident that it will be amended before then, we now have more detail about how the government intends to reshape the private rented sector in England. 

There remain similarities with the previous government’s Renters (Reform) Bill but there are some key differences.  We take a look at those below and provide comment on how landlords and tenants alike may be affected when the new legislation becomes law.

Abolishing Section 21 ‘no fault’ evictions

  • It is now clear that this will be achieved by ending assured shorthold tenancies (“ASTs”) and instead creating periodic assured tenancies without fixed terms.  This will allow tenants to remain in occupation until a landlord has proper grounds for possession (e.g. if there are rent arrears or the tenant is causing a nuisance) or until tenants serve two months’ notice, which they will be able to do at any time during a tenancy.
  • Crucially, the Bill contains no transitional provisions for existing ASTs.  This means that existing ASTs in the private sector, regardless of whether they are still in their fixed terms, will become periodic assured tenancies on a prescribed date unless possession proceedings in relation to the AST have already been issued. This date is likely to be shortly after the Bill comes into force. Landlords would be wise to review their PRS portfolios now.

Removing the threat of arbitrary evictions and increasing tenant security and stability 

  • New and expanded possession grounds will be introduced to try to ensure that landlords can reclaim their properties when they need to.  As with the previous Renters (Reform) Bill these grounds include where the landlord wishes to sell the relevant property or they (or a family member) wish to live in the relevant property.  Both of these grounds will require four months’ notice to be given and neither will be able to be exercised in the first 12 months of a tenancy. 
  • Additionally, if notice is served on the basis of either of these grounds, landlords will be restricted from re-marketing or re-letting the property from the date of service of the notice and for 12 months from the date of expiry of the notice (or 2 months from the date of the particulars of claim if possession proceedings are issued).  Non-compliance will be subject to a potential fine of up to £7,000 so, again, landlords need to properly assess their portfolio and long terms property requirements now.
  • Four weeks’ notice will need to be given if landlords cite ground 8 as reason to seek possession. There will need to be three months’ worth of arrears at the date of service of the possession notice and at the possession hearing (rather than the current two).
  • Except in a case where grounds 7A (antisocial behaviour) and/or 14 (nuisance) have been made out, no possession order will be made where the deposit protection requirements have not been complied with or the landlord has failed to register the property on the new private rental sector database.  There is no similar restriction (as there is currently) where gas safety certificates, EPCs and/or how to rent guides have not been served.
  • Tenants may give two months’ notice to end a tenancy at any time during their occupation. This effectively ends the need for tenants’ break clauses and is something that landlords will need to be mindful of.
  • Whereas illegal eviction pursuant to Section 1 of the Protection from Eviction Act 1977 is currently a criminal offence, under the Bill landlords can be subject to civil penalties by the Local Authority of up to £40,000. It hoped this will limit the costs to both parties of dealing with criminal proceedings.

Rent Increases

  • All rental increases will be made using the same process.  Rent review clauses will be banned and, instead, landlords will be able to increase rents once per year to the market rate – i.e. the price that would be achieved if the property was newly advertised to let. To do this, they will need to serve a “section 13” notice, setting out the new rent and giving at least two months’ notice of it taking effect. 
  • Tenants will then be able to challenge proposed increases in the First-tier Tribunal which will decide what the market rent should be.  This will not be more than the rate initially proposed by the landlord, cannot be backdated and can be deferred for up to two months in cases of undue hardship.
  • Additionally, landlords and agents will no longer be able to ask for or accept offers above the advertised rent.  They will be required to publish an asking rent and it will be illegal to accept offers made above this rate.

Pets

  • Tenants will be able to request keeping a pet in the property.  Landlords must consider such requests and cannot unreasonably refuse them.  They will, however, be able to require that pet insurance is taken out by the tenant to cover any damage caused to their property by the animal.

Standard of homes

  • The Decent Homes Standard will be applied to the private rented sector for the first time. It is intended that the Housing Act 2004 will be amended to allow the Secretary of State (currently Angela Rayner) to set standards of repair, heating and safety, security and comfort provision so that Local Authorities can take action where there are issues.
  • “Awaab’s Law” will also apply to the private sector for the first time and will set clear legal expectations about the timeframes within which landlords must take action to make homes safe where they are found to contain serious hazards.
  • In addition to the above, as part of the additional regulation and dispute management processes being introduced by the Bill, there will be a PRS database (register) and a PRS Landlord Ombudsman will also be set up. Landlords of assured and regulated tenancies will be required by law to register themselves and their properties on the database and join the Ombudsman scheme which will allow tenants to bring complaints against landlords.

With so many changes on the horizon for those living in or renting out homes in the private rental sector in England there is a lot to consider for landlords and tenants alike.  Whilst we anticipate that the Bill will change before coming in law as it passes through Parliament, you should carefully consider your rental requirements for the coming years now and act early. 

Forsters is on hand to answer any queries about the Bill and to provide you with updates and advice in this area, including a detailed review of your existing tenancy precedents and renewals processes.

 

A functioning private rented sector can provide a secure stepping stone for aspiring homeowners and flexibility for those who want it. But the insecurity embedded in the current tenancy system fails both those tenants looking for a stable home for their families and those landlords who are undercut by the rogues and chancers. It is a drain on aspiration and reform is central to our opportunity mission so all have the chance to achieve their potential.

https://www.gov.uk/government/publications/guide-to-the-renters-rights-bill/82ffc7fb-64b0-4af5-a72e-c24701a5f12a
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‘Right to switch off’ plans spook businesses – my thoughts on the impact for businesses quoted in The Times

As the Labour government seeks to reassure business leaders about proposed employment law changes aimed at improving work-life balance, I share my thoughts with The Times (5 Sept) on the impacts these proposals will likely have on businesses. Here is a summary of the insights that were included in the article “’Right to switch off’ plans spook businesses”: 

Implementation Costs: Businesses will need to incur substantial time and cost in understanding and implementing the planned changes. Companies will need to review their contracts, policies, and procedures, and consult with employees to agree on new ways of working. 

Rise in Grievances and Claims: There’s likely to be an increase in grievances and claims from employees who will be more aware of their new rights through. Employees are likely to be vocal in requesting certain rights like flexible working.

Unfair Dismissal Claims: The changes to unfair dismissal rights, allowing employees to challenge their dismissal from day one, could be challenging for businesses. Many employees who find themselves without a job will likely assert claims in the hope of a settlement. Therefore, it is crucial for companies to implement robust recruitment and probationary processes to ensure fair grounds for dismissal.

Fair Work Agency: The creation of the Fair Work Agency, which promises to have “teeth,” will only be effective with significant government investment, given what we know about the government’s current limited resources, there is a question of how this will be meaningfully resourced. 

As we await the full detail of the government’s proposed employment law changes, businesses should ensure they are sufficiently resourced to properly manage and deal with these requirements. 

The government’s “smorgasbord of employment law changes will have a significant impact on businesses, and many will likely suffer in some way, especially to begin with”.

https://www.thetimes.com/article/5b7a5a50-3ea7-49b9-90df-4613c40fca0e
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Grenfell Tower Inquiry recommends further regulatory change for the construction industry

The conclusions of the Grenfell Tower Inquiry’s final report, published today, are damning. In his statement the Inquiry’s Chair stated that the deaths of the victims were all avoidable, and named numerous organisations who played a part in causing the tragedy either via their incompetence or, in a minority of cases, as a result of greed and dishonesty. 

Amongst its findings, the Inquiry made clear that the system of regulating the construction and refurbishment of high-rise residential buildings that existed at the time of the fire was seriously defective. That system has already undergone significant change since the fire, primarily as a result of The Building Safety Act 2022 (“the Act”) which brought in various measures aimed at ensuring the safety of residential buildings. However, the Inquiry has concluded that more can and should be done to bring a change of attitude to the construction industry.  

The Inquiry has made various recommendations across a variety of issues which, if adopted, will have a significant impact on the construction industry. These are recommendations only at this stage but are likely to be acted upon by the government, given the severity of the issues and the past failures to act on advice.

We summarise the key recommendations below:

A review of the definition of “higher-risk building”

Of particular note is the Inquiry’s recommendation that the government urgently reviews what is considered to be a higher-risk building. 

The concept of a “higher-risk building” was introduced by the Act. Those buildings which meet the definition are subject to the onerous regulations contained in the Act, which govern the design, construction and occupation of those buildings. It is of paramount importance for a developer, and those working for it, to know whether or not its building will be a higher-risk building. 

Under the current rules a higher-risk building is (in broad terms) a building that is at least 18 metres in height (or has at least seven storeys) and contains at least two residential units. The Inquiry considers the current test by refence to height to be arbitrary, and flagged that it does not take into account other important factors such as the building’s use or the presence of vulnerable individuals. 

A review of this definition could have a significant impact on which buildings are subject to the enhanced regulatory regime under the Act, and significant consequences for the viability of developments which were previously understood to be outside of that regime. 

A review of building regulation guidance

The Inquiry found that building regulations are satisfactory, but considers that the statutory guidance to those regulations, particularly the guidance contained in “Approved Document B”, is unsatisfactory. This has been the source of many problems, as it has been the tendency of many in the industry to treat Approved Document B as a definitive statement of what the regulations require. 

It is recommended that:

  • the statutory guidance is reviewed and a revised version of Approved Document B is published as soon as possible; 
  • the revised guidance should contain a clear warning that compliance with the guidance may not result in compliance with the regulations; 
  • any assumption that there is effective compartmentation within a building, which would make a “stay-put” fire response strategy appropriate,  should be reconsidered;
  • the revised guidance should draw attention to the need for a qualified fire engineer to calculate the likely rate of fire spread and the time required for evacuation, including those with physical or mental impairments, as an essential part of the fire safety strategy; and
  • fresh minds, including experienced and skilled representatives of the academic community as well as those with practical experience of the industry (including fire engineers), should advise on the revisions to the guidance.

Changes to the “gateways” building control regime

The Inquiry makes a number of recommendations which would have an impact on the “gateways” building control regime for higher-risk buildings introduced by the Act.

It is recommended that the following additional documents are submitted with the building control application (Gateway 2):

  • a fire safety strategy for the building produced by a registered fire engineer, which takes account of vulnerable people;
  • a statement from a senior manager of the principal designer that all reasonable steps have been taken to ensure that on completion the building as designed will be as safe as is required by the building regulations; and
  • a personal undertaking from a director or senior manager of the principal contractor to take all reasonable care to ensure that on completion and handover the building is as safe as is required by the building regulations.

It is also recommended that the fire safety strategy submitted at Gateway 2 should be reviewed and re-submitted at the stage of completion (Gateway 3).

Regulation of professionals within the construction industry

The Inquiry makes the following recommendations as to how professionals working within the construction industry should be regulated. 

  • A licensing scheme operated by the construction regulator should be introduced for principal contractors wishing to undertake the construction or refurbishment of higher-risk buildings;
  • The Architects Registration Board and the Royal Institute of British Architects should review the steps they have taken since the Grenfell Tower fire to improve the education and training of architects, to check that they are in line with the Inquiry’s findings;
  • The profession of fire engineers should be recognised and protected by law and that an independent body be established to regulate the profession. A group of practitioners and academics should be convened to define the knowledge and skills to be expected of a competent fire engineer. An understanding of the principles of fire engineering should be encouraged in construction professionals and members of the fire and rescue services; and
  • The government should establish a system of mandatory accreditation to certify the competence of fire risk assessors by setting standards for qualification and continuing professional development and such other measures as may be considered necessary or desirable.

Changes to those exercising Building Control functions

The Inquiry found that, at the time of the fire, many of those involved in major construction projects regarded building control primarily as a source of advice and assistance. It also found that approved inspectors had a commercial interest in acquiring and retaining customers that conflicted with the performance of their role as guardians of the public interest.  

In light of these findings, the Inquiry recommends that the government appoints an independent panel to consider whether it is in the public interest for building control functions to be performed by those who have a commercial interest in the process, or whether building control functions should be performed by a national authority.

Fire safety responsibility within government

The Inquiry was critical of the fragmented approach to fire safety issues within both government and the construction industry. It recommends that the following appointments be made, with a view to consolidating the various responsibilities, driving change and enabling effective information sharing between those responsible for different aspects of the industry.

  • A single Secretary of State with responsibility for fire safety functions.
  • A Chief Construction Adviser, with good working knowledge and practical experience of the construction industry,  to provide advice on all matters affecting the construction industry. 
  • A new Construction Regulator overseeing a single independent body, reporting to the Secretary of State, who should exercise all of the following functions:
  1. the regulation of construction products;
  2. the development of suitable methods for testing the reaction to fire of materials and products intended for use in construction;
  3. the testing and certification of such products;
  4. the issue of certificates of compliance of construction products with the requirements of legislation, statutory guidance and industry standards;
  5. the regulation and oversight of building control;
  6. the licensing of contractors to work on higher-risk buildings;
  7. monitoring the operation of the Building Regulations and the statutory guidance and advising the Secretary of State on the need for change;
  8. carrying out research on matters affecting fire safety in the built environment;
  9. collecting information, both in this country and abroad, on matters affecting fire safety;
  10. exchanging information with the fire and rescue services on matters affecting fire safety;
  11. accrediting fire risk assessors; and
  12. maintaining a publicly available library of test data and publications.

The Inquiry also recommends that the government should have a legal requirement to maintain a publicly accessible record of recommendations on fire safety issues made by select committees, coroners and public inquiries together with a description of the steps taken in response. 

Testing and certification of products

The Inquiry makes various recommendations regarding the testing and certification of products.

The small-scale test methods which have previously been used to assess the fire performance of an external wall were found to be unreliable. The Inquiry therefore recommends that steps be taken in conjunction with the professional and academic community to develop new test methods to reliably assess the fire performance of external walls. In the meantime, the government should make clear that BS 9414 should not be used as a substitute for an assessment by a suitably qualified fire engineer.

As set out above, it is recommended that the construction regulator should be responsible for assessing the conformity of construction products. As part of this process:

  • certificates of conformity should include all test results;
  • manufacturers should be required to provide the construction regulator with the full testing history of the product or material to which the certificate relates and inform the regulator of any material circumstances that may affect its performance; and
  • manufacturers should be required by law to provide on request copies of all test results that support claims about fire performance made for their products.

"Although some steps have already been taken to respond to the many failures that we have identified, we think that more can and should be done to bring about a fundamental change in the attitudes and practices of the construction industry."

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Government signposts further changes to building safety regulations

news fallback

In advance of the Phase 2 report from the Grenfell Inquiry, the Government yesterday set out proposals to update various building regulations.

  1. Fire safety and evacuation
    1. Residential PEEPs
      1. The Government propose to introduce Personal Emergency Evacuation Plans (or PEEPs), which will be known as “Residential PEEPs”. As highlighted in the Grenfell Inquiry, there was a clear lack of information and personal plans in place for the evacuation of vulnerable residents. Requiring “person-centred” risk assessments to be undertaken to produce a Residential PEEP should assist in evacuations.
      2. Additionally, funding is to be committed to social housing providers to deliver Residential PEEPs for their renters. It is not clear how much funding has been allocated and whether this will be sufficient. As well as the financial cost involved in undertaking a risk assessment, it will also be necessary to have trained staff members with the time to undertake such assessments. This may not be straightforward, given the other building safety compliance work that is currently being undertaken by such organisations.
    2. Evacuation Alert Systems (known as sounders) – An amendment is to be made to the statutory guidance to the building regulations requiring sounders to be fitted in new buildings over 18 metres in height (as such, “higher-risk buildings” under the Building Safety Act 2022). The Government has confirmed they will consider whether a requirement to install sounders in existing buildings is required once the Phase 2 report has been published. It is not clear whether these changes are in anticipation of further criticism of the “stay-put” policy in respect to fighting fires in high rise buildings or whether there will be a recommendation that the stay-put policy is dropped in favour of full evacuation. 
  2. Sprinklers in new care homes – There will be an update to Approved Document B that makes provision for sprinklers in all new care homes. The guidance update will be subject to a 6-month transition period and then there will be a further 6 months to enable work on current development projects that are underway or about to start to continue (we assume this means that any projects currently or to commence in the next 12 months will not need to have complied with the requirement to include sprinklers in the design). The Government acknowledges that it is already relatively common for sprinklers to be included in new care home designs.
  3. Extension of the recognition of the CE marking for construction products  –Recognition of the CE mark was to expire at the end of June 2025. The Government has confirmed that recognition will continue for the CE mark in the UK indefinitely, which will allow for a wider reform of construction products regulation. When they do look to make further changes to the CE mark recognition this would be subject to a minimum 2-year transitional period, which is designed to give certainty and to support supply chains.
  4. Rationalising and removing duplication in regulations – The Government is withdrawing the outdated National Classes fire testing standards (within the building regulations Approved Document B) which ends a period of dual specification in favour of the “more robust European standard” (known as BS EN 13501). There will be a transitional period of 5 years for fire resistance products and 6 months for reaction to fire products to allow for manufacturers to switch to the European standard. This reflects recommendations from the Hackitt Report for a clearer, transparent and effective testing regime.

"A compassionate society protects its most vulnerable"

https://questions-statements.parliament.uk/written-statements/detail/2024-09-02/hcws62
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Government unveils ‘New Homes Accelerator’ team to solve planning delays

The government are launching a team dedicated to helping new housing developments. 

The New Homes Accelerator team are charged with ‘overcoming planning red tape’, to allow construction to begin on these new homes development sites.

I shared my thoughts on this with Property Wire:

“Developments stall for a myriad of complex reasons and it is difficult to see how these will be overcome, especially where the environment is concerned.

Protected species are covered under separate legislation, requiring licenses and work to be carried out at specific times of the year, while the proposed additional mitigation around nutrient neutrality is still ambiguous.

We need to see greater clarity on how the planning regime and other statutory regimes will work in tandem, and it’s not clear how parachuting in a team of planners will rectify this challenge.

Another key issue is the ability for Registered Providers (RP) to take on the affordable housing on development sites. Section 106 agreements will often require developers to transfer the affordable units to a RP before further building work or occupation can happen and this currently isn’t feasible for providers who are focusing resources on current stock maintenance and operation.

A final challenge is sufficient infrastructure provision, sites are increasingly stalling due to inadequate water supply or grid capacity, these issues need to be looked at holistically and across Government departments.

While I welcome the government’s commitment to unlocking sites that are stalling post planning, the solution is by no means simple and it won’t be possible to bypass other statues or legislation.”

You can read the full article here.

 

 

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Grenfell Inquiry Final Report expected next week

The Grenfell Inquiry has confirmed that it will publish its report on Phase 2 of the Inquiry next week, on 4 September 2024.

The report on Phase 1 of the Inquiry was published in October 2019. As well as summarising the tributes paid to the deceased by their family and friends, it explained the events that took place on the night of the fire and the steps taken in response, reached conclusions about the origin and development of the fire and the emergency response, and made various recommendations as regards the Inquiry’s initial findings. 

The report on Phase 2 is expected to look at how the state of affairs described in the initial report came about. Its principal focus will be on the decisions which led to the installation of a highly combustible cladding system on a high-rise residential building and the wider background against which they were taken. It is also expected to discuss a number of other issues: of particular relevance to the Construction Industry will be the findings and recommendations made regarding the testing and certification of construction materials and regarding the efficacy of building regulations and guidance around them. 

Forsters’ Construction team will be reviewing the Phase 2 report once published, and commenting on those issues arising from it which are of importance to the Construction Industry. 

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Home is where the happiness is

Recent Homes England research has found that, on average, people living in specialist older people’s housing reported higher life satisfaction scores when compared with people living in non-specialist general market housing. This research looked at different types of older people’s housing, and focused on age-restricted general market housing (Type A), retirement living or sheltered housing (Type B), and Extra Care housing or housing-with-care (Type C).

The research found that both Type B and Type C specialist housing offers healthcare benefits, by generating financial savings for the national healthcare system. In particular, this research estimates a fiscal saving of £1,840 per person per year for those living in Type C accommodation.

Given the backdrop of an ageing population in the UK, this research is certainly well-timed. Demand for specialist housing for older people continues to grow, and has much to offer both in terms of occupants’ well-being and wider economic benefits.

The research comes at a critical time for the UK in thinking about future provision of housing for older people.

https://assets.publishing.service.gov.uk/media/66a8cb89a3c2a28abb50d984/Measuring_the_Wellbeing_and_Fiscal_Impacts_of_Housing_for_Older_People.pdf
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Landmark Employment Tribunal Equal Pay ruling for Next Store Staff

In a ground breaking ruling, thousands of store staff at the retailer Next have triumphed in a six-year battle for equal pay. The Employment Tribunal’s decision, which found that Next had unjustifiably paid its predominantly female retail consultants less than their warehouse counterparts, marks a significant milestone in the fight for gender pay equality.

My comments on the “very significant” ruling were quoted in the Financial Times article as I highlight the wider consequences of the news on the retail industry as “retailers facing similar class actions will be paying very close attention,”.  The news is also significant in the current context of the new Labour government’s upcoming employment rights bill which includes a commitment to extending equal pay protections to ethnic minority and disabled workers.

This ruling paves the way for over 3,500 current and former Next staff to receive back pay, potentially totalling more than £30 million. It also sets a precedent for automatic equalisation in existing contracts, ensuring fair pay for all.
 

Jo Keddie, head of employment at law firm Forsters, said Next might struggle to find grounds to appeal against a “very significant” judgment. Retailers facing similar class actions would be “paying very close attention”, she added, especially given the new Labour government’s pledge to extend equal pay protections to ethnic minority and disabled workers.

https://on.ft.com/3ySQY2o
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Take Notice: Supreme Court rules on procedural failure in RTM Claim

news fallback

On 16 August 2024 the Supreme Court gave its judgement in A1 Properties (Sunderland) Ltd v Tudor Studios RTM Co Ltd [2024] UKSC 27, which upheld a ruling that failure of a right to manage (“RTM”) company to serve a claim notice under s79(6)(a) of Part 2 of the Commonhold and Leasehold Reform Act 2002 (“CRLA”) on an intermediate landlord did not invalidate the transfer of the right to manage the accommodation in question. 

 The issues for the court to address were:

 “(1) Whether a failure to serve a claim notice on a landlord as required by section 79(6)(a) will always invalidate the acquisition of the right to manage powers by the RTM company pursuant to the process purportedly commenced by service of the claim notice on other relevant landlords; and

 (2) If not, whether nevertheless the failure to serve the claim notice in this case on all relevant landlords had the effect of invalidating the purported acquisition of the right to manage powers by the RTM company pursuant to the CLRA acquisition process.

 In addressing these issues, the Supreme Court’s main focus was to consider Parliament’s intention as to how the statutory regime of the CRLA should be interpreted and its purpose. It noted that the CRLA was designed to minimise opportunities for obstructive landlords to thwart the transfer of the right to manage. It also acknowledged that the absence of a central register made the process of identifying relevant landlords inherently difficult.

The Supreme Court held that in evaluating whether a procedural failure under the regime invalidated the process, the questions to be addressed were whether a relevant party has been deprived of its opportunity to oppose the making of an order to transfer the right to manage, having regard to (a) what objections they could have raised and would have wished to raise and (b) whether, despite the procedural omission, they in fact had the opportunity to have their objections considered.   

 As the appellant in this case had been joined to the Tribunal proceedings, it had been afforded the same opportunity of participating in the statutory procedure as it would have had if it had been served with a claim notice in accordance with s79(6)(a).  Accordingly, the failure to serve notice on it had not invalidated the process. 

 The Supreme Court considered the similar Court of Appeal case of Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89 (“Elim Court”) where Lewison LJ concluded that failure to serve a claim notice on an intermediate landlord of a flat with no management responsibilities did not invalidate the notice.  Although the Supreme Court upheld the result in Elim Court, it departed from the reasoning on the basis it did not consider it was sufficient to say that the right to participate may be ignored if the intermediate landlord has no power of management.  

 It also considered the case of Osman v Natt [2014] EWCA Civ 1520  which followed the guidance of R v Soneji [2006] 1 AC 340 , a case that questioned whether it was the purpose of the legislation that an act done in breach of a provision should be invalid.  The Supreme Court ruled that in accordance with the approach in Soneji, the respondent’s failure to serve a notice of claim upon the appellant did not render the transfer of the right to manage void, it instead rendered it voidable unless, or until, the tribunal approved the transfer scheme.

 The judgment reduces the “traps for the unwary” involved in the process of transferring rights to manage, and will be welcomed by tenants and their advisers alike. 

 

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The Ones Who Live…

Much talk over the years – and around Covid times particularly – was around zombie companies that carried on shuffling along, not growing, not folding and when this might come to land. Contrasted to that, was the other extreme – a significant rise in the US for start ups and those trying to back the next unicorn (my experience is that UK and Europe wasn’t as hot as the US market).

Against that backdrop it is interesting to see this FT article highlighting the increased number of start up failures which has (on US data) increased 60% over the last year. Part of the (seemingly illogical – but consistent) reason for this increase appears to be that they raised too much money and were encouraged to focus on growth and not to worry overly about costs and revenue. Having found themselves encouraged to grow at all costs (pun intended!) – they to seem to have been unexpectedly caught by their backers, who want them to change strategy and focus on cost control and profits. With a changing environment on interest rates and the ability to raise further cash by these companies, this has lead to some start ups simply just running out of cash and being unable to raise further finance and therefore having to make the decision to close.

So, what are the lessons? Probably the usual old hat cliches:

  • Cash is king – businesses go bust not because they don’t make profits but because they run out of cash
  • Make sure you know why you are raising funds and what you are going to use them for
  • Make sure you execute your revenue plan well
  • Choose your VC backer with one eye on whether they have capacity and willingness to fund the next round
  • Be lucky…..

Whether we will see this increasing as more monies flow in to AI, and whether AI will deliver what many proclaim it will or whether this might be a new dot com boom and bust, we will have to wait and see.

 

“an abnormally high number of companies raised an abnormally large amount of money during 2021-2022”

https://www.ft.com/content/2808ad4c-783f-4475-bcda-bddc0299095e
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Tenant administration on the rise?

news fallback

Following a decision to place the company into administration in March of this year, Ted Baker has this week announced steps to close its final 31 shops in the UK and Republic of Ireland. This follows a number of other high profile tenant administrations over the last year, including the likes of Wilko and The Body Shop. 

From a landlord’s perspective, tenant administrations present a high degree of uncertainty and often leave them facing shortfalls in rent and other sums due under the lease. As unsecured creditors, this can often leave landlords with little prospect of recovery.  

To help navigate what can be an unfamiliar and technical process we have put together a short guide dealing with some of the first questions landlords will often ask when they find themselves in this position. 

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The Olympics are over but the race is on

After two-and-a-half weeks of memorable competition, the Olympics are over, leaving many (surely most of us?) with that four year wait before our next dose of Greco-Roman wrestling. There is plenty of positive noise around sustainability at LA2028, with no new permanent venue construction. Yet, for the built environment there is no time to wait on decarbonisation. The race to Net Zero is on. Some Olympic themed reflections: 

Pacemaking 

Just out of the blocks? Mid-race? At the bell? Dipping for the line? Where is the built environment on the decarbonisation journey? For the UK, the Committee on Climate Change (CCC) annual assessment of the Government’s progress in cutting emissions is a helpful reference point, looking at inter alia emissions from the built environment. The latest report is helpfully summarised by the BPF here. Perhaps fair to conclude that the UK is on the way, but needs a significant acceleration to keep pace, and the CCC sets outs various recommendations to realise this. For me, the priority on achieving Net Zero outcomes in the planning system is an important play. 

New sports

Baseball, lacrosse, flag football etc. plenty of new Olympic sports to come in LA2028. Yet for the built environment, what can we expect in 2028? Without doubt, onsite and offsite renewable energy infrastructure will have an ever important sector role. On another note, the CCC report again highlights the contribution of surface transport to UK emissions, trending above buildings (see Fig 1.3 here). Perhaps no surprise that a CCC “priority action” is “the market share of new electric cars needs to increase from 16.5% today to nearly 100%”. Whilst there is plenty of governmental (and car industry) chatter around mandatory EV targets, one thing is for sure – the EV infrastructure network will only expand, becoming an ever more prominent part of real estate (check out previous blog here). When will petrol stations make way…

Raising the bar

The industry continues to grapple with that question – what is “Net Zero”? How high do you have to jump/ vault?  On that note, we expect the UK Net Zero Carbon Building Standard to launch at the end of September 2024 (you can attend the next quarterly update here). One area of interest: how the standard will apply across the built environment, different sectors in the sector race to Net Zero, heritage buildings etc. The same bar cannot apply across the board. After all, we are not all Armand Duplantis. 
 

The UK has committed to reduce emissions in 2030 by 68% compared to 1990 levels...It is the first UK target set in line with Net Zero. Now only six years away, the country is not on track to hit this target despite a significant reduction in emissions in 2023.

https://www.theccc.org.uk/publication/progress-in-reducing-emissions-2024-report-to-parliament/
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Employers should be ‘cautious’ about sacking staff for rioting – our employment advice reported by Sky News

My advice to employers dealing with staff involved in rioting were recently published by Sky News: 

It’s correct for employers to be concerned about employees’ actions outside of work.  Rioting could call into question an employee’s character and/or likely to be contrary to an employer’s inclusive polices (especially given the nature of the current riots).  Such behaviour could also have adverse reputational consequences for businesses.

However, before dismissing an employee it’s important that an employer considers its own internal disciplinary procedures.  It’s important that matters are investigated and employees are given the opportunity to state their case (even if the evidence is clear).  Failure to do so could give rise to an unfair dismissal claim.  

This is also true where an employee has been arrested.  In most cases it would still be appropriate for an employer to carry out its own internal process, rather than simply relying on the fact he or she has been arrested (especially where an employee has only been criminally charged, rather than convicted).  The position is more complicated where an employee is remanded in custody and cannot attend the workplace – in those circumstances, it might be less risky for an employer to dismiss or argue that the employment relationship has ended due to “frustration” – because the employee is unable to perform their contract.

 

But one legal expert told us employers need to be careful before sacking staff for getting involved. "Rioting could call into question an employee's character or likely to be contrary to an employer's inclusive polices and such behaviour could also have adverse reputational consequences for businesses," said Joe Beeston, who is a partner at law firm Forsters.

https://news.sky.com/story/uk-riots-far-right-protests-latest-southport-police-anti-racism-counter-live-13186819?postid=8096085#liveblog-body
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Capitalising on the energy transition

Unquestionably, energy infrastructure is a sector to watch. As the ULI Emerging Trends in Real Estate Europe 2024 stated: “For the third year running, new energy infrastructure is identified as the sector offering the greatest overall prospects for investment, development and rents”. Surely 2025 will be no different? 

In particular, development activity continues at pace in the the sub-sector of “EV” real estate. EGI news has just reported the latest acquisition by Infinium Logistics of its latest site for a proposed charging facility, part of which was originally an open storage investment asset. Plus developers are even transforming “unproductive” office stock into EV facilities. One thing is for sure – if essential transport and grid availability are in play, there is a new shopper for sites in the aisle. Plus, trade of these assets will no doubt increase (e.g. the sale of this Gridserve freehold ground lease – a purpose-built electric forecourt – by Pigeon Investment Management) – as investments with “ESG” credentials at the core. 

As those in the EV sector will appreciate, planning frustration and limited grid infrastructure are key hurdles. Yet, with the latest government noise, optimism is in the air. Already, the political wind is behind onshore renewable infrastructure. Perhaps political weight can unlock even more opportunity in EV infrastructure too? 

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The industry reacts: Government unveils details of planning system overhaul

The National Planning Policy Framework (NPPF) sets out the Government’s economic, environmental and social planning policies for England. 

The NPPF consultation is now underway – this consultation will seek views on the Government’s proposed approach to revising the NPPF, in order to achieve sustainable growth in our planning system.  The consultation will close at 1145pm on Tuesday 24 September.

I shared my thoughts with BE News:

“Updating the NPPF was always going to be the lever the Labour government could quickly pull to implement changes to the planning system. The proposed changes to the NPPF show that the government recognises that the planning system has become a barrier to delivery and fundamental change is needed to unlock investment and create a more development friendly environment. The re-introduction of mandatory housing targets, an increased focus on Local Plan making and enforcement, and a commitment to the 13-week decision timetable are all helpful in ensuring the right development is delivered in the right places.  The Government now wants to put the onus on the industry to bring forward the schemes to cater to the obvious demand.”

Mandatory housing targets of 370,000 new homes per annum have been introduced and deputy prime minister Angela Rayner has written to every council leader and chief executive in England to make clear that there is “not just a professional responsibility but a moral obligation to see more homes built”.

https://benews.co.uk/government-unveils-details-of-planning-system-overhaul/
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The King’s Speech – what did we learn about Labour’s property plans?

Earlier this month, I joined industry experts in speaking to Property Week on the outcomes of the King’s Speech – the next piece of the jigsaw in understanding the priorities of the new Government. 

In planning terms, our 5 key takeaways are:
1) More new legislation – the “Planning and Infrastructure Bill” – but no reference to mandatory housing targets… yet!
2) Increasing LPA capacity and improving local decision making. Emphasis on “predictable” decision making, but also reference to the “modernisation” of planning committees – if those two go hand in hand that could genuinely be a game changer.
3) Key improvements to bus/train infrastructure which (in conjunction with the National Wealth Fund targeting key objectives in the Government’s industrial strategy) could unlock vast swathes of the country for redevelopment.
4) Devolution – and aggressively so. Will this be a meaningful version of “localism”, or the end of it? Will the post-election goodwill between Westminster and the elected Mayors hold and provide the necessary impetus?
5) A national underground asset register – slightly niche but this could genuinely be very helpful, particularly in the context of providing certainty when scoping out sites, and determining where key services are located.

There are 40 pieces of legislation proposed which cover a vast array of topics – there is a lot of work to be done. My colleagues have helpfully summarised plans for the Private Rental Sector and Leasehold Reform.  

Please get in touch if you want to understand more.

Matthew Evans, Counsel at law firm Forsters, says the RRB now leans more “towards occupiers and renters rather than landlords”. He adds: “It’s the things like decent home standards – that’s really encouraging to see and it’s now leaning towards almost regulation of the rental sector.”

https://www.propertyweek.com/analysis/kings-speech-what-did-we-learn-about-labours-property-plans
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N v J: the Last Word on Domestic Abuse as Conduct?

Interesting article by Samantha Hillas KC, Olivia Piercy and Anita Mehta analysing Mr Justice Peel’s judgment in N v J [2024] EWFC 184 (15 July 2024).

As the authors note, they are leading a Resolution working party, looking at the way in which the Family Court approaches allegations of domestic abuse in financial remedy proceedings. Looking forward to reading their recommendations!

"This is unlikely to be an area in which N v J is the last word."

https://financialremediesjournal.com/content/em-n-v-j-em-the-last-word-on-domestic-abuse-as-conduct.97c663553e724e758657fa38c505e938.htm
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Legal Viewpoint: A summary of the Finch decision on oil production

I recently provided a detailed analysis of the Supreme Court’s decision in the Finch case for Planning Resource. 

A majority decision by the Supreme Court overturned decisions by the High Court and Court of Appeal, and found in favour of a local resident objecting to expansion of oil production at a site in Surrey. 

Here are the key takeaways:

  1. EIA Scope and Greenhouse Gas Emissions
    • The environmental impact assessment (EIA) should consider the indirect effects of the emissions from burning the oil produced, and not just the project to extract it.
    • The argument that these emissions were beyond the scope of the development were rejected.
  2. Direct vs. Indirect Effects
    • The case really centred on the issue of causation.
    • Dissenting judgments highlighted the difficulty for local authorities in assessing all such indirect effects – these are “big picture” issues that really should be grappled by central Government.
  3. Climate Change Litigation
    • Decision likely emboldens climate change litigation.
    • Assessing all potential indirect affects from greenhouse gas emissions from a project would represent a huge burden on any developer and any decision-making authority – care will be needed to correctly scope such effects.

In summary, the case highlights the importance of assessing greenhouse gas emissions comprehensively while acknowledging the practical difficulties faced by decision-makers. Climate change litigation will undoubtedly be influenced by this landmark ruling.

My full analysis can be read here

The court ruled that the emissions that will occur when the oil produced is burnt as fuel, do fall within the scope of the environmental impact assessment (EIA).

https://www.planningresource.co.uk/article/1881518/legal-viewpoint-supreme-court-requires-assessments-include-indirect-greenhouse-gas-emissions
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Don’t lose hope:- Tips for seeking “loss of rent” in dilapidations claims

As most experienced landlords will know, dilapidations claims can be a tricky business.  In particular, landlords can find themselves in a grey area when it comes to evidencing their loss of rent claim, where the law is somewhat unclear.   

It is generally accepted that a landlord needs to show that, were it not for the premises being left in disrepair, they would have been re-let earlier than they were. 

However, it is not clear what the burden of proof is, or how the Court will approach the landlord’s claim, and the following are some commonly encountered issues when it comes to pursuing such a claim:

  • Not knowing, prior to the lease expiry date, whether the tenant is going to leave the premises in repair. 
  • The chicken-and-egg issue of being required to prove that the premises would have been re-let had they been left in repair (i.e. how can a landlord be expected to market the premises to prospective tenants on the assumption that the premises are in repair, in circumstances when the premises are in fact in disrepair?).
  • Having no evidence as to the state of the local property market as of the lease expiry date, or the likelihood that the premises would have been re-let shortly after lease expiry.
  • Landlords sitting on the premises for weeks / months / years after lease expiry, without carrying out repair works (and therefore failing to mitigate their losses). 
  • Not knowing what the burden of proof is (i.e. does the landlord merely need to convince the Court that the local market was so strong that a tenant probably would have been found, or does the landlord need to provide actual evidence that there was concrete interest or bids from prospective tenants?).

Unfortunately, landlords are not offered much guidance from the Court in matters such as these. In one recent decision*, the Court spent only one paragraph analysing the landlord’s loss of rent claim, before concluding with the high-level assessment that the landlord was entitled to a very round figure of £100k (compared to the c.£128k claimed by the landlord), on the basis that “…It would be unrealistic to adopt a mathematical approach to this exercise. Instead, I am satisfied that recovery of approximately two thirds of these losses is justified…”). 

Until such time as the Court provides greater clarity, some tips for landlords to increase the likelihood of their loss of rent arguments succeeding:

  • Serve the schedule of dilapidations, and attempt to understand the tenant’s intentions for the premises, as early as possible.
  • Consider the tenant’s reinstatement obligations, and serve any reinstatement notices, as early as possible. Otherwise, the landlord may lose the ability to compel the tenant to reinstate the premises (or conversely, to compel the tenant to leave its fit-out in situ).
  • Take advice (in writing, and prior to the lease expiry date, ideally) from a lettings agent, with regard to: i) the strength of the local market; ii) the likelihood of the premises being re-let on the day after lease expiry, were the premises left in repair; iii) what the likely open market rent for the premises would be (including any incentives such as rent-free periods).
  • Repair, market, and re-let the premises at the earliest possible juncture, and keep a paper trail of the landlord’s efforts in doing so (in order to mitigate the landlord’s losses, and fend off arguments that the landlord did not re-let the premises as early as reasonably possible).  

* Peachside Ltd v Lee [2024] EWHC 921 (TCC)

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Did the briefing note to the King’s Speech indicate an appetite for more extensive leasehold reform?

Draft legislation will be published on leasehold and commonhold reform ” – this was the fleeting reference to leasehold reform that was included in the King’s Speech – delivered on 17 July 2024, being the first for the new Labour Government.

Thankfully, the briefing note published by the Prime Minister’s Office soon after the King’s Speech provided more of an insight into what this means – and it looks like significant leasehold reform is in the offing with the introduction of a draft Leasehold and Commonhold Reform Bill.

Repeating almost exactly the wording of the Labour Party manifesto, the briefing note confirms that the Leasehold and Commonhold Reform Bill will deal with the following five key enfranchisement points:

It will:

  1. Enact remaining Law Commission recommendations – to bolster leaseholders’ rights to extend their leases, buy their freeholders and take over the management functions of their buildings.
  2. Tackle existing ground rents – with an intention to regularise these so that leaseholders avoid facing unaffordable costs; ensuring that their homes are more affordable and marketable.
  3. Reinvigorate commonhold – by modernising the legal framework and restricting the sale of new leasehold flats, to ensure that future generations benefit from absolute home ownership. 
  4. Bring “fleecehold” to an end – by implementing new protections for homeowners on private estates.
  5. Implement the provisions of the Leasehold and Freehold Reform Act 2024 – in an attempt to provide homeowners with greater rights, powers and protections over their homes.  The briefing note confirms that the Government will “act quickly” to do this, which is pleasing although still frustratingly vague.

All of this clearly confirms Labour’s commitment not only to “complete” the process of leasehold reform started by the last Government but also to take it much further.

Whilst this is all encouraging, at this stage, there is of course no roadmap for how any of it can or will be done. 

With the promise of further (much needed) consultation on the best way of achieving a shift to commonhold, and on how best to implement new protections to bring the injustice of the “fleecehold” system to an end, it doesn’t feel like any radical changes will be imminent.

We will just have to wait and see…again!

“Draft legislation will be published on leasehold and commonhold reform”

https://www.gov.uk/government/speeches/the-kings-speech-2024
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UPDATE – Labour’s plans for the Private Rental Sector

Following this week’s King’s Speech, we now have more detail about the wide ranging changes that Labour intend to make to the Private Rental Sector (PRS).

They will introduce a Renters’ Rights Bill which, whilst following roughly the same form as the Conservative’s Renter’s (Reform) Bill that was abandoned ahead of the General Election, includes some key differences (highlighted in the excerpt from the government’s briefing paper set out below):

  • Abolishing Section 21 ‘no fault evictions’, removing the threat of arbitrary evictions and increasing tenant security and stability. New clear and expanded possession grounds will be introduced so landlords can reclaim their properties when they need to.
  • Strengthening tenants’ rights and protections, for example we will empower tenants to challenge rent increases designed to force them out by the backdoor and introduce new laws to end the practice of rental bidding wars by landlords and letting agents.
  • Giving tenants the right to request a pet, which landlords must consider and cannot unreasonably refuse. Landlords will be able to request insurance to cover potential damage from pets if needed.
  • Applying a Decent Homes Standard to the private rented sector to ensure homes are safe, secure and hazard free – tackling the blight of poor-quality homes.
  • Applying ‘Awaab’s Law’ to the sector, setting clear legal expectations about the timeframes within which landlords in the private rented sector must make homes safe where they contain serious hazards.
  • Creating a digital private rented sector database to bring together key information for landlords, tenants, and councils. Tenants will be able to access information to inform choices when entering new tenancies. Landlords will be able to quickly understand their obligations and demonstrate compliance, providing certainty for tenants and landlords alike. Councils will be able to use the database to target enforcement where it is needed most.
  • Supporting quicker, cheaper resolution when there are disputes – preventing them escalating to costly court proceedings – with a new ombudsman service for the private rented sector that will provide fair, impartial and binding resolution, to both landlords and tenants and reducing the need to go to court.
  • Making it illegal for landlords to discriminate against tenants in receipt of benefits or with children when choosing to let their property – so no family is discriminated against and denied a home when they need it.
  • Strengthening local councils’ enforcement powers. New investigatory powers will make it easier for councils to identify and fine unscrupulous landlords and drive bad actors out of the sector.

There was no indication of when the Renters’ Rights Bill will be introduced, but its title as well as the highlighted differences between the Conservative version, indicates that tenants really will be at its heart and landlords should start considering how their PRS portfolio is managed.  It will be very interesting to see the detail when the Bill is published and we will keep you updated.

Forsters is on hand to provide you with updates and advice in this area, including a detailed review of your existing tenancy precedents and renewals processes.

“Legislation will be introduced to give greater rights and protections to people renting their homes, including ending no fault evictions and reforming grounds for possession”

https://assets.publishing.service.gov.uk/media/6697f5c10808eaf43b50d18e/The_King_s_Speech_2024_background_briefing_notes.pdf
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The King’s Speech: Government Plans to Enhance Employment Rights

This morning, the King’s Speech affirmed Labour’s plans to introduce an Employment Rights Bill to “legislate to introduce a new deal for working people to ban exploitative practices and enhance employment rights”.

The Prime Minister’s briefing notes on the King’s speech suggest that Labour will be implementing their New Deal for Working People in full.  We prepared a detailed summary of the proposals in May 2024 but according to the briefing notes, the Employment Rights Bill will:

  • make unfair dismissal available to workers from day one, although employers will still be able to operate probationary periods to assess new hires;
  • ban exploitative zero-hour contracts, making sure that workers have a contract which reflects the hours they regularly work;
  • end “fire and rehire” practices by reforming the law and replacing the statutory code;
  • make parental leave and sick pay available to workers from day one of employment;
  • strengthen statutory sick pay by removing the lower earnings limit and the waiting period;
  • make flexible working the default from day-one for all workers;
  • strengthen protections for new mothers by making it unlawful to dismiss a woman who has had a baby for six months after her return to work, except in specific circumstances;
  • establish a new Single Enforcement Body, also known as a Fair Work Agency, to strengthen enforcement of workplace rights; and
  • simplify the process for trade union recognition, repeal the laws on minimum service levels relating to industrial action, and introduce rights for workers to access a union at work.

In addition, a draft Equality (Race and Disability) Bill will be published to “enshrine the full right to equal pay in law” for ethnic minorities and disabled people.  It will also introduce mandatory ethnicity and disability pay reporting for larger employers. 

“My Government is committed to making work pay and will legislate to introduce a new deal for working people to ban exploitative practices and enhance employment rights”

https://assets.publishing.service.gov.uk/media/6697ac9cab418ab05559271d/King_s_Speech_2024_background_briefing_GOV.uk.pdf
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Heard It Through The Grapevine

The past, L.P Hartley told us, is a foreign country. Unfortunately for Jeremy Vine, that foreign country can rear its head at any point.

HMRC has been pursuing Mr Vine’s personal services company (“PSC”), Jelly Vine Productions Limited (“Jelly Vine”), for tax that HMRC believes is unpaid.  

Jelly Vine was engaged by four BBC productions between 1 July 2013 and 30 December 2015. HMRC believes that Mr Vine was really a disguised employee of the BBC for these productions and that the fees paid to Jelly Vine should have been subject to employment taxes. In reality, HMRC contends, the BBC were not paying Jelly Vine to provide someone to front programmes but were directly hiring Mr Vine and had an employer/employee relationship with him.

In 2018 Mr Vine appealed HMRC’s decision on the basis that the amount of tax that HMRC was claiming was “estimated and excessive”, that HMRC’s decisions were made prematurely and invalidly and that he was not an employee for some or indeed all of the payments concerned.

In a preliminary hearing it was judged that HMRC is entitled to issue a determination if it “appears” to HMRC “that there may be tax payable for a tax year” and as such HMRC “may determine the amount of that tax to the best of their judgment and serve notice of their determination”. Therefore there was nothing invalid or premature about HMRC’s determinations.

The case will now proceed to the First-Tier Tribunal to determine whether Mr Vine does have an unpaid tax liability.

Mr Vine is far from the first TV star to battle with HMRC under IR35, the rules brought in to tackle the perceived tax gap resulting from an individual’s employment status being hidden through engaging a PSC. As the PSC provides the individual to fill the role, the relationship is presented as client/contractor rather than employer/employee. 

Introduced in 2000, it was the PSC’s responsibility to determine if there was really an employment relationship between the end client and the individual who provided the services. The rules changed for public bodies in 2017, such that the determination had to be made by the end client and in 2021, the private sector was brought into the net, meaning that the determination has to be made by the engaging company, rather than the PSC who received the funds.

Fellow TV stars Lorraine Kelly, Gary Lineker, Eamonn Holmes, Kaye Adams, Adrian Chiles and others, have all faced challenges from HMRC, with varying degrees of success. Whilst uncertainty about the full extent and applicability of the rules rages, with some commentators branding them as not fit for purpose, HMRC has shown no signs of stopping its pursuit of celebrities for taxes it believes should have been paid. 

 

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Landlord refused declaration permitting it to switch off existing heating system

Summary

On 12 June, the Chancery Division of the High Court gave its judgment on Triplark Limited v Whale & Ors [2024] EWHC 1440 (Ch). The landlord in this case wanted to install a new heating system, which the defendant tenants argued would make their repairing obligations more onerous. The Court ruled that, because installing a second heating system was not in the contemplation of the parties when they entered into the lease, the declarations that the landlord sought (which would have confirmed its ability to do this) were not granted. This case will be of importance to landlords wanting to upgrade their heating systems, particularly with the need to adhere to new environmental regulations. 

The Decision

The landlord wanted to change the way that the heating system (which supplied 194 flats) operated. The proposed new system required heat exchanger units (HUI) to be installed in each flat. These had not been necessary under the previous system.

The landlord sought declarations from the court that it could replace the hot water and/or the central heating system even though the new system was not identical to the last, but provided the same service. It also sought a declaration that it could disconnect the flats from the old system and reconnect them to the new system. 

At the heart of this judgment lay the Judge’s interpretation of the clauses in the tenants’  leases. The landlord had an obligation to maintain, repair and renew the communal system.  There was also a covenant in each lease that required the tenant to repair the central heating and water apparatus that was solely serving their own flat, whether within the flat or outside of their demise. 

Importantly, the tenants were also obliged to keep in repair the heating and hot water apparatus as well as any additions to these. 

The Judge commented that it seemed an “exorbitant construction” of the repairing covenant that the landlord could make any additions it wished and then expect the tenant to carry out repairs to those additions as if they were fixtures within its demise. The Judge commented that if the landlord argued that it would only ever make reasonable additions, that would require reading words into the leases that were not there. 

The Court refused to grant the declarations sought by the landlord. If the declarations had been given, then the way that the leases operate would have changed. It would have changed the repairing covenant because it would have fallen upon the tenants to repair the HUIs that would need to be added- this would have been an additional burden on the tenants that was not contemplated by the parties when they entered into their leases. 

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Summer heat proving too much for UK offices?

Josh Oliver, correspondent at the Financial Times, has reported this morning (https://on.ft.com/460sq3v) that large London office buildings (valued in excess of £100 million) are proving impossible to sell in the current market as the high cost of debt hampers buyer appetites. This aligns with the view of Andrew Jones, chief executive of LondonMetric, who recently likened office buildings to “melting ice cubes” for investors due to how fast they are depreciating in the current market. A fitting metaphor for this day and age.

These are timely reminders that the office market is fraught with challenges given political, economic and environmental uncertainties. With hybrid working around to stay and Net Zero looming ever closer, tenants will continue to expect high quality, green office space which provide incentives for their workforce to make the commute – all of which require investment and engagement from landlords.

Some are seeing this as an opportunity. Having recently withdrawn sales of some of its larger office buildings, Great Portland Estates is now seeking to raise £350 million to invest in new ‘prime’ real estate across London, particularly in the West End (https://on.ft.com/3WNHRtp). A rare moment of optimism where otherwise the market holds its breath while the Bank of England makes a decision on lowering interest rates later this year. 

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Supreme Court ends statutory adjudications on collateral warranties

Over the past 11 years, the question of whether a collateral warranty is, or can be, a construction contract for the purposes of section 104(1) of the Housing Grants, Construction and Regeneration Act 1996 (“the Act”) has been considered twice by the TCC, and once by the Court of Appeal.  However, that question was finally settled on Tuesday (9 July) when a five-judge panel (three Lords, two Ladies) of the Supreme Court handed down its judgment in Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2024] UKSC 23.

In short, the Supreme Court held that:

  • A collateral warranty will be a construction contract if it is an agreement by which the warrantor undertakes a contractual obligation to the beneficiary to carry out construction operations which obligation is separate or distinct from the warrantor’s obligation to do so pursuant to the underlying construction contract.
  • A collateral warranty will not be a construction contract where (as is often the case) the warrantor is merely warranting the performance of the obligations it owes to the employer under the construction contract.

Reasoning

The first issue for the Court to decide was the meaning of the following words in section 104(1) of the Act: “an agreement with a person for…the carrying out of construction operations”, which required consideration of the meaning of the word “for” (eliciting a collective groan from non-lawyers!).  The Supreme Court rejected the Court of Appeal’s suggestion that “for” meant “in respect of” and held that for an agreement to fall within section 104(1), it is necessary for that agreement itself (i.e. the collateral warranty) “to give rise to the carrying out of” construction operations: there must be an obligation in the agreement to carry out construction operations that is “separate or distinct” from the obligation to do so in the underlying construction contract.  If the obligation in the agreement is “merely derivative and reflective of obligations owed under the building contract”, the agreement will not fall within section 104(1). 

The second issue was for the Court to interpret the relevant wording of the collateral warranty provided to Abbey, which wording is typical of the collateral warranties with which we are all familiar:

4.1 The Contractor warrants that:

(a)  the Contractor has performed and will continue to perform diligently its obligations under the Contract;

(b)  in carrying out and completing the Works the Contractor has exercised and will continue to exercise all the reasonable skill care and diligence…

The Court agreed that 4.1(a) was a promise to carry out future works, but reasoned that the collateral warranty had to be drafted in these terms in order to cover the warrantor’s past and future obligations. Critically, the Court held that the warrantor was not, by this clause, “promising anything that is not already promised to the employer under the Building Contract. It does not in itself give rise to any construction operation”. 

As such, Abbey’s collateral warranty contained no separate or distinct obligation and was not a construction contract for the purposes of the Act, and so neither will be the many warranties that contain this typical wording. 

Reaction

The judgment may be seen as disadvantageous to beneficiaries of collateral warranties who will now be deprived of the potential benefit of having their dispute decided in adjudication (at lower cost over the course of weeks), rather than in litigation (at a higher cost over the course of months or even years). Nevertheless, that is the consequence of the criteria that parliament set for statutory adjudication to apply, and perhaps warrantors – contractors, subcontractors, and consultants – will breathe a sigh of relief that the group of parties who might bring potentially onerous statutory adjudications against them has been reduced. 

In any event, it remains open to the parties to agree express drafting in their collateral warranties giving them a right to bring contractual adjudication proceedings should they so wish (indeed, it will be intriguing to see whether the market reacts to the Supreme Court’s ruling by doing so).   Moreover, as the Court itself noted, the decision brings certainty to the question of a collateral warranty’s status under the Act, the answer to which will no longer be dependent on whether the works were complete at the time the collateral warranty was executed, or whether there is a right of step-in, or on the “niceties of the language” and “fine distinctions” in drafting, and that is surely a good thing. 

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Supreme Court Judgment allows nuisance claims to be brought for the pollution of waters

On 2 July 2024, the Supreme Court gave its judgment on The Manchester Ship Canal Company v United Utilities Water Ltd (No. 2).  The Court ruled that a nuisance claim could be brought in a situation where effluent was discharged into a canal, unless the action had been authorised by Parliament or the common law right of action had been excluded. The case will be of interest to owners of watercourses who are seeking to understand their rights as regards pollution by sewage undertakers. 

United Utilities Water Ltd was the sewerage undertaker for the north west of England. This case rested on the question of whether United Utilities could discharge foul water into the canal without the consent of the canal company, and if it must pay a licence fee to do so. The question was whether The Water Industry Act 1991 prevents owners of watercourses or bodies of water from bringing nuisance or trespass claims for the pollution of their waters by foul water from the infrastructure of statutory sewerage undertakers, in the absence of negligence or deliberate misconduct.

The judgment examined case law in this area, particularly the case of Marcic v Thames Water Utilities Limited. Marcic focused on whether or not the failure of a sewage authority to construct new sewers constituted an actionable nuisance, when it led to severe flooding. It found that the court is not in a position to decide if a party should have constructed a new sewer that would have prevented this from happening, but that it could decide on a situation where there is a discharge of sewage from a sewerage system which is operating as it was designed to operate- if that is the case, the operator of the sewage system is responsible for the resultant nuisance. 

When the case was considered by the Court of Appeal, it was held that the facts in this case were indistinguishable from Marcic: although the discharge of inadequately treated effluence was unlawful, it occurred without United Utilities doing anything to cause it and so there was nothing that United Utilities could do to help stop this, apart from carrying out improvements to their sewerage system. The Court of Appeal therefore found that there was no cause of action with either trespass or nuisance. 

The Supreme Court disagreed with this. It took the view that the claim in Marcic had been dismissed because it considered the defendant’s breach of obligation to construct a new sewer, which the court could not give judgment on. 

The Supreme Court held that Marcic had no bearing here, as United Utilities were responsible for polluting waters through its sewers, sewage treatment works and associated works which occurred from these systems being exceeded in their capacity. The Supreme Court ruled that this was something that United Utilities caused or adopted, seen by how their system is designed in a way that deliberately involves the discharge of effluent into the canal.  So, unless this action had been authorised by Parliament or the common law rights of action had been excluded, the Canal Company had a cause of action under nuisance. 

The Supreme Court ruled that the Canal Company was able to claim in nuisance against United Utilities. It also said that although there may be cases where it is not appropriate to grant an injunction as a remedy for claims of nuisance or trespass in relation to cases where sewerage undertakers have polluted watercourses, damages will be awarded instead. 

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Press: The new Labour Government’s “Day One” rights

I am delighted to have contributed to The Lawyer’s rolling election coverage, providing my thoughts on the potentially significant changes facing employers under our new Government.

Forsters’ head of employment Jo Keddie says: “Giving all workers more rights from day one will be a significant shift for employers, as is Labour’s plan to do away with the two-year minimum period for bringing an unfair dismissal claim. “We expect this will result in far more litigation in the Employment Tribunal, which is already overworked with cases taking well over a year to be heard, as well as far more focus by employers on recruitment policies and dismissal strategies. “Indeed, the first impact of a Labour government may be a spike in dismissals as the employers look to remove any employees with less than two years’ service where there is any doubt over their long-term future.”

https://www.thelawyer.com/election-2024-live/
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The Private Rental Sector (PRS) – Ahead of the result of today’s General Election, Forsters examines the main parties’ manifesto pledges

Following publication of the various party manifestos and prior to the result of today’s General Election, we have reviewed and summarised each parties’ intentions for the private rental sector.

Whilst it is impossible to predict any legislative amendments at this stage,  widescale changes to the Assured Shorthold Tenancy market,  particularly as to how such tenancies can be terminated, seems very likely regardless of the successful party.  Any changes  will dictate the way in which your lettings portfolio is managed during  the next Parliament.

Labour

We will immediately abolish Section 21 ‘no fault’ evictions, prevent private renters being exploited and discriminated against, empower them to challenge unreasonable rent increases, and take steps to decisively raise standards, including extending ‘Awaab’s Law’ to the private sector.”

Labour have echoed the Conservative’s long held desire to end the use of section 21, ‘no fault’ evictions.  Whilst this could not, in fact, be introduced immediately upon Labour taking office, we presume that an urgent reintroduction of the Renters (Reform) Bill (“the Bill”) would occur, with tweaks and changes (see recap below).

It seems likely that a Labour version of the Bill would be more tenant friendly, though the manifesto stops short of confirming the introduction of a rent cap.

Awaab’s Law already exists in the social housing sector, and this is something that you are likely to be complying with already in relation to defects, but an extension into the private sector of the requirement for landlords to adhere to statutory timescales to address hazards such as damp and mould in their properties is likely.

Conservatives

“[would] pass a Renters Reform Bill that will deliver fairness in the rental market for landlords and renters alike. We will deliver the court reforms necessary to fully abolish Section 21 and strengthen other grounds for landlords to evict private tenants guilty of anti-social behaviour.”

There will be a renewed effort to pass the Bill that was going through Parliament before the General Election was called.  It is likely that a Conservative version of the Bill would take account of Landlords’ concerns about being able to obtain possession of their properties without evidence of default or other grounds and the time this would take under the current Court system.

The Conservative Manifesto therefore also refers to the need to reform the Court process before this is done.  Key areas to be addressed had been identified and include:

  • Digitising more of the court process to be simpler and easier for landlords to use.
  • Exploring how the courts can prioritise cases that involve antisocial behaviour. This includes mandating that tenancy agreements should have clauses that antisocial behaviour can result in an eviction.
  • Improving bailiff recruitment and retention – reducing administrative works in order to prioritise possession.
  • Providing early legal advice and better signposting to help tenants.

RENTERS’ REFORM BILL RECAP

To recap, the key items of the Bill as it existed prior to the dissolution of Parliament were:

  • Abolishing section 21 notices and ending Assured Shorthold Tenancies (“ASTs”)

Section 21 notices were to be abolished under the Bill, which would mean that all notices seeking possession would be ground-based notices under section 8 of the Housing Act 1988 (“the HA 1988”). This would also mean that all tenancies going forward, subject to any transitional provisions, would be assured tenancies. 

It is thought that tenancy deposit protection, a key feature of the current AST regime, would continue to apply so that a failure to comply with the tenancy deposit rules will prevent service of a valid section 8 notice for almost all grounds.

There was no indication that service of a section 8 notice would be made conditional upon landlords complying with their other duties, such as serving a gas safety certificate or EPC.

  • Ending fixed-term tenancies

Instead all tenancies would be periodic (open ended). The periods of a tenancy would have to be monthly or not longer than 28 days. Tenants will be able to end the tenancy by giving two months’ notice to quit.

A carve out for student lettings may be inserted.

  • Reform of possession grounds

Some existing possession grounds would be kept, together with the introduction of new grounds. Key changes included the expansion of Ground 1, where the landlord requires possession as their own or their spouse’s/civil partner’s only or principal home, to include close family members. There would also be a new Ground 1A for landlords who intend to sell the property. Both grounds could only be used after six months and where a tenant leaves following service of a notice, the landlord is prohibited from letting or marketing the property for three months.

There would be a new mandatory rent arrears ground (Ground 8A) where a tenant is in at least two months’ arrears on three separate occasions over a three-year period prior to service of the notice. The current mandatory Ground 8 (two months’ arrears at the date of service of the notice and the hearing) would remain, but the notice period would be increased from two weeks to four weeks.

  • Discretionary Ground 14 (nuisance) would be broadened, so that any behaviour ‘capable of causing’ nuisance or annoyance will provide a ground for possession (as opposed to behaviour ‘likely to cause’ nuisance or annoyance).

There would also be a new mandatory ground (Ground 6A) for compliance with enforcement action, allowing a landlord to seek possession if, for example, the landlord is in breach of a local authority enforcement notice or the landlord has been refused a property licence.

  • Restricting rent increases

Landlords would only be able to increase rent annually using the statutory notice procedure set out in section 13 of the HA 1988 and the notice period will be increased from one to two months. Tenants could challenge a rent increase in the First-tier Tribunal (Property Chamber). Crucially it was intended that Landlords would no longer rely on contractual rent review clauses in their tenancy agreements.

  • Right to request a pet

A new term would be implied into assured tenancies that a tenant may keep a pet with the landlord’s consent unless the landlord’s refusal is reasonable.  Landlords would be able to require tenants to obtain insurance to cover pet damage and the Tenant Fees Act 2019 would be amended to make this a permitted payment.

Whatever the result today, reform in this area is a key part of both Labour and the Conservative’s manifestos and it is likely that we will start to obtain clarity about the changes that will be introduced in fairly short order. 

Forsters is on hand to provide you with updates and advice in this area, including a detailed review of your existing tenancy precedents and renewals processes.

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Building Liability Orders – Insight into a New Remedy

Willmott Dixon Construction Limited v Prater & Ors [2004] EWHC 1190 (TCC) (“Willmott”) is an High Court case that recently provided some judicial insight into the newly created remedy under the Building Safety Act 2022, the Building Liability Order (“BLO”). 

The case is an ongoing multiparty dispute concerning a mixed-use commercial and residential property in Woolwich which has a range of alleged fire safety defects with both the design and construction of the external wall system.

Insight

In general terms, a BLO  is an order providing that any liability (under the Defective Premises Act 1972 or as a result of a building safety risk) relating to a specified building is also a liability of an associated body corporate, or a joint and several liability of two or more associated bodies corporate. The High Court may make a BLO if it considers it just and equitable to do so. 

Willmott provides useful guidance on the procedural considerations of mounting a BLO against associated body corporates. Whilst this novel remedy is still in its infancy, Willmott provides some clarity on the way forward.

In Willmott, the application for a BLO was made by one of the defendants (“the BLO Applicant”) against companies which it claims are associated with the other defendants (“the BLO Respondents”). The BLO Respondents had asked for the BLO application to be stayed, pending a decision in the main claim (which sought to establish liability of the defendants, including the BLO  Applicant) . They argued that, as their liability would be wholly dependent on the Court first finding liability on the part of the BLO Applicant in that main claim, the circumstances in which a BLO might be made might never arise. 

Mrs Justice Jefford DBE found, amongst other things:

  • As a matter of principle, the legislation does not require a party against whom a BLO is sought to be made a party to the main claim which seeks to establish the liability of the original party. 
  • Notwithstanding this, if a BLO is contemplated prior to the commencement of the main claim then it would generally be efficient to make both claims together. 
  • In particular, it seems that an associated company will not be able to challenge a finding re the liability of the original entity. But it may still be open to the associated company to argue that the circumstances in which that liability was established mean it is not just an equitable to make a BLO. Those arguments will be avoided if the associated company is party to proceedings.

In essence, it is likely the case that a BLO will not need to be run at the same time as the main claim, notwithstanding the efficiencies described by the Judge. That said, it may well be in the best interests of those applying for a BLO to ensure that it is. 

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Start-ups/Founders: Be truly authentic

I’ve spent a lot of years advising start-ups and founders and being authentic and having a great back story has always been a core element of their success. A recent, very contrasting, experience feels timely to reflect on this principle.

One consumer start-up that I purchased from (I do tend to lean towards the start-up for purchases where I can I admit) sent a great follow-up email after a purchase. It was a classic “Hi, I’m X and thanks for your purchase. We want to improve so please email me and tell me your feedback”. Having some thoughts on the experience I did just that and shared some insights (I thought good ones too). This resulted in a reply which was a generic thank you from the marketing team – very far from the original email about how the founder personally wanted to hear feedback. 

The second experience is that of another company that I order coffee from (www.manumitcoffee.co.uk). Another small business and with a great purpose – ethical coffee roasted by survivors of modern slavery.  Every single order with Manumit comes with a card detailing the coffee blend and every single time, without fail, a Manumit card with a handwritten note saying thank you for the order. After a number of years of ordering, this has remained consistent; taking the time to connect authentically with the customer.

So, perhaps just a personal reflection and a personal soapbox point but the message to Founders is that I know it is a tough market and competitive and you are looking for every edge, but if your brand story is going to be authenticity and the personal touch, make sure you live up to it or your brand will fall on that premise.

One business won’t be getting my custom in the future, while the other will continue to be my morning coffee of choice.

 

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Leasehold reform – how will this be affected by the General Election?

news fallback

On 24 May 2024, the Leasehold and Freehold Reform Act (“LAFRA”) was the last Bill passed in the current Parliament. It was pushed through the Commons at speed to ensure it received Royal Assent before Parliament was prorogued.

However, it’s worth pointing out that LAFRA is not yet in force.

Some parts of LAFRA will come into force next month i.e. those that amend the Building Safety Act 2022 and those that deal with rent charge arrears but the remainder needs to be commenced by the Secretary of State via statutory instrument and, as Parliament is now in purdah, this responsibility will fall to the next Government.  

Exactly when the next Government will do this is difficult to predict but it is pleasing to note that leasehold reform features heavily in the manifestos of each of the three main political parties, all of which were published last week.

Here is a summary :

Liberal Democrats:

“Liberal Democrats are committed to tackling these housing failures head-on by…: 
Abolishing residential leaseholds and capping ground rents to a nominal fee, so that everyone has control over their property.”

  • This is the most leaseholder-friendly manifesto – suggesting that the Liberal Democrats will go much further than LAFRA.

Conservative and Unions Party:

We will complete the process of leasehold reform, to improve the lives of over four million leaseholders. We will cap ground rents at £250, reducing them to peppercorn over time. We will end the misuse of forfeiture so leaseholders don’t lose their property and capital unfairly and make it easier to take up commonhold.”

  • This appears to acknowledge that LAFRA was rushed through and suggests that the Conservatives are committed to “completing” the process of leasehold reform by dealing with the omissions in LAFRA that relate to the ground rent cap, forfeiture and commonhold. 

Labour Party:

Labour will act where the Conservatives have failed and finally bring the feudal leasehold system to an end. We will enact the package of Law Commission proposals on leasehold enfranchisement, right to manage and commonhold. We will take further steps to ban new leasehold flats and ensure commonhold is the default tenure. We will tackle unregulated and unaffordable ground rent charges. We will act to bring the injustice of ‘fleecehold’ private housing estates and unfair maintenance costs to an end. ”

  • This confirms Labour’s commitment to continue with the process of leasehold reform, and again suggests that they would go much further than the proposals set out in LAFRA – implementing all of the proposals recommended by the Law Commission. 

It does seem that the passing of secondary legislation to bring LAFRA (and more?) into force  is likely to be high on the next Government’s agenda – this something that will certainly be welcomed by the industry, as this period of limbo benefits no-one.   

However, the policies are frustratingly vague and at this point, we are really still none the wiser as to the likely timescale for enactment.

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UK Election 2024: The Liberal Democrats’ Manifesto – Employment Round Up

news fallback

Earlier this week the Liberal Democrats published their Election manifesto, which contains a number of pledges for working people and employers if they win the election on 4 July. 

We have set out their key employment pledges below.

Status and the gig economy

  • Establish a new ‘dependent contractor’ employment status inbetween employment and self-employment, with entitlements to basic rights such as minimum earning levels, sick pay and holiday entitlement.
  • Review the tax and National Insurance status of employees, dependent contractors and freelancers to ensure fair and comparable treatment.
  • Set a 20% higher minimum wage for people on zero-hour contracts at times of normal demand to compensate them for the uncertainty of fluctuating working hours. 
  • Give zero-hours and agency workers a right to request a fixed-hours contract after 12 months (a right not to be unreasonably refused). 

Family and carer rights

  • Double statutory maternity pay and shared parental pay to £350 per week.
  • Introduce an extra ‘use-it-or-lose-it’ leave of one month for fathers and partners, paid at 90% of earnings (with a cap for high earners).
  • Parental leave and pay to be a day 1 right, which will also apply to self-employed parents.
  • Require large employers to publish their parental leave and pay policies.
  • Make caring and care experience protected characteristics, as well as introducing paid carer’s leave and a Carer’s Minimum wage.

Sick pay 

  • Statutory sick pay to be payable from day 1 of sickness.
  • Ensure that statutory sick pay is available for employees who earn less than £123 per week and align it with national minimum wage.
  • Introduce a right for every disabled person to work from home, unless there is a significant business reason not to.
  • Simplify the Access to Work scheme.
  • Introduce “Adjustment Passports” to record all adjustments, modifications and equipment that a disabled person has received, and ensure that Access to Work support and equipment stays with the individual if they change jobs.

Employee protection

  • Make flexible working a day 1 right.
  • Encourage employers to promote employee ownership by giving staff in listed companies with more than 250 employees a right to request shares.
  • Scrap the lower apprentice rate and ensure that apprentices receive at least national minimum wage.
  • Shift the burden of proof for employment status claims in the Employment Tribunal from the individual to the employer.

Equality, Diversity and Inclusion

  • Require larger employers to monitor and publish data on gender, ethnicity, disability, LGBTQ+ employment levels, pay gaps and progression and publish 5-year aspirational diversity targets.
  • Provide support and advice to employers on neurodiversity in the workplace.
  • Extend the use of the name-blind recruitment process.

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UK Election 2024: The Conservative Party Manifesto – Employment Round Up

news fallback

The Conservatives released their manifesto on Tuesday this week. On a first glance, the manifesto did not include much by way of employment-related announcements.  However, we have included a summary of pledges that will impact working people and employers below. 

  • As announced by Kemi Badenoch earlier this month, change the definition of “sex” in the Equality Act 2010 to mean biological sex.
  • Reform the assessment system for, and reduce the number of individuals claiming, disability benefits.  Those with “moderate” mental health issues or mobility problems will be given tailored support to work rather than disability benefits.  Although not necessarily “employment-related”, organisations would need to be prepared to provide the relevant “return to work” support to those individuals affected by this change.
  • Overhaul the “fit note” process by moving the responsibility for issuing fit notes from GPs to specialist work and health professionals. 
  • Cut tax for workers by reducing employee national insurance contributions to 6%.
  • Abolish the main rate of self-employed national insurance by the end of the next Parliament.
  • Continue with the implementation of minimum service level agreements in relation to industrial action.

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Workplace Relationships in the Spotlight

In the wake of the dismissal of CEO Bernard Looney last year for failing to disclose personal relationships at work, BP has drawn publicity for changes to its relevant policies.

Most notably, individuals will no longer have the discretion to determine for themselves whether personal relationships ‘at the office’ are likely to pose a conflict of interest.  Instead, BP intends to take a more expansive view of which relationships senior managers in particular are required to disclose to their employer.  

While policies regarding workplace relationships are not necessarily the norm, there is tangible and growing scrutiny of the dynamics which they can lead to.  Such relationships can give rise to accusations of undue favour and improper influence on decision-making and governance.  The impacts when they end are potentially even more difficult to manage.

My comments on these latest developments can be found in the Daily Mail (online and also in print, 11 June 2024 edition). 

Removing the discretion for individuals to decide whether their relationship poses a conflict of interest is potentially wise.

https://www.dailymail.co.uk/news/article-13515151/BP-staff-office-romances-SACKED.html
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A new code of conduct for directors?

In today’s business environment being a director has probably never been more complex or challenging in terms of expectation of scrutiny, governance and decision-making by boards. The Companies Act 2006 already has a clear set of obligations (section 172 duties) on directors as to how they should take decisions (and larger corporates should report on how they satisfy those obligations in their annual report).

Against this backdrop the Institute of Directors has launched a public consultation on a new code of conduct for directors. The proposed code, on which consultation is open until 16 August 2024, is intended to be voluntary and, reading the press launch, appears to be a tool or framework which boards can look to when tackling decisions and help frame decision-making – but obviously not replacing their existing duties in that regard. The intention is that there will be six key principles of director conduct:

  • Leading by Example – demonstrating exemplary standards of behaviour in personal conduct and decision-making.
  • Integrity – acting with honesty, adhering to strong ethical values and doing the right thing.
  • Transparency – communicating, acting and making decisions openly, honestly and clearly.
  • Accountability – taking personal responsibility for actions and their consequences.
  • Fairness – treating people equitably, without discrimination or bias.
  • Responsible Business – integrating ethical and sustainable practices into business decisions and taking into account societal and environmental impacts.

It would be hard to imagine any board that might object to those principles but equally it is also hard to imagine that many boards would consider that they don’t already meet those standards and levels in their decision-making and in extinguishing their legal duties. So, this might be a further helpful framework for directors to help bring their debates and decisions to life and it will be fascinating to see the response by directors, investors and advisers as to the proposal to create this new voluntary standard.

 

“The role of director has never been more vital, complex and challenging.

https://www.iod.com/news/governance/iod-launches-public-consultation-on-a-code-of-conduct-for-directors/
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UK Election 2024: “Labour’s Plan to Make Work Pay”

On 24 May 2024, Labour published its “Plan to Make Work Pay”, which sets out its proposals for the workplace if it wins the election race this summer. Labour pledges to improve “job security, treat workers fairly and improve low pay”.  The party has also promised to introduce legislation within 100 days of entering government, subject to consultation with businesses, trade unions and civil society.

We have summarised Labour’s key pledges below.

  1. Day one right for employees not to be unfairly dismissed.  Labour intends to reform unfair dismissal protection (which is generally only afforded to those employees with 2 years’ service) so that it applies to all employees as a day one right.  This will not prevent fair dismissal, or probationary periods with transparent rules and processes, but it will  make it unlawful for employers from being able to fire employees without a fair reason or a proper procedure.  
  2. Banning “exploitative” zero hours contracts to improve job security and predictability and introduce a right to have a contract that reflects the hours regularly worked.  Workers can still be paid overtime and employers will not be prevented from offering fixed-term contracts including for seasonal work.
  3. Restricting “fire and rehire” practices by introducing a new and strengthened code of practice.  Fire and rehire would only be permitted as part of a restructure where there is “genuinely no alternative”, but there would still need to be discussion and consultation with employees.
  4. Single status of worker. Subject to consultation, Labour intends to remove the current three-tier system for employment status (where people are classified as employees, self-employed or workers).  Labour aim to move towards a single status of worker and transition towards a simpler two-part framework for employment status where people are either workers or self-employed. 
  5. Improving rights for the self-employed. Labour would give those self-employed the right to a written contract and intend to strengthen trade union rights to benefit self-employed workers.
  6. Flexible working.  Labour will strengthen the right to request flexible working to ensure that it is genuinely a default from day one for all workers, except where this is not reasonably feasible.  The party also intends to bring in the ‘right to switch’ off giving workers and employers the opportunity to have constructive conversations and work together on bespoke policies to implement this right. 
  7. Family friendly rights. Parental leave would become a day one right and additional protection from maternity discrimination will be introduced such that dismissal will be unlawful within six months of return to work (except in specific circumstances).  Labour also intend to review the Carer’s Leave regime and clarify the law and entitlement to bereavement leave.
  8. Right to fair pay. Labour would look to link the national minimum wage with the cost of living and remove the 18-21 age band.  In addition to increasing national minimum wage, labour would strengthen statutory sick pay by making it available to all workers from day one of sickness (rather than day 4) and removing the lower earnings limit.  Labour also intend to ban unpaid internships (unless they are part of education or a training course) and to ensure that all hospitality workers receive their tips in full.  
  9. Equality at work. Labour pledge that they are committed to tackling the gender pay gap and would make ethnicity and disability pay gap reporting compulsory for employers with more than 250 employees.  Labour will also require employers with more than 250 employees to produce Menopause Action Plans, setting out how they will support employees through the menopause. 
  10. Improving rights at work. Labour propose to strengthen redundancy rights and protections including the trigger for collective redundancy consultation being determined by the number of people impacted across the business (rather than in one establishment).  It also aims to enable employees to collectively raise grievances about conduct in their place of work to ACAS in line with the existing code for individual grievances. The party also intends to strengthen TUPE, whistleblowing and sexual harassment protections.
  11. Increasing employment tribunal claim limitation periods from 3 to 6 months.
  12. Improving employment tribunals and enforcement. Labour intend to establish a state Single Enforcement Body for workers’ rights, including powers to inspect workplaces and take action against exploitation.  In addition, the party propose to improve enforcement through the Employment Tribunal. 
  13. Improving employee representation and voice.  Labour plan to strengthen the rights of workers to organise collectively through trade unions, simplify trade union recognition and regulation, and improve access for trade unions in the workplace.  They also intend to repeal the Strikes (Minimum Service Levels) Act 2023, Trade Union Act 2016, and the introduction of electronic balloting. 
  14. Technology and AI. Labour would require employers to consult worker representatives before introducing surveillance technologies.

"Labour’s New Deal for Working People is our plan to make work pay. It’s how we’ll boost wages, make work more secure and support working people to thrive – delivering a genuine living wage, banning exploitative zero hour contracts, and ending fire and rehire."

https://labour.org.uk/wp-content/uploads/2024/05/LABOURS-PLAN-TO-MAKE-WORK-PAY.pdf
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Defra criticised over biodiversity net gain

At the request of the Environmental Audit Committee, the National Audit Office has published a Report on the progress Defra and Natural England have made in implementing statutory biodiversity net gain (“BNG”) introduced by the Environment Act 2021. 

Notably, the Report confirms that “Defra is relying on a market for biodiversity units emerging, but does not know how rapidly this market can scale up, or whether the market can satisfy demand.” Securing the requisite BNG via off-site units is fundamental in developers being able to meet the new statutory requirements. Where this is not possible, the fall-back is the purchase of statutory credits which have been presented as a last-resort option. The reliance on off-site units as part of the mitigation structure, without proper management or future planning from Defra, may result in delays for developers in satisfying their planning obligations. 

A topic which has been the subject of much discussion is local authority resourcing in order to effectively manage and monitor the new BNG requirements.  The Report notes that “for now, there is doubt about whether local authorities will be able to discharge these duties effectively.” The Report acknowledges that Defra has not allocated local authorities additional funding for monitoring or enforcing on-site gain, despite calculating that local authorities would need additional full-time employees for such purposes. 

It remains to be seen how the conclusions of the Report will be adopted going forward particularly in the context of the upcoming General Election. 

 

"Defra launched its policy before having all the elements in place that it needs to ensure statutory BNG is a success in the long term. Although it considered that the arrangements it had in place at launch were sufficient, it has a long way to go before it can be confident that damage to biodiversity through development will not be understated and that the benefits of biodiversity enhancements will actually be delivered."

https://www.nao.org.uk/wp-content/uploads/2024/05/implementing-statutory-biodiversity-net-gain.pdf
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The student race to Net Zero

For those in the student sector, colleague and sector expert, Nicola Copsey is well worth a follow. Check out her takeaways from the LD Events Student Housing Conference. Her latest takeaway note touches on ESG, and more particularly, repurposing existing stock. 

This coincides neatly with this research from JLL: “Is UK student housing ready for minimum EPC standards by 2030?” What is the threat of obsolescence in the sector? Where does the sector sit in the race to Net Zero? Interesting reading. 

In terms of energy efficiency and from a regulatory stand-point, the statistics indicate that the sector is fairly well placed, with a minority of assets at risk of regulatory obsolescence. That said, as Nicola identifies, there is one notable investment driver – all inclusive rents. There is no surprise that the pursuit of energy efficient stock is key. 

Do also check out the team’s #ForStudentAccommodation Mini-Series – crucial thinking on Building Safety Act, planning, rent control and reform, tax etc. 

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Return of the MAC (report)

I was delighted to attend the LD Events Student Housing Conference last week, and my first takeaway has to be the effect of politics on the student sector. One of the most startling stats from the day was that 80% of the most populous nations will have a general election this year, which means 50 million students will be voting in 2024. Last Friday, the FT released their podcast “Election battle lines drawn up” and their public policy editor Peter Foster outlined the dangers facing the UK’s university sector if the government decides to axe the graduate visa route. 

The graduate visa route is designed to make the UK’s education offer to international students attractive and allows them to stay in the UK for 2 years after they graduate, essentially it is a “looking for work visa”. James Cleverly felt that this route was being misused so gave the Migration Advisory Committee (MAC) 14 weeks to investigate. The report came back on the same day as the conference and (much to Downing Street’s disappointment but the student sector’s delight) found 1) the route is not being misused and 2) these graduates are net contributors to the Exchequer. 

This is a relief to everyone involved in the higher education sector given that Knight Frank’s research revealed that 48% of prospective international students polled would likely change their study destination if the graduate visa duration was reduced. The sector is already seeing a reduction in international student numbers following a change to the visa which means that students can’t bring family members with them (despite there being no evidence that these family members are a burden on our welfare system). This is particularly vital because the fees paid by domestic students (£9,250 per year) are deeply subsided by international student fees and a report last week by the office for students warns that over the next 3 years, 90% of English universities could be in deficit. International students are not taking places away from domestic students, they are funding them. 

The MAC report specifically highlights that as the graduate route has increased the attractiveness of the student visa offer, this has implications for international student housing. But rather than dealing with this by reducing the number of students coming to study in the UK, I would hope that the solution is building more housing. Let’s hope that the positive findings by the MAC report encourage the government (whichever party that may be) to see international students as part of the solution to the funding crisis in our higher education sector, rather than a burden.

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Smarter regulation: employment law reform

Yet another consultation for employment lawyers and HR professionals to grapple with.  This one seeks views on proposals including:

  • reaffirming that only employees are protected by The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
  • removing the complex obligation to split employees’ contracts between multiple employers where a business is transferred to more than one new business.

Those of us who handle or advise on TUPE transfers know just how complicated they can be.  This is especially so where an organisation has “workers” (and no one can decide whether or not they are really employees and should therefore transfer!) and/or where a business or service provision is transferred to multiple organisations.  Certainty in this area is always helpful and having some clear parameters on these points is arguably in all parties’ interests.  However, might it deter buyers or new service providers who are required to take on more employment liabilities?  It will be interesting to see how this plays out.  

Smarter regulation: employment law reform

https://www.gov.uk/government/consultations/smarter-regulation-employment-law-reform
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Boundary Disputes & Experts

The plague of many formerly happy neighbourly relationships is the boundary dispute.   Often costly and time consuming, they can be some of the most contested claims moving through the courts.

The High Court has recently decided the case of Charlton & Anor v Forrest & Ors [2024] EWHC 1014 (Ch) which provided a useful reminder of the role of expert evidence in such disputes.  The Claimants alleged that the Defendants had trespassed by cutting down trees that they claimed were in joint ownership, and the Court was asked to determine where the boundary between the parties’ properties lay. The conveyance severing the land (which would usually be the starting point when considering where a boundary lies) was long lost. As a result, it was necessary to look at the evidence of any topographical features marking the boundary between the properties which existed at the time of the conveyance when the land was divided into the two parcels. Both parties employed expert building surveyors to prepare reports covering those features, which also reached conclusions as to the location of the boundary.  

The Court ultimately found in favour of the Defendant and the claim in trespass fell away. In giving its decision, the Court made it very clear that, whilst the expert evidence was useful to the extent that it identified and collated potentially relevant evidence, the conclusions reached by the surveyors were not admissible expert opinion.  A cogent reminder that the question of where a boundary lies is a question of fact which is for the Court, and the Court alone, to determine.

 

I do not think, however, that their conclusion (essentially, that is, the conclusion of Mr Jones with whom Mr North now agrees) constitutes admissible expert opinion. The ultimate question in this case is where the boundary lies. That is a question of fact to be determined by the Court.

https://www.bailii.org/ew/cases/EWHC/Ch/2024/1014.html
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Sophistication in ESG drafting

BGO’s maxim of “E” is for easy, and the “G” is given, but “S” is sophisticated, set out in this Estates Gazette article, is a nice way of demonstrating the different aspects of incorporating ESG into leases. 

Recognition of the sophistication of social drafting in leases was demonstrated in the updated BBP Green Lease Toolkit (released in January 2024) and commented on by my colleague Ed Glass in this article. The Toolkit now incorporates the concept of “Social Impact” which includes initiatives relating to local employment opportunities to a real estate asset and local community engagement. Similar to the “Social Value Charter” that BGO has implemented at its 105 Victoria Street development as mentioned by Alexander Morris in his article. 

The Toolkit’s proposed drafting has also reflected the point made by Alexander Morris (see quote below) by weaving in the “Social Impact” references into their existing drafting for environmental factors. For example, the data sharing provision clause includes data about not just environmental performance, but also social impact data. 

A couple of areas where there is potentially scope for further innovation in the Toolkit are:

  1. Alexander Morris’s proposal of a service charge agreement where the landlord effectively devises a social or CSR policy linked to its asset’s local area which tenants (and landlord) contribute to through the service charge. This could provide an easy way for businesses to meet their own social or CSR targets through the landlord’s social initiative.
  2. The potential interplay between environmental initiatives in new developments such as meeting biodiversity net gain requirements and the benefit that such green spaces might have for a local communities accessing nature or being involved in nature (such as community garden, orchard or allotment). 

These innovative ideas would require more sophisticated drafting (and possibly bespoke drafting per development), which further emphasises BGO’s branding of “S” in ESG as “sophisticated”. 

 

"The fact that green leases have already brought occupiers on board with making absolute commitments means much of the heavy lifting has already been done. And social attitudes have also primed occupiers for these conversations...,the next generation of occupiers are already looking for ways to improve social impact."

https://www.egi.co.uk/news/rebels-without-a-clause-the-growth-of-responsible-leases/
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VAT School Fees Anti Forestalling

We all know that Labour, if elected, wants to abolish the exemption from VAT on private school fees. There will be some grey areas: when is a nursery a school, what to do about faith schools that accept large donations from parents/grandparents of pupils, what about special needs schools and so on and I’ve written about some of these issues before. 

Today’s FT article highlights the vexed issue of prepayment. HMRC are clear: “Under the normal time of supply rules the receipt of a payment in advance of the basic tax point will always create a tax point.” To subject a payment to VAT before legislation is put before Parliament seems a little premature, and not in keeping with general principles regarding fairness and certainty for taxpayers, i.e. they should know the tax treatment of their transaction when they enter into it. What is meant by the phrase “official announcement” in the quotation below? How far back would the forestalling go? If someone had made an advance payment in 2018 for the entirety of the child’s secondary school fees and has one academic year within a change of government is that one year VATable?

Undoubtedly, people will be rushing to make advance payments now but not all advance payments are VAT-motivated; some are due to legacies, grandparents may want to give away money whilst they are alive and the nervous may wish to ensure that they have secured their child’s education even if they lose their current well paid job, for example.

Before rushing to make a payment do take investment and tax advice; not only may you not be saving the VAT but there may also be an opportunity cost of using the money in this manner and, if you are a remittance based user, there may be significant tax issues to consider.  

Obviously, if the private school offers your child  a place in their offshore “sister” school you may not need to worry about VAT or remittance…

 

Labour is expected to introduce some form of “anti-forestalling” measures if it changes tax policy to cover the period between an official announcement of a tax change and its imposition.

https://www.ft.com/content/b61d4b9b-6584-495e-be4d-023aa36538ac?accessToken=zwAGGBe0eF9wkdO2HUubZYRJXtO-TQI6o2U4rA.MEUCIQCrG7KpOwjcGzgoqRbPZPeetP-NvpfFDbj-zO7JvX5ybAIgPK1WHoXWwoRkvG8RwZMMlFmnnlvXpG5Wr-iPzMmFMqs&sharetype=gift&token=0a6af07d-346e-413a-8c79-c03c96590ce4
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Are there glimmers of hope in the commercial real estate market?

Although, as this article from the FT suggests, commercial real estate has been badly hit by sustained high rates of interest and declining values, perhaps in an election year and with the ever-promised reduction in interest rates looming, it’s not all bad news after all. The major focus through 2023 and beyond has been on refinancing loans which, although not leading to generation of new acquisitions, is at least indicative of relationship banking being key here. Borrowers who can maintain good communication and co-operation with their lenders throughout the term of their loan may find their lenders are more willing to help them through the tougher times.

After all, the last thing any lender wants is to be handed the keys.

If you require any assistance with your existing or new banking facilities, the Forsters banking team is ready and willing to assist with all your financing needs!

 

 

She said “there are some difficult conversations going on” but that as long as borrowers are co-operative, taking back control of a building is “the last thing any lender wants”.

https://www.ft.com/content/664e2c02-5a54-4e95-aebe-0e35e8edf411?accessToken=zwAGF41ZC6lgkc9mTiwCWlROldOuvg416O30EQ.MEQCIH-HMd6znN_GdGI_A-WF8YEKMdvg8Bc5eSIZIKBs3Z-_AiAxxzQBUbW7issbHss3AlfZtRR7sDbeVZET7k2MYsljqw&sharetype=gift&token=ed819f8a-f7b5-40fb-8ff2-4b277f812e0c
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Are changes afoot for the National Security and Investment Act 2021?

Back in November 2023, the government issued a call for evidence in respect of the National Security and Investment Act 2021 (the NSI Act), seeking views on how the regime could provide national security protection while being more “business friendly”. The government’s response has now been published, setting out that there will be five areas of focus between now and the autumn. 

  1. An updated Section 3 Statement will be published next month. This is the statement that explains how the government decides whether to exercise its call-in power under the NSI Act. The responses make clear that stakeholders would value more clarity around the areas that the government perceives to be sensitive and how it goes about assessing the nature of any risk. However, a fast-track procedure which was suggested by some respondents, is not on the cards; the government’s view is that each transaction needs to be considered on a case-by-case basis 
  2. Updated market guidance will also be published next month covering specific topics which were raised by respondents and in particular, dealing with the application of the NSI Act to academia and Outward Direct Investment. Despite being suggested by a number of stakeholders, there will be no exemption for transfers of control which arise as a result of automatic enforcement provisions in secured finance agreements, although more guidance in relation to these transactions may be provided
  3. A consultation about updating the 17 sensitive areas of the economy that fall within the NSI Act’s mandatory notification requirements will be published by the summer. This may result in amendments and additions to the current list
  4. Technical exemptions to the mandatory notification regime will be considered, although this will be subject to legislation being laid before Parliament in the autumn if time (and the General Election?) permit. Exemptions may include certain internal reorganisations; a sensible move in my opinion
  5. Improvements to the actual NSI Act notification and review process will be considered. Areas for improvement suggested by respondents included better communication between the Investment Security Unit (the ISU) and parties involved in the notification process

The government’s view has always been that although the regime would result in a significant number of notifications being made, only a few of those would result in a final order and the current statistics seem to bear this out. As at the date of the response, over 1700 notifications had been reviewed by the ISU, yet only 20 final orders had been made. While this is encouraging from a transactional point of view, it does suggest that, with a little thought, the system could be streamlined, so reducing the number of required notifications (especially those which are purely “technical”) which only serve to increase costs for the transactional parties and delay completions. Perhaps the call for evidence was just what was needed… 

It is vital, therefore, that businesses are able to start up, scale up, buy, sell, trade and invest in the UK with minimal impediment

https://www.gov.uk/government/calls-for-evidence/call-for-evidence-national-security-and-investment-act/outcome/national-security-and-investment-act-2021-call-for-evidence-response
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Will law firms have to embrace AI in the future?

The legal sector is evolving as firms try to incorporate AI into their daily tasks, and judges try to incorporate it into their work in the court room. Using AI is both exciting in helping the sector to evolve, but it can also be unnerving when the future of it is so unknown. In March 2024, the Master of the Rolls (Sir Geoffrey Vos) spoke in Manchester, giving a speech titled “AI- Transforming the work of lawyers and judges”. Some of the key takeaways are laid out below.

The speech started with a reassurance that AI itself is not a scary concept.  Sir Geoffrey Vos said that we use AI each and everyday as we pick up our smartphone, and it only becomes scary and ‘dangerous’ when misused. There was a suggestion that AI will actually become ‘necessary’ in the workplace, in order to protect against claims of negligence and assure clients that we, as solicitors, have used reasonable skill, care and diligence in our work. 

Sir Geoffrey summarised the judicial guidance for working with AI, which emphasises a need to use it with care. Sir Geoffrey said that generative AI like Chat GPT does not provide completely reliable information, should always be checked by the individual and warned that the platform may not be confidential.

Examples of when AI will be used in the legal sector included drafting contracts, predicting case outcomes, drafting advice and submissions and writing memos, briefs and opinions. 

So, why will it need to be adopted by solicitors? Firstly, if other law firms are using AI then they will be cheaper for clients. Secondly, it can speed up a solicitor’s job. Thirdly, AI can do some tasks more comprehensively than a human.  

Sir Geoffrey Vos also discussed why judges will need to start using AI. He said that it can enhance judges’ efficiency and research capabilities by analysing vast amounts of documents and law; it can help with subconscious bias awareness, and it can be useful for the new online systems of pre action online dispute resolution processes.

Sir Geoffrey Vos was optimistic about the prospect of incorporating AI into the legal sector, saying that it has “great potential” and that the process “cannot be started soon enough”. 

 

You can read the speech in full below: 

https://www.judiciary.uk/speech-by-the-master-of-the-rolls-ai-transforming-the-work-of-lawyers-and-judges/

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“AI for a greener built world”

EGI reports this month that Blackstone (never one to miss a trick) is under contract to buy the ex-Britishvolt site in Northumberland  for a “major hyperscale cloud and/or AI data centre campus”. It is a reminder of the real estate implications of AI, as AI (and cloud based) applications drive demand for underlying infrastructure. 

Indeed, on this note, the 2024 ULI Emerging Trends in Real Estate Europe 2024 report name-checked Blackstone and identified data centres as second in the list of “sectors to watch”:  “If a Blackstone decides data centres is our new office sector, they will make the market like they did in logistics, but there will be developments needed,” says an interviewee. Data centres will be the “next oil rush” , predicts another. An industrial property company head likens the stage of development of the data centres market today to the logistics market of 10 years ago, implying enormous scope for growth.”

However, how does that sit in an increasingly ESG-conscious industry? As the ULI report notes, “Large data centres can be a problematic investment from an ESG standpoint, however, because of their hunger for power, unsightliness, and limited direct employment generation potential”. Potentially, arguably, difficult to tick off those “E” and “S” investment criteria, which are without doubt, increasingly in play.  

With all this in mind, the recent White Paper (Sustainability Intelligent; AI for a Greener Built World) is worth a read, acknowledging the energy intensive nature of generative AI. Yet, as a counterweight, the paper explores the potential of AI in accelerating the net zero transition in the built environment. What are the environmental AI use cases along the real estate value chain (check out the graphic in the paper)? And as the paper asks with the question in the quote below, where does the balance lie – net positive or negative effect on its environmental footprint?  Can AI really deliver a “greener built world”?   

 

So what if the productivity improvements and technological advancements created through the wider adoption of AI in the built environment create disproportionate counterweights to the sector’s total emissions and wider environmental footprint, accelerating its transition to a more sustainable state?

https://pilabs.vc/research/sustainably-ai-h3fhc
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BBP Green Lease Toolkit: Better boilerplate provisions?

It is now almost three months since the launch of the BBP’s excellent Green Lease Toolkit.  Many have now had the chance to digest and benchmark their current green lease positioning – take for example, Daniel Mead, Head of Asset Management at Bywater Properties, in this excellent blog, identifying work in progress.  

As someone heavily involved in green leases here at Forsters, across a varied client and asset base, here are my quick fire, instinctive reflections on the state of play. 

  1. Mutuality: The toolkit, notably, looks to move the dial in terms of mutual green commitments e.g. carrying out works in a sustainable manner, procuring renewable energy etc. Surely fair enough? However, for landlords, often only committing to limited, institutionally standard quiet enjoyment, insurance and service charge obligations in an FRI/ IRI leases, this can feel like uncomfortable territory. I sense a significant mentality shift is still needed but it will come. 
  2. Costs: For now, the BBP acknowledge that if a tenant benefits from improvement works with costs savings (e.g. utility costs), it is reasonable for the tenant to contribute to the landlord’s cost. However it has not, as yet, drafted for this, rather offering some examples from across the globe. I am a firm believer that whilst the “split incentive” is a negotiating challenge, the next iteration of the toolkit should look to hit this head on. The challenge is not insurmountable, as we are seeing across landlord/ tenant conversations.   
  3. Practicalities: As Mead says in his blog: “Starting with a precedent Green Lease and agreeing one with your tenant is one thing, however its more important to deliver on the clauses set out in the documents!” I couldn’t agree more. The wording may say one thing, but what really matters is that which is happening on the ground, no doubt typically the result of far more nuanced conversations with occupiers. For much of the toolkit, enforcement options in a lease feel draconian (e.g. forfeiture). On this note a couple of observations from the toolkit: (1) exploring specific dispute resolution mechanisms; and (2) squirreled away in the rent review section of the toolkit, the reference to rewarding a tenant for hitting specific green KPIs (in the context of index linked rent review). As landlords increasingly commit to sustainability linked loans, with the potential to benefit financially from achieving sustainability targets, should/ can a similar scenario play out at the landlord/ tenant level? 

Will the latest iteration of the toolkit steadily become boilerplate? This is an excellent industry resource and definitely points the industry in the right direction. To accelerate progress, my sense is that the City of London Law Society – Certificate of Title needs to move more quickly with the times. At the moment, on a simple level, it only demands data sharing provision and restrictions on alterations that impact on EPC ratings. As soon as something becomes a “must” in here, toolkit clauses will inevitably becomes more commonplace. 

And then of course, there is the Landlord and Tenant Act 1954. Whilst the toolkit is driving much needed modernisation, there is an obstacle on the statute books…the regulatory approach needs to change too in order to realise demonstrable change. 

 

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A step forward for clarity on the second staircase requirement or a step backwards for ensuring safer buildings?

The Department for Levelling Up, Housing and Communities published on 29 March 2024 a change to the building regulation guidance (known as Approved Document B) so that from 30 September 2026 residential buildings over 18m in height will require second staircases. The real estate press (such as the React News article in the link below) have highlighted some of the key discussion points from the decision for the real estate industry:  

  • The real estate industry’s reaction to inclusion of a requirement for a second staircase: There is concern that the inclusion of the second staircase requirement in the building regulations guidance distracts higher-risk building (HRB) owners/designers/constructors from ensuring each building (on its own design and construction) is safe. This could lead to other important elements of making buildings safe being ignored or deprioritised, such as compartmentalisation, insulation or detection systems. However, the Building Safety Act 2022 (BSA 2022) imposes ongoing duties on HRB owners to actively manage building safety risks in the building and maintain the golden thread of information on a building from day one of construction so building safety risks should always remain at the forefront. 
  • Two tier values for HRBs? There are concerns of a creation of a secondary market for ‘older’ HRB stock with single staircases. The legal requirements implemented by the BSA 2022 on all owners of HRBs will hopefully ensure that the risk of a two-tier market in HRBs will be limited. Single staircase HRBs are still required to have appropriate safety measures in place and the BSA 2022 requirements will further ensure that owners keep a record of their maintenance and any safety risks that arise. As such, this could help minimise the likely impact on values for single staircase HRBs in the short term at least. In fact, ‘older’ HRBs may be cheaper to purchase than redesigning a new building that will require a second staircase (and will therefore have a smaller internal area for occupation in the building). 
  • Lenders concern? High-street lenders on apartments in single staircase HRBs have confirmed there is currently no change to their approach on lending as a result of the second staircase requirement. Whereas, lenders of whole building HRB loans have been noted as being “anecdotally hesitant”. However, much like the challenge for purchasers of HRBs in the new regulatory landscape for HRBs, as lenders become more familiar with the information being provided in respect to building safety it is anticipated they will get more comfortable with lending on HRBs (either with a single staircase or twin staircases). 

 

 

 

 

 

"The constant update of Approved Document B does not solve the problem Hackitt (Dame Judith Hackitt in the 'Hackitt Review' published in 2018) was describing. It pushes us towards a prescribed code-based culture, whereas Hackitt wanted us to demonstrate and ensure buildings are fit for purpose."

https://reactnews.com/article/twin-staircase-rules-risk-creating-two-tier-btr-market/?utm_term=0_b0728480f9-dc9aae8e34-%5bLIST_EMAIL_ID%5d&mc_cid=dc9aae8e34
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Due Diligence: Risky Business, Safe Results

The problem of gambling within professional football is well publicised, with recent cases hitting the press regarding the troubles faced by Sandro Tonali of Newcastle FC and Ivan Toney of Brentford FC. Former player and current pundit Paul Merson’s addiction troubles are also well-documented, and he has called the bans inflicted on each player “a disgrace”, highlighting it is an illness that requires urgent help. It appears we are just at the tip of the iceberg; this silent plague is reportedly ‘ravaging’ our beautiful game. However, is there more responsibility on the clubs, and are they doing everything they can to unearth these issues at the outset?

It was recently reported by BBC Sport that Newcastle FC were “unsure if AC Milan knew about the betting charges facing their former player Sandro Tonali”[1] after they sold him for £55 million last summer.

Although precise facts have not been disclosed, Dan Ashworth’s (Newcastle’s sporting director) comments to Sky Sports point to a potential lack of appropriate due diligence being undertaken: “You look at yourself. Could we have known? Should we have known? You look at your processes.”[2]

These ‘processes’ that Ashworth is alluding to centre around the basis of “caveat emptor” (let the buyer beware). This principle is a fundamental concept in the field of contract law, particularly in the context of the sale of goods. It places the responsibility on the buyer to exercise due diligence and caution when purchasing a product or entering into a contract. i.e. if the appropriate questions are not asked of the seller, for example on our facts, “are you aware of any outstanding or pending disputes, claims or disciplinary investigations relating to Sandro Tonali”, AC Milan might not be under an obligation to divulge that information voluntarily. 

These same ‘caveat emptor’ principles apply in a typical commercial property transaction – the seller/ landlord will provide the buyer/ tenant with replies to CPSEs (commercial property standard enquiries), and, frequently, replies to additional enquiries. 

If a seller provides inaccurate information in their responses to enquiries (or elsewhere) that the buyer depends on when determining whether to proceed with the contract and the buyer incurs losses as a result of entering into the contract, the seller can be held accountable for misrepresentation. A misrepresentation is a false statement of fact made by one party to another which is not a term of the contract but which induces the other party to enter into the contract. For misrepresentation to apply, the false statement must be significant and relied upon by the buyer. It is not necessary to demonstrate that the misrepresented information was the sole factor in the buyer’s decision to enter the contract; liability can arise even if the misrepresented information is only part of what the buyer relied on. 

Fraudulent misrepresentation arises when the provider of information fails to make enquiries to check whether the information is false. There need be no dishonest motive but this type of misrepresentation cannot be proved if the seller honestly believes the statement is accurate.

The statement must be made:

1. knowingly or without belief in its truth; or

2. recklessly and carelessly as to whether it is true or false

In McMeekin v Long, the seller, in replies to enquiries, informed the buyers that no disputes had arisen in respect of the property or its use and stated that the neighbours were ‘good and friendly’. However, there had been a long-running dispute with a neighbour over the use of an access road.

Following completion, the buyers became embroiled in arguments with the same neighbour over the use of the access road. The trial judge considered that the existence of the long-standing dispute was exactly the sort of information that the buyers were entitled to receive. He held that the sellers were liable for fraudulent misrepresentation. The answer given in replies to enquiries was not given in error; it was a fraudulent answer to enable the sale of the property to complete unhindered. It is inconceivable to consider AC Milan would knowingly divert Newcastle’s attention away from the issue but worth considering they would be on the hook if they did.

As a general rule, (and established in Smith v Hughes), silence does not amount to misrepresentation and a party has no duty to correct another party if they have failed to understand the information correctly. Yet there is a duty on the seller to disclose the truth when a statement becomes false due to a change in circumstances. If a seller becomes aware before exchange of contracts that a statement given in replies to enquiries has become false, they should correct the position, as in Schyde Investments Ltd v Cleaver

Indeed, in Morrell v Stewart, the sellers were found liable for fraudulent misrepresentation as they had failed to disclose to the buyers problems with the foul drainage on the property. It did not matter that the buyers had failed to carry out a survey. If they had been aware of the issues, they would have carried out a survey, whereas they had decided that it was not worth the expense of having a survey on the basis of the information provided by the sellers. If they had been aware that any substantial remedial costs would be required in connection with the drains, they would not have proceeded to buy the property at all.

Perhaps AC Milan knew that Tonali was under initial police investigation as the transfer neared completion but did not disclose those facts. It can be assumed that if Newcastle FC had been informed of this, they would certainly have probed further and possibly pulled out of the deal.

If AC Milan are found to be absolved from any fault or wrongdoing, Newcastle FC may be able to pursue Tonali for breach of contract and pursue damages and Ashworth has admitted this is a possibility (although any potential legal action has since gone quiet). An example of this is the enigmatic Italian, Mario Balotteli, who had his contract terminated by Brescia FC for failing to attend training. The scenario that appears to have since developed is a wage reduction for Tonali; a harsh lesson learnt for Newcastle FC and striking the lawyer who dealt with the due diligence off the Christmas card list!

 

[1] https://www.bbc.co.uk/sport/football/67313204#:~:text=He%20joined%20Newcastle%20from%20Milan,charges%20when%20they%20sold%20him.

[2] https://www.skysports.com/football/news/11678/12999527/dan-ashworth-newcastle-internally-investigating-sandro-tonali-transfer-after-massive-shock-at-betting-breaches

“You look at yourself. Could we have known? Should we have known? You look at your processes.”

https://www.skysports.com/football/news/11678/12999527/dan-ashworth-newcastle-internally-investigating-sandro-tonali-transfer-after-massive-shock-at-betting-breaches
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Updated ATED Tax Rates

The 2024/25 annual tax on enveloped dwellings (ATED) filing window opens on 1st April 2024 and closes on 30th April 2024. Corporate owners of qualifying residential property will need to file an ATED return during this window, even if, due to a relief, they have no ATED to pay. 

If you own property worth over a certain amount through a corporate vehicle, you are likely to be liable for ATED. The amount you need to pay depends on the value of your property. On 14th March 2024, the Treasury announced the latest tax rates for properties owned by companies under the ATED rules. The rates of ATED from 1st April 2024 are set out below. 

Property owners or investors are responsible for staying up to date with their tax filings and meeting their compliance obligations. If you require any advice in relation to your ATED filing please contact one of the Forsters’ Corporate Tax team.  

Value of the asset Annual chargeable amount 
Over £500,000 up to £1 million £4,400
Over £1 million up to £2 million £9,000
Over £2 million up to £5 million £30,550
Over £5 million up to £10 million £71,500
Over £10 million up to £20 million £143,550
Over £20 million £287,500

 

 

 

 

 

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About change! Reversal to recent financial promotion exemption changes

I recently wrote about various changes which had been made to the eligibility criteria for the financial promotion high net worth and self-certified sophisticated investor exemptions. These changes came into effect on 31 January 2024 but less than two months later, the Spring Budget has swept them away.

A financial promotion is a communication that contains an invitation or inducement to engage in a relevant financial product or service. To protect potential investors, the UK has a strict regime governing various types of financial promotions, when, how and to whom they can be made and requiring their prior approval in certain situations. Several exemptions apply which essentially allow financial promotions to be made to anyone who satisfies certain eligibility criteria. Two such exemptions are high net worth individuals and self-certified sophisticated investors. Such individuals must sign investor statements confirming that they satisfy the eligibility criteria. 

At the end of January 2024, various changes were made to the eligibility criteria for these two exemptions on the basis that the financial thresholds were out of date, having been put in place in the early 2000s. As a result of inflation over the last 15 to 20 years, the exemptions were capturing many ordinary retail investors rather than only those investors with the financial backing and expertise for which they were originally designed. 

The reasoning for the about turn, provided in the Government’s explanatory memorandum to SI 2024/301, is that significant concerns have been raised since the January changes came into effect about their potential unintended impacts. In particular, the angel investing and technology sectors have flagged that the changes could adversely affect start-up businesses which will find it harder to obtain investment from small-scale investors. With the reduction of the financial thresholds back to where they were before the January changes came into effect, more people will be able to rely on the exemptions and so small businesses will have a wider potential investor base. 

The January eligibility criteria will be reversed with effect from 27 March 2024, although investor statements which have already been made that comply with the January changes will remain valid until and including 30 January 2025. After that date, such investor statements will have no effect and new investor statements will need to be made.

So, from 27 March 2024:

  1. high net worth individuals who: (a) have at least £100,000 of income in the previous financial year (from the current  threshold of at least £170,000); or (b) held net assets (excluding a primary residence or pension) of at least £250,000 through the previous financial year (from the current threshold of at least £430,000); and
  2. self-certified sophisticated investors who have: (a) made two or more investments in an unlisted company in the previous two years; or (b) been a director of a company with an annual turnover of at least £1 million in the last two years,

will fall within the respective exemption.

The UK financial promotion regime and the exemptions available are a complex area. Please get in touch with your usual Forsters’ contact or speak to a member of our Corporate team if you have any queries or would like more detail. 

The government has reversed its decision to raise the income and asset thresholds for promotions of potentially risky investments to high-net worth individuals after a backlash from investors and technology companies

https://www.ft.com/content/072ae6eb-e3cd-4c5d-b906-7c05436fa647
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Spring Budget 2024: Minor IHT changes affecting deceased estates

Looking beyond the headline cuts in National Insurance and residential property CGT and changes to the non-domiciled individual tax regime, a couple of inheritance tax (IHT) provisions sneaked into today’s Spring Budget which may help some PRs (personal representatives, i.e. executors of a will or administrators of estates where a person has either not appointed executors or left a will) when they are dealing with deceased estates.  

We regularly see estates where the deceased left an estate liable to pay IHT, but the estate is illiquid and does not have enough liquid assets (cash) to settle its tax liability.  This often happens where the estate consists almost entirely of property assets, and is not limited to low-value estates.  

Illiquid estates pose a major problem for PRs as they are generally liable to settle the IHT due (or the first instalment of IHT due on a property, if it is being paid in instalments, which is often the case until a property is sold) before HMRC will authorise the probate registry to issue a grant of probate.  The catch-22 situation is that the grant of probate (as the document which confirms the PRs’ authority to administer the estate and authorises institutions to release assets to the PRs)  is the document required by the Land Registry which allows the PRs to sell the deceased’s properties.  

In such situations, unless the PRs or family members are in a position to loan the estate funds to settle the tax, PRs would typically apply to obtain a ‘grant on credit’ (i.e. without paying the tax due before issue).  In order to do so, PRs would need to demonstrate that they had exhausted all attempts to fund the IHT including showing that they had attempted to raise a commercial loan to discharge the liability before a grant on credit would be permitted by HMRC.  In the past, commercial IHT loans were relatively commonplace, but are now seldom offered by financial institutions.  

Following the Spring Budget, from 1 April 2024, personal representatives will no longer need to supply evidence they have sought to obtain a commercial loan to settle IHT before they can apply to HMRC for a grant on credit (paragraph 5.46). 

While certainly not a huge concession, in the face of the high rate of interest levied on unpaid IHT (currently 7.75%), it does remove one logistical hurdle for executors facing an illiquid estate who need to obtain a grant on credit in order to realise assets as quickly as possible in order to settle the estate’s IHT bill.  However, HMRC will still require a significant amount of information in the application for a grant on credit and at best, this concession will simply remove one task from the PRs ‘to do’ list and may possibly enable slightly quicker property sales (saving a little interest), but will not reduce the tax burden on death for families, nor make the process significantly easier for PRs.   

From 6 April 2025, agricultural property relief (APR) against IHT, normally only available for farmland and farm properties, will be extended to cover land subject to certain environmental land management agreements (paragraph 5.72).  Although only a very narrow extension of the current APR regime, it will provide a welcome addition for estates which have adopted environmental schemes.  Perhaps significantly, in light of the looming general election, the cost to the government is expected to be negligible until 2028-29 (at which point it is budgeted to cost £5 million). 

In terms of the future for IHT, the Spring Budget confirms that the government intends to consult on a change to a residence-based IHT regime, rather than the current domicile-based system (paragraph 2.38) but has confirmed no changes to IHT will take effect before 6 April 2025 (paragraph 5.29).  Were this to come into effect post-election, it would represent a sweeping change for inheritance tax, and would align IHT with the wider non-dom regime changes set out in the Budget. 

Administrative change to ease the payment of inheritance tax before probate or confirmation

https://assets.publishing.service.gov.uk/media/65e8578eb559930011ade2cb/E03057752_HMT_Spring_Budget_Mar_24_Web_Accessible__2_.pdf
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AI provides advice that is plane wrong; who is liable?

Air Canada has recently lost a small claims court case against a passenger who had relied on the airline’s AI chatbot’s advice in relation to retroactive claims under the airline’s bereavement policy. 

The chatbot had advised the grieving passenger that he could apply for bereavement fares retroactively.

“Air Canada offers reduced bereavement fares if you need to travel because of an imminent death or a death in your immediate family

If you need to travel immediately or have already travelled and would like to submit your ticket for a reduced bereavement rate, kindly do so within 90 days of the date your ticket was issued by completing our Ticket Refund Application form.”

The chatbot message also included a link to a webpage which said, in part, that the bereavement policy did not apply to requests for bereavement consideration after travel had been completed.

The Air Canada chatbot is an AI driven chatbot that uses a large language model (LLM), which means that it can answer questions independently, without any human input. LLMs are vulnerable to AI hallucination, in other words the LLM may perceive patterns or objects that are non-existent or imperceptible to human observers, creating outputs that are nonsensical or altogether inaccurate.

Perhaps the most remarkable thing about this debacle is that Air Canada sought to argue that it could not be held liable for information provided by one of its agents, servants, or representatives – including a chatbot.

In his decision, Civil Resolution Tribunal Member Christopher Rivers, noted that the airline failed to explain why the webpage titled ‘Bereavement travel’ was inherently more trustworthy than its chatbot. It also did not explain why customers should have to double-check information found in one part of its website on another part of its website. The Tribunal ultimately determined that the claim against Air Canada constituted “negligent misrepresentation” and that the applicant was entitled to damages.  

While the damages and court fees payable by Air Canada were relatively minor (CAN$812.02), this case should serve as a warning to companies, which are seeking to utilise AI chatbots, as to their vulnerability to hallucinate and the consequent potential for legal and financial liability. 

Air Canada argues it cannot be held liable for information provided by one of its agents, servants, or representatives – including a chatbot. It does not explain why it believes that is the case. In effect, Air Canada suggests the chatbot is a separate legal entity that is responsible for its own actions. This is a remarkable submission.

https://decisions.civilresolutionbc.ca/crt/crtd/en/item/525448/index.do
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Leasehold and Freehold Reform Bill – what’s it looking like now?

As a reminder, the Leasehold and Freehold Reform Bill started its journey through Parliament on 27 November 2023.

On 11 December 2023, the Bill received its Second Reading in the House of Commons and was generally welcomed by MPs.  The main criticism however was that the Bill didn’t go far enough and, most alarmingly, the Bill didn’t actually contain the promised ban on leasehold houses, nor any attempt to reinvigorate commonhold.

The Bill was then considered at Committee Stage, over 12 sittings between 16 January and 1 February 2024 – during which the Committee heard oral evidence, considered written evidence and examined the Bill line by line.

Now that the Bill has moved to the House of Lords for consideration (the First Reading took place last week, on 28 February), here is a quick summary of the key enfranchisement provisions that were ordered to stand and/or introduced during the Bill’s passage through the House of Commons:

  • Removal of qualifying period required for enfranchisement/extension claims
  • Removal of restrictions on repeated enfranchisement/extension claims
  • Increase of non-residential limit to 50% for enfranchisement and RTM claims
  • Right for leaseholders to require landlord to take lease backs on enfranchisement claims
  • Implementation of uniform 990 year term for all lease extension claims
  • Removal of marriage value from valuation formula
  • Introduction of a new costs regimes for enfranchisement/extension and RTM claims
  • Transfer of jurisdiction for disputes from County Court to First-tier Tribunal
  • Introduction of new right for very long leaseholders (150+ years) to buy out ground rent (subject to cap) without having to make an enfranchisement/extension claim
  • A new exception to enfranchisement (but not extension claims) for tenants of certified community housing providers
  • A new right for tenants of National Trust properties to have a right to a lease extension, subject to exceptions and the requirement to grant the National Trust the right to buy back
  • And FINALLY! A ban on the grant of long leases on houses

It is worth noting here that we are also still awaiting a formal response from the Government on their consultation regarding the capping of ground rents in existing long residential leases.  As such, the Bill does not yet contain any proposals on this but it seems likely that these will make an appearance at some point too.

During the Second Reading in the House of Lords, all aspects of the Bill will be debated, but the date for this is yet to be scheduled.

The original Bill was 140 pages – and in its current form, it now runs to 244!  

Although we were told that the Government would introduce additional measures/amendments as the Bill made its way through Parliament, the Shadow Housing Minister, Mathew Pennycook has expressed his “intense frustration” at the number of significant amendments that have been introduced to the Bill at the eleventh hour.  As he quite rightly says, this practice “impedes hon. Members in effectively scrutinising legislation and increases the likelihood that Acts of Parliament contain errors that subsequently need to be remedied…” – a sentiment shared by many!

It impedes hon. Members in effectively scrutinising legislation and increases the likelihood that Acts of Parliament contain errors that subsequently need to be remedied...

https://researchbriefings.files.parliament.uk/documents/CBP-9971/CBP-9971.pdf
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Party Wall Act Repairs: Questions to be Asked in Proceedings

The Court of Appeal (“CA”) unanimously allowed appeals relating to the Party Wall etc Act 1996 (“PWA 1996”) in their judgment of Taylor v Jones and another [2024] EWCA Civ 170 on 28 February 2024. The CA highlighted the appropriate questions to be asked by the Court where building owners comply with the PWA 1996 before carrying out any work, but substantial damage to adjoining properties still occurs. 

On the facts of Taylor, experts determined that the adjoining properties had significant pre-existing problems and any slight movement may have caused substantial damage. The building owner’s work triggered the damage. The dispute related to the extent to which the building owner should pay for the cost of remedial works. 

The five questions arising in such cases are as follows:

  1. What damage had been caused by the works?
  2. How should adjoining owners be compensated? 
  3. What work was necessary to repair the relevant damage?
  4. Should any deduction be made for betterment?
  5. What was the actual cost of carrying out the relevant repairs? 

Section 7(2) of the PWA 1996 requires building owners to compensate adjoining owners for “any loss or damage which may result to any of them by reason of any work executed” in pursuance of the Act (emphasis added). Common law principles for assessing damages remain applicable. Giving the leading judgment, Nugee LJ held that this case related to question three above. The relevant damage was the damage to internal walls and slabs caused by the building owner’s work. The building owner was not liable to compensate the adjoining owners for a longstanding defect to their external wall, because it had not been caused by the building owner’s work – the building owner’s work simply brought the defect to light and made it necessary for the adjoining owners to do something about it.  

"It no doubt seems very unreasonable to Mr Taylor that he should be required to pay for that when the reason the underpinning is required is because of the dpc crack and the fact that the wall is unsupported by its foundations, something which has probably been the case since the 1970s, and which his works certainly did not cause." - Nugee LJ, Taylor v Jones and another [2024] EWCA Civ 170 [43]

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Happy hour isn’t over yet: ‘Britain’s wonkiest inn’ owners ordered to rebuild after its demolition

The owners of the Crooked House Pub have been ordered to rebuild it after it was demolished following a suspected arson attack. Located in England’s Black Country, the pub, known fondly for its gravity-defying wonkiness, was originally an 18th-century farmhouse before it was converted into a pub in the 1830s. Visitors from as far as China, Japan, and the United States have been attracted by its precarious appearance, caused by mining-related subsidence. 

On 5 August 2023 the property was gutted by a fire in a suspected arson attack. The owners subsequently demolished the burnt-out shell, without permission form the local authority within 48 hours of the fire. 

South Staffordshire Council has served the owners of the property with an enforcement notice that requires the building to be built back to what it was prior to the fire, within three years. The notice alleges the unlawful demolition of the pub, in breach of the relevant permitted development right.  Such rights were amended relatively recently to carve out pubs from demolition in an attempt to afford them some protection from closure and redevelopment. 

In a statement issued on 27 February 2024, the Council pointed out that they had engaged with the owners since the demolition, but that it has reached a point where formal action is necessary. Leader of the Council, Councillor Roger Lees BEM said, “a huge amount of time and resources have been put into investigating the unauthorised demolition of the Crooked House” adding “we are committed to do what we can to get the Crooked House rebuilt.” 

The news has been met with widespread support from those invested in the pub’s plight, with local campaigners expressing their surprise at the speed of the Council’s action. The swift enforcement serves as a warning for ignoring planning rules, especially when a building of such unique character is involved; just how such character is to be rebuilt is yet to be seen. 

The owners of the pub have 30 days to appeal the notice. 

The campaign leader of the Save the Crooked House Facebook group, said its members were "very, very happy with the work that the council has done so quickly."

https://www.bbc.co.uk/news/uk-england-stoke-staffordshire-68414524
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Cleaning up with Hydrogen

The UK’s continued bid to hit its “Net Zero” carbon emissions target received a boost this week as it was announced that plans for H2H Saltenda hydrogen and carbon capture plant – had been approved for a site in East Yorkshire.

The Humber region is the largest CO2 emitting industrial cluster in the UK producing c12.4m tonnes of CO2 every year, so this H2H project by Equinor is fundamental in helping the region to decarbonise its industries and energy system.  It is believed that it could cut emissions at the Saltend Chemicals Park by up to a third – the equivalent to taking around 500,000 cars off the road!  Work could commence by 2026 and create about 2,200 jobs which would also be great for the region.

The development of the 600 megawatt H2H Saltend low carbon hydrogen production plant will be one of the world’s first at-scale facilities to produce hydrogen from natural gas in combination with carbon capture and storage.  This would be combined with the proposed delivery of a further 1,200 megawatt of low-carbon hydrogen production which would be principally used to fuel the Keadby Hydrogen Power Station making it the world’s first large scale facility to use 100% hydrogen to generate power.

Hydrogen is a significant fuel in our future – we must remember that it is a carrier rather than an energy source in that it needs a primary source of energy to be produced (be that solar, electricity, hydro, nuclear or gas for example).  How the hydrogen is produced and any by-products have been given various colour names.

  • Green hydrogen is hydrogen that is produced by splitting water by electrolysis using a range of renewable energy sources i.e. wind and solar – the only products of this being hydrogen and oxygen.  This is deemed the cleanest option.
     
  • Blue hydrogen is hydrogen that is produced when a natural gas is split into hydrogen and CO2 but the CO2 is then captured and stored (i.e. Carbon Capture Usage and Storage) – this is the plan for Saltend where the CO2 will be captured and transported offshore for sub-sea storage. 

You also have:

  • Grey hydrogen – a split of natural gas into hydrogen and CO2 but this time the CO2 is not captured and is released into the atmosphere
  • Pink hydrogen – made via electrolysis but using nuclear energy as its power source
  • Yellow hydrogen – made by electrolysis which is achieved solely through solar power (unlike green which can use a combination of wind/solar or other renewable energy sources)

In the future, hydrogen is expected to play a key role in decarbonising transport – it is expected to be used for HGVs, aircraft, ships, buses, trains and larger vans and cars that have high utilisation or require longer ranges.  I’ve even stepped aboard a hydrogen powered bus!

In December 2023, the Government released its “Hydrogen transport and storage networks pathway” setting out the next steps in its vision for the strategic development of hydrogen transport and storage in the UK, which is one of a number of other papers produced on the development and production of our Hydrogen industry. 

Watch this space!

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Companies House fee increase

Companies House announced earlier this week that their fees would be increasing from 1 May 2024. Making clear that their fees are set on a cost recovery basis and do not provide a profit, the increase is essentially to allow them to recover the costs of their new powers which have been, and are being, introduced by the Economic Crime and Corporate Transparency Act 2023 and to bring their fees “in line with the costs of providing [their] service”.

The announcement should not come as too much of a surprise as the potential fee increase was first mentioned last year. Although the change has been criticised by some as being too much of a hike in terms of percentage increase from current rates, Companies House has stated that even following “the increase, [their] fees will remain some of the lowest in the world”.

A list of the new fees is available here

We review our fees every year to make sure they’re set at the right level.

https://www.gov.uk/government/news/companies-house-fees-increasing-from-1-may-2024
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Tenant applications for alterations: two recent cases provide guidance for landlords

Cases on landlords’ consent to alterations are relatively rare, certainly when compared to cases concerning consent to assignment.  But 2024 has already brought us two such cases, each of which gives some useful guidance on points for landlords to bear in mind when faced with applications for alterations, as well as a warning not to be complacent when refusing consent.

In Messenex Property Investments Ltd v Lanark Square Ltd, the tenant had applied for consent to build three additional storeys onto a four storey mixed-use building in the Isle of Dogs, as well as converting the ground floor commercial use into flats.  The parties had corresponded for some three years about the scope of the proposals, and the tenant’s plans had evolved during that time.  Draft licences were in circulation but eventually the tenant ran out of patience and issued proceedings for a declaration that consent had been unreasonably withheld.  The landlord’s defence was that it was reasonable to withhold consent, and it gave four reasons: 

  1. The tenant had failed to provide structural engineers’ drawings for the additional floors to be constructed;
  2. Carrying out the works would involve a trespass over the landlord’s retained land, so the landlord could refuse consent absolutely;
  3. The tenant failed to provide unconditional undertakings in respect of the landlord’s costs; and
  4. There was a lack of clarity in the tenant’s proposals.

Only reasons one and three were considered reasonable by the judge, and therefore the landlord was reasonable overall in refusing consent (following the West India Quay case).  He held: 

  1. On the structural drawings, the judge agreed that the works were significant and that the tenant’s own planning application contained a report which threw doubt on whether the building could support additional floors, so this was a reasonable reason;
  2. The trespass was not a reasonable reason because the parties had been negotiating draft scaffolding and other licences, which would have resolved the trespass issue;
  3. The refusal to provide a further unconditional costs undertaking when requested was a reasonable reason for refusing consent; and
  4. An application for consent to alterations can develop right up until the point the proceedings are issued.  The tenant’s proposals are not set in stone at the point the application was first made; what matters is what the landlord knows about the tenant’s plans at any point during the process.  The question is: does the landlord understand what it is being asked for?  Here, the landlord knew exactly what the tenant was proposing by the time the application was made and therefore lack of clarity was not a reasonable reason. 

The law governing applications for alterations is s.19(2) of the Landlord and Tenant Act 1927.  This can be contrasted against the law governing applications to assign in s.1 Landlord and Tenant Act 1988.  Although there are broad similarities, there are some important differences.  One is that the application under s.19(2) LTA 1927 does not have to be ‘written’. This led the judge to surmise that the application process can be a fluid one, and that the reasonableness of the landlord’s decision has to be judged against the facts and circumstances, which can be viewed as late as the point the proceedings are issued. 

The case is a reminder that landlords need to be careful:  it may be unclear that an application has indeed been made if writing is not a requirement.  If the tenant informs the managing agent, during a routine inspection, that it would like to do some works and it provides some basic drawings, that may suffice. In addition, every piece of information provided by the tenant throughout the consent process must be carefully considered and factored into the decision (bearing in mind that knowledge of agents is generally attributed to the landlord).  It would be risky, for example, to refuse consent on the basis of the facts as initially presented, and to fail to consider the cumulative impact of further information, perhaps provided in dribs and drabs.  One also wonders whether the fact that the landlord had been actively negotiating a draft licence for alterations and scaffolding licence for three years (to the point of engrossments), may have put it in a trickier position, even though the emails and drafts were doubtless all carefully labelled ‘subject to licence’.  

Jacobs v Chalcot Crescent (Management) Company Ltd was a residential consent case.  The tenant had applied for consent to alterations of a duplex flat in a converted terraced house. The landlord appointed a building surveyor to advise, but after nine months of correspondence, consent had not been granted and the tenant applied to court for a declaration that consent had been unreasonably withheld.   The landlord relied on its surveyor, who opined as to fire safety matters, but admitted under cross-examination that others, e.g. a fire engineer, would be more qualified to assess this.  On appeal (primarily on a separate procedural point), the judge held that it was unreasonable to rely on the surveyor’s general knowledge and experience when the surveyor had admitted that another specialist would have been better placed.  In any event, he found that there was an obvious suitable alternative to refusing consent, which was to require certain mitigation works to be carried out.

For landlords, then, there are two main takeaways from this case:  firstly, ensure that your surveyor has the right expertise to advise you when determining the application.  Relying on inaccurate or generalist advice could be costly. Secondly, a blanket refusal may be unreasonable if there is an obvious way to alleviate your (legitimate) concern, and this can be made a condition of consent.

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Housing: A problem in search of a solution

Britain’s acute housing supply issues are not new.  They have been talked about for decades and whilst successive governments have generally recognised the problem, they have failed to enact the necessary measures to make a dent in it.

The recent announcements by the Housing Secretary, Michael Gove, are no different. They may however provide some help which, until we get a government that is willing to consider wholesale planning reform, is perhaps the best we can hope for.

Alongside the Government’s announcement regarding the prioritising of brownfield development (as if no-one has thought of developing brownfield land before!) new flexibility will be added to the permitted development regime to support the conversion of commercial buildings such as offices and shops into new homes.

These changes will come into effect on 5 March and will provide that there is now no limit to the floor space that can be converted under Class MA (previously capped at 1,500 sq m) and there is no requirement for a building to have been vacant for 3 months. 

In addition, blanket Article 4 directions which councils have previously used to block permitted development rights across entire boroughs will no longer be allowed, forcing those local authorities which were previously unwilling, to have to engage with the permitted development regime.

From the perspective of both developers and those hoping for an increase in the housing supply, this added flexibility is a welcome change, particularly bearing in mind that Class MA conversions benefit from not being subject to affordable housing obligations.  With the floorspace cap gone, many more commercial buildings will now be eligible for conversion to housing via this streamlined planning process.

Will this put an end to the nationwide housing deficit?  Of course not.  But it is better than nothing and could be particularly helpful in enabling the re-purposing of secondary office space – much of which currently sits below the minimum EPC threshold and will require significant capital expenditure in order to upgrade and future-proof it.  Knight Frank report that 140 million sq ft of office space in London alone falls into this category, and with growing vacancy rates amongst tired secondary office buildings, the UK’s city centres are not short of potential candidates for conversion.

Of course, not all offices will be suitable (or viable) for conversion.  Given the nature of offices there will generally be a need to adjust windows, improve sound proofing and insulation and modify floor heights, not to mention the importance of providing windows in residential accommodation which can sometimes prove a challenge when converting deep office floor plates.

These changes won’t solve the housing crisis but, until more substantial planning reforms are forthcoming, developers will have to work with what they have.

These changes provide a major opportunity for landowners to give commercial buildings a new lease of life, and even unlock wider redevelopment potential.

https://reactnews.com/article/the-permitted-development-window-has-been-flung-open-but-for-how-long/
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Examination of the Upper Tribunal’s power to modify restrictive covenants

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When faced with a restriction on freehold and sometimes leasehold land, there are certain circumstances in which the owner of the land may seek to have a restrictive covenant modified or removed. The process of modification or removal involves making an application to the The Upper Tribunal (Lands Chamber). The applicant must satisfy one of the statutory grounds on which a restrictive covenant may be discharged or modified. 

The statutory grounds for removal or modification are the following: 

  1. That the covenant is obsolete;
  2. That the covenant impedes the reasonable use of the land; 
  3. The modification or removal would not injure those who are entitled to benefit from the restriction; or
  4. Where all parties who benefit from the covenant give their consent to its modification or discharge. 

If the Upper Tribunal is satisfied that one of these grounds are met, the Tribunal must then decide whether they will exercise their discretion to make the change that has been requested. 

This process was examined in the recent case of Blackhorse Investments (Borough) Ltd v London Borough of Southwark [2024] UKUT 33 (LC). The applicant was the leaseholder of a pub which was to be closed down, demolished and re-constructed as a mixed-use building. The applicant applied to the Tribunal to vary the leasehold covenants that required the property to be kept open and to be used as a pub, and the restrictions against alienation and alterations. The applicant also wanted to be released from their obligation to use their best endeavours to renew licences. 

The Upper Tribunal initially ordered that the covenants be modified and the property was demolished on that basis. However, the respondent disputed the Upper Tribunal’s jurisdiction on the grounds that the covenant in relation to alienation, keeping the pub open and the covenant to renew the licences were positive in nature and the Tribunal accordingly did not have jurisdiction to modify them. 

The Upper Tribunal issued a new order that modified the covenants only to the extent permitted. 

This case serves as a useful reminder that it is not always easy to establish whether a covenant is truly restrictive in nature and that a landowner cannot simply rely on the Tribunal agreeing to modify the covenants that affect their land. 

 

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Trust Employee Ownership…

I am probably biased given that we, as a firm, regularly advise businesses on M&A in which we would also include the use of employee ownership trusts, but this call to arms for the Government in City AM last week (https://www.cityam.com/with-uk-dividends-disappearing-overseas-its-time-to-resurrect-employee-ownership/) had me both cheering and frothing at the same time! 

Calling for more employee ownership for the reasons cited in the example – benefits to employees, increased productivity, resilience in recession and superior innovation – is a great thing but, in our experience, it is here already, perhaps being the most openly available best kept secret in the corporate world at the moment! 

The Government created the environment for employee ownership trusts in the Finance Act in 2014 and there has been an increase in numbers since then, from 17 employee ownership trusts in the UK in 2014 to 1030 in December 2022 (based on the latest data estimates that I can find). (And they’ve also been used by large successful businesses, recently and famously by Richer Sounds as an example).

As I tell clients, an employee ownership trust can be a really elegant solution for some businesses when the owners want to exit but can’t find a buyer (or at least a buyer they like and trust to continue the legacy and look after loyal staff), can’t agree a price they like with a buyer or just want to hand on the business to the next generation of staff who have been key to the success of the business (admittedly, also with tax advantages for the sellers (if structured in line with Government requirements) and future benefits for the employees). 

So, I cheer the raising of employee ownership as something to encourage but also would shout from the rooftops that it is already here, so owners should consider it as an option when looking at their exit planning.

Whoever ends up in Number 10 at the end of this year must not let the employee ownership opportunity go amiss.

https://www.cityam.com/with-uk-dividends-disappearing-overseas-its-time-to-resurrect-employee-ownership/
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The National Security and Investment Act – which side are you on?

The House of Commons Business and Trade Sub-Committee on National Security and Investment is of the view that the National Security and Investment Act 2021 (NSI Act) does not go far enough in the screening of foreign investment in UK companies. Last week, the sub-committee announced that the NSI Act is “not keeping pace” with the threats to the UK’s economic security. It referred to the imposition of new, tougher investment rules in both the EU and US and suggested that we should follow in such jurisdictions’ footsteps, perhaps by implementing controls over threats to media freedom (currently in place in, for example, the EU and Australia). In addition, the sub-committee pointed out that there is no actual definition of “national security” in the NSI Act; an issue that has been widely commented upon since the draft legislation was first published, implying that this is the reason for (in the sub-committee’s view) the high number of notifications made to the government under the NSI Act in 2022/23. Such high number of notifications risk the government “losing sight of the wood for the trees and missing key transactions with security implications”.

The sub-committee’s comments formed its reply to the government’s recent call for evidence seeking views on the operation and scope of the NSI Act, with a particular focus on how the regime could be made “even more business friendly”. Based on the opinion pieces and articles about the call for evidence that I’ve read so far, the majority seem to approve this sentiment, suggesting that some restricting of the mandatory notification requirements (the regime under the NSI Act which makes notification of certain transactions in certain sectors compulsory) would be applauded; for many, the requirements as currently legislated result in too many, no- risk transactions having to undergo the notification and clearance process. Perhaps a definition of “national security” would help here after all?

The government is currently reviewing the various replies to the call for evidence and we await its response but I suspect that this is a subject where you just can’t please everybody. 

a subcommittee of MPs on the business committee said the UK should tighten its screening processes in response to a toughening of investment rules in the EU and the US

https://www.ft.com/content/ad955fc0-b8a3-461d-9df4-31f727edee41?segmentId=bf7fa2fd-67ee-cdfa-8261-b2a3edbdf916
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It ends with .ai…

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The inadvertent allocation of domain names has led to a windfall unexpectedly for one tiny island. Where .tv (and also .it to some extent) was the first example of a domain name being used for business context it seems that .ai is going to be the next big thing (if it isn’t already the current big thing!)

 

the nation has been able to pay some debts down and eliminate residential property taxes.

https://thehustle.co/one-big-benefactor-of-the-ai-boom-the-tiny-island-of-anguilla/
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What Makes a Good Annual Report and Accounts – The FRC Publishes Findings on the Quality of the UK’s Largest 20 Private Companies’ Corporate Reporting

Back in December 2022, the Financial Reporting Council (FRC) (that is, the independent regulator in the UK responsible for regulating auditors, accountants and actuaries, and which sets the UK’s Corporate Governance Code and the UK’s Stewardship Code) announced areas of supervisory focus for its 2023/24 corporate reviews and audit quality inspections to identify any areas of poor compliance with company corporate reporting requirements and to inform future monitoring. 

At this time, the FRC highlighted that, when selecting reports and audits for review, it would be prioritising sectors which were under particular economic pressure and considered higher risk for corporate reporting and audit. 

The FRC has since turned its regulatory attention to, and conducted a thematic review of, 20 of the UK’s largest private companies’ corporate reporting. On 31 January 2024, it released its findings in a report that examines the quality of those companies’ corporate reporting (the Report).

The FRC’s review looked at the annual report and accounts of 20 UK companies with revenues ranging from £1.5 billion up to a whopping £24 billion and that employ between 1,000 and 145,000 people (and covered year-ends falling between September 2022 and December 2022). There was a particular focus on areas of most importance to users (such as the strategic report, judgements and estimates, provisions of contingencies, presentation of primary statements including cash flow statement and supporting notes, revenue and financial instruments.

Companies were chosen from various industries, including retailers, construction, materials and engineering, technology, energy and chemicals, beverages and tobacco, and automobiles and parts. The companies could be split into three broad categories: (1) parent companies of privately owned groups (that prepared consolidated accounts); (2) subsidiary companies of overseas entities (that prepared individual accounts); and (3) subsidiaries of UK-listed companies (that also prepared individual accounts). 

As the FRC points out in the Report, transparent and relevant communication of key matters in the annual report and accounts of large private companies is needed to provide users with decision-useful information – these sorts of companies are economically significant entities, often providing jobs for large numbers of people, sustaining extensive supply chains and utilising substantial debt financing and are often important drivers for growth in the economy. 

During its review, the FRC found that the quality of reporting of the UK’s largest private companies was mixed, particularly in terms of how clearly companies explained material matters that were complex or judgemental and that many of the issues it had identified could have been avoided if a sufficiently critical review of the annual report and accounts had been conducted prior to their finalisation. 

The Report sets out the FRC’s main findings, which, among others, include: 

  • The best strategic report disclosures focused on the elements of development, performance and position that are key for an understanding of the company, explaining them in a clear, concise and understandable way that was consistent with the disclosures in the financial statements. Good quality reporting does not necessarily require greater volume
  • To enable users to fully understand a business, disclosures should explain the nature of the business’s operations and how it fits into a wider group structure
  • Better examples of judgement and estimates disclosures included detail of the specific judgement involved and clearly explained the rationale for the conclusion. The significance of estimation uncertainty was much more apparent when sensitivities were quantified
  • For some material provisions, the level of detail provided on the nature of the obligation and the associated uncertainty was below the level that the FRC expected. Users benefit from clear disclosure of this information to allow them to fully understand the risks affecting the company.

The FRC’s findings further identified the need for companies to conduct a sufficiently critical review of their annual report and accounts before finalising and submitting them. This would help them to ensure that they are complying with their corporate reporting obligations. Such a review will include taking a step back to consider whether the report as a whole is clear, concise, and understandable, whether it omits immaterial information and whether additional information was necessary to understand particular transactions, events or circumstances. 

The Report as a whole might serve as an additional tool for companies as they prepare their accounts and reports and assist them to ensure high-quality, compliant corporate reporting, particularly given the use of live examples and notes on whether certain reporting items were considered by the FRC to be good examples, or otherwise fell below the required disclosure standards.  

The full report can be found here.

In addition to the Report, companies can find further FRC guidance around what makes a good annual report and accounts at: 

  • What Makes a Good Annual Report and Accounts’. Section 4 of this publication identifies the characteristics that should be considered in determining whether information is material, including in the context of the strategic report
  • Materiality’, which looks at the application of materiality in practice by companies.

Better examples of judgement and estimates disclosures included detail of the specific judgement involved and clearly explained the rationale for the conclusion. The significance of estimation uncertainty was much more apparent when sensitivities were quantified.

https://media.frc.org.uk/documents/Reporting_by_the_UKs_largest_private_companies_ijQVWVu.pdf
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The dangers of loneliness

According to research carried out by the University of Glasgow, those who do not see loved ones at least once a month and live alone have a significantly increased risk of dying. The study analysed 458,146 people with a mean age of 56.6 over a median of 12.6 years.

It’s clear from the findings of the study that regular social connection is a crucial factor in living longer, and this is something that ‘housing with care’ options offered by integrated retirement communities can provide for older people. With facilities such as restaurants, bars and community halls and gardens, along with optional personal and domestic care where required, integrated retirement communities are primed to combat the risk of social isolation amongst the older population.

The findings of the study suggest that advice, interventions and policy may be needed to address different aspects of social interaction and target high-risk groups. The work of the Older People’s Housing Taskforce will be crucial in increasing awareness of integrated retirement communities as a housing option available to older people, which in the context of this study will have an important role to play in counteracting the dangerous effects of loneliness.

People who were never visited by friends or family were 53% more likely to die from cardiovascular disease and had a 39% increased risk of death compared with those who were visited daily.

https://www.theguardian.com/society/2023/nov/10/people-never-visited-by-loved-ones-more-likely-to-die-earlier-study-finds
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APs and PAPs take note – more sections of the Building Safety Act 2022 now in force

Sections 79 – 88, 90 – 98, 101, 102 and 111 of the Building Safety Act 2022 (“the Act”) were brought into force on 16 January 2024 by the Building Safety Act 2022 (Commencement No.6) Regulations 2024.

These sections focus on the building management obligations imposed by Part 4 of the Act upon Accountable Persons (“APs”) and Principal Accountable Persons (“PAPs”) in occupied Higher-Risk Buildings, as well as residents’ duties in relation to building safety in these types of buildings.

Briefly, the main AP/PAP duties brought into force by these Regulations are:

  • Sections 79 – 81 – a duty on the PAP to apply for a Building Assessment Certificate (which must include the building’s Safety Case Report) within 28 days of being directed to do so by the Building Safety Regulator (“the BSR”);
  • Section 82 – a duty to display the Building Assessment Certificate, once received, in a ‘conspicuous position’ in the particular building;
  • Sections 83 – 84 – a duty of the APs to assess building safety risks and take reasonable steps to manage those risks (including taking steps to prevent a building safety risk from materialising);
  • Section 85 – 86 – the PAP must prepare and provide to the BSR a Safety Case Report as soon as reasonably practicable after the building becomes occupied or, if later, the time when the person becomes the PAP for the building.  The Safety Case Report must contain any assessment of the building safety risks made pursuant to Section 83 and a brief description of any steps taken under Section 84.  The Safety Case Report should be kept under review and updated whenever necessary;
  • Section 87 and 88 – this section places a duty on the APs to keep and provide to the BSR prescribed information about the building.  In addition the PAP must establish and operate an effective mandatory occurrence reporting system for the building;
  • Section 90 – a duty upon any outgoing AP to ensure that prescribed information is given to the incoming AP as well as the BSR;
  • Section 91 – a duty on the PAP to produce a residents’ engagement strategy for the building to promote participation in making building safety decisions.

Section 95 is also worth noting, as it imposes obligations on the occupants and owners of dwellings in HRBs not to act in a way that creates a significant risk of a building safety risk materialising and not to interfere (i.e. damage, remove or do anything that interferes with its intended function) with a relevant safety item.

By way of enforcement, and to give these newly in force duties some bite, sections 87 and 90 impose criminal sanctions on those APs who fail to comply with their duties in these areas and APs and the BSR can now, pursuant to Sections 96 and 99, give Contravention Notices and Compliance Notices where residents/owners and/or APs are found to have contravened or are contravening their duties.

Finally, the Higher-Risk Buildings (Keeping and Provision of Information etc.) (England) Regulations 2024 (SI 2024/41) also came into force on 16 January 2024.  These Regulations specify the “golden thread” of information and documentation that APs must keep and share with those who have an interest in relation to an HRB.

If you require any further information or assistance with the above, or anything else in relation building safety, then please contact Forsters’ Building Safety Team.

 

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Social infrastructure – a fundamental shift for real estate?

What is “social infrastructure”?

The term is being used as another description for “real estate” or “property” in the context of a growing demand for ESG focused real estate assets and changing perspectives on investment timelines for real estate assets.

Why is the term being used?

The ESG nexus: It is becoming apparent to the real estate industry that investors would like to have an impact with their investment. The PWC Emerging Trends in Europe 2024 report confirms that investors are looking at the added value to assets from having an ESG focus. Therefore, despite the additional costs that might arise from an ESG strategy, having such a strategy remains important for attracting investment to an asset. 

As part of demonstrating the ESG element of a real estate asset, using the phrase “social infrastructure” allows real estate asset managers to capture in their branding of an asset both the environmental credentials (which will usually benefit the occupiers of the real estate) as well as delivering in respect of social benefits to the locality of the relevant asset (for example a carefully designed estate landscaping scheme will provide a green space for the local community and possibly a play area for local children as well as enhancing biodiversity and clean air within an asset’s estate). 

Living sector opportunities: Additionally, PWC’s report noted real estate investors are considering new opportunities away from the traditional real estate sectors. The Living sector is a good example of an area that is grappling with issues such as an affordable housing crisis, an ageing population requiring appropriate later-living housing (in the 2021 Census 18.6% of the UK were over 65 years old) and a shortage of rental properties. Investment into the Living sector will be critical to alleviating these issues and is highlighted in the “Building more homes” pillar of the BPF’s 2024 election manifesto.  Furthermore, commentators, such as Simon Hodson at JLL (on Social’s Impact Chat on 31 January 2024) have highlighted that longer term investment is needed and referring to the real estate involved (such as affordable housing) as “infrastructure” could help encourage public-private partnerships which look beyond election cycles (from the public side) and fund life cycles (from the private side). Infrastructure projects are generally understood to require a longer timeline to be delivered and to provide returns and if a similar mindset/expectation can be adopted for parts of the Living Sector this could help drive investment and solutions to the challenges outlined above. 

What could this mean for real estate lawyers?

We have for some time seen an expansion in our repertoire of documents and provisions we are advising on. Now there are often operator or management agreement documents to negotiate with sophisticated operators who might provide a wider service than just a property management role or may be linked to a renewable/low carbon energy source for an estate. Additionally, there is greater diversity in lease provisions with “green lease” provisions for environmental initiatives and more recently “blue lease” provisions to address social initiatives at a building.  These changes reflect that there is already a shift occurring for the real estate industry in having greater complexity to real estate assets and this aligns with the narrative forming around “social infrastructure”.

 

 

 

 

...real estate is increasingly seen by investors, governments and citizens as “social infrastructure”. It is an industry that is not just “creating a lease so we can collect the rent”, as one investor says, but investing in the space required to meet the most fundamental needs of society, in many cases fulfilling needs traditionally met by government...

https://www.pwc.com/gx/en/asset-management/emerging-trends-real-estate/assets/emerging-trends-in-real-estate-europe-2024.pdf
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Changes to financial promotions exemptions come into effect

Following a UK government consultation and the publication of its response to that consultation in November of last year, changes to certain of the financial promotions regime’s exemptions came into effect yesterday (31 January 2024). 

The exemptions in question allow businesses to raise funds from certain individuals without the need to comply with the regulatory burden of the financial promotions regime. 

Any new financial promotion which seeks to rely on the exemptions will now need to abide by these amendments, regardless of whether the investors in question have been previously promoted to by the business.

What are the changes?

  • The financial thresholds to qualify as a high net worth individual have been increased. Previously, an individual had to have an income of at least £100,000 in the last financial year or net assets of at least £250,000 throughout the last financial year. These thresholds are now £170,000 and £430,000 respectively
  • The eligibility criteria for self-certified sophisticated investors have been amended. On the basis that the requirement for a self-certified sophisticated investor to have made more more than one investment in an unlisted company in the last two years is no longer suitable, this condition has been deleted; the reasoning being that it is now much easier for ordinary retail investors to invest in unlisted companies than it was in the past. 
  • The financial thresholds for a company director to qualify as a self-certified sophisticated investor have been increased. Previously, this criteria was met if the company in question had an annual turnover of at least £1 million in the last two years; now, it is £1.6 million
  • The paperwork to be given by high net worth individuals and self-certified sophisticated investors has also been amended, with the intention of improving the format and investor engagement and simplifying the wording, for example, by reducing legislative references
  • The company seeking to issue a financial promotion is required to provide more detail about themselves in the communication than was previously the case, although given the information only comprises their address, registration details and contact information, this change shouldn’t prove too onerous. 

It is important that both companies and individuals seeking to rely on the exemptions comply with the conditions in order not to fall foul of the financial promotions regime. 

If you have any questions about the changes or are considering utilising one of the exemptions (either as an investor or company), please contact a member of the Forsters’ corporate team. 

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Olympic Village decision makes stark reading for developers

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A significant recent decision concerning the Olympic Village development in Stratford has demonstrated the reach of “remediation contribution orders” made under the Building Safety Act 2022.

The decision requires the original developer and its parent company to contribute circa £18 million towards the costs of major cladding remediation works and associated costs, even though the ultimate beneficial owners of the developer have changed since the buildings were constructed. The case is notable as the application was made by a leaseholder who was not liable to contribute to the cost of the major works via the service charge, where funding for those works had been secured from the taxpayer funded “Building Safety Fund”.  That funding will now, no doubt, need to be repaid.

What is a Remediation Contribution Order?

The Remediation Contribution Order, or “RCO” is a creation of the Building Safety Act 2022 (“the Act”). An RCO can require the current landlord, former landlord (as at 14 February 2022) or developer of a building, or someone associated with them, to meet costs incurred or to be incurred in remedying relevant defects. The Act allows the First-Tier Tribunal (“FTT”) to grant an RCO in relation to a relevant building (i.e. a self-contained building or part in England that contains at least 2 dwellings and is at least 11 metres high or has at least 5 storeys) if it considers it just and equitable to do so.

The Olympic Village Application

The Olympic Village case concerned five residential buildings that were originally developed by Stratford Villa Development Partnership (“SVDP”) to provide accommodation for athletes and officials taking part in the London 2012 Olympic Games. The freehold is still owned on trust for SVDP, although the beneficial owners have changed since the buildings were first developed. Notably Get Living Plc (“Get Living”), which is known to be well financed, is now SVDP’s parent company but was not involved with the original development.

Beneath the freehold, a headlease of the buildings is in place to a management company (“EVML”), which has the responsibility to repair and maintain the structure and common parts. In this case, EVML is jointly owned by subsidiaries of Get Living as well as an affordable housing provider, Triathlon Homes LLP (“Triathlon”), who both, in turn, have underleases of various parts of the buildings. Those underleases provide for the underlessees to pay a service charge to EVML.

Following the Grenfell Tower fire, work was undertaken by EVML to identify the materials used in the construction of the building. Serious fire safety defects were discovered, relating to both the design and construction of the cladding systems used for the external facades. In response to the discoveries, a waking watch and other temporary measures were implemented.  A programme of works to remedy the defects is now ongoing. 

Although some of the costs associated with the waking watch and investigatory work were demanded via the service charge, the costs of the major works were not.  Instead, EVML secured circa £24.5 million of funding for those works from the Building Safety Fund. 

Triathlon made an application for SVDP (the original developer) and Get Living (in its capacity as SVDP’s parent company):

  • to reimburse the costs which Triathlon had already paid via the service charge as undertenant (and to pay service charges demanded from, but not yet paid by, Triathlon to EVML); and
  • to pay what would otherwise have been Triathlon’s share of the cost of the major works and professional fees to EVML.

It was acknowledged that the cost of the major works could not be recovered from Triathlon as an underlessee via the service charge (presumably due to the leaseholder protections in the Act). In view of this, one of the more interesting aspects of the case was that the application was still brought by Triathlon, in a context where public funding for the work had been secured. Triathlon explained its position by saying that it was concerned that funding for the works via the Building Safety Fund was not necessarily guaranteed, and that there may be a shortfall between the cost of the works and the funding secured.

The decision

The FTT granted the RCO, compelling SVDP and Get Living to pay EVML the total sum of around £18 million in respect of the cost of remediation works, professional fees, other remedial measures and additional costs. 

The FTT found Triathlon’s concerns regarding the availability of funding via the Building Safety Fund to be fanciful (saying that there was no good reason to believe that the remedial works would founder for lack of money), but the certainty of funding was not a reason to refuse the RCO. The Act provides a set hierarchy of liability for relevant defects, and it is not necessary for someone to be at fault in order to be liable. The FTT said that, in view of this, it would be difficult to see how it could ever be just and equitable for a party falling within that hierarchy, who is able to fund the relevant remediation works, to be able to claim those works should instead be funded by the public purse.

Much of the argument in the case concerned the question of whether it was “just and equitable” for the RCO to be made. Ultimately, it was relevant (and supported the making of the RCO) that SVDP was the original developer, and that Get Living is the entity on which it relies on for financial support. The FTT held that it was not relevant that the ownership of the developer had changed hands since the buildings were constructed.

The FTT also commented that it is possible for it to be just and equitable for an RCO to be made even where costs were incurred before the relevant parts of the Act came into force (28 June 2022). There might be a case where a person against whom an RCO is sought, in respect of costs incurred prior to 28 June 2022, could say that they had acted to their irretrievable prejudice, in the belief that they could safely expend the relevant funds as service charges validly demanded and received. In such a case there might be traction for an argument that it was not just and equitable to require that person to fund the relevant costs itself. That was not the case here. 

Implications for developers and building owners.

EVML will now recover circa £18 million from SVDP and Get Living. EVML will, no doubt, be liable to reimburse the Building Safety Fund and may look to pursue a claim against the original contractor.

Each RCO decision will turn on its own facts, as what is “just and equitable” will differ from case to case. That said, this decision was given by the President of the Lands Chamber and his Deputy, following argument by expert Counsel on both sides. As such, it provides significant insight into how the FTT will approach these applications, and the factors that are likely to be relevant. 

The decision itself will make worrying reading for some, however. That the FTT made this order even though the beneficial owners of the original developer had changed since the building was constructed will be unwelcome news to many who have purchased buildings containing defects. The decision clearly demonstrates that entities may still be liable for remediation costs, even where they did not have any involvement with the building at the time it was redeveloped or where they have secured funding from the Building Safety Fund. Anyone contemplating the share purchase of a real estate company will now be well advised to carry out due diligence on all properties previously developed or owned by that entity, as well as existing ones.  

The decision also makes clear that funding from the Building Safety Fund can not be relied upon as a permanent solution. The grant funding agreements entered into when Building Safety Fund monies are allocated require monies to be repaid where they can be recovered from a third party. This decision demonstrates that the RCO route has significant teeth and makes it more likely that the Building Safety Fund will expect these applications to be made. 

It also remains to be seen whether the Building Safety Fund will now ask for RCO applications to be pursued before monies are granted. It is possible that they may now view an RCO as a viable alternative method of securing short term funding for necessary works, given the relative speed with which these applications can be brought compared with High Court litigation.

Key Takeaways

  • The taxpayer should be the last resort for funding to remediate defective buildings. 
  • An RCO can be made against the current landlord, former landlord (as at 28 June 2022) or developer of a relevant building, even if the shareholders have changed since the building was developed.
  • An RCO can still be made in respect of works carried out prior to 28 June 2022, which were funded via the BSF. If an RCO is made in such circumstances, the BSF will need to be repaid.
  • It remains to be seen if the Building Safety Fund’s approach to granting funding will now change.

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Are you ready for the new QCA Code?

On 13 November 2023, the Quoted Companies Alliance (QCA) published the third and latest version of its corporate governance code (2023 Code) aimed at ‘UK Growth companies’. The 2023 Code, published after wide consultation with stakeholders, replaces the previous 2018 corporate governance code (2018 Code). 

The QCA recommends that companies claiming to apply the QCA code in respect of accounting periods commencing on or after 1 April 2024 apply the 2023 Code, with the first disclosures expected in 2025. There will be a 12 month transition period from 1 April 2024, intended to allow companies the flexibility to adjust to the 2023 Code and build the necessary capability to apply its Principles.

The 2018 Code applies to almost 900 companies, whose shares are largely traded on AIM and the Acquis Stock Exchange (AQSE). 

Companies listed on AIM are required to include on their website ‘details of a recognised corporate governance code’ that its board of directors has decided to apply, how it complies and, where it departs from its chosen code, the reasons for doing so.

Companies listed on the Access segment of the AQSE Growth Market are required to have due regard for the principles laid down by a recognised corporate governance code in so far as appropriate to that company, and where the company departs from the recognised corporate governance code in respect to the composition of its board, the company must publish on its website an explanation as to why it believes the composition of the board is appropriate and suitable.   

Therefore, companies that currently apply the 2018 Code, and particularly those listed on stock exchanges that require adherence to a recognised corporate governance code, should begin to consider the new 2023 Code, and any potential changes required to ensure compliance with the 2023 Code (to the extent required) when it comes into effect. While many of the Principles set out in the 2018 Code remain substantively the same, they have become more prescriptive. For example, Principle 6 now provides that shareholders should be given the opportunity to vote annually on the (re-) election of all individual directors to the board.

However, the most significant change to the 2018 Code is a new Principle 9, which requires companies to “Establish a remuneration policy which is supportive of long-term value creation and the company’s purpose, strategy and culture”. 

The 2023 Code is free for QCA members and available to purchase otherwise. Further information may be found here

It is used by almost 900 companies, whose shares are traded on AIM, the Main Market, the Aquis Stock Exchange and by private companies which may opt to float in the future.

https://www.theqca.com/qca-corporate-governance-code-public/
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The “Green” lease evolution continues

As this ULI’s Climate Change report quite rightly explains,  successful decarbonisation in the built environment requires owner-occupier alignment. The report doesn’t hold back: “Progress on the decarbonisation of real estate portfolios is being held back by a lack of understanding and collaboration between property owners and occupiers”. Unquestionably, collaboration is key to any decarbonisation pathway on a tenanted real estate asset. 

As all those familiar with green leasing will testify, the concept of collaboration is often tested in negotiation. Owners and occupiers, quite naturally, have their own aspirations but also sensitivities, usually relating to cost and operational “risk”. The nature of the “green lease” is evolving all the time. 

Today marks a significant milestone. In 2008, the BBP first launched its Green Lease Toolkit. We have come a long way since then and now have the much anticipated update – inevitably, it will form a helpful reference point – an industry benchmark on green leasing (particularly the “Green Lease Essentials”). Perhaps even going some way to address the observations in the ULI report. Time will tell but undoubtedly a really positive step on the net zero pathway!
 

A lack of cooperation between the occupiers and owners of the continent’s buildings is significantly slowing down their decarbonisation

https://reactnews.com/article/lack-of-owner-occupier-cooperation-hinders-decarbonisation-in-europe/
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Building Safety Act: the regulator is late… what then?

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Developers will by now be familiar with the implications of the “Gateways” procedure introduced by the BSA.  If nothing else, it’s now clear that construction programmes will need to account for the 12-week and 8-week review periods which the Building Safety Regulator (BSR) will have to determine a building control approval application (Gateway 2) and issue its completion certificate (Gateway 3).

An obvious question is what then happens if the BSR fails to respond within these statutory time periods?  The latest government guidance confirms that applicants can contact the Secretary of State for a non-determination application by emailing [email protected] for full instructions on how to submit their application.   The non-determination application is made under Section 30A of the Building Act 1984.  Should this application be successful, the Secretary of State must then determine (or appoint someone to determine) the developer’s original application.

Bearing in mind that some project delays arising out of the implementation of the BSA might, depending on the negotiated position, end up being “developer’s risk” under the building contract, developers should make sure that they and their advisors understand the process for having applications decided as soon as possible, in the event of a BSR-induced delay.  

 

 

The applicant must inform the Regulator of their intention to make a non-determination application to the Secretary of State. This notification must be given to the Regulator at least 2 working days before submitting the application.

https://www.gov.uk/guidance/non-determination-applications-for-higher-risk-buildings-procedures-applying-to-the-secretary-of-state?utm_content=immediately
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Biodiversity Net Gain – Launch Date Confirmed

The Government has now confirmed that the biodiversity net gain (“BNG”) obligations secured by the Environment Act 2021 will take effect on 12 February 2024, with the obligations following for smaller sites taking effect on 2 April 2024. 

The transitional arrangements for planning applications submitted prior to this date have also been confirmed as follows:

  • For planning permissions granted before 12 February 2024, an application pursuant to section 73 to vary that permission will be exempt from BNG.
  • The BNG obligations will not apply where the application for planning permission was made before 12 February 2024. 
  • If a planning application for a small site development is made between 12 February 2024 and 2 April 2024, with a subsequent section 73 variation granted after 2 April 2024, BNG will not be required on any subsequent section 73 variations.

Whilst finalised regulations are awaited on the de-minimis exemption (for which the BNG obligations will not apply) and the different options for delivering mitigation, this update is a definitive move towards BNG taking effect. 

We have prioritised the introduction of BNG for planning applications – which is the predominant route to securing planning permission. From 12 February, BNG will apply to new applications for planning permission, except for applications for retrospective permission, the exemptions and transitional arrangements set out below.

https://defralanduse.blog.gov.uk/2024/01/18/bng-launch-date-confirmed/
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The Judgment of National Importance

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In the Supreme Court case of Wolverhampton City Council and others (Respondents) v London Gypsies and Travellers and others [2023] the court was asked whether they have the power to grant injunctions against persons who are unknown and unidentified at the date of the grant of the injunction, and who have not yet performed, or even threatened to perform, acts the injunction prohibits. These persons are known as “newcomers” and the injunctions made against them are called “newcomer injunctions”. When the Supreme Court handed down the judgment on 29 November 2023, it was described by Wolverhampton City Council as a “judgment of national importance”. 

Background 

Between 2015 and 2020, 38 different local authorities obtained injunctions designed to prevent Gypsies and Travellers from camping on local authority land without permission.

 The injunctions were addressed to “persons unknown” because the Gypsies and Travellers could not generally be identified in advance. When the injunctions were granted, these “persons unknown” or “newcomers” had not yet committed, or threatened to commit, any breach of planning control, trespass, or other relevant unlawful activity. The power of the courts to grant these injunctions was appealed to the highest court in England and Wales. 

  Supreme Court Judgment 

The Supreme Court held that the court has power to grant newcomer injunctions because its powers to grant injunctions is unlimited (subject to statutory restrictions). These are a wholly new form of injunction, which are granted without prior notice against persons who cannot be known at the time the order is made. Therefore, they can potentially apply to anyone in the world. 

 This means that injunctions may be granted in new circumstances as and when required by the principles of justice and equity which underpin them. That said, the Supreme Court clarified that these injunctions should only be granted in certain circumstances and subject to certain safeguards.  

  1. First, there is a compelling need to protect civil rights or enforce public law that is not adequately met by any other remedies. 
  2. Second, newcomer applications are made without notice. The applications need to be advertised widely so affected persons are given a fair opportunity to make representations. The injunction needs to be displayed in a prominent location at the affected site. 
  3. Third, the applicant must comply with a strict duty which requires them to disclose to the court any matter which a newcomer might raise to oppose the making of the order. 
  4. Fourth, newcomer injunctions should be limited so they do not apply for a disproportionately long time period or to a disproportionately wide geographical area. 
  5. Finally, the court must be satisfied that it is just and convenient that a newcomer injunction is granted. 

Concluding thoughts 

This is a welcomed decision as it helps to provide clarity on injunctions in the context of Gypsies and Travellers but also confirms that a newcomer injunction can be granted in other circumstances provided the conditions and safeguards have been satisfied. It also avoids, as the Supreme Court stated, the prospect of “litigation without end”.

Therefore, it will be interesting to watch this space for further developments, see how this decision will impact protestor injunctions, and if private landowners will utilise newcomer injunctions on their private property. 

 

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Artificial Intelligence & Court Judgments?

On 12 December 2023, judicial guidance was published in relation to Artificial Intelligence (AI).  The guidance may be accessed here: https://www.judiciary.uk/guidance-and-resources/artificial-intelligence-ai-judicial-guidance/.  

As well as setting out the usual health warnings relating to privacy and security, the guidance interestingly sets out where it can be a helpful tool.   That included reference to the use of generative AI as a potentially useful secondary tool in relation to research or preparatory works undertaken in order to produce judgments.  In context, the reference reads as follows: Judges are not generally obliged to describe the research or preparatory work which may have been done in order to produce a judgment. Provided these guidelines are appropriately followed, there is no reason why generative AI could not be a potentially useful secondary tool.

Whilst the guidance goes on to confirm that AI is not recommended for tasks such as legal research or analysis, it is very clear that the judicial guidance recognises there can be valuable uses of AI as above and for more administrative tasks.  

As AI develops, and the offering of specific programmes designed for use in the legal industry widens, it will be fascinating to see how the judiciary incorporate AI as a daily tool.  What is clear is that this is only the start of governing that relationship, which is likely to expand and become more regulated over the coming years as AI becomes more sophisticated.  

Whether it can ever assist as a primary tool for preparation of judgments is a difficult question, bringing into play ethical concerns as to the importance of human judgment in life and whether that deep understanding of nuanced circumstances could truly ever be replicated by machines. 

The guidance is the first step in a proposed suite of future work to support the judiciary in their interactions with AI. All work will be reviewed as technology continues to develop.

https://www.judiciary.uk/guidance-and-resources/artificial-intelligence-ai-judicial-guidance/
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A change Brewing for wages

Before considering BrewDog HQ’s recent announcement about the change to their wages strategy, there are two key terms to understand and distinguish:

National Living Wage

This is an hourly wage level set by the government each year, which applies equally across the UK. Currently set at £10.42, it is due to increase to £11.44 in April 2024. The National Living Wage is generally equal to the National Minimum Wage for people aged 23+ years in the UK (with those aged below 23 years having variable lower rates of National Minimum Wage as determined by their age). There is no obligation on employers to pay the National Living Wage to all employees; instead, the legal obligation is for employers to pay at least the applicable National Minimum Wage to all employees.

“Real” Living Wage

This is a rate determined by the Living Wage Foundation. It has regional variation, with the current hourly rates being £13.15 in London and £12 for the rest of the UK. The Living Wage Foundation describes its chosen rate as “The only UK wage rate based on living costs and arrives at the figure by analysing a “basket” of goods (which this year saw, amongst other changes, alco-pops and digital cameras thrown out and frozen berries and e-bikes put in) and other cost of living factors, such as rent prices. There is no obligation on employers to pay their employees the real living wage, but those that do so can publicise their accreditation.

What have BrewDog done?

Until 3rd January 2024, BrewDog paid their staff the Real Living Wage, but they have now taken the decision to pay their new recruits the National Living Wage instead (although there will be no reduction in wages for existing staff). Such change was made known to staff by letter, the contents of which have been made public.

The ramifications for new employees include an absence of regional variation in wage levels and an overall reduction in the rate of pay on offer. 

BrewDog close their letter to staff announcing the change by pointing to the overall benefits package that they offer. This is reflective of the general mood in the employment and HR world, with those who are newer to the workforce (looking at you, Gen-Z) placing greater value on the overall benefits package on offer and how a chosen employer can complement employees’ existing lifestyles, rather than having a job to simply pay the bills. This marks a shift of focus to the overall employment package (which, historically, has been a far more prominent concern for senior level employees) and is an important change of which employers should be aware.

BrewDog’s move might also help us to re-asses our economic barometers. Might the lower wage offering signal more business hardship (certainly that is what BrewDog point to in their letter)? Or, could it actually show a strengthening job market, with employers no longer grappling to attract the top talent? 

 

BrewDog’s example suggests that at least some companies are finding it both harder, and less necessary, to boost wages — with redundancies on the rise and labour shortages easing.

https://www.ft.com/content/cebae1d5-e54e-43d1-b77b-9f8ac998c0c1?accessToken=zwAGDqlRO8tYkdPOuuHV5U5D0dO3e5-KyZjAwQ.MEYCIQDzWdJUELQZGUf2bF8SOvjpFfBFxU_yZPzptcesGq9haQIhANnGxeBAZ3JjXLrzHfhFQB5HPV_NaTPuhXFEO2iYxJGe&sharetype=gift&token=14d86338-3e4a-427e-a1db-431bbcdeeeb5
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Developers Beware – Put the Horse before the Cart when dealing with Restrictive Covenants

At the end of last year the judgment in Fosse Urban Projects Ltd v Whyte & Ors [2023] UKUT 286 (LC)  served as a renewed warning to developers that you develop land at your peril if you fail to deal with any restrictive covenants first. 

The case underlines the fundamental point that whilst the Tribunal may have jurisdiction to modify or discharge a covenant, it always maintains a discretion and conduct will be a very relevant consideration in the exercise (or not) of that discretion. Making an application retrospectively puts a developer at serious risk of falling foul of the discretion and potentially facing, at worst, a demolition order.

Background

The developer, Fosse Urban Projects Limited, had obtained a planning permission to build a house on land subject to a covenant which restricted its use to “garden land” only.

The developer made an application to the Upper Tribunal to discharge the covenant on grounds (a) obsolescence, (aa) reasonable user, and (c) no harm. The application in October 2022 was fairly typical save that by the time of the hearing in September 2023 it had become entirely retrospective. This being because the developer had proceeded to build out before the application had been determined. 

The adjacent landowners (and objectors) contested the application on the basis of (variously) loss of an uninterrupted view and loss of privacy. 

The Warning

Whilst the developer succeeded in establishing that the Upper Tribunal had jurisdiction to discharge the covenant on grounds (a) and (aa), the Upper Tribunal then proceeded to consider whether or not it should exercise its discretion to do so. 

The Tribunal decided not to due (in the main) to the developer’s conduct as:

  1. The developer had (the Tribunal inferred) known of the covenant and its enforceability but had taken a cynical gamble that the neighbours would not seek to resist the application after building work began; and
  2. Whilst represented by counsel at the hearing, the developer had failed to attend to provide evidence explaining its actions, from which only adverse inferences could be drawn.

The ‘build first and apply later’ approach clearly weighed heavily in the decision. 

This leaves the developer in breach of the covenant. Whilst the Tribunal’s jurisdiction does not extend to making orders for demolition, that being a power that remains with the Court, it leaves this remedy potentially open for the objectors should they choose to pursue it. 

For practitioners this case echoes in many regards the recent Alexander Devine Children’s Trust v Housing Solutions Ltd [2020] UKSC 45 case in which the Supreme Court took a firm line on cynical breaches of restrictive covenants. 

Ultimately, the lesson remains to always put your horse before your cart. This application would have likely succeeded but for the conduct of the developer- a clear warning to all developers thinking of short cutting this process…

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National Security and Investment Act – call for evidence

A little under two years after the National Security and Investment Act 2021 (the “NSIA”) came into force, the government has issued a call for evidence to consider changes to the regime. According to the government, its aim is to make the NSIA more “business friendly”, an objective which is welcomed by a corporate lawyer. 

The main areas covered by the call for evidence are:

  • the mandatory notification regime, including whether the scope of activities set out in the 17 mandatory sectors should be refined and whether any specific exemptions should be put in place, for example, in relation to internal reorganisations which can fall within the regime even though there is no ultimate change of control.
  • improving the notification and assessment process to increase transparency. Although the government sets out several changes which have already been made in this area, people involved in an NSIA notification often find the regime to be opaque. 
  • developing government guidance.

The NSIA has come under scrutiny from various commentators throughout its short life and certain elements of the regime have received criticism from stakeholders. Although the call for evidence was not unexpected, it is good to see that the government is considering whether to make some (hopefully) positive changes to these elements.

The call for evidence can be accessed here, with the deadline for responses being 15 January 2024.

In order to be truly effective, the NSI Act must also be flexible, adapting to the changing nature of our economy and evolving to consider all of those acquisitions that might be considered sensitive.

https://www.gov.uk/government/calls-for-evidence/call-for-evidence-national-security-and-investment-act
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Protections from redundancy to be extended

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From 6 April 2024, protection from redundancy afforded to employees on maternity, adoption or shared parental leave will be extended to employees who are pregnant or returning from such leave.

Currently, employees on maternity, adoption or shared parental leave have special rights in a redundancy situation.  Under regulation 10 of the Maternity and Parental Leave Regulations 1999 parents on these types of leave must be offered first refusal of any suitable alternative employment available in a redundancy situation.  This gives such employees priority access to redeployment opportunities over other redundant employees.

Draft regulations have now been laid before Parliament designed to bring the Redundancy (Pregnancy and Family Leave) Act 2023 into operation.  The new Act will extend the period of special protection from redundancy to employees who are pregnant or returning from maternity, adoption or shared parental leave.  

New protection rights

From 6 April 2024, the period will be extended as follows:  

1. Pregnant employees

Start: from the date the employee notifies the employer they are pregnant 

End:  18 months from the child’s expected week of childbirth. The protected period can cover 18 months from the exact date of birth, if the employee gives the employer notice of this date prior to the end of maternity leave.

In circumstances where the employee miscarries before the 24th week, the special protection period will end two weeks after the end of the pregnancy.  It is worth noting that pregnancies ending after 24 weeks are classed as stillbirths and the employee would be entitled to statutory maternity leave and the protections afforded above.

2. Adoption

Start: the beginning of adoption leave

End:  18 months from placement for adoption

3. Shared parental leave 

Start:  beginning of shared parental leave

End:  the protected period will cover 18 months from birth, provided that the parent has taken a period of at least six consecutive weeks of shared parental leave. This protection will not apply if the employee has taken adoption or maternity leave (as they will be covered under those protections instead)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It should be noted that the protection is not a ban on making employees redundant during the protection period. Employees with priority status can still be selected for redundancy, but they are afforded special rights when it comes to the allocation of alternative roles.

What happens if an employer gets it wrong?

If an employer fails to comply with the “priority” requirements, this could enable an employee to bring a claim for automatic unfair dismissal.  An automatic unfair dismissal claim does not require two years’ qualifying service (unlike an ordinary unfair dismissal claim).  Depending on the facts, employees may also have a claim for discrimination.  It is therefore key for employers to understand the new rules and how to apply them. 

From 6 April 2024, protection from redundancy afforded to employees on maternity, adoption or shared parental leave will be extended to employees who are pregnant and returning from such leave.

https://insights.forsters.co.uk/post/102iv8t/flexible-working-requests-become-a-day-1-right
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Flexible working requests become a day-1 right

The Flexible Working (Amendment) Regulations 2023  were laid before parliament on 11th December 2023, which means that, from 6th April 2024, all employees will have the right to make a statutory flexible working request from day one of their employment

Previously a right reserved for those with a minimum of 26 weeks’ continuous service, this enables employees to make a formal request to vary their contractual working arrangements – for example to work from a different location or to vary their working days or hours. When an employer receives a statutory flexible working request they are obliged to handle the request in a prescribed fashion. They must deliver their reply to the employee’s request within 12 weeks of receipt and are only permitted to reject such a request for one of eight statutory reasons. Moreover, failure by an employer to respond appropriately to a statutory flexible working request can trigger a claim by the employee in the employment tribunal, carrying with it a compensatory award. Therefore it is important that employers are aware of this change to the legislation, and of their resultant obligations.

A common misconception is that flexible working requests primarily benefit those wishing to adapt their working arrangements as they start a family. The desire to meet the family’s needs is a perfect example of why an employee might decide to exercise their rights in this regard, but it isn’t the only example; other reasons might include to enable caring obligations, or to accommodate the symptoms or treatment of a chronic medical condition. It is evident that these scenarios, and similar, can arise at any time, and often might not have the decency to hold off until an employee has reached 26 weeks’ continuous service. Broadening the scope of this to a day-1 employment right will offer more employees (millions, according to the statistics) the ability to request an update to their job requirements when unforeseen and often urgent changes in circumstances arise.

This amendment to the existing legislation comes as part of a broader package of reforms under the Employment Relations (Flexible Working) Bill (which gained Royal Assent in July 2023); all of which are aimed at enhancing the accessibility of flexible working conditions for employees and the transparency of the way by which employers approach such issues. The Government press release on the Employment Relations (Flexible Working) Bill emphasises that the motivators behind the changes include hopes of creating a more contented workforce which will, in turn, trigger an increase in productivity and subsequently bolster the economy. 

Whether or not the reforms package will achieve the desired outcomes remains to be seen, but the changes will undoubtedly be welcomed by those who are new starters in their role. 

 

These Regulations amend the Flexible Working Regulations (S.I. 2014/1398) (“2014 Regulations”) and provide that the right to make a flexible working application applies when an employee begins employment (a day 1 right).

https://www.legislation.gov.uk/uksi/2023/1328/made
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Litigation at whose cost?

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Holland Park (Management) Limited-v- Dell (8 December 2023)

INTRODUCTION

The judgment of the Court of Appeal in this very substantial service charge dispute is likely to have a profound effect as to how, and whether, landlords (and particularly lessee-owned freehold companies) can litigate at the lessees’ expense.   

The rather extraordinary facts of this case are set out below but the conclusion of the Court of Appeal was to uphold the judgment of the Upper Tribunal that the costs of litigation to enforce covenants against an adjoining owner were irrecoverable from the lessees, Mr and Mrs Dell, as the service charge only covered services relating to the management and maintenance of the demised building and not any adjoining building. 

THE FACTS

89 Holland Park (“the Building”) comprises 5 flats and the freehold is owned by the lessees through the management company, 89 HP. Mr and Mrs Dell’s lease was entered into in 1989 and has been extended to a term of 999 years. 

 For about 10 years, HP has been engaged in substantial and very contentious litigation with the architect, Sophie Hicks, in relation to her wish to build a new house next door. Under covenants entered into in 1968, Ms Hicks needs 89 HP’s consent to her plans before she can proceed and 89HP have strenuously and successfully refused to give consent for what would be a major redevelopment that would have considerable impact on the Building and the lessees’ enjoyment of their flats. 

By January 2021, 89 HP had billed the lessees a total of £2,763,521 in relation to litigation costs but Mr and Mrs Dell had made it clear in 2014 that they did not want to spend any more on legal proceedings. They challenged liability for the balance of £430,411 sought from them for work thereafter.  

THE DECISION

Mr and Mrs Dell succeeded. The Court of Appeal unanimously found in their favour as:-

1. The leases were drafted with a clear focus on the service charge just relating to the maintenance and management of the Building and had to be interpreted in that context. 

2. The service charge related to items of a day-to-day nature which 89 HP were obligated to provide, rather than as to providing funding for unlimited costs of discretionary major litigation. Further, the leases reserved right to the landlord to deal with any adjoining land as it saw fit. 

3. Reference to the maintenance, safety, amenity and administration of the Building were not aimed at covering costs aimed at preventing any adjoining development even though there were concerns as to the structural impact of such development and its effect on the views from the Building and other amenities. 

4. The leases make provision to recover legal costs for specific contemplated events, such as lessee default, but contain no reference to enforcing or dealing with the 1968 covenants even though they pre-dated the leases and future disputes as to the development of the undeveloped adjoining land were foreseeable. 

 

THE CONSEQUENCES AND LESSONS TO BE LEARNED

So far as 89 HP is concerned, subject to any appeal to the Supreme Court, it will have to fund the shortfall but, as a management company with no real assets, it is not clear how it can do so or, even, how it will pay Mr and Mrs Dell’s legal costs? 

For all landlords, this judgment drives home how uncertain and unclear residential leases often are and that it certainly cannot be assumed that all costs are recoverable thereunder, particularly substantial and uncertain litigation costs. 

In some cases, the articles of association of management companies can compel the lessees, as shareholders, to contribute to any costs incurred and, as with collective enfranchisement claims, participation agreements between the lessees are also a way of securing their buy-in for the full course of proceedings.

But the ultimate lesson is that litigation with neighbours is expensive, uncertain, time-consuming and almost always best avoided. 

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Attending the Student Accommodation Conference

On Tuesday 5th December, Ronan and I attended The Student Accommodation Conference at the Intercontinental Hotel. The conference had many interesting talks from investors, lenders, operational teams and universities. 

The main message that came through was the strength of the student accommodation sector, and how resilient it has been despite other markets being challenged in recent times. 

The PBSA market in particular is currently seeing changes, as more second year university students are looking to move into purpose built student accommodation rather than privately rented homes. An interesting talk from a university showed that a few years ago universities had to encourage students to go back into PBSA after their first year; now the demand has increased, and the university is running out of rooms within their PBSA as it is such a popular choice. 

For me, the most interesting take of the day was looking at the Building Safety Act and the new building regulations. The message was that we, within the sector, should be viewing the new regulations as an opportunity to get new buildings up to a suitable safety standard, rather than a restriction on what we can build. The speaker pushed for getting buildings up to a standard that not only meets the current regulations but also meets future safety standards that might come in within the next 5 or 10 years. He pushed for this as a real opportunity to improve ESG: a very important and current topic across the real estate sector in general.    

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Film Studios: Peering Through The Letterbox

I had the pleasure of being joined by Simon Calvert, studios occupier lead at CBRE, on the latest edition of the More Than Law podcast. Together we peer through the letterbox and give insights into the latest trends and likely developments in film studio real estate in the UK. 

What you can hear about:

  • the changing UK studio landscape
  • the future of the MLA
  • challenges in the market
  • the impact of the Autumn Statement 
  • sustainability, volume and who the heck Albert is
  • Owen’s moustache 

What we’re watching:

  1. The Bear, season 2, available on Disney+
  2. Only Murders in the Building, season 3, available on Disney+
  3. Ghosts, available on iPlayer

Thanks and credit to Charlie Brooker for inspiring the title of the pod.

To learn more about Forsters’ experience in supporting Studios clients, get in touch with our Studios Group.

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Takeaways from the Financial Times Webinar on Enhancing the Retail Customer Experience

Last week I listened in to the Financial Times webinar “Enhancing the Retail Customer Experience”. There were some interesting conversations about advances in technology, the cost of introducing new technologies and services and the focus for retailers going forward.

My key takeaways were:

  • Technology is evolving quickly. The most successful systems are those that are streamlined across all purchasing models (e.g. in store, online via a retailer website or through social media and online marketplaces) and are simple for customers to navigate. It is important to meet customers where they are browsing. For example, younger age groups are more likely to browse on social media and online marketplaces.
  • AI is a hot topic, with the ability to improve both efficiency and customer experience. AI isn’t going away, so retailers need to start including it in their business models.
  • Costs are increasing, including the cost of implementing new technologies. Retailers need to be clear about what their customers want and how they are going to deliver it so that they can prioritise the technologies that will work for them.
  • This year customers have been moving back towards shopping in-store. They are looking for an experience. Bricks and mortar are still a key part of retail.
  • Customers are becoming less loyal to specific brands and instead shopping around. Focus going forward should be on building and maintaining customer loyalty. Customers want a personalised experience from retailers and the more a customer trusts a brand, the more likely they are to hand over information about themselves so that, for example, deals can be tailored. It is more expensive to acquire a new customer, so retailers that can inspire loyalty from their existing customers will have an advantage.
  • It is important that retailers have adequate security to keep their customers’ details private, as data collection is becoming more vital in order to personalise customer experiences.

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The latest experiments in physical retail… featuring Christmas pop ups!

Retail Gazette has helpfully summarised the latest pop up stores for online retailers. It’s great to see a couple, De-Pop and Amazon, focusing on pre-loved items as the retail industry continues to work on the sustainability challenges caused by fast fashion in particular. Here’s my take on a few brands that are looking at physical retail, or have done recently. 

ASOS launched its first pop-up store over the Black Friday weekend with, we understand, more to follow. It leaned heavily on experiential elements such as DJs, masterclasses and working with Snapchat to enable customers to ‘try on’ products via  digital avatars on themselves. I recently learnt that the younger generations use Snapchat for communication more than Whatsapp (did I miss the memo here?), so this is a clear strategic move from ASOS to build up their presence on the latest social media trends. Retail Gazette has reported that ASOS experienced a 43% traffic plunge over the Black Friday period, so no doubt significant analysis is going into why that was and whether the store made up for any of that. The brand continues to battle with the likes of Temu and Shein who are dominating fast fashion (and the advertising on my phone, even on Instagram). 

Whilst not technically a pure online retailer, Next recently launched its first Made concession since purchasing the brand on Black Friday too. Made has benefited from Next’s ability to deliver products quickly and so it will be interesting to see whether Next’s investment will produce more profitable physical retail for the brand. 

Looking back, Gymshark’s first store is just over a year old. From the outside the bustling store looks like a great success, despite the impact of the hefty initial expenditure on the brand’s accounts. The store is the epitome of ‘retail as experience’, with the latest event being free massages and manicures if you purchase an item in store from their new Rest Day collection. 

With the predictions in the market being that in the next few years we will see a rise in the proportion of sales being online plateau to a natural ceiling, with omnichannel becoming more prevalent than ‘bricks vs clicks’, we can expect to see more of these pop-up or long term experiential stores. The future looks different, but we’re confident it will be bright!

Online retailers are also looking to get a piece of the action this year with some launching their first ever brick-and-mortar space during the golden quarter.

https://www.retailgazette.co.uk/blog/2023/11/online-retailers-pop-ups/?utm_term=0_-2a72a4a96f-%5bLIST_EMAIL_ID%5d
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A new Government consultation – not another one…

It has been a week since the publication of the 2023 Autumn Statement and amongst efforts to reduce debt and boost the economy, a new planning consultation was revealed. We do not have much information but we do know that the consultation will be published in early 2024 and focus on permitted development rights. In particular, whether permitted development rights should be introduced “to enable one house to be converted into two homes” and “to end the blanket restriction on heat pumps one metre from a property boundary in England”. 

You may recall that a consultation was published earlier this year seeking views on a plethora of permitted development rights.  These included the change of use to dwellinghouses from a multitude of uses, including hotels and agricultural buildings. The consultation response is awaited. 

The expansion of permitted development rights seems to be one way in which the Government plans on easing the burden on the planning system to ensure more houses are built in the quickest time possible. 

It will be interesting to see how all this plays out, and what rights will actually come forward.  Watch this space…

Reforming the UK’s planning system is crucial to ensuring there is investment in the essential infrastructure and commercial development needed for growth.

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Court of Appeal rules on compulsory ADR

Churchill v Merthyr Tydfil County Borough Council – Court of Appeal Decision 29 November 2023

Little did Mr Churchill appreciate how he would change the law when he refused in January 2021 to refer his claim for encroachment of Japanese knotweed against his Local Authority to their Corporate Complaints Procedure.

 

Nearly 3 years later, following a 3-day hearing also involving the Law Society, the Bar Council and various other interested parties and attended by a total of 13 Leading and Junior Counsel, the Court of Appeal has decided that a court can lawfully order litigating parties to engage in a non-court-based dispute resolution process i.e. Alternative Dispute Resolution (“ADR”).  

 

The Court of Appeal declined to follow the decision in Halsey v. Milton Keynes General NHS Trust [2004] EWCA Civ 576 in which the court took the view that parties could not be forced to go to ADR against their will (as this would place an unreasonable obstruction to their right of access to the court) as it decided that these comments were simply obiter. It held the court had the power to control its own process and can make orders  to make the court system accessible, fair and efficient. It took particular note of how the court rules and costs recovery are based upon parties seeking to settle their differences  both before and after commencing proceedings in accordance with the overriding objective of dealing with cases justly and at proportionate cost. 

 

The judgment determines that the court can, in appropriate cases,  lawfully stay proceedings for ADR “provided that the order made does not impair the very essence of the claimant’s right to proceed to a judicial hearing, and is proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at reasonable cost”.  This appears to align with the overriding objective under the CPR and highlights the court’s ability to “actively manage” cases to achieve that objective.

 

Is this particular form of management really going to encourage settlement, or simply increase costs for all parties involved? Perhaps the answer to that question lies in how the courts will decide to use such powers. An arbitrary list of the types of cases and/or situations in which a court should impose ADR would likely lead to the latter result. The Court of Appeal, however, declined to set out fixed principles as to what will be relevant when determining whether to go down this route . They did state that issues raised by The Bar Council, Mr Churchill and those in Halsey will be relevant e.g. the form of ADR being considered, whether the parties were legally advised or represented or whether ADR was likely to be effective or appropriate without such advice or representation etc., although it is made clear that other circumstances will be taken into account. The courts will also be able to order any type of ADR, which should also assist with tailoring the decision to the case and the parties involved. 

 

Overall, given that it seems as though the courts will look at every case individually, take into account all factors relevant to that case and consider all types of ADR, this decision may lead to parties incurring less time and costs going through the court process, especially lengthy trials. However, given that the courts have very limited background knowledge when it comes to cases and parties, it may still be a concern that the courts will impose ADR when it is simply not suitable for the parties in question. 

 

It does, however, seem clear now that the default position has changed. A party will generally be expected to have to participate in ADR and will have to make a good case not to do so. 

 

As always, parties should consider ADR (which could include an internal complaints procedure) early on in the dispute process and make every effort to avoid issuing proceedings. If this is done properly, then it may dissuade the courts from ordering ADR later on in the process. 

 

Ironically, the Court of Appeal held that it would not stay Mr Churchill’s claim for various reasons particular to it.

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Going Shopping 2024 – takeaways from The Definitive Guide to Shopping Centres

There’s some fantastic data collated here thanks to Trevor Wood Associates (free to download on their website), looking at overall attractiveness to shoppers, retailers and investors. 

It’s particularly interesting to see the differences identified between those in the Premier Division of shopping centres and those not, such as the preference for comparison led schemes rather than convenience. Here lies another nod to the view that physical retail is increasingly seen as an experience rather than purely a necessity. To back that up, the report flags that the number of leisure occupiers continues to rise, with the exact leisure offering still changing. 

And congratulations to all the managing and letting agents that made the Top 10. The Retail team here at Forsters are delighted to work with so many of you on some of the best schemes out there.   

Below the Premier Division, there has been significantly less activity than usual which, considering the last two years, is not surprising.

https://www.trevorwoodassociates.co.uk/
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The Leasehold and Freehold Reform Bill is here – and it’s a whopping 140 pages!

Just 20 days after the King’s Speech, the Leasehold and Freehold Reform Bill was introduced to Parliament on Monday (27 November).  This forms part of the Government’s long-term plan for leasehold reform.

So what does this actually mean for leasehold enfranchisement?

Whilst the King’s Speech didn’t give too much away, the background briefing note issued by Downing Street immediately afterwards confirmed that the Leasehold and Reform Bill would include a number of reforms, and sure enough, the following provisions have made it in:

  • Standard lease extension term increased to 990 years for both houses and flats.
  • 2-year ownership rule removed.
  • ‘Non-residential’ limit increased to 50% for freehold and right to manage claims.  

But, as mentioned previously, it would have been foolish to think that anything was either on or off the table before the Bill was published.  There are more than a handful of other items contained in the Bill also, that are worthy of note: 

  • The removal of restrictions on repeated claims.
  • An amendment to the position regarding the acquisition of intermediate interests/leases of common parts in collective enfranchisement claims.
  • A new right for leaseholders to require their landlord to take a ‘leaseback’ of any unit that is not let to a participating tenant (to include commercial units).
  • A new costs regime for enfranchisement and right to manage claims, where (subject to some exceptions) leaseholders will not generally pay their landlord’s costs.
  • An amendment to the jurisdiction for disputes – so, as far as possible, all disputes will be determined by the Tribunal.
  • A new right for leaseholders with long leases (more than 150 years unexpired) to buy out their ground rent without extending the term of their lease/buying the freehold.
  • An amendment to the statutory redevelopment break rights – providing freeholders with consistent rights for houses and flats, and repealing a number of statutory redevelopment ‘defences’.
  • A set method for calculating the premium payable for a lease extension/freehold interest (save for the preserved section 9(1) of the LRA 1967), which includes:
    • the removal of the requirement for marriage value and/or hope value to form part of the valuation;
    • the capping of ground rents to 0.1% of the freehold value for valuation purposes;
    • the introduction of prescribed rates (to be set by the Secretary of State in secondary legislation); and
    • the treatment of intermediate interests as having been merged into the freehold.

BUT – where is the express ban on the creation of new leasehold houses?  Although the impact of this is likely to be small since the Leasehold Reform (Ground Rent) Act 2022 came into force, this was a manifesto commitment by the Tories at the last general election. The final point in the Guide to the Leasehold and Freehold Reform Bill also includes it as one of the heads of reform – “Ban the sale of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset”.

We are told that the Government will introduce some measures at first reading and others as amendments, as the Bill makes its way through Parliament.   We are led to believe that these amendments will include a ground rent cap for existing leases – once the consultation on this closes on 21 December, and it has been suggested also that there will be further amendments to the BSA 2022 included within the Bill (designed to ensure that those that caused building-safety defects in enfranchised buildings are made to pay). So perhaps an express ban on new leasehold houses will feature later down the line too? 

In the Explanatory Notes, the Government acknowledges that the Bill will financially impact different groups in the leasehold sector and it confirms that they are undertaking a robust assessment of the costs and benefits of the reforms on the impacted groups.  The impact assessment will be published in due course apparently!

And, despite concern within the industry that the Bill will be met with some heavy opposition, the BBC reports that Michael Gove has said “I am absolutely confident this bill will be on the statute book by the time of a general election”.

A more thorough analysis will follow from Forsters in the coming weeks.

“I am absolutely confident this bill will be on the statute book by the time of a general election”

https://www.bbc.co.uk/news/uk-politics-67537218
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Takeaways from Revo: EVolution of retail

Last week I attended Revo’s EVolution of retail meeting. It was an interesting morning filled with discussions about how the retail sector has fared over the course of this year and the benefits and challenges of adding electric vehicle (“EV”) charging points to retail offerings.

My top 8 takeaways from the event are:

  • 2023 has been a turbulent year for retail, with the cost of living crisis and both climate and political events affecting the way we shop. Whilst there has been gradual improvement of consumer confidence levels, we are still sitting at pandemic levels.
  • Tolga Necar of CACI said that Net Zero is “no longer a campaign for the young”. Regardless of age group, the greatest concerns are rising costs and energy bills. This has meant that people are postponing large financial investments and cutting back on small luxuries. However, all generations are still concerned about making ethical choices when shopping (although some have more spending power to do something about it than others) and it is now baby boomers that are more likely to be taking steps to reduce their carbon footprint.
  • Awareness of “Black Friday” is now fairly high but suspicion about how genuine deals are is also high. It was reported by Simple Politics that Which? have said that only 2% of the “offers” they have seen are actually the lowest price the goods have ever been. Only 1 in 5 is expected to shop in the Black Friday deals. 
  • Whilst consumers were reducing their Christmas spending last year, 46% do not expect the cost of living crisis to effect their Christmas spending this year. It is, therefore, expected that Christmas spending will remain at similar levels to last year rather than being further reduced.
  • Most age groups expect to do more Christmas shopping in store than online this year. People are looking for an experience, which online shopping cannot offer.
  • There are currently around 50,000 public EV charging points in the UK. If 2035 targets are to be achieved, we need between 250-650,000 charging points as 31% of EV drivers do not have the ability to charge from home. In order to achieve this, it will also be important to upgrade the electricity grid to ensure that supply can meet demand.
  • Destinations with EV charging facilities are perceived to be more environmentally friendly and more socially responsible, even by those who do not drive an EV. Research suggests that EV drivers will drive further to reach a destination and spend longer at and spend more money at that destination if it has a good EV charging facility. Retail offerings will, therefore, risk losing footfall if they don’t have the right charging infrastructure in place.
  • The charging infrastructure needs to provide a good user experience. This includes good availability, ease of use, a safe and well lit environment and a charge time that matches dwell time. Faster charging is not always better. Some people will want a slow charge if they are planning their visit to take a number of hours.

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Cruise controlled off the roads of San Francisco

news fallback

Car manufacturer Cruise, a General Motors owned brand, has had its permits to deploy its self-driving cars revoked by California’s Department of Motor Vehicles after an accident in San Francisco. 

The accident involved a pedestrian on a crosswalk in San Francisco being hit by another vehicle and thrown into the path of one of Cruise’s driverless cars. According to an order of suspension issued by the department, the driverless car subsequently attempted a “pullover manoeuvre” that the DMV said had lasted seven seconds and involved dragging the pedestrian another 20ft.

In August, Cruise was granted the right to run full-scale driverless taxi services throughout San Francisco without any restrictions. A heavily opposed approval that, in hindsight, was premature. 

It is a timely reminder that despite the great steps taken by the driverless car industry, autonomous vehicles are still in their infancy, something that will no doubt be kept in mind as the UK currently lays the groundwork for its new Automated Vehicles Bill, intended to prepare Britain’s roads for autonomous driving. A key aspect of the new Bill is that car makers, not owners, will bear the responsibility for any crashes in the UK involving autonomous vehicles.  

 

Cruise’s cars were “not safe for the public’s operation”, California’s Department of Motor Vehicles said as it announced it was revoking permits for Cruise to test and deploy its vehicles on public streets.

https://www.ft.com/content/c9ee60ca-852f-4186-bfef-261560ab7b47
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Deliveroo Judgment – the latest update in the rights afforded to those working in the gig economy

The UK Supreme Court has delivered its hotly anticipated (at least within employment law circles…) judgment in the Independent Workers Union of Great Britain (IWGB) -v- Central Arbitration Committee; that Deliveroo riders are not employees within the meaning of Article 11 ECHR and therefore cannot be represented by trade unions for collective bargaining.

The facts of this case, as is true for most matters which progress to the Supreme Court, are nuanced. In summary, the Supreme Court was looking to decide: i) whether Deliveroo riders fell within the scope  of Article 11 of the European Convention of Human Rights (ECHR); and ii) if the riders did fall within the scope of Article 11, did UK law compel Deliveroo to engage in compulsory collective bargaining with the union either in all circumstances or some?

In the culmination of the seven year saga, the Supreme Court passed a unanimous judgment that the Deliveroo riders were not within the scope of Article 11, i.e. there was not a relationship akin to employment. This decision was reached following an evaluation of the realities of the working relationship between the riders and Deliveroo. The characteristics which were assessed included: (most notably) the unfettered right of substitution (whereby Deliveroo do not need to offer any form of approval for a substitute being engaged by a given rider), the riders’ freedom to choose how regularly they accepted/ declined work and the absence of repercussions for regular non-acceptance of work.

This judgment contributes towards the ever-growing bank of caselaw examining the gig economy and how it fits within the established legal framework. In recent years there have been several cases passing through the courts which have challenged similar issues, for example Pimlico Plumbers Ltd v Smith and Uber BV v Aslam. On the one hand, it is becoming apparent that each case will turn on its specific facts (when establishing an individual’s employment status); on the other hand, this judgment has produced a significant takeaway, which is the power of persuasion given to a genuine and unfettered right of substitution when considering whether or not an individual is an employee or not.

With Deliveroo hailing this outcome as a positive turn of events and IWGB conversely labelling it as a disappointment, there are bigger questions to be posed as to the sustainability of the gig economy business models – does it offer freedom and flexibility to the workforce or does it avoiding giving rights to individuals who are potentially in already vulnerable positions?

The Supreme Court unanimously dismisses the IWGB’s appeal. It holds that the riders were not in an employment relationship for the purposes of article 11 ECHR

https://www.supremecourt.uk/cases/docs/uksc-2021-0155-press-summary.pdf
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Gaming Section 84 of the Law of Property Act

news fallback

A case which flew a little under the radar this summer in the legal press (although not in the mainstream where it made the Daily Mail on no less than five occasions) was the case of  The Ridgeway (Oxshott) Management Ltd v McGuinness & Anor [2023] .  

The case contained some interesting discussion on the Tribunal’s jurisdictional limitations, and in doing so exposed a potential way to circumvent the powers of the Upper Tribunal and reinforce control over the use of land. 

The potted background is that the Ridgeway is an estate in Oxshott. The Ridgeway (Oxshott) Management Limited (“ROML”) are the resident’s management company who own the estate roads and verges. Mr and Mrs McGuinness are residents on the estate who obtained a planning permission to knock down their home and replace it with two houses. Cue proceedings by ROML seeking an injunction to restrain the McGuinnesses on the basis of a restriction contained in an easement limiting the use of the estate roads:

“for the sole purpose of access to and egress from the Property in connection with its use as a single private dwelling house”.

Whilst section 84 of the Law of Property Act 1925 allows a party to apply to the Upper Tribunal to modify or discharge restrictive covenants, the jurisdiction only extends to:

“any restriction arising under covenant or otherwise as to the user thereof or the building thereon”

The ‘otherwise’ does not however extend to restrictions contained in an easement, which the McGuinnesses argued was abusive as it gave the effect of a covenant but without the statutory rights afforded under section 84 to modify or discharge the same. They contended (as one of their defences) that the restriction was therefore void or unenforceable for public policy reasons.  

It is certainly correct that despite proposed reforms to extend the jurisdiction to allow the Tribunal to deal with easements, these have not yet come to pass, and judicial comment remains for the time clear that easements are not covered. For this (and other cogent reasons) the Court in this case had little truck with the Defendant’s position, as detailed in the Judgment. 

However, this does pose an interesting question; can parties use restrictions in easements to circumvent the jurisdiction of section 84? In this case the Court noted that the restriction had not been contrived to have this effect, which seemed to infer that had it been, a different approach might have been taken. It is not clear though that this (aside from those situations arising such as in in O’Byrne [2018] UKUT 395 (LC) & Hotchkin v McDonald [2004] EWCA Civ 219) in fact closes this off, it does seem that restrictions within easements remain an option to parties seeking another means of restricting the use of land and thereby to game section 84…

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Don’t mention BNG…for now…

A Planning Inspector’s decision has been quashed as a result of wrongly assessing an appeal against future BNG legislative obligations not yet in force. 

An Inspector upheld a council’s refusal to grant permission for a sand and gravel quarry. This refusal was challenged by the applicant in the High Court, one of the grounds being that the Inspector had erred in law in the weight to be attached to biodiversity net gain obligations. 

The High Court Judge concluded that the Inspector had reduced the weight to be attributed to the biodiversity net gain generated by the proposed development, purely because some of that gain would have been required in any event pursuant to the Environment Act 2021 (when the provisions come into force). The Court confirmed this approach is an error of law. 

The Judgment specifically references the DEFRA consultation document which indicates that the BNG provisions, when they do take effect, will not apply to planning applications submitted or planning permissions granted before the provisions come into force. 

This case recognises the position that for the time being at least, the Environment Act provisions relating to BNG are not a relevant consideration in the determination of a planning application or planning appeal. That being said, developers should look to assess the deliverability of BNG for sites intended to be brought forward once the Environment Act provisions have taken effect. 

NRS Saredon Aggregates Ltd v Secretary of State [2023] EWHC 2795 (Admin)

"If the inspector's assessment of the weight to be given to the biodiversity net gain was based on an incorrect view of the law or involved taking account of a matter which was not properly a material consideration that would have been an error of law causing him to exercise his planning judgement on an incorrect basis"

https://www.bailii.org/ew/cases/EWHC/Admin/2023/2795.html
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OpenAI just became a little Opaque

While there is undoubtedly any number of books to be written, university case studies to be reviewed and no doubt a TV series to follow about what just happened at OpenAI, with the surprise departure of first Sam Altman and then Greg Brockman, it raised a few points that I immediately wanted to understand more about.

Sam Altman and Greg Brockman were founders of OpenAI and yet their positions were terminated by the OpenAI board. Not being familiar with the structure at OpenAI (and it seems to be a relatively unusual structure in that a non-profit entity owns OpenAI and has a board that is independent and separate to OpenAI) my immediate thoughts were:

  • how did the founders not have protected rights about their right to be on the board?
  • how did large investors (like Microsoft) not have any say in the decision?
  • how has this even been structured that this could be such a surprise – and has Sam Altman breached his contract as an employees and director so seriously that it can be terminated?

Usually, when acting for founders, entrepreneurs and/or investors the above would be some of the core protections and questions that you would be discussing and negotiating. The last thing a founder wants is to be removed without there having been good cause to do so and the last thing investors want is for boards to take decisions that might impact their investment. So advisers will usually spend a lot of time balancing these rights and the checks and balances as between investors and founders. This shock news – which very much seemingly turns on the specific structure of OpenAI – serves as a reminder to think about how you document rights, operation, management and control as a founder or as an investor.

It is also a reminder that thinking ahead to the future of the business and considering its final exit plan as soon as possible, as well as taking good advice about the various options and their implications, remains as important as ever. 

The takeaway may be that OpenAI was always meant to be a public charity and not to result in a large liquidity event – but I’d like to know if the founders really deeply thought about that at the start of the business and as they structured it, and whether they discounted other structures that may have given them different options. If that is the case and it was a definite choice based on advice and consideration then all worked well, regardless of what happens next for OpenAI. I hear that forthcoming episodes will be released weekly each Friday….

 

“How much of the future of OpenAI technology is going to be hamstrung because they made the mistake in the first place of placing that I.P. and that tech within the public charity in the first place,”

https://messaging-custom-newsletters.nytimes.com/template/oakv2?campaign_id=4&emc=edit_dk_20231120&instance_id=108186&nl=dealbook&productCode=DK%c2%aei_id%3d102015490&segment_id=150538&te=1&uri=nyt%3a%2f%2fnewsletter%2f230e9d77-ae8d-5f5a-b1b0-574246404d63&user_id=0c4dfee2b84be61054071e18e4f2d5df
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Why has retro-fitting stalled? Can we still meet net zero targets in the built environment?

With 40% of carbon emissions coming from the built environment, the construction industry acknowledges that it has a significant role to play in the race to net zero. However, as reported by edie, latest research suggests that emissions reductions have plateaued and, in the US, even reversed so that emissions are on the rise!

Most people are clear on the importance of reducing emissions, both in order to protect the environment and their wallets. So, what has caused this slump? The article refers to barriers such as insufficient private investment, workforce skills shortages and limited awareness. 

I suspect it is not lack of awareness that is preventing action, but rather lack of funds. In the UK at least, there is little support available for homeowners looking to make sustainable improvements. And sustainability measures are still fairly costly to install. With the cost of living crisis ongoing, the payback period is getting shorter, but that still requires the individual to have the capital to invest in the alterations to their property in the first place.

The skills gap is a very real problem. Construction times are extended and costs increased because the workforce simply isn’t there. We need more people trained in the latest technologies and building techniques to ensure properties are as efficient as possible. But who is going to pay for that training? Again, it appears to be left to the private sector to fund the transition and at the moment purse strings remain tight.

It seems that there is still not enough action from the Government to pave the way to our net zero goals. Is net zero by 2050 slipping through our fingertips?

While emissions reduction in the built sector has decreased across several G20 nations, including the UK, France, and Germany, progress has reversed in the US with built sector emissions now on the rise.

https://www.edie.net/report-building-emission-reductions-plateauing-across-g20-countries/
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Office vs Retail vs Industrial

This CBRE Sustainability Index 2023 looks at how energy efficiency correlates with recent investment performance – in three sectors, office, retail and industrial. Perhaps the key finding is  no surprise – “better energy efficiency appears to correspond with greater resilience to market downturns”. However there are interesting nuances – take for example, the differing performances within the retail sector, looking at retail warehouses and the high street. Or the limited differentiation between efficient and inefficient industrial assets. Naturally, both attributable to other, widely known, factors underpinning strong performance. 

However there is no hiding away from the important transition to more energy efficient building stock across the real estate sectors- as a consequence of both regulatory and investment drivers. That said, unquestionably, the sectors are on a wider journey – not just in relation to energy efficiency, but wider decarbonisation, and a “net zero” goal. 

It is in this context that the cross-practice Sustainability team at Forsters launch our “Sector Race to Net Zero” campaign. As we enter 2024, an Olympic year, we explore how the different sectors are faring on the “race” to Net Zero. What are the challenges to all sectors and how can the sectors overcome these? What are the challenges unique to the sectors? What can the sectors learn from one another? And underpinning all this, just what is the “Net Zero” finishing line, or does it go beyond that? As we explore in discussion with those real estate professionals at the very head of the “race”, these are just some of the questions on the table. 

We launch the campaign, in conversation with the excellent Rob Wall, Assistant Director of Sustainability and Tax Policy at the British Property Federation. As we enter a general election year, Rob looks at the overall regulatory landscape, across the sectors- how can regulation support (and nudge) the sectors forward on this Net Zero pathway? Well worth a listen!
 

Better energy efficiency appears to correspond with greater resilience to market downturns.

https://www.cbre.co.uk/insights/figures/sustainability-index-2023
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Retail Spending Update

Last week, there was speculation about whether the wet weather we have been experiencing has affected the retail sector. Did it stop people heading to the shops this October? You can see my thoughts on the matter here.

The Office of National Statistics has not yet published its data. But we do have some data from the British Retail Consortium which, as reported by Drapers, shows there was only a 2.5% retail sales growth compared to October last year. This does not take account of inflation and is behind the 12-month average growth of 4.1%. So, despite forecasters predicting that consumers would be hitting the shops in October to spread the cost of their Christmas shopping, this does not appear to be the case. The cost of living squeeze is still being widely felt. Perhaps people are now waiting for Black Friday deals, or continuing to cut back on their purchases.

The data shows that online spending has dropped, so despite fewer trips to the shops there does still seem to be a trend back towards in-store spending with people spending more during each trip. 

Retailer confidence, however, appears to be standing firm. As Andrew Denye pointed out in his article last week (here), we are still seeing plenty of store expansions as retailers prepare for more favourable market conditions expected to come.

Helen Dickinson OBE, chief executive of the BRC, said: "Retail sales growth slowed as high mortgage and rental costs further shook consumer confidence.

https://www.drapersonline.com/news/retail-sales-slow-in-october-as-consumers-delay-christmas-spending#:~:text=The%202.5%25%20retail%20sales%20growth,decline%20year%2Don%2Dyear
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All change for the Housing Minister (again)

news fallback

Rachel Maclean, the Government’s 15th housing minister since 2010, fell victim to the Prime Minister’s latest cabinet reshuffle yesterday. Maclean, who had only been in the role since February of this year, made clear in her statement published on X that she was disappointed to have been asked to step down. 

Also disappointed will be those interested in the work of the Older People’s Housing Taskforce. According to the chief executive of the British Property Federation, this lack of continuity in personnel “is a significant concern and actively undermines investment and long-term commitment across the sector”. 

Maclean is succeeded by Lee Rowley, who has already briefly served as Housing Minister under Liz Truss in 2022. With a significant workload to tackle, it remains to be seen whether this appointment will be “second time lucky” for Rowley, or if the Prime Minister’s latest cabinet reshuffle amounts to little more than rearranging deckchairs on the Titanic.

British Property Federation chief executive Melanie Leech said the “revolving door of housing ministers has turned once more”.

https://www.building.co.uk/news/lee-rowley-appointed-housing-minister-for-the-second-time/5126278.article
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An early Christmas present…

What do you need in your inbox on a damp Friday in November ?

If you’re asking yourself this question then the only answer is a link to all the Christmas adverts released so far…. of course it is !!!

Well done to the team at Retail Gazette for pulling this together.

https://www.retailgazette.co.uk/blog/2023/11/christmas-ads-2023/

Its also that time of the year when your inbox will be filling up with emails of unbeatable savings available via Black Friday events. So deep breath… and check your spam filter….  certainly it seems that more and more customers are now not so easily sold these “offers” so we can no doubt continue the “Phydital” “Bricks & Mortar” retail discussion for a while yet….

In terms of Bricks & Mortar there has been a genuine uptick in the mood in recent months with plenty in the press about store expansion plans from M&S, B&M, Uniqlo, Amazon Fresh, Miniso and others.

With commentators looking forward to 2025 in terms of interest rates becoming more positive it seems that there will be a lot of new stores opening throughout 2024 with a view to making hay in more favourable market conditions.

It’s that time of year again. Christmas ads have started appearing on TV with retail front and centre with a slew of blockbuster campaigns.

https://www.retailgazette.co.uk/blog/2023/11/christmas-ads-2023/
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Changes to holiday pay, working time and TUPE?

The government has published a draft statutory instrument, the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (Draft Regulations), which contains amendments to the law on holiday pay, TUPE and recording working time. 

The key changes include:

  1. clarifying the record-keeping requirements under the Working Time Regulations 1998 (WTR);
  2. introducing rolled-up holiday pay for irregular and part-year workers;
  3. retaining the entitlement to carry-over annual leave in certain circumstances; and
  4. defining “normal pay” for the purposes of calculating holiday pay.

Why reform now?

The Retained EU Law (Revocation and Reform) Act 2023 provides powers to amend, remove and replace retained EU law. The original intention of that Act was to revoke all retained EU law automatically at the end of 2023 unless it was expressly transferred into UK law. The Government reversed this position in May 2023 and announced that only those laws expressly identified by the Government would be revoked. In response to this, the Department of Business & Trade launched the consultation, “Retained Employment Law”, on 12 May 2023 identifying the areas of EU-derived employment law which it believed could benefit from reform. Its response to the consultation was published on 8 November 2023 and sets out the reasoning for the changes proposed in the Draft Regulations. 

The Draft Regulations were laid before Parliament on 7 November 2023 and, subject to approval by a resolution of each House of Parliament, are intended to come into force on 1 January 2024. 

Record keeping under the WTR

Under the WTR, employers are required to keep records to show compliance with the maximum 48-hour working week. Following the European Courts of Justice decision in CCOO v Deutsche Bank, there has been concern that the WTR goes so far as to require employers to record working and rest time for each worker each day.

The Draft Regulations amend the record-keeping requirements and make it clear that employers do not need to keep a record of workers’ daily working hours. 

Holiday pay and entitlement for part-year and irregular workers

Following the Supreme Court’s ruling in Harper Trust v Brazelwhereby it determined unanimously that part-year workers are entitled to 5.6 weeks’ holiday in full, without pro-rating, the Government has sought reform on calculating holiday pay and entitlement for part-year and irregular-hour workers.  

The Government has decided to introduce an accrual method to calculate holiday entitlement and pay for irregular-hour and part-year workers. Under the Draft Regulations, holiday entitlement will be calculated based on 12.07% of hours worked in a pay period and will be paid at the rate of 12.07% of pay in a pay period. This method of “rolling-up” holiday was widely used before the Harper Trust judgment and essentially reflects the hours that workers have actually worked in their current leave year.   

Additional holiday entitlement/pay changes to the WTR

The Draft Regulations restate the right, which currently arises from EU case law (which will otherwise be revoked by the Retained EU (Revocation and Reform) Act 2023) to carry over holiday at the end of a leave year in various different situations including sickness, being on family/statutory-related leave, the failure to recognise employment status and failing to afford the right to paid annual leave.

The Draft Regulations also include a definition of normal pay for the purposes of calculating normal pay under the WTR, which includes overtime and commission.   

TUPE consultation 

Under TUPE, employers are required to inform and consult appropriate representatives of employees about a relevant transfer. The only exception for this is where a business has fewer than ten employees and no existing appointed representative. 

The Government has sought to amend this to give businesses more flexibility to consult directly with employees in certain circumstances. Accordingly, under the Draft Regulations, all small businesses (those with fewer than 50 employees) will be permitted to consult directly with employees if there are no existing employee representatives in place and businesses of any size will be permitted to consult directly with employees (where no existing employee representatives are in place ) where a transfer involves fewer than ten employees.

 

 

 

The government has published a draft statutory instrument, the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (Draft Regulations), which contains amendments to the law on holiday pay, TUPE and recording working time.

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The government has wasted no time in launching its consultation on capping ground rents

Following the King’s Speech on Tuesday, the government has now launched its consultation on capping ground rents: Modern leasehold: restricting ground rent for existing leases.

The purpose of the consultation is to seek views on limiting the level of ground rent that leaseholders are required to pay in England and Wales, specifically in relation to:

  • the problems that existing ground rents can cause for leaseholders, and the scale of these problems;
  • which option would be the right one to deliver the aim of giving leaseholders a fairer deal;
  • whether there should be a period of delay before implementing any cap; and
  • the types of leases which may need to be exempted from any cap to ground rents.

You can respond by completing the online survey at Citizen Space.

Alternatively, you can email a response to [email protected]

The consultation will last for 6 weeks from today, 9 November 2023.

It is a historical anachronism, already eliminated for new leases, and we now wish to take action to help those with existing leases.

https://www.gov.uk/government/consultations/modern-leasehold-restricting-ground-rent-for-existing-leases/modern-leasehold-restricting-ground-rent-for-existing-leases
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Happy World Town Planning Day – or is it?

The Royal Town Planning Institute (RTPI) today celebrates World Town Planning Day – designed to celebrate and promote the vital role that planning plays in creating and sustaining communities that we all live and work in.  

However, a few days earlier the RTPI issued their “State of the Profession 2023”  Report which highlights some worrying trends.  Not only has the number of public sector planners shrunk by 25% between 2009 and 2020, but overall pay has drastically declined – by c34% when tracking against inflation over the same period.  Why are Councils across the country spending less and less on planning departments, when there is a clear need?

The Report itself is well worth a read (outside of my cherry picked headlines!) and raises important questions as to how we staff and resource planning departments.   Could one solution be to require graduate planners to begin their careers at local planning departments, with a commensurate reduction in any outstanding student loans for time served?  

Outside of an unsustainable salary competition with the private sector, we have to find a way of ensuring planners of all ages/backgrounds/experiences are incentivised to work with or for local planning authorities.  The work that town planners do is far too important to be ignored.

• Planners are increasingly employed in the private sector (50%). The largest employers of planners are local authorities and consultancies. The number of planners working in the public sector shrunk by a quarter between 2009 and 2020. • The remuneration of planners in real terms has been in sharp decline. If salaries had followed inflation since 2005, the median planner should be making close to £50,000 annually, as opposed to the actual value of £33,000.

https://www.rtpi.org.uk/media/16015/state-of-the-profession-2023-final.pdf
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Hotels vs Offices – where would you put your cash?

An interesting article from Hospitality Investor highlighting the general outlook towards lending against hospitality assets. Brad Greenway, co-head of debt and structured finance at JLL comments that there is actually “more liquidity for hospitality today than almost every other asset class”. It seems that despite Covid shutting down hotels, increasing energy costs and rising interest rates, the hotel sector’s recovery is strong. Lenders clearly still view the hotel sector as an attractive place to deploy capital and the asset class is attracting traditional lenders, alternative lenders and debt funds alike. 

when an asset class like offices loses attractiveness, capital has to go somewhere. It’s going to life sciences, self-storage, and data centres as well. But as these sectors are still in their infancy, it’s easier to underwrite hospitality deals, due to the maturity and transparency of the sector.

https://www.hospitalityinvestor.com/finance/hospitality-lending-what-credit-crunch
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Renters (Reform) Bill on hold indefinitely

In the King’s Speech, King Charles has reiterated the government’s proposals to afford residential tenants greater security of tenure by passing the hotly anticipated Renters (Reform) Bill. 

However, the background briefing notes state that the government “will not commence the abolition of section 21 until stronger possession grounds and a new court process is in place”. This follows a recent letter from Michael Gove to Conservative MPs which confirmed that implementation of the reforms in the Bill would not proceed until HM Courts and Tribunals Service is fully prepared for the changes. Proposed changes to the court system include digitising more court processes, improving bailiff recruitment and retention and providing early legal advice to tenants. 

There is no clarity on how these proposals will be implemented, especially when many of the county courts which deal with possession claims are currently understaffed, underfunded and working to a severe backlog. For now, it appears that the Renters (Reform) Bill has been kicked into the long grass.

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The King’s Speech – did it raise more questions than it answered in terms of leasehold reform?!

The Department for Levelling Up, Housing and Communities estimates that there are around 4.98 million leasehold homes in England, making up a significant proportion of all residential housing.  Impacting on the lives of so many, leasehold ownership has therefore been the subject of much debate over the years.

The existing law allows leaseholders of residential properties to purchase the freehold and/or extend the leases of their houses or flats.  However, these rights have been developed piecemeal, and are the product of over 50 Acts of Parliament, totalling 450+ pages of legislation. Unsurprisingly therefore, the system has been criticised as being inconsistent and unnecessarily complex, often leading to protracted and expensive legal proceedings.

There was a lot of speculation as to what leasehold reform proposals might be included in the King’s Speech, and so enfranchisement practitioners waited with bated breath.

Unfortunately, it was an anti-climax! With the King saying only:

My Ministers will bring forward a Bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of home owners through punitive service charges”. 

The background briefing note confirmed that a Leasehold and Reform Bill would be introduced to “put the country on the right path for the future by giving homeowners a fairer deal in the following ways”:

  • Making it cheaper and easier for existing leaseholders in houses and flats to extend their lease or buy their freehold.  It is difficult to tell whether this is a proposal in itself (with further detail perhaps to follow in the draft Bill) or whether this is simply a reminder of the government’s overriding objective i.e. with the proposals that follow being the way in which the government intends to fulfil this promise.  The latter is probably more likely, otherwise this proposal is frustratingly vague.
  • An increase to the standard lease extension term from 90 years to 990 years for both houses and flats (with ground rent reduced to £0, which is of course, already the case) – this was included in the February 2021 policy statement so was no surprise.
  • Removal of the 2-year ownership rule currently required for statutory lease extensions and freehold house purchases/lease extensions – again, this was included in the February 2021 policy statement and so is not controversial.
  • A ban on the creation of new leasehold houses.  This was a manifesto commitment by the Conservatives at the last general election so is not a surprising announcement, but the impact of this is now likely to be minimal. Since the Leasehold Reform (Ground Rent) Act 2022 came into force, the number of houses being sold on a leasehold basis is very small.
  • Increasing the 25% ‘non-residential’ limit to 50% for freehold and right to manage claims.  This was the subject of a government consultation in January 2022 but to date, there had been no government response and so it feels a little surprising that this has made it through.

These proposals all seem like easy wins, which are designed to grab the headlines!  So, one would be forgiven for thinking that, despite all the hype, the government has simply paid lip service to the promise of far-reaching reform.

That said, the last of the proposals is rather more far-reaching and that is the proposed consultation on capping all existing ground rents.  This was included in the government’s February 2021 policy statement – but there, the proposal was for ground rents to be capped at no more than 0.1% of freehold value. Given the difficult political arena and the need to find a balance between the competing interests of leaseholders and landlords, it is difficult to see this going through without a strong challenge, even with consultation. 

The argument will be over what compensation is to be offered to landlords and whether there is to be a statutory acquisition process. A number of funds, which quite possibly form part of pension funds, own large ground rent portfolios and this value cannot simply be wiped out.  

Almost as interesting as the proposals that were included in the Speech, were the proposals that weren’t! Most particularly: 

  • The proposed abolition of marriage value.  This was one of the most controversial of the proposed measures and so it is perhaps not surprising that it did not feature in the Kings Speech. Having said that, it was included in the government’s February 2021 policy statement and was also widely trailed in other recent ministerial briefings, so the omission does seem slightly odd.
  • The prescription of capitalisation and deferment rates and the introduction of a calculator to determine the enfranchisement price were also omitted. These seem to have fallen off the government’s radar.  Perhaps because the task of balancing the contradictory agendas of both leaseholders and landlords is too tricky?!
  • Finally, and as predicted, the gradual phasing out of leasehold properties and the phasing in of commonhold as an alternative form of ownership for flats was not mentioned either.   This is most likely because of the enormous cultural shift which it would require, which is not something that could be achieved overnight. 

Overall, a bit of a damp squib! Of course, the devil will be in the detail and until we see the draft Bill, it would be foolish to think that anything is either on or off the table.  There does seem to be a general trend for the enactment of primary legislation or enabling legislation though, with the detail being determined later in Regulations and so the fear is, that this may be the way the proposed Leasehold and Freehold Bill will be drafted.

Also, there will certainly be attempts by the very effective leaseholder lobby, during the passage of the Bill, to add all sorts of other things, of which the “abolition” of marriage value will undoubtedly be one.  In addition, there is already talk about a back-bencher revolt over the failure to include a ban on the sale of new leasehold flats. 

Unfortunately therefore, for the enfranchisement industry, it’s yet another case of having to watch this space…

“My Ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of home owners through punitive service charges…”

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Giving offices a new lease of life

The office landscape has undergone a significant transformation in recent years.  A surge in remote working, hybrid work models, and the ever-increasing popularity of flexible office spaces has all put pressure on traditional office spaces.

However, as the React News article below outlines, office values are facing another challenge.  The sharp rise in gilt returns is causing a number of funds to reconsider their commitment to real estate as a whole and offices in particular.  Is the added risk and illiquidity of real estate worth it when compared to a “risk free” rate that is sitting at around 5%?

As such, many funds are reconsidering their allocation to the sector.  Some offices will remain attractive investment opportunities but, as the article notes, many will be small, non-prime and will come with concerns over future occupier demand and ESG related obsolescence which will make them difficult to sell.

What, therefore, will happen to this excess office space?  Change of use – office-to-residential or office-to-hotel conversions for example – is not a new concept, but an increase in the number of office buildings being offloaded and a fall in values is likely to lead to a greater number of conversion opportunities.

The demand for housing, particularly in urban centres, remains high, and converting underutilised office buildings into residential properties would help addresses this demand while bringing fresh life to city centres.

Conversions are not without their challenges – residential space standards, for example, mean that not all office floors are able to accommodate a change to residential use.  However, there have been many successful examples and the rise in obsolete office buildings coming to market will no doubt accelerate that trend.  Secondary offices may be falling out of favour, but there remains plenty of opportunity.

Forecasts from Real Estate Strategies predict office values will continue to fall while other sectors will stage a recovery. Many are looking to offload before they see any more falls in value

https://reactnews.com/article/why-problems-for-unlisted-real-estate-could-spell-catastrophe-for-offices/?utm_term=0_b0728480f9-c91fce7225-%5bLIST_EMAIL_ID%5d&mc_cid=c91fce7225
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Education, education, education

Strutt & Parker’s annual Housing Futures report, which summaries their insights into housing trends for 2023, notes that only 1% of those in the UK aged over 65 currently live in an integrated retirement community (“IRC”).

Whilst specialist housing for older people is an obvious solution to current pressures on housing and a tool which would assist in facilitating “right-sizing”, Strutt & Parker found that appetite for IRC accommodation was limited, with only 13% of over-65s saying that this would be their ideal new home.

The report explores the main reasons why older people are reluctant to consider IRCs, and identifies a lack of awareness as to what later living accommodation can offer as a significant barrier. The report suggests that the antidote to this is education. 

The range of facilities on offer, the standard and quality of construction and the focus on independent living are all identified in the report as selling points for IRCs – this message must be communicated with older people so that they are aware of the options available to them in their retirement. It is expected that education will be a key focus of the Older People’s Housing Taskforce, and it will be interesting to see the extent to which this is covered when the Taskforce’s interim findings are published.

The main reason people are reluctant to consider the retirement sector is that they aren’t aware of what’s on offer.

https://www.struttandparker.com/knowledge-and-research/housing-futures
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Could the wet weather be another blow to the retail sector?

The last few weeks have been rather wet, it feels like it has been raining constantly. And whilst my garden is a lot happier than it was this time last year, the same cannot be said for the retail sector. 

Despite the expectation that consumers have been starting their Christmas shopping earlier this year, it has been reported by the BBC that footfall at high streets, shopping centres and retail parks fell by 5.7% in October compared to the same period the previous year.

Consumer confidence is still low, but not as low as it was a year ago. The British Retail Consortium has speculated that the heavy rainfall has kept people at home. But this doesn’t explain the fact that the biggest slump has been at shopping centres (with a 7.3% reduction), despite the fact that shopping centres are largely under cover.

It seemed like there was a resurgence of in-store shopping this year. Does this latest data mean that consumers are moving back towards online shopping? Could this just be a short term trend due to the weather? The retail sales figures for October are yet to be published. It will be interesting to see whether retail spending has also dipped, or if people are still shopping online or spending more during fewer trips out.

many people were decided to stay at home rather than head to the shops

https://www.bbc.co.uk/news/business-67306498
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Government An