Don’t be caught out by legal changes property investors and developers need to be aware of

Robert Trench recently wrote a piece for The Kent Property Market Report.

The world of property investment and development is ever changing, particularly at the moment. We explore below two areas of rapid legal change:

1.  Net Zero

On 20 September, Rishi Sunak PM, announced a relaxation of Government’s approach to Net Zero initiatives (the Announcement). This is a significant shake up to energy efficiency targets and exacerbates existing uncertainty.

At this stage, it is unclear how far reaching the relaxation of the approach will be.

Developers are advised to have a rounded approach to emissions, considering the emissions impact incurred all the way from sourcing raw materials, their manufacture into building products and the resulting construction of units. Equally, investors should monitor portfolios and improve sustainability as Net Zero starts to bite, notwithstanding the Announcement. Some key areas for consideration are:

• Future Homes Standard

The aim of the Future Homes Standard (FHS), which may become mandatory in 2025, is to ensure that new homes built, extended or renovated from 2025 will produce between 75-80% fewer carbon emissions than under current building regulations. Investors and developers should consider now how improvements to hot water systems, heating and reducing heat waste through quality building materials and glazing can be introduced to units to ensure compliance.

At present, the Announcement does not appear to propose any changes to FHS.

• Minimum Energy Efficiency Standards (MEES) and Energy Performance Certificates (EPC)

Since 1 April 2020, residential properties used for lettings have been required to have an EPC rating of E or above and government consultation documents indicated this will increase to a rating of C in 2025 for new lettings and will apply to continuing tenancies by 2028.

Since 1 April 2023, commercial properties cannot be let or continue to be let if they have a rating of E or below and government consultation documents  indicated this will increase to C by 1 April 2027 and B by 2030.

The Announcement has increased uncertainty for developers and investors as it is unclear whether proposals for increases in MEES targets in government consultations will be withdrawn (for residential property, commercial property or both). Whilst current requirements for MEES remain in effect, it seems following the Announcement landlords may no longer be compelled to make energy performance upgrades (especially in relation to residential property) but instead encouraged to do so.

• Solar taskforce

A new solar taskforce has been created (by the UK Government’s Department for Energy Security and Net Zero) to revolutionise UK solar power. The ambition is to increase solar capacity by nearly five-fold to reach 70GW by 2035. The taskforce has resolved to publish a solar roadmap in 2024 setting out a clear step-by-step deployment trajectory, including further permitted development rights and faster connections to the grid (which can presently take up to 15 years!). According to the taskforce, commercial buildings have significant untapped potential for the deployment of solar panels.

At present, we see no proposed changes to the solar taskforce’s ambition following the Announcement.

• Nutrient neutrality

Whilst nutrient neutrality and the resulting environmental benefits were needed, the burden of carrying out developments to achieve neutrality following the rules advised by Natural England was another consideration for developers. In August, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, announced plans to ease water pollution rules for house builders.

On 13 September 2023, the amendment to implement the proposed relaxation of the rules was rejected by peers in the House of Lords.. For the time being, nutrient neutrality is here to stay.

2.  Building Safety Act

The Building Safety Act 2022 was enacted in part, in response to the failures in building safety resulting in the Grenfell disaster. However it is wide reaching. Whilst key fire safety provisions only apply to buildings at least 18 metres in height or with at least seven storeys, provisions limiting service charge recovery for defects has a lower threshold and impacts buildings of only 11 metres or 5 storeys. It should be noted that mixed use buildings can be impacted and even service charge recovery from a commercial tenant in such buildings can be affected.

Whilst the Government’s statement is well intended and legislation needed, the reality is that the legislation was rushed and places a heavy burden on landlords and developers.. Government has already published amendments and further updates are likely. Investors and developers should seek specialist legal advice to ensure they are not inadvertently affected.

Given the fast pace of change in relation to the issues detailed in this article since the time of writing further updates may have been given in relation to the Announcement. Follow Thomson Snell & Passmore on LinkedIn for regular updates.