Top ten key legal areas of change affecting the real estate sector in 2024

During 2023, we experienced unprecedented legal and regulatory changes affecting all aspects of real estate. With 2024 now well underway we expect to see more of the same, particularly with a general election on the horizon!

We set out below a summary of the top 10 key areas the real estate sector should be aware of as we go through 2024.

1. Building Safety Act

The Building Safety Act 2022 was enacted primarily in a justified response to the failures in building safety resulting in the Grenfell disaster.

The Act is arguably the widest reaching piece of legislation of our time. Its provisions affect everything from a small residential house extensions to the building and management of the largest buildings (those at least 18 metres in height or with at least 7 storeys) and everything in between.

Sadly, this legislation was rushed and mechanisms imposed, which place a heavy burden on landlords and developers alike, have not always been entirely thought through. Due to this the Government has already published amendments to this Act and further updates are likely.

The legal impact of the legislation is likely to develop over the next 12 months as cases are brought and we see how the courts interpret and apply the legislation to real life scenarios. As the impact of the legislation is so broad, we recommend that specialist legal advice is sought to ensure you are not inadvertently affected.

2. Energy performance of premises

Minimum Energy Efficiency Standards (MEES)

Most buildings are required to have an Energy Performance Certificate (EPC). This certificate provides details about the building’s energy efficiency and includes recommendations for improvements. The Minimum Energy Efficiency Standards (MEES)  specify a minimum EPC rating that properties must achieve to be considered energy efficient.

Summary of the position to date:

• 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 would 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.

These targets require necessary improvements to be made to properties in order to achieve the required efficiency ratings.

However, in September 2023, Rishi Sunak PM, announced a relaxation of the Government’s approach to net zero initiatives (the Announcement). The Announcement has increased uncertainty in the real estate sector as it is unclear whether proposals for increases in MEES targets in Government consultations will be withdrawn. Whilst current requirements for MEES remain in effect, it seems, following the Announcement, that landlords may no longer be compelled to make energy performance upgrades in relation to residential property but instead will be encouraged to do so.

In relation to commercial property it does not appear that the current targets have been scrapped, although the timelines for any increases may be relaxed – for further discussion see Joe Davidson’s recent article here.

So for now, especially in relation to commercial property, real estate owners should continue to consider the energy performance of their properties and how and when they will carry out works.

Energy Act 2023

The Energy Act 2023 received Royal Assent on 26 October 2023. The scope of the Act is wide ranging.

The general nature of the Act is to enables future legislative changes by empowering the government to implement secondary legislation over a wide range of energy related topics – Part 10 is focused on energy performance of premises. There are therefore no immediate amendments or additions made to the current energy efficiency standards for properties. Though, as and when the government do decide to act, this legislation could be relied upon to facilitate such a change. For more detail on this Act see Joe Davidson’s article above.

3.Climate change and real estate

 Green leases

The real estate sector is more environmentally conscious than ever and we expect to see a rise in the use of Green Leases in commercial real estate. Green Leases encourage landlords and tenants to co-operate with one another to reduce the impact the property has on the environment. There is no standard form of Green Lease and the clauses in each lease will depend on the particular property and the aims of the individual parties. This might range from a commitment to meet regularly and monitor the energy performance of a building to a more onerous obligation on the parties to meet certain energy performance targets.

Solar taskforce

A new solar taskforce has been created by the UK Government’s Department for Energy Security and Net Zero, tasked with revolutionising UK solar power. 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.  Joseph Davidson has prepared  this article setting out more detail on the road ahead.

4. Levelling Up and Regeneration Act (LURA)

LURA received Royal Assent on 26 October 2023. Its mission is to bring new laws to speed up planning, build new homes and level up. It is a wide reaching piece of legislation:

• Putting people at the heart of development by making it easier to put local plans in place to deliver more homes in a way that works for communities
• Boosting local services by requiring developers to deliver vital infrastructure. Undoubtedly, this will place further financial pressure on developers when delivering their schemes
• Rebalancing the housing and land markets giving local councils the power to increase council tax on empty homes and reforming compensation for compulsory purchase orders by removing ‘hope value’
• Encouraging developers to build by requiring them to give updates to communities as to the progress of developments and giving local councils the ability to consider low build-out rates when approving planning. This will put pressure on developers to ensure that their sites are progressed with all due speed and bring an administrative pressure when keeping communities appraised of progress. If developments are progressing too slowly, local councils will have the power to issue completion notices and set timescales for developments to be completed by. Part 11 of LURA will place a further burden on developers to disclose information about interests and dealings in land which Katie Payne explores here.
• Bringing high streets back to life by giving local councils the necessary powers to work directly with landlords to bring empty buildings back in to use by local businesses and community groups through high street rental auctions. Local authorities will also make it faster for local authorities to give hospitality businesses permission to use outdoor seating in a similar way to that which we saw coming out of the Covid pandemic. LURA provides local councils with the power to force commercial landlords to let their property if it has been vacant for 12 months or more. Oliver Butler outlines all you need to know here.

At this stage, LURA only provides the framework for the Governments plans and much of the detail will be provided in policy, guidance and secondary legislation. LURA will, without doubt, have a huge impact on the real estate sector over the coming year (and for years to come).

LURA and nutrient neutrality

Prior to LURA receiving Royal Assent, Michael Gove, Secretary of State for Levelling Up, Housing and Communities made a last minute announcement that water pollution rules (nutrient neutrality) would be eased through LURA for house builders. The rationale behind this is to allow an additional 100,000 homes which were stalled by the nutrient neutrality rules to be built by 2030. His announcement was welcomed by developers but there was backlash from environmentalists who claimed the relaxation of the rules represented a huge threat to the health of our waterways.

The eleventh hour amendment was rejected by peers in the House of Lords. With an ever-increasing need for new housing it will be interesting to see whether further changes are proposed to unlock the currently stalled planning applications preventing development. Our comments on this and our links to nutrient neutrality can be found here.

5. Biodiversity Net Gain (BNG)

The rules in relation to BNG were introduced as part of the Environment Act 2021. They place obligations on property developers to leave any natural habitat in a better condition than before the development started.

The basic gain requirement of 10%, will take effect from 12 February 2024 and will be a mandatory condition within planning consents (save for small sites where the basic gain requirement will apply from 2 April 2024). There are some exemptions for planning applications and decisions granted made before 12 February and for retrospective applications. Whilst 10% is mandatory, some local planning authorities will opt for larger percentages therefore increasing the pressure on developers.

Developers can implement BNG either on site or by off-setting on other land. We are likely to see changes over the coming year as regulations will be required to ensure BNG applies to all routes to planning permission.

Kate Jardine updates us on the commencement dates for various site sizes here.

6. Register of Overseas Entities

Born from the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA), the Register of Overseas Entities (ROE) was created, to aid the crack down on economic crime. The purpose of ROE, which is held by Companies House, is to create a central register of the beneficial owners and/or managing officers of UK real estate owned by overseas entities. To ensure the ROE is kept up to date, overseas entities are required to update the register annually to record any changes to the beneficial interests.

On 26 October 2023, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) received Royal Assent. It is not yet fully in force but ECCTA will bring about changes to the ROE. These include new requirements for overseas entities to disclose title numbers for qualifying estates, changes to principal office address requirements, and to disclose changes in beneficiaries under trusts.

There is also a consultation on improving transparency of land ownership involving trusts which will close on 21 February 2024 . This is taking views on widening access to trust information held on the ROE.

Laura Keatley’s article covers ROE updating requirements, enforcement and the next steps overseas entities should take.

7. Freehold, leasehold and commonhold reform

Commonhold

Commonhold is an alternative land ownership structure to leasehold ownership, allowing you to own property, such as a flat, indefinitely rather than for a fixed period of time. Commonhold owners are entitled to become a member of the commonhold association which will own, manage and maintain the common parts of the building and estate. The Commonhold system was introduced in 2002 but has failed to gain support and traction for a number of reasons, including the exclusion of shared ownership leases. The Government is now looking at ways to encourage and reinvigorate commonhold ownership including:

• Allowing flexibility to cater for large, mixed-use developments
• Enabling the accommodation of shared ownership leases
• Allowing commonhold developments in phases
• Simplifying the conversion process from leasehold to commonhold ownership.

If successful, the commonhold structure can offer many benefits to property owners. The indefinite ownership avoids the need for lease extensions and lease renewals and the joint ownership of the common areas provides more control over the maintenance of communal building. We await further announcements from the Government with details of their proposals in this area.

Leasehold and Freehold Reform Bill

The Leasehold and Freehold Reform Bill was introduced to the House of Commons on 27 November 2023. It aims to improve the leasehold system by making it cheaper and easier for leaseholders to manage their property and features:

• The removal of costs such as “marriage value” in relation to enfranchisement
• A ban on new leasehold houses
• An increase to the term of a statutory lease extension from 90 to 990 years.

 Whilst we now have a clear idea of the Government’s next steps, we still await a timetable for the implementation of these changes.

8. Renters (Reform) Bill

 The Renters (Reform) Bill was re-introduced in the King’s speech on 7 November 2023 and aims to reform the private rented system by:

• Abolishing fixed term assured tenancies and assured shorthold tenancies
• Amending the existing grounds for possession
• Removing no fault evictions.

 The overhaul of the system seeks to benefit both landlords and tenants. Landlords should have greater certainty that they will obtain possession of their property if they genuinely want to sell it and tenants would no longer be at risk of the “no fault” eviction. However, the Bill still has a number of hoops to go through before it becomes law and the Government has indicated that any provisions abolishing no fault section 21 evictions will not be brought into force even when the legislation is passed until a series of improvements are made in the court system so that it can cope with the volume of work the changes will trigger. We will wait to see how it progresses later this year.

Read Emma Stevenson Smith’s article linked here for further information.

9. Charites Act

The Charities Act 2022 simplifies some of the legal processes that charities must follow when dealing with charity land. It has been coming into force in stages since it received royal assent on 24 February 2022. Section 18 amends the exceptions to the general restrictions on charity land disposals and section 23 will make the statements required in instruments effecting disposals clearer. These sections are yet to be implemented but are expected to come into force in early 2024.

Caroline Cohen’s article here gives more information about the changes that have already been implemented, as well as those due to come into force in March 2024.

 10. Changes to the Landlord and Tenant Act 1954

 The Landlord and Tenant Act 1954 has been in existence for 70 years without any significant review for nearly 20 years. It therefore comes as no surprise that reports to the Law Commission conclude that the Act is  “burdensome, unclear and out-of-date”. The Law Commission is conducting a review of the Act which will consider how the right to renew business tenancies is working and set out the options for reform.

The Law Commission’s intentions are considered in more detail in Caroline Cohen’s article.

The Law Commission aims to publish a consultation paper as soon as possible in 2024 and we wait to see whether the proposals will provide the clarity and modernisation the Act requires.

Summary

2024 looks to be an exciting year for real estate with many legal changes either coming in to affect or bedding in.  For our regular updates on all things real estate over the coming year follow us on LinkedIn.