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Keeping It Real Estate

News and Trends in UK Real Estate, Disputes and Planning Law

Posted in Real Estate News

Client money protection schemes for property agents: What’s the latest?

Are you a landlord or a tenant? Think you’ve heard something about new laws to protect your money when held by an agent? If you want to know more, read on…

New regulations mean that by 1 April 2019 all private rented residential property agents that handle client money in England will have to sign up to a government-approved scheme to protect landlords’ and tenants’ money, or they will face fines of up to £30,000. Currently membership of such schemes is voluntary.

Under the new regime, an estimated £2.7 billion of client money held by property agents in England will be protected.

Client money protection schemes enable landlords and tenants to be compensated if all or part of their money being held by property agents (such as rental payments) is not repaid. Causes of non-repayment include misappropriation of funds by the agent and the agent becoming insolvent. The regulations stipulate that membership of a scheme must allow for a level of compensation at least as high as the amount of client money held by the agent. The changes bring the property sector in line with the legal and travel operator sectors, where there are already stringent rules regarding the handling of client money.

Under existing laws, anyone can operate as a property agent without any qualifications or professional oversight. Membership of professional bodies, which usually require their members to participate in a client money protection scheme, is currently voluntary. Around 60% of agents are already members of schemes, which usually charge agents between £300 and £500 a year for membership.

The new law is intended to boost consumer confidence and ensure that the same minimum level of protection is enjoyed by all landlords and tenants in England, regardless of who their property agent is. It follows the introduction of equivalent regulations in Wales and Scotland. Property agents will have to join an approved scheme and, under transparency rules, display in its premises a certificate of the scheme joined and publish the certificate on its website. Agents will also have to inform all their clients of their membership. These new rules will be policed by local weights and measures authorities, who can fine agents £30,000 for not joining an approved scheme and £5,000 for breaching the transparency requirements. As of now, five schemes have been approved.

The new rules will not apply to tenancy security deposits, which are already subject to legislation requiring them to be held in a government-approved tenancy deposit scheme.

 

 

Posted in Real Estate News

Government select committee considers beneficial ownership register

We blogged on 26 July 2018 about the government’s plans to publish a register of beneficial ownership of UK registered land.  The government proposes that the register will be maintained by Companies House and will show the owners and controllers of overseas entities that own registered land in the UK.  It will catch all registered land interests (freehold and leases above seven years in England and Wales, 20 years in Scotland and 21 in Northern Ireland).

The government issued a consultation document last year.  A number of organisations including the Investment Property Forum, the British Property Forum and the City of London Law Society submitted responses.

The government is now in the process of taking evidence from various parties on the drafting of the bill and the key issues that it raises.

On behalf of the Investment Property Forum Regulation and Legislation Group, I was invited to give evidence at a joint select committee of parliament, chaired by Lord Faulks QC and attended by four MPs and four law lords.

I gave evidence alongside Tom Keatinge, Director, Centre for Financial Crime and Security Studies at the Royal United Services Institute and Professor Jonathan Fisher QC, Bright Line Law.

Details of the transcript will be available through the parliament.uk website in due course.

One of the key messages from the witnesses was the importance of the legislation not hindering transactions unduly.  In particular, all witnesses were keen to stress the need for Companies House to be appropriately resourced and mandated to deal with applications and provision of information promptly.

However, we were also keen to stress that transparency of ownership of land is a good thing for many reasons, including reducing the use of UK real estate for money laundering.

The committee will be taking evidence from further interested parties over the next few weeks. The government’s aim is for the register to be operational by 2021.

John Condliffe
Partner
john.condliffe@hoganlovells.com
T: 0207 296 5148

 

 

Posted in Real Estate News

MIPIM at 30

MIPIM has celebrated its 30th Birthday.  There are a hardy few who will tell you that they have attended every one. I can’t claim that, but I did first attend in 1996 and have witnessed its teenage excesses and more recent sobering into maturity.

Back in 1996 the Palais was about half its current size. All the stands were in the basement exhibition space, earning it the nickname “The Bunker”. There were no extra tents or pavilions along the harbour or the Croisette. There were boats, but not so many and not so big. The event seemed to be dominated by the Brits. Bar Roma was overflowing with a cheery crowd of “suits” more normally seen around Hanover Square and the Martinez Bar was the place to be seen (so some things don’t change….)

Over the years the attendance number went up and up and the crowd became much more international. Before the global financial crisis struck, it seemed as though everyone was competing to have the biggest boat or to hold the most lavish and talked about party. The tents on the beach arrived with late night concerts, rock bands and partying into the night. Even as the GFC started to bite there was one last hurrah, like the band playing on the deck of the Titanic, and then….austerity. Suddenly the flash parties were cancelled and people had to start to justify their attendance. It all became a much more sober affair with full schedules of meetings during the day and working dinners in the evening. Let’s not be too puritanical though, there were still plenty of lunches, dinners and cocktail parties to allow for some relaxed networking.

At 30 MIPIM has achieved a balance between its more serious side of pre-arranged meetings and a more fun social networking side. The conference agenda is improved with numerous panel discussions and talks on current topics. Don’t forget this is a trade fair too with hundreds of exhibitors and stands to visit. Visitors to the Hogan Lovells stand this year were able to view the video launching our new global thought leadership product, Real Estate Horizons, pick up our publications and take home a Hogan Lovells duck – pearl this year for the 30th Anniversary.

But there is one issue that has been there from the start and is still there: diversity. The faces you see when you walk around are largely white and middle class and predominantly male. The gender balance is starting to improve and over the last few years the number of ladies events has multiplied. Like the real estate industry more generally, it still has a long way to go though to achieve a wider diversity balance. At the London First dinner celebrating Women in Property we debated the role that reputation plays in our view of different aspects of the industry and it is true that MIPIM has a reputation which deters some women from wanting to attend, but until more women do attend, it is not going to get better. I really encourage any woman in the real estate industry to attend if they get the chance.

Apart from diversity, the other main theme of the week was Brexit and the damage that the continued lack of certainty is doing to the investment market. Most of the people I spoke to said that they and other international investors would not do a transaction in the UK at the moment, but would wait until there was clarity on the UK’s position (whenever that may be). The UK and London in particular is still seen in the longer term as a top investment location though. I spoke on a panel at the invitation of Estates Gazette on The Power of Big Brands in Big Cities and the London brand combined with the brand of the different developments and geographic areas in it and their occupiers is still compelling.

Perhaps the weather in Cannes was the best indicator of what is to come: Sunny but with cold blustery winds?

Posted in Real Estate News

Tenant’s Right to Manage – Time for Change?

The procedure for tenants to take control of the management of their buildings is on the radar for reform as the Law Commission launches a consultation which closes on 30 April. To find out more about that right to manage (the “RTM”) click here and to understand the areas under examination read on!

Exercise of the RTM sees limited take-up and the Law Commission is asking why, putting forward proposals which include:

  • extending the RTM to buildings with more than 25% non-residential space and to leasehold houses;
  • allowing shared ownership tenants to qualify for the RTM, whether or not they have acquired 100% of the shares in their leases;
  • a flexible model allowing multiple buildings to be managed under one RTM company where those buildings contribute to a common service charge and/or share the use of the same common parts;
  • giving the Upper Tribunal Lands Chamber a discretion to waive any requirement, or allow a notice to be fixed after an error (which can all too easily be made) , as well as reducing the grounds upon which a notice can be challenged;
  • abolishing the rule that once a RTM company has been established for one set of premises, there can be no other RTM company for that premises (this prevents “sham” RTM companies being set up by landlords and managing agents to prevent tenants from acquiring the RTM); and
  • encouraging prospective directors of RTM companies to undertake free training on the procedure and their obligations (as there is currently concern about the lack of knowledge some RTM directors have).The Law Commission is also keen to hear views as to whether the RTM company should continue to make contributions to the landlord’s costs for disputes and how this could be limited to make it fairer than the current process.

Interestingly, at the same time, the Ministry of Housing, Communities and Local Government is looking at setting professional standards for managing agents. The Law Commission is seeking views on whether RTM companies should be required to use a managing agent that meets this standard.

The Law Commission is also keen to hear views as to whether the RTM company should continue to make contributions to the landlord’s costs for disputes and how this could be limited to make it fairer than the current process.

Whilst the Law Commission is clearly looking to increase take-up of the RTM, the consultation acknowledges the concerns of landlords and managing agents as well as tenants about the RTM regime more generally. However, the frustrations of the current letting process continue to make the news and efforts to make the sector more tenant-friendly are unlikely to die down any time soon. More information about the consultation and how to respond can be found here.

Posted in Real Estate

Podcast: Can Brexit frustrate a lease?

London Real Estate Associate Ben Willis discusses the key practical points you need to know about Brexit and contractual termination and force majeure provisions following the High Court’s judgment in the closely watched case of Canary Wharf (BP4) T1 Limited and others v European Medicines Agency, which found that the European Medicines Agency remains bound by the terms of its lease of its London offices, notwithstanding Brexit.  The EMA has appealed.

Listen to our podcast here

Our Brexit Hub contains all our thought leadership across practices, sectors and jurisdictions to help you navigate Brexit’s impact on your business.

Find out more here

 

 

Posted in Real Estate News

The end of the road for Right to Rent?

The High Court has held that right to rent checks cause discrimination on grounds of race and nationality and breach the Human Rights Act. In his judgment released today, Mr Justice Martin Spencer said that the scheme could not be justified as “the measures have a disproportionately discriminatory effect”.  He concluded that the “nail in the coffin” for the scheme is that, on the evidence, “the scheme has had little or no effect” in tackling illegal residence.  Any further roll-out of the scheme would be “irrational … given that … there is little or no evidence of efficacy in relation to the scheme and convincing evidence that [it] causes landlords to behave in a discriminatory way.”

The right to rent requirements were introduced in England in February 2016 under the 2014 Immigration Act, but have not yet been implemented in Scotland, Wales or Northern Ireland.

As we reported last summer, a charity called the Joint Council for the Welfare of Immigrants was granted permission to challenge the right to rent measures before further rollout to the rest of the UK.

Under the right to rent scheme, all private landlords must check the immigration status of a tenant or lodger to ensure they can legally rent a residential property in England. The policy also affects commercial landlords if, for example, they let residential flats over retail units.

The checks must be carried out before the start of a tenancy, on all people aged 18 or over who will live at the property as their main home, whether they are named in the tenancy agreement or not. Certain types of property, such as social housing, some student accommodation and leases of seven years or more of any residential property, are exempt. Although a landlord has freedom of choice over its tenant, a fear of falling foul of the scheme was making many landlords less willing to rent to those without a British passport.

Under the right to rent regime, a contravention of the right to rent requirements can result in a fine of up to £3000 but if landlords knowingly rent out their property to an illegal immigrant, or have reasonable cause to believe that the tenant has no legal right to remain in the UK, this amounts to a criminal offence which can attract an unlimited fine and up to five years in prison.

A landlord may have a defence where it takes reasonable steps to terminate the tenancy within a reasonable time of becoming aware of the true immigration status of the tenant, but the process of termination and possibly eviction is daunting even though the Immigration Act 2016 introduced provisions making it easier to evict illegal immigrants.

Landlords can pass on responsibility for rent checks onto letting agents, but this has to be clearly agreed as part of the landlord’s contract with the agent.

The Home Office has been granted leave to appeal, so how this pans out in practice remains to be seen, but it looks like right to rent is on its way out.

Posted in Real Estate News

Question: Is an invasion of privacy a legal nuisance?

Answer: Those who live in glass houses should not throw stones (or complain about prying neighbours)

The recent case of Fearn & Others v The Board of Trustees of the Tate Gallery [2019], concerned a dispute between the Tate Modern and its residential neighbours over the Tate’s public viewing platform. The case makes clear that an invasion of privacy can (although not in this case) amount to an actionable legal nuisance.

The dispute

In central London, where many live cheek by jowl, privacy is a scarce commodity. Residential areas are increasingly seeing high-rise blocks, with mainly glass exteriors, nestled in close proximity.

The complainants in this case had bought their flats, which neighboured the Tate Modern on London’s South Bank, in or around 2013. At the same time, the Tate Modern was constructing its extension which included a large viewing gallery with spectacular views of London. For some residents, the viewing gallery also provided a view of their living rooms and “winter gardens“. This resulted in visitors to the Tate Modern staring at the residents, sometimes through binoculars, taking photographs and (allegedly) making obscene hand gestures.

Eventually, some of the residents decided to seek an injunction against the Tate Modern requiring the Tate Modern to prevent members of the public invading their privacy by “observing” them from the viewing platform.

The arguments

The residents sought to argue that:

  1. they had a right to privacy under the Human Rights Act 1998; and/or
  2. the invasion of privacy that they were suffering amounted to a legal nuisance.

There were a number of hurdles that the residents needed to overcome in order to make out their Human Rights Act privacy claim, the first of which was that the Tate Modern was a quasi public body. Unfortunately for them, this claim failed because the judge concluded that the Tate Modern was not exercising “functions of a public nature“, which left the residents with the nuisance claim.

What is legal nuisance?

A legal nuisance is usually caused by someone doing something on his land which becomes a nuisance to a neighbouring land owner. The neighbouring land owner will, as a result, have a claim in nuisance.

It is established case law that interference with a neighbour’s quiet enjoyment of its land can amount to an actionable nuisance. The question here, was whether an invasion of privacy could amount to an interference with the residents’ quiet enjoyment of their properties.

The decision

The judge in the case acknowledged that “the law of nuisance ought to be, and is capable of, protecting privacy rights from overlooking in an appropriate case“. However, what is important in each case is “whether, and to what extent, there is a legitimate expectation of privacy“.

In reality, the residents had bought flats in central London with floor to ceiling windows. In deciding that there was no actionable nuisance on the facts the judge considered it relevant that:

  • the occupiers of these flats “can expect rather less privacy than perhaps a rural occupier might“, given the position of the flats next to the Tate Modern in central London; and
  • the fact that the building design including floor to ceiling glass walls meant the residents had submitted themselves to a “self-induced exposure to the outside world“.

These factors, in the judge’s opinion meant that it would be “wrong…to create liability in nuisance“.

The judge also took into account that the residents could easily take certain remedial steps to minimise the invasion of privacy, considering that they could “install net curtains“.

Although an unwelcome outcome for these residents, many city developers and building owners will welcome this decision. In particular, it is “vanishingly unlikely” (according to Guy Fetherstonhaugh QC, who together with Aileen McColgan and Elizabeth Fitzgerald acted for Tate Modern) “that the cause of action in this case could be applied in the case of “ordinary” overlooking of the sort that might arise between neighbours. The whole point in this case was that the Viewing Platform was expressly designed to provide a view – something that could not be said of a normal residential or office block.

The residents are considering appealing, so this may not be the last we have heard on this matter.

Case reference: Fearn & Others v The Board of Trustees of the Tate Gallery [2019] EWHC 246 (Ch)

Posted in Real Estate News

Can BREXIT frustrate a lease? High Court says No Deal

The High Court has today handed down judgment in the closely watched case of Canary Wharf (BP4) T1 Limited and others v European Medicines Agency.  In what will be viewed as a relief for the property industry, the Court has held that the European Medicines Agency remains bound by the terms of its lease, notwithstanding BREXIT.

What is the case about?

The European Medicines Agency (EMA) leases 30 Churchill Place, Canary Wharf pursuant to a lease entered into in 2014 for a term of 25 years, with no break, expiring in 2039.  The lease was granted pursuant to an agreement for lease entered into in 2011.  The current rent is approximately £13m.

Canary Wharf sought a pre-emptive declaration from the Court that BREXIT does not frustrate the EMA’s lease.  In response, the EMA argued that, as a result of BREXIT, its lease will be frustrated and so, as from 29 March 2019, it will not need to comply with its obligations in the lease.

What is frustration?

Frustration is the legal principle that a contract, including a lease, can be terminated if performance effectively becomes impossible.  A frustrating event must be one which:

• occurs after the contract in question has been entered into;
• is so fundamental as to strike at the root of the contract;
• is entirely beyond what was contemplated by the parties;
• is not due to the fault of either of the parties;
• makes any further performance of the contract impossible or illegal or makes performance radically different from that originally contemplated by the parties.

What has the Court decided

In a complex and detailed judgment, which delves into the constitutional intricacies of EU law, the High Court has found in favour of Canary Wharf and held that the lease was not frustrated. In particular, the Judge held that it would not be impossible as a matter of European or English law for the EMA to continue to hold the lease post-BREXIT and indeed there was no legal requirement for it to leave the UK as an automatic consequence of BREXIT.

Whilst the Judge thought that the possibility of BREXIT could have been foreseeable when the lease was granted in 2011, it was not sufficiently foreseeable that it could have been reasonably expected to impact on the parties’ decision making at the time. That said, ultimately, the EMA had negotiated a 25 year lease and had received an incentive package which reflected the long term certain it was signing up to. Moreover, the lease contemplated the possibility that the EMA might at some point wish to divest itself of the building and included provisions for assignment and sub-letting (albeit on onerous terms). There was nothing to prevent the EMA from seeking to divest itself of the lease through those contractually negotiated provisions and it would be unfair to now provide it with a further means of doing so.

What are the implications of the case?

In reality, and despite the degree of attention it has attracted, the wider implications of the case were always likely to be limited. Ultimately, the arguments turned on the very bespoke characteristics of the EMA as a European institution and the prospect of a wider risk of commercial tenants seeking to argue that BREXIT is a frustrating (in the legal sense!) event has always seemed wide of the mark. However, the Court’s decision reaffirms the very high threshold required to establish frustration and ought to lay to rest any residual concerns on that front.

Posted in Real Estate News

Time’s up for residential letting fees

The Tenant Fees Act 2019 received royal assent on 12 February and comes into force on 1 June 2019. The Act aims to improve transparency and affordability in England’s residential lettings market. It bans various fees often charged to tenants – including fees for reference checks, key collection and inventories. It also caps permitted payments. Research indicates that fees charged have far outstripped inflation, rising by 60% during 2010 – 2015, and that the Act will save tenants £70 per household.

The Act applies to assured shorthold tenancies (excluding social housing and long leases), student leases and most licences to occupy (collectively referred to as ‘tenancies’). Initially it will only apply to new and renewal tenancies, but from 1 June 2020 it will apply to existing tenancies too.

Permitted Payments

Rather than listing banned fees, the Act prohibits landlords/agents from requiring any payments from tenants except payments which are permitted. This approach is intended to remove potential loopholes through which the spirit of the legislation could be abused.

The permitted payments are:

  1. Rent: The Act does not allow rent ‘spikes’ at the start of lease terms to offset agents’ letting fees which landlords may now have to pick up.
  2. Tenancy Deposits: tenancy deposits must be capped at five weeks’ rent where the annual rent is less than £50,000 or six weeks’ rent if the annual rent is £50,000 or more.
  3. Holding Deposits: holding deposits must be capped at one week’s rent and returned to tenants except in certain circumstances.
  4. Default Payments: capped default fees are only permitted for late rent or replacement of lost keys.
  5. Payments on variation, assignment, novation or termination at the tenant’s request: Variation, assignment or novation fees are capped at the higher of £50 and the reasonable costs incurred. Early termination fees are limited to landlord’s loss and the agents’ reasonable costs.
  6. Payment of council tax, utilities, TV licence or communication services bills.

Remedies

Enforcement remedies include fines of £5,000 or, in the case of repeat breaches within five years, criminal liability, banning orders and fines of up to £30,000. Lease terms requiring prohibited payments are not binding, but tenants who have paid unlawful fees can seek to recover them via the courts. A landlord who has not repaid a prohibited payment to an assured shorthold tenant cannot use section 21 Housing Act 1988 to regain possession of their property at the end of the term.

Comment

The increasing number of private residential renters will welcome the new law. What remains to be seen is whether the Act will result in increased rents levied by landlords who face increased fees from letting agents.

Posted in Real Estate News

Consumer disputes in the housing sector: a long-awaited reform

Consumer access to remedy has long been a neglected part of what many consider to be an already broken housing market. Housing disputes are heard in a number of different legal settings and the process is often convoluted and opaque. As a result, this vulnerable part of the real estate sector (private renters, social housing residents, leaseholders and buyers of new build homes) can face insurmountable barriers in bringing their cases to justice.  Following a White Paper on the topic in early 2017, and a consequential consultation, the Secretary of State for housing, communities and local government published his response to the issue at the end of last month.  The response sets out a number of proposals for reform.  Although a number of programmes are envisaged, the predominant feature consists of a single, accessible portal which will streamline disputes by referring complaints to the appropriate ombudsman, whilst maintaining the various specialisms needed in this area.

The government has highlighted three key sectors that will be impacted by the reform: the private rented sector; leasehold properties and new builds.

Compulsory membership and justice without courts

The government wants people to be able to access help in resolving housing complaints without needing to apply to the court system The government is going to introduce legislation which will require all private rented sector landlords, regardless of whether they employ a managing agent, to be part of a scheme for remedying complaints.  Notably, this includes all private providers of purpose-built student accommodation.  As for developers of new build homes, the government is also proposing to bring forward legislation that will require all developers of new build homes to belong to a New Homes Ombudsman.  These enhanced requirements for developers fulfil the government’s promise to “champion homebuyers” and protect their interests.  It is anticipated that failure to comply with the legislation will result in fines of up to £5,000.

Helping consumers find resolution

The obligation to belong to such a scheme only addresses part of the issue. What became clear during the consultation was that the multiplicity of schemes currently available is creating confusion, which deters people from actually bringing forward their complaint.  This is where the proposed Housing Complaints Resolution Service will come into its own: a new single access portal where help will be available in resolving complaints or disputes with their landlord, property agent or developer.  This service will be available for social housing residents, tenants and buyers of new build homes.

On-going consultation

A new Redress Reform Working Group will examine and critique the existing standards for dealing with housing disputes and publish voluntary guidance on how improvements can be made. Any particularly pertinent pieces of guidance can then be consolidated through legislation or regulation.  The ultimate goal is to produce a comprehensive “Code of Practice” which will cover the entire housing sector.  Expectations for how complaints are handled will be clarified and set out in a format that will be readily accessible for everyone.

With the proportion of households in the private rented sector having doubled over the last ten years, these reforms look to be timely. The aim is to speed up the rate at which cases are heard and to create a more accessible justice system for everyone.  It remains to be seen whether these new reforms will have the positive impact hoped for, or whether in practice this will be harder to achieve.