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Keeping It Real Estate

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

Posted in Real Estate News, Uncategorised

The CRC is dead: long live Streamlined Energy and Carbon Reporting

On Wednesday 18 July, The CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 was laid before Parliament.  This Order will come into force on 1 October this year and will abolish the CRC when its current Phase ends.  This means that, from 1 April 2019 onwards, there will be no further obligation to monitor gas and electricity supplies under the CRC. The final CRC allowances must be purchased and then surrendered by the last working day of October 2019.

Few, if any, in the property industry will mourn the passing of the CRC.

However, we now need to gear ourselves up for Streamlined Energy & Carbon Reporting instead!  Also on 18 July, the government published its response to the consultation it launched in October 2017 on what could replace the CRC.  Government has already legislated to increase the Climate Change Levy in 2019, so that the abolition of the CRC is fiscally neutral to the Treasury.

The consultation response shows a clear policy intention to replace the reporting aspects of the CRC with a new mandatory reporting regime that broadly follows the existing reporting regime under the Energy Savings Opportunity Scheme (ESOS). However it will be implemented through the existing mechanism of directors’ reports within annual company accounts rather than requiring additional filings with Companies House (or other regulator).  This follows the recommendations of, in particular, The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures, that climate-related disclosures should be part of mainstream financial filings.

This means that the reporting obligation will normally fall upon the highest UK company in a corporate group (as that is usually the entity that submits group accounts) and that non-UK companies will be exempt from reporting.
The proposal is that all quoted UK companies and all “large” unquoted UK companies and LLPs will be required to report their energy consumption and greenhouse gas emissions.  The proposed thresholds for triggering the reporting obligation are:

– 250+ employees; or

– an annual turnover greater than £36m and annual balance sheet total greater than £18m.

The consultation response suggests this will catch about 11,900 companies, 230 LLPs, and up to 50 unregistered companies who will need to include SECR information in their directors’ reports.  However, there will be an exemption for “very low energy users”, which the government suggests will be entities that use 40,000 kWh or less in a 12 month period.  There will also be an exemption for entities who cannot practically report.  This all aligns, broadly, with ESOS and mandatory greenhouse gas reporting.

SECR information must include a section on energy efficiency action taken in the financial year.  There will be no compulsory disclosure of ESOS recommendations and how they have been acted upon, although reporters can of course comment on this if they wish to do so.

It will be interesting to see how the property industry responds to these proposals and how the government develops and fleshes them out in legislation.  As the new reporting regime will need to come into effect in 2019, expect to see draft legislation published soon to give effect to the outcome of the consultation.  More on that when we have seen it!

Posted in Real Estate News

Time’s almost up for residential letting fees

Seven months on from its publication in November 2017, the draft Bill to ban residential letting fees has undergone the Committee Stage of pre-legislative scrutiny without amendment and now heads back to Parliament for its Report Stage. As the Bill looks increasingly likely to become law, we take stock of the Bill’s aims and review its anticipated impact.

The Bill

The Tenant Fees Bill is intended to make the residential lettings market more transparent and affordable for the 4.7 million private rented sector households in England. The Government hopes to achieve this by capping security deposits and banning landlords and letting agents from charging residential tenants and occupiers (including those in student accommodation) any fees other than those expressly permitted.  Research shows that fees currently paid by tenants range from £120 to £750 per letting.  Permitted payments include:

(1) rent;

(2) security deposits of up to six weeks’ rent;

(3) holding deposits (to take the property off the market) of up to one week’s rent;

(4) tenant default fees; and

(5) capped fees for assignment, variation or early termination of a tenancy.

Impact

Proponents claim the Bill will result in savings for tenants (almost three quarters of whom cite letting fees as a hindrance on their ability to move) and result in broader economic benefits as tenants’ disposable incomes increase. However, opponents argue that the legislation could remove a vital revenue stream for residential estate agencies; tenants’ fees currently generate approximately £700m per year for agents in England and Wales. Warnings of consequent job losses, consolidation and reduction in service quality abound.
Debate remains as to how to ensure tenants do not get charged letting fees ‘through the back door’ if landlords simply pass higher service fees onto tenants through rent hikes.  The Government is mindful of this potential pitfall, but argues that transparent, up front costs are preferable to ‘hidden fees’.

Time frame

The Government’s determination to ban residential letting fees and cap security deposits is clear. Having passed through the Committee Stage unamended and with cross-party support as to its aims, we expect to see the Tenant Fees Bill become law in late 2018 or early 2019.

Posted in Real Estate News

The Road to Zero – What does it mean for you?

What is it?

On 9 July 2018 the Government published its Road to Zero strategy. This sets out how the Government plans to lead the world in zero vehicle emissions. It follows the Government’s Air Quality Plan which prohibits the sale of new petrol and diesel cars from 2040. This means that electric vehicles are going to be part of our future and we need to ensure that we have the infrastructure needed to power them.

So what?

The strategy includes a number of initiatives that will have a significant impact on the real estate industry. They largely relate to the provision of charging infrastructure that will be needed for all cars on UK roads to be electric.

What’s the plan?

There are currently 14,000 public chargepoints across the UK, but the Government wants many, many more. It wants the UK to have one of the best charging networks in the world and it is going to use both the carrot and stick approach to get there.

A consultation on a new requirement for chargepoint infrastructure for new homes is expected “as soon as possible”. Non-residential development is also likely to be caught, as proposals to change Building Regulations to require new charging facilities are also mentioned. Workplace charging is a particular focus, so we can expect to see charging requirements for offices and other places of work in the near future.

Changes to national planning policy to require charging facilities are also expected. Highway works could get more expensive as the plan is for all new street lighting columns to have charging points in appropriate areas. There has also been discussion in the market about how the wayleave process needs to be sped up to make delivery of charging infrastructure happen, which is not something picked up by the Road to Zero.

In terms of carrots, the Government is increasing its investment in this area by making funding available for workplace charging schemes. The proposals also extend to bus and taxi facilities.

What does this mean for you?

Whether you work in the residential or commercial sector, you need to be electric vehicle ready. As well as meeting occupier/end user demand, there are a number of opportunities that this potential £7.6 trillion market presents to landlords and investors. Getting in early to attract tenants and purchasers with the latest technology could set investors and developers apart from their competitors, but there may also be other revenue generating possibilities that they may wish to explore, such as installing communal charging areas within new and existing schemes.

It is estimated that two thirds of vehicles on the road will be electric by 2050, but as there is no standardised charging system at present, developers and investors may find it hard to choose a product that will truly future proof sites. Complexities apply to mixed use schemes, where you will need to think about how different uses will share energy. Considered early, though, this can fuel innovative solutions which can allow uses to complement each other. One example is the use of kinetic pavements (where energy is generated from people walking over grids) on the commercial part of a site being used to charge electric vehicles on the residential part or vice versa.

There is plenty to ponder about how this will work in practice and how the real estate sector can tap into this new and exciting field. Dubbed as the biggest technological advancement of the motor industry since the invention of the motor car in the 1880s, this is clearly an area of rapid growth and it seems evitable that sparks will fly.

Please contact John Condliffe or Alex Harrison if you would like any further information on the Road to Zero or the roll-out of EV charging infrastructure in the UK.

Posted in Real Estate News

10 things you need to know about MEES and residential property

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“MEES Regulations“) introduced the Minimum Energy Efficiency Standards (“MEES“), which aim to encourage landlords to improve the energy efficiency of buildings via a restriction on granting new tenancies and continuing existing tenancies where the property has a sub-standard EPC rating.

Below are 10 key points to bear in mind concerning the impact of the MEES Regulations on residential property, or “domestic private rented property”:

1. Lots of MEES Regulations apply to both commercial and residential property

From 1 April 2018, landlords of “domestic private rented property” (i.e. residential property) or “non-domestic private rented property” (i.e. commercial property), are unable to grant new leases of properties without a minimum EPC rating of E: F and G rated properties are “substandard”. There are also restrictions on continuing to let substandard properties in the near future…

2. …BUT the restriction on continuing to let property applies earlier for residential property

Landlords are prohibited from continuing to let domestic private rented property with a commercial property substandard EPC rating from 1 April 2020; it is 1 April 2023 for substandard commercial property.

3. The MEES Regulations enable residential tenants to ask for the landlord’s consent to the tenant making “relevant energy efficiency improvements”

Tenants of domestic private rented property can ask the Landlord for consent to the tenant undertaking certain sorts of energy efficiency improvements to its property, even if there are provisions in the lease that would prohibit those alterations. The Landlord must not unreasonably withhold or delay its consent.

4. The MEES Regulations will not affect all residential property

Generally, for the MEES Regulations to apply there must be either an assured tenancy (for example, an assured shorthold tenancy), a regulated tenancy under the Rent Act 1977, or a certain form of agricultural tenancy.

If a tenancy is not one of these, the MEES Regulations will not apply. This means that leases of residential property to companies, leases of second homes (because the tenant must occupy the property as its principal home), leases of residential property granted on or after 1 April 1990 where the rent is over £100,000 per annum, or leases of residential property where the principal rent is £1000 or less (in Greater London) or £250 or less (elsewhere), will all be outside the scope of MEES.

5. Confusingly, the status of residential property can change

It is possible for a tenancy to move in and out of the scope of MEES. For example, if rents change during the term of a residential lease to push it above the £1000/£250 thresholds mentioned above the tenancy will become subject to MEES.

6. Social housing will not be caught

Low cost rental accommodation provided by a private registered provider of social housing and low cost home ownership accommodation offered by housing associations will be excluded from the MEES Regulations.

7. Certain types of landlords will fall outside the scope of the MEES Regulations

The MEES Regulations will not apply if a landlord is a registered social landlord under the Housing Act 1996, or where there is a tenancy granted by the Crown, a government department, local authority or certain housing associations.

8. Unlike commercial property, there is no upper or lower limit on length of term

It is possible for residential lettings of a significant term, for example 125 years or even 999, to fall within the definition of an assured tenancy and so be within the scope of MEES.

9. There are certain exemptions

If a landlord has a substandard residential property, it may still be able to let it.

Residential landlords, along with commercial landlords, can rely on the “consent exemption” (where a landlord can demonstrate that it has been unable to obtain a third party consent for any energy efficiency works), the “devaluation exemption” (where works would reduce the market value of the property by more than 5%) and certain temporary exemptions to cover situations where the landlord has no opportunity carry out relevant energy efficiency works.

Notably for residential property, landlords will be able to rely on the consent exemption if they plan to use Green Deal funding and the tenant refuses to confirm that the landlord may enter the Green Deal financing agreement.

If proposed works would adversely affect the structure or fabric of a property (as evidenced in a specialist’s report), the property can continue to be let despite its F or G rating. Similarly, if all relevant energy efficiency works are carried out and a property is still below E, it can be let (although the “seven year payback” test does not apply to residential property for the purpose of working out what is a relevant energy efficiency improvement).

Exemptions are only valid for a maximum period of five years (6 months for the temporary exemptions), do not benefit future landlords and must be registered on the PRS Exemptions Register.

10. There is an on-going consultation regarding the “no costs” principle for residential landlords

For residential property, energy efficiency works must generally be capable of being financed “at no cost to the landlord” – this does not apply to commercial property. This can be done via Green Deal finance, energy company obligations or local authority grants.

However, this is subject to on-going government consultation, which could result in landlords having to contribute up to £2,500 per property to the cost of improvement works.

Posted in Real Estate News

Assets of Community Value – a NIMBY lifeline?

Objectors are always looking for new, low cost ways to stop or delay the offending development. Lobbying for town and village green designations used to achieve this, but as the effectiveness of that route has been hampered by changes in the law NIMBYs have been offered a lifeline in the form of Assets of Community Value (ACVs).

How do they work?

ACVs are a way for communities to protect spaces of community value. A community group nominates an asset to the local authority who then decides whether it meets the registration criteria. Typically, communities have used the ACV process to protect their local pub or village shop, but a recent case reminds us that ACVs apply equally to open land.

The Banner Homes case

Open land was the issue in the Banner Homes case. Following an on-going battle with St Albans City and District Council regarding the ACV registration of one of their development sites, Banner Homes took the matter to the Court of Appeal. They didn’t win though. Although Banner Homes had not agreed to the community using the land (in fact, everyone accepted that the use had been trespass!), it was still enough to satisfy the ‘social wellbeing’ requirements of an ACV, and the land’s registration as an ACV stood.

So what can be done?

If your site is registered as an ACV, all is not lost. Yes, the ACV designation might add complexity and delay, but it is not fatal. There is nothing to stop planning permission being sought and obtained at any point in the ACV process, or during its registration as an ACV (which lasts for five years). However, the local authority can view the designation as a material consideration when deciding an application, which might weigh against it.

What about landowners who want to sell a site on to a developer?

This is the point where the ACV registration bites. An owner wishing to sell an ACV must notify the local authority. This starts a 6 week ‘interim moratorium’ to allow the community group to consider submitting a bid. If the group registers an interest in bidding, a 6 month ‘full moratorium’ begins during which the land cannot be sold (except to the group). However, at no point is there any obligation on an owner to sell, and once the moratorium periods have been cleared, it is business as usual.

The bitter irony

Interestingly, although ACVs were brought in to protect community spaces, when it comes to open land, it may end up having the opposite effect. The unintended fall-out of the Banner Homes case is that developers are likely to fence off sites to stop public use. In doing this, developers minimise the risk of an ACV nomination, but are also removing the very opportunities for social wellbeing that ACVs were brought in to foster.

Posted in Real Estate News

Overcoming the barriers to longer tenancies in the private rented sector

Since the introduction of assured shorthold tenancies under the Landlord and Tenant Act 1988, tenancies of 12 months have become the norm.

The Ministry of Housing, Communities & Local Government has just launched a consultation on “Overcoming the Barriers to Longer Tenancies in the Private Rented Sector”, asking whether measures that would encourage or compel landlords to grant longer term tenancies would lead to greater stability for both tenants and landlords.

The consultation document states that research by a major developer in the build to rent sector  suggests that one of the main reasons that tenants do not take up or demand longer term leases is because shorter terms have been the market standard for so long.  Once accustomed to the idea of taking a longer term tenancy, tenants have shown more interest, provided that they are given enough flexibility (such as break rights) and control over rent increases.

What is wrong with a market dominated by short term tenancies?  According to statistics published in the consultation paper, 38% of households in the private rented sector are families with school age children.  The paper states that short term tenancies create uncertainty. Tenants who pay their rent and comply with their covenants may still find themselves having to incur the cost and disruption of relocating their families after a year or two.  More sobering still, the end of assured shorthold tenancies is now the leading cause of homelessness, with tenants finding it difficult to find new, affordable accommodation when their tenancy comes to an end.

One question for consultees is whether the solution lies in legislation (prohibiting tenancies of less than 3 years other than in exceptional cases) or introducing incentives to landlords to grant longer terms (such as tax breaks).

The principal proposal in the consultation is for a standard tenancy of not less than 3 years, starting with a 6 month probation period after which either the landlord or tenant can decide to walk away.  Provided that the tenant complies with their obligations, they would enjoy the security of a longer term, but landlords would still be able to terminate the tenancy early on the tenant default grounds that currently apply to assured shorthold tenancies.  The landlord would have a right to increase the rent every 12 months, but without any nasty surprises: the tenant would have to understand up front what the maximum rent could be.

It will be interesting to see how the market responds to this consultation.  The sector is already highly regulated, and the sources of many tenant complaints have been tackled in recent years.  Tenancy deposits are protected under a statutory scheme (and some landlords do not take them anyway), letting agents are to be regulated, and letting fees banned. The Deregulation Act 2015 introduced protections for tenants against so-called “revenge evictions” which should allow tenants to speak more freely about disrepair and problems with their homes without fear of being thrown out by a disgruntled landlord.

It will also be important to ensure that regulation of tenancy lengths does not dissuade institutional and private investors. It is investors, after all, that fund and develop build to rent schemes. The consultation paper recognises that major upheaval and more regulation could stifle investment in the sector at a time when the investment market is already softening and the need for supply is still very high.

Ultimately, the recommendation for longer “short term” tenancies is driven by a wider problem in the residential property market.  Home ownership is in decline, due to a lack of affordable stock.  Assured shorthold tenancies are by far the most common tenancy in the private rented sector.  There seems to be little in between the two extremes. However there are signs that the private rented sector is evolving naturally, thanks to diversification (student accommodation, buy to rent, and retirement living, to name a few) and innovative steps by developers and planners.  In London, tenancies of new PRS stock are already expected to have a 3 year term, under the Mayor’s Affordable Housing and Viability SPG (July 2017), and this policy is reflected in the draft NPPF that will be published this month.

Perhaps the answer is to let the market adapt, rather than forcing change upon it.

Posted in Planning

Fail to Plan, Plan to Fail- getting planning permission in London

London is a world leading city where businesses thrive and more and more people want to live. So why isn’t getting planning permission in London easy? In our view, there are four main reasons: (1) an ever-changing policy framework; (2) affordable housing and viability; (3) under-resourced local authorities and (4) judicial review.

Each of these are enough to give developers a sleepless night on their own, but put them all together in a Brexit-looming market and it’s the stuff that nightmares are made of.

So why are we in this mess? Is it all bad? And what can be done about it?

Ever-changing policy

We have one of the most complex planning systems in the world. UK and European legislation; national policy; local policy and case law all form part of the sophisticated planning puzzle. The constant raft of changes that are made – often with the promise of clarification and certainty – keep us lawyers busy, but rarely bring simplicity and speed to the process.

In London, there’s an extra layer of complexity in that the London Plan forms part of the local policy framework. Its job is to set out the strategic policies for the Capital and this means setting the vision for London so that the boroughs can make planning decisions that all work towards the same goals.

A new draft of the London Plan was published in November 2017 and is due to be adopted in late 2019/early 2020. Its main aim is to ramp-up house building – a major win for the industry. However, conflicting polices such as density versus daylight and sunlight requirements and social infrastructure versus heritage preservation mean that the road to planning is pretty bumpy. With section 106 obligations and the community infrastructure levy (CIL), it’s not paved with gold either. There is also an inconsistency in the application of this draft policy, with some boroughs applying it now, as if it is already adopted.

It seems that whilst each incoming government promises the deregulation of the planning system, yet more red tape ties the hands of the decision-makers. Take the recent Developer Contributions Consultation, for example. Instead of scrapping CIL, it proposes further changes in an attempt to bring land value uplift issues into the CIL remit.

The good news is that the government really wants to deliver development. It is engaged on this topic and has recruited innovation experts to see what can be done to improve things. Whether it will have the confidence to remove some of the bureaucracy that slows the system down remains to be seen, but we live in hope.

Affordable housing and viability

London has got tough on affordable housing. We have a Mayor who is serious about delivery and the amount of affordable housing required to secure planning is rising. The draft London Plan includes the Mayor’s 35 per cent affordable housing threshold and Sadiq Khan has been clear that he wants half of all new homes in London to be “genuinely affordable“.

But with some of the highest land prices in the world; a skills shortage and cumbersome brownfield construction sites, developing in London is not cheap – and that’s before you add your planning gain requirements. So with lots of risk and tighter margins, where are the incentives for developers to build more and more quickly?

Under the current system, developers who can build out quickly are effectively penalised compared to those who are slower. This is because longer build programmes increase cost and lower viability and therefore councils sometimes reduce and/or stagger affordable housing obligations to compensate. There is a clear conflict here which needs to be addressed. Technology has the potential to ease some of the pain, but government must incentivise developers to challenge existing working practices and invest in new solutions.

Under-resourced local authorities

Time is money. Viability concerns are often exasperated by the length of time it takes to get planning permission. Local authority funding cuts combined with an increase in the number of planning applications and all that red tape, means that applications are taking longer to process and don’t even get us started on protracted section 106 negotiations…

So, what can be done? More funding, yes, and we hope to see improvements from the recent 20% hike in planning fees, but putting effective systems in place can also go a long way to making things better. Why should it take longer to get permission in one borough compared to another? It shouldn’t. Local authorities need to learn from each other and the GLA has a role to play in championing role models, innovation and the better use of technology.

Judicial review

There is a culture of judicial review in London. Land values are high and competition for sites is rife, meaning that it is not just local objectors, but also competitors that developers need to worry about.

The government has tried to tackle judicial review risk by shortening the challenge period for planning permissions and commissioning a dedicated Planning Court. We have seen a slight shift in some cases where a harder stance has been taken on whether a challenge should be dismissed at the first stage of proceedings. However, the risk of judicial review is still very real and in extreme cases it’s enough to stop a scheme in its tracks, even before the court’s decision has been made. This is often due to funding and viability problems which are caused by the delay to the development whilst the case is heard in the courts.

The threat of judicial review affects every element of the planning process. Application documents are scrutinised; officer’s reports to committee picked over and section 106 agreements redrafted with agonising precision. All of which takes time, but with such catastrophic potential, who can blame the developer for minimising the risk of the planning permission being quashed?

A look to the future

So what’s on the planning horizon for London? We don’t want to harp on about the B-word, but it would be amiss to ignore Brexit in the context of building in London. It affects every one of the four factors above, but particularly viability and regulation.

Workforce availability; the cost of materials; and overseas investment concerns are just some of the issues that increase risk and threaten deliverability.

But it’s not all doom and gloom. In terms of regulation, it will be interesting to see how the sovereignty situation pans out post-Brexit. Hopefully it will be an opportunity to tackle some of these issues head-on, so that London continues to develop as a leading global city.

London is home to some of the most iconic buildings in the world and attracts millions of visitors each year. It is also an ambitious capital and a place that embraces change, diversity and growth. Despite a complex planning system, for these reasons it is still a hot bed for development and that is showing no signs of stopping.

This article appears in the EG London Investor Guide Summer 2018.

Posted in Real Estate News

Right to rent legal challenge

A challenge to the government’s right to rent measures began yesterday (6 June) when permission was granted to the Joint Council for the Welfare of Immigrants (JCWI), a charity, to proceed with a judicial review challenge. A full hearing will follow.

The basis of the challenge is that the checks cause discrimination on grounds of race and nationality and breach the Human Rights Act and should be reviewed before further roll-out to the rest of the UK. The right to rent requirements were introduced into England in February 2016 under the 2014 Immigration Act, but have yet to be implemented in Scotland, Wales or Northern Ireland.

All private landlords must check that a tenant or lodger 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. A full list of documents acceptable to demonstrate that a person has a right to rent can be found on the government’s website, but Windrush highlighted instances of people with a legal right to live and work in the UK being denied rental accommodation because they did not have documents which evidenced a right to remain in the UK.

Although a landlord has complete freedom of choice over its tenant, the JCWI’s 2017 report found that 42 per cent of landlords were less willing to rent as a result of the scheme.

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 carrying out (and accordingly, pass on liability for any failure to carry out) right to rent checks as part of the due diligence process on prospective tenants to their letting agents or managing agents. Delegation must be agreed in writing between the landlord and agent, and the agent must be acting in the course of its business, in order to effectively delegate responsibility and liability.

Whether the current legal challenge will be successful remains to be seen, but since the policy’s inception in 2014, and particularly since Windrush, hostility towards it has been growing in certain sectors, with support from a number of representative groups who question the effectiveness of the government’s “hostile environment” policy. What the challenge does suggest is that right to rent checks have led to a reluctance to grapple with a system that can be confusing and costly if you get it wrong.

Posted in Real Estate News

Whose shoes? What subrogation means and why it matters

Subrogation is a well-known principle of insurance law, which also affects real estate. It means that an insurer who has settled a claim may then “step into the shoes” of the insured and try to recover what it has paid from anyone who has contributed towards, or caused, the loss.

In real estate, landlords’ insurers can “subrogate” against a tenant if the tenant has contributed to the insured damage. As the tenant, in effect, pays for the insurance, that doesn’t sit well so tenants will typically get protection against this.

How do they do that? Mainly by getting the lease right. If the drafting requires the landlord to insure and to reinstate insured damage, and the tenant is required to contribute to the insurance premium but has no liability for damage by insured risks, the insurers cannot bring a subrogated claim against the tenant. This is generally known as the “Berni Inns” principle, after the case deciding it (Mark Rowlands v Berni Inns Ltd [1986] 1 QB 211). Generally, that should be enough, but (being cautious by nature) lawyers normally want to see more if possible.

Most professional property investors’ insurance policies include a clause by which the insurer expressly waives its subrogation rights against the tenant. Tenants often reinforce this with lease clauses requiring the landlord to ensure (or make efforts to ensure) that the policy includes a subrogation waiver.

The tenant could also be specifically named on the policy as a co-insured (or composite insured). This is more than being “noted” on the policy, which is covered through a “general interests” clause. However, co-insurance is not a normal arrangement, for both practical and technical reasons.

Tenants should also consider the position of their contractors carrying out works such as fit-outs. Neither co-insurance nor a subrogation waiver in favour of a tenant will automatically benefit a contractor and the Berni Inns principle won’t apply. The tenant could require the landlord to obtain a subrogation waiver in favour of a contractor. Not doing so could affect the way in which the contractor prices the work, as expensive additional contractor’s insurance will be needed. There is usually an additional premium for the waiver which the tenant would be expected to pay, but it should be substantially less than the cost of the additional insurance.

Some tenants also ask the landlord to insure the fit-out itself, which can be slightly cheaper than insuring it themselves. Many landlords are comfortable doing this (as long as they are given an accurate reinstatement value). Although there can be a debate over whether the landlord has an “insurable interest” in the tenant’s fit-out, most insurers seem quite happy to cover it.

Posted in Real Estate

The brave new world of the GDPR

It’s finally here. As from today the EU General Data Protection Regulation (GDPR) applies throughout the European Union.

Any entity that “processes” personal data will be subject to the GDPR. “Processing” is widely defined and catches virtually anything an entity does with data, from collection and storage through to analysis, sharing and destruction.

The GDPR only applies to “personal data”. Personal data is any information relating to an identifiable natural person such as name, identification number, location data or online identifier. Certain types of data are more sensitive than others, including data relating to health, race, ethnicity and biometric data.

WHO CONTROLS THE DATA?

A “data controller” is a person or entity who decides how and why personal data is processed. Data controllers will be directly liable for data processors and are directly responsible for compliance with all aspects of the GDPR.
A “data processor” is a person who processes personal data on behalf of a data controller.

Under the GDPR, a data controller is required to enter into a contract with the processor which imposes certain obligations on the data processor.

COMPLEX OWNERSHIP STRUCTURES

With common property ownership structures, the beneficial owner is likely to be different from the legal owner and decisions over the asset are likely to be shared between the asset manager and the property manager.

In these circumstances, each entity may have its own data protection responsibilities and should analyse what data is being collected and by whom, whether it is personal data, what the purpose of having the data is, and who is making the decisions as to how it is used, in order to establish who is the data controller and who is the data processor.

Although management agreements between asset owners, asset managers and property managers can helpfully clarify the role of each party in relation to data protection and compliance with the GDPR, ultimately the identity of the controller/processor is one of fact.

PRIVACY NOTICES

Data controllers have extensive obligations in relation to personal data, including an obligation to notify individuals how the data controllers use the data. This information is often included in a privacy notice and no-one can have escaped the flurry of e-mail activity as entities update these privacy notices to comply with the GDPR.

DATA BREACHES

Where there is a “personal data breach” the data controller must notify the Information Commissioner’s Office (ICO) of the breach within 72 hours of becoming aware of it. The data controller must also notify the individual of the breach, where the breach would be likely to cause a high risk to the individual’s rights and freedoms which may be given by a public communication.

In contrast, a data processor simply has to notify the data controller without undue delay after becoming aware of a personal data breach.

SANCTIONS FOR NON-COMPLIANCE

The consequences for breach of certain provisions of the GDPR are eye-wateringly high. Fines may be levied of up to:

• 20m Euros; or, if higher,
• 4% of annual worldwide turnover.

In relation to some other breaches, the ICO may impose sanctions of up to 10m Euros or, if higher, up to 2% of an undertaking’s total worldwide turnover.

And it won’t stop here. In the UK, when the new Data Protection Act is enacted, it will broadly implement the GDPR and it will continue to apply after Brexit, so future-proofing the transfer of personal data between the UK and EU.