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

Posted in Planning

CPO compensation – how much will the landowner get?

If someone’s land is compulsorily acquired to deliver a public benefit, it is accepted that they should receive fair compensation. But what that “fair compensation” equates to, is far from straight forward.

How is compensation calculated?

The principle of equivalence is key to determining compensation – a landowner should be left in no worse, and no better, position. They should not end up out of pocket because of the land they have lost, or costs they have incurred (for example in relocating), but equally cannot expect to be left in a better position. This principle permeates the different types of compensation, or heads of claim, available.

The rules used to calculate the compensation are collectively known as the Compensation Code. However, this is extremely misleading – there is no single place where this “Code “ is set out; indeed the rules are spread throughout various Acts, supplemented by case law, with further input from Government guidance. Consequently, it is widely acknowledged as a complex area, requiring specialist advice.

Value of the land

The starting point is usually the value of the land (or rights) acquired. This is calculated as the market value of the land, but calculated in the “no scheme world” – i.e. assuming that the CPO is not proceeding. What exactly this hypothetical scenario looks like can be a cause of dispute between the acquiring authority and the claimant and has its own plethora of rules. It can also lead to perceived injustice. It is not uncommon for a landowner compensated at values ignoring the CPO to find itself unable to afford a replacement property in the same area, as market value for those properties climbs to reflect the benefits delivered by the CPO.

There also needs to be agreement on the basis of valuation. In addition to the value of the land in its current use, compensation should reflect value attributable to any other planning permissions in place, and in cases where “hope value” can be claimed, to reflect the expectation that planning permission would be granted for a more valuable use. There are procedures available to confirm what hypothetical planning permissions would have been granted in the hypothetical “no scheme world“, so that valuations can also cover this.

Costs and losses

Phrases like “injurious affection” and “disturbance costs” are used to describe other heads of compensation that can be claimed. In short, these are the other losses a landowner suffers as a result of a CPO, such as loss of rents, relocation costs, and the professional costs incurred as a result of the CPO (although not those incurred objecting to the CPO).

It isn’t simply a case of handing over receipts and being reimbursed. A claimant must demonstrate that all costs are reasonable, and that they appropriately mitigated their losses. If it can be shown that a reasonable claimant would have acted differently, and consequently incurred lower costs, a landowner could end up out of pocket. If, for example, an occupier has to pay over the odds in relocation costs because it left everything to the last minute, the onus will be on it to demonstrate why that was reasonable in the circumstances.

There are also statutory payments such as interest (albeit at a very low rate), and certain fixed payments, based on the use and rateable value of the property, payable.

When will I receive my compensation?

There is no entitlement to compensation before the acquiring authority takes the land (although a claim can be made earlier). In reality, though, it is often many years after possession is taken before the final compensation figure is fixed. This can cause significant difficulties for landowners who have had to fund their own relocation, or other costs in the interim.

There is, though, a right to claim an Advance Payment. This is 90% of the acquiring authority’s estimate of compensation, but it is difficult to challenge the estimate at this stage, so Advance Payments are often based on seemingly low starting estimates. This payment should be made within two or three months of request, depending on when the CPO was made (provided possession has been taken), but there’s no way to enforce it, and payments are often late. New rules to curb this are yet to take effect.

If the parties cannot agree the compensation figure, they are encouraged to explore alternative dispute resolution and the (non-binding) Compulsory Purchase Association Protocol contains best practice on how the parties should engage to try to reach agreement.

Ultimately, if all else fails, either side can refer the matter to the Lands Chamber (Upper Tribunal) who will determine the compensation payable based on expert evidence. This, though, is a potentially lengthy and expensive procedure and although the starting point is that an acquiring authority is responsible for these costs too, where they make a sealed offer for compensation the situation can become more complicated. This is not, therefore, an option which should be embarked upon lightly.

Whilst compulsory purchase orders are a valuable tool to deliver much needed regeneration and infrastructure, they can place a significant burden on those whose land is taken, and anyone embarking on the lengthy, complex and potentially expensive journey, must ensure that they have the appropriate expert guides to help them secure the best possible outcome.

 

 

 

Posted in Real Estate News

Reacting to a CPO – what do you need to do?

In the second of our series on compulsory purchase, we turn to what you should do if your property is at risk of compulsory acquisition.

The first thing to do is brace yourself – the process is long, often slow and can frequently feel stacked against you. There are, though, key steps which can, and should, be taken to minimise any negative impacts.

It’s good to talk

It’s imperative to engage with the acquiring authority (i.e. the authority with the compulsory powers). It may be that, in discussing why the acquiring authority needs your land, there is in fact no need for compulsory acquisition – if, for example, it is only required temporarily for a site compound and you’re willing to grant those temporary rights of use. If the acquisition isn’t avoidable, you may at least be able to agree the terms (including the timing of) any transfer, helping to maintain some control of the process, and minimising disruption to your business.

Tactical objections

It is very rare for an objection, or even multiple objections, to put a stop to a CPO. So why bother? Given that an objection by a landowner can compel an inquiry, if used wisely it can significantly enhance your position.

An acquiring authority will usually want to minimise the number of objectors by the time the inquiry arrives for a variety of reasons. Shorter inquiries are usually cheaper and the authority may be concerned about the PR harm of significant objections. If an inquiry can be avoided altogether, more the better. So an acquiring authority is often most willing to reach agreement with landowners during this crucial window. In fact, in recognition of these benefits, government guidance even confirms that it may be “best value” for an authority to pay slightly more than may otherwise be due to a landowner, to remove their objection before the inquiry.

And a “deal” needn’t always be about compensation – it may be that your primary objective is protecting the operation of your business. Examples of benefits we’ve secured during this crucial time include protecting retail tenants by preventing acquisition of their units until after the festive period, and avoiding significant highways works which could deter shoppers.

Laying the foundation for a robust claim

Given the complexity around CPOs, having an expert team to support you is imperative. As well as good legal advice, this will usually include a specialist valuer, able to navigate the many nuances of CPO compensation. This will help to ensure that you don’t trip up procedurally or lose out financially. The good news is that the reasonable costs of these professionals are recoverable as part of your compensation, so you shouldn’t end up out of pocket in the long run.

As we’ll explore in the next blog, there are many other costs which can be recovered as part of your compensation. However, all of these need to be evidenced, and this is where many claimants come unstuck. It’s much easier, and often more persuasive, if details of these costs are collated as you go along, instead of trying to pull everything together when you make the final claim. Try to keep full records of all the time and money spent as a result of the CPO.

Prepare for the worst

There will be times when the compulsory acquisition of property is inevitable, and despite the often lengthy process of getting the CPO, the actual taking of possession can happen relatively quickly.

Once a CPO has been confirmed, the acquiring authority has various procedural steps to follow, but can ultimately take possession of land with only three months’ notice – and even less for some older CPOs which may not have been fully exercised yet. Trying to relocate a business in that timeframe can be extraordinarily challenging, and it is often necessary to take preparatory steps such as identifying potential new premises even before the powers are confirmed, and certainly before the relevant notices are served.

A note of caution though – although these costs are recoverable, it is rare to receive them until after you are dispossessed, meaning that a landowner effectively needs to fund their own relocation with the expectation of recovering the cost.

We’ll explore this and some of the other complexities around CPO compensation in our next blog in the series.

To see our first blog in the series, “CPO Basics- what’s all the fuss about?” please click here.

 

 

 

Posted in Planning

CPO Basics – What’s all the fuss about?

Compulsory Purchase Orders might not seem the most glamorous of topics, but with the urgent need for more homes, and a new Prime Minister showing great enthusiasm for big infrastructure projects, now’s the time to get to grips with CPOs whether you’re a promoter, landowner or have any other interest in property.

In this short series of blogs we aim to demystify CPOs, provide some practical tips for landowners and promoters, and address the thorny issue of compensation.

So what is a CPO?

CPOs grant a person (or body) the power to acquire someone-else’s land or rights over land.  This could include, for example, erasing rights of light or rights of way over land. In addition to “typical” CPOs, CPO powers can be found in various Acts of Parliament (as with HS2), or development consent orders, and many of the principles explained here will apply in those cases too.

Although CPOs are usually thought about in the context of large regeneration or infrastructure projects, they have a very wide application, and can crop up in all sorts of scenarios ranging from high speed rail lines to listed buildings that are not being properly cared for.

However, given the serious nature of these powers, they can’t be exercised on a whim and there are legal tests which must be satisfied in each case.  Although the tests will vary depending on the purpose of the CPO, there are some common factors:

The public interest

The exercise of the compulsory purchase powers must be in the public interest.  However, public benefits are given a pretty broad interpretation and it can sometimes seem like any “improvement” to an area is adequate.

Deliverable

There must also be a realistic prospect that the relevant scheme and its benefits will be delivered.  This usually means that any significant project needs to have planning permission in place and the promoter will need to identify where the funding will be coming from.

Necessary

Use of the powers should also be necessary.  CPO should be a tool of last resort.

However, disparate ownership of a site is often cited as a reason why the CPO is needed and in practice, many authorities, use the threat of the CPO to bring landowners to the negotiating table.

Even so, a promoter should actively engage with landowners at the outset and try to acquire the land/interest by agreement. Failure to do so can count against it when the CPO application is considered.

Failure to satisfy any of these, or any other elements of the relevant tests, may ultimately lead to the CPO powers not being confirmed.

Who can use the powers?

Generally local authorities and government departments have potential compulsory purchase powers as do some public bodies, such as statutory undertakers.

However, it is not unusual for acquiring authorities to make a CPO on behalf of a private developer in return for the developer covering all costs.  Where this happens, the relevant tests must still be satisfied – it is not enough that a developer simply wants to build a new shopping centre; they must also be able to demonstrate that this will deliver benefits for the area.  However, given the broad interpretation of this test, it is often pretty easy to satisfy.

What happens when there’s a CPO?

The seeking, granting, and exercise of compulsory purchase powers is a long and procedurally complex process. The exact details vary depending on matters such as: the powers being sought; when the CPO is made (this is an area where governments love to tinker), and whether the powers are granted by a standard CPO or via another route.

In most instances, there will be a public forum to voice opposition to the CPO (such as a public inquiry) as well as a raft of notices and other documents served at different times as the procedure nudges forward.  The nature of the process means that specialist advice should always be sought, as failure to engage as necessary can have serious implications.

How long will it all take?

It is not at all unusual for the whole process to take a number of years.  This can have both pros and cons for landowners.  If someone is to be dispossessed of their business, the time can be taken to find alternative premises, causing less disruption to operations.  However, in most cases the uncertainty of success whilst waiting for the powers to be confirmed and exercised can bring their own complications.

In the next blog in this series we will consider some of the key steps that a landowner can take to minimise the impact of an impending CPO.

Posted in Real Estate News

Time to weed out knotweed – is Europe leading the way?

Are we overly cautious when dealing with Japanese knotweed? Are other countries more proportionate in their approach? And do we need a new risk assessment to better reflect the situation on the ground? Read on to find out what the government’s Select Committee has concluded in an area where policy looks set to change …

In December 2018 we blogged on the UK Science and Technology Commons Select Committee’s plan to consult on “the science behind the effects of Japanese knotweed on the built environment”. The Select Committee was keen to obtain evidence surrounding the practical impact that the presence of knotweed has on buying and lending decisions in the UK and, more importantly, the reasoning behind those decisions. The results are in and the overriding conclusion is that we need to change our approach, but more evidence is needed before a revised policy framework can be set to deal with knotweed affected land.

So what did the Select Committee actually conclude following its consultation? Despite the fact that other plants cause a similar level of physical damage to property as Japanese knotweed, the stigma attached to the latter in the UK means that the reaction to its presence (as evidenced by property valuations) is often over-exaggerated. The only feature of Japanese knotweed which could potentially explain this excessive stigma is that it is more difficult to completely eradicate than other invasive plants. Despite this, the general consensus is that the UK’s approach to knotweed is “overly cautious” compared with other European countries.

Our colleagues in Germany, for example, report that knotweed is simply not a hot topic. They tell us the approach there is a pragmatic one – due to costs, landlords rather than tenants are responsible for its removal. There is also a “self-help” remedy available if a neighbour allows knotweed to encroach on your land, allowing you to remove it and be compensated appropriately.

Similarly in Hungary Japanese knotweed does not seem to have a major influence on buying or lending decisions. Anyone who allows knotweed to grow and spread may be fined and required to eradicate it. If the person responsible can’t be identified, the owner, tenant or manager of the property is obliged to deal with it. But our colleagues tell us it is not a hot topic or an issue in the same way as it continues to be in the UK.

In France the approach is even more “hands off”. There are certain non-native species of plants which cannot be introduced into the environment. However, Japanese knotweed doesn’t even make it onto the list. It is not considered as an invasive alien species and can be planted in France. There are certain rules on environmental practice which state that farmers mustn’t plant it near watercourses, but that’s about it.

So is our approach “overly cautious” compared to our European neighbours? Should this be rectified and if so, how? This is proving difficult to agree. The Royal Institution of Chartered Surveyors (RICS) risk assessment from 2012 is credited with improving lenders’ attitude to properties affected by Japanese knotweed – many lenders simply refused to lend at all in such circumstances prior to the risk assessment’s publication.

That being said, some of the standards set in the risk assessment have been widely criticised as arbitrary. The “seven metre rule” (i.e. if knotweed is visible within a seven metre radius of any building or the property boundary, then the property is deemed higher risk) which is one of the key tenets of the risk assessment, is not based on scientific evidence.

As a result, many commentators have demanded a more nuanced approach to risk classification. Such classification should take into account: the size of the infestation, the distance of the knotweed from the property and the type of property (among other factors). This plea for an amended risk assessment is currently being considered by RICS but any revised content has not yet been settled.

In general, it’s been agreed that more evidence is needed:

(a)          to establish the physical effects of Japanese knotweed on the built environment; and

(b)          on the way in which Japanese knotweed is treated in other jurisdictions.

Such evidence is needed to inform future policy and regulation so that it is both proportionate and rational.

The UK government’s Select Committee has tasked the Environment Agency, the Department for Environment Food & Rural Affairs and RICS (among others) with investigating the issues set out above. Stay tuned to find out more as these knotty issues are unravelled!

Posted in Real Estate News

Electric Vehicle charging – regulation that sparks a charge towards a better network

The UK government has published its Road to Zero strategy last year, paving the way for a significant expansion of both on and off-street electric vehicle (EV) charging facilities in the UK. The EV revolution is happening and the revenue streams and technologies available are driving the emergence of different business models and opportunities for the roll out of EV charging infrastructure.

All vehicles sold in the UK by 2040 must be zero carbon emissions. Although only 3-4% of all vehicles are now plug in, the demand for EVs is clearly rising. In 2011, only 1,000 EVs were sold in the UK. By 2018, this had increased to 485,000. EV sales increased 30% year-on-year to October 2018, and now constitute 5% of all new car sales.

The EV revolution also presents new opportunities. Potential revenues include direct sale and installation fees, and user charging fees. A wide range of retail revenue opportunities include vehicle to grid (V2G), vehicle to business (V2B) and vehicle to consumer (V2C) electricity off-take revenues.

Free charging may be offered in support of the host’s sustainability agenda or to attract footfall and increase dwell time. Fast charging (7-22kW) could be offered in locations such as shopping centres or car parks, rapid charging (43-50kW) is common in motorway service and petrol stations and ultra-fast (350kW) can offer 200km of range in 8 minutes.

On 15 July 2019 the government published two EV consultation papers which identified three main problems in providing EV charging infrastructure:

  1. the network is currently at a low density, at only around 15,000 charge points in the UK in contrast to 1 million EVs predicted to be on the road by 2023;
  2. EV charging at peak times could put an unsustainable strain on electricity networks and generation capacity, placing more reliance on smart charging (charging at different times of the day in response to signals such as electricity tariff information) and on V2G, V2B, V2C and utility scale battery storage to balance the demand; and
  3. without standardisation, the market will become fragmented in its development.

Without government intervention it is unlikely that the rate of transition to EVs set out in the Road to Zero strategy will be achieved. As a result, the government has proposed regulatory changes which will:

  1. require all new homes with a car parking space to have an EV charge point;
  2. set minimum requirements for EV charging infrastructure in new non-residential buildings with more than 10 car parking spaces and existing non-residential buildings with more than 20 car parking spaces; and
  3. require that private charge points comply with the British Standards Institution’s standards.

The majority of current EV charging demand is at home and overnight which allows demand on the grid to be balanced however, 30% of UK households do not have direct access to a garage, drive or car-port so for many, home charging will not be an easy option.

Key to the success of EVs will therefore be the engagement of local authorities, retailers, hotel chains, corporate landlords, property developers, the automotive industry, network providers and infrastructure stakeholders, all of whom have a vested interest in benefitting from these substantial opportunities.

Posted in Real Estate News

Back to basics: what to do when you receive a break notice

In the current climate, all types of occupiers including occupiers of retail, office and warehouse space, will be considering their leasing requirements and looking to rationalise their property portfolios.  As a result, landlords may find that they are seeing an increase in the number of tenants seeking to operate break rights in leases.

For obvious reasons, receiving a break notice from a tenant is often not what a landlord wants.  However, if as a landlord you do receive a purported break notice from a tenant, it is worth bearing in mind that there are a number of hurdles the tenant will still need to overcome before it successfully brings its lease to an end.

Has the break notice been validly served?

Landlords often receive break notices that, for one reason or the other, are arguably invalid:

  • Has the notice been served on the correct party?

Often tenants will fail to properly identify the landlord, or they may serve the notice on a party other than the landlord, most often a managing agent or the landlord’s solicitor.  This may result in the break notice being invalid.

  • Has the correct method of service been used?

The ‘service of notices’ provision in any lease may require the tenant to serve a notice on another party as well as the landlord, or at more than one specified address, or adopting a particular method of service (e.g. by hand).  If the tenant fails to strictly comply with any mandatory service requirements in its lease, then the break notice is likely to be invalid.

  • Has sufficient notice been given?

Invariably break provisions will require a tenant to give a certain amount of notice, whether this be three months, six months or some other period.  Tenants will sometimes fail to give sufficient notice, often by either a day or two if the tenant has simply miscalculated a notice period.  Failure to give sufficient notice will invalidate the notice.

  • Has too much notice been given?

There is case law to suggest that a tenant cannot serve a notice too far in advance.  For example, if a tenant has to give six months’ notice and, in fact, gives notice a number of years in advance, this may, depending on the specific wording of the break clause in question, invalidate the notice.

There are, of course, many other deficiencies which may invalidate a break notice.  Therefore, if a landlord does receive a notice purporting to break a lease, it is worth seeking advice as to its validity before corresponding further with the tenant.

Has the tenant complied with any break conditions?

Most leases will impose certain break conditions on a tenant.  Two usual break conditions will be that the tenant has paid all rent due under the terms of the lease, up until the break date, and that, on or before the break, the tenant has given up occupation of the premises.

It is important to remember that, if a break is due to operate midway through a quarter and there is a condition requiring that the tenant must have paid all rent due under the lease up to the break date, the tenant must have paid the full quarter’s rent in order to satisfy the break condition.  Further, in the absence of an express provision in the lease to the contrary, the landlord will not be obliged to repay any overpaid rent.

It is also worth noting that some leases will have particularly onerous break conditions, such as requiring a tenant to give up vacant possession (as opposed to just occupation), or to carry out certain reinstatement or repair works.  Such conditions could well provide a landlord with the opportunity to argue that a tenant has failed to operate a break.

If a tenant fails to comply with any break condition (no matter how onerous) then, unless the landlord waives such non-compliance, the lease will continue.

So what should landlords do?

If a landlord receives a break notice, it should not just assume that it is valid or accept that the lease is going to terminate on the date specified in the notice.

It is often worth a landlord seeking advice on the validity of a break notice and also any break conditions, which may provide it with an opportunity to challenge a tenant’s ability to break its lease.

Posted in Case Updates

Opposing a lease renewal on redevelopment grounds – a helpful case for landlords

The case of London Kendal Street No3 Limited v Daejan Investments Limited (2019) provides some useful guidance on what a landlord needs to show in order to successfully oppose a tenant’s right to renew its tenancy on the ground that the landlord intends to demolish or reconstruct the tenant’s premises.

A landlord’s right to redevelop

The most commonly used ground by landlords to oppose a tenant’s right to renew under the Landlord and Tenant Act 1954 (the “Act”) is set out in section 30(1)(f) of the Act. Under ground (f), a landlord may oppose renewal if:

“on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding”

In order to prove ground (f) a landlord:

  • must have a fixed, settled and unconditional intention, as at the date of trial, to carry out works of redevelopment to satisfy ground (f) (the subjective test); and
  • has to show that it has a reasonable prospect of being able to carry out the works, i.e. a reasonable prospect of obtaining building consents, planning permission and being able to show that it has funding available for the project (the objective test).

The facts

London Kendal Street No3 Limited, the tenant, occupied premises at a building called Park West, on Edgware Road.  It occupied these premises by way of four leases.

In 2017, Daejan, the landlord, opposed renewal of the tenant’s lease of suite C2 at the premises, specifying ground (f).

At around the same time, Daejan began to carry out significant works to the basement of the premises.  These works “involved highly intrusive noise levels”.  As a result, London Kendal Street threatened to seek an injunction to stop the works on the basis that the works breached the landlord’s covenant for quiet enjoyment and amounted to a derogation from the landlord’s grant.  Daejan ceased the works in order to try to agree a programme of reasonable measures with the tenant.

In the meantime, the tenant challenged the landlord’s ability to satisfy ground (f) and this matter eventually came to court in March 2019.

It was not disputed at trial that the landlord had the necessary funding for the works, had obtained planning permission and had entered into a building contract with the contractor.

However, the tenant argued that the works to suite C2 would repeat the “intolerable disturbance” which had resulted from the basement works and, as a result, the tenant would “have no hesitation in seeking interim injunctive relief to prevent the [landlord’s] works from unlawfully interfering” with its use and enjoyment of its remaining premises.  As a result, the tenant argued that there was a “high risk” that the landlord would be unable to undertake the works to suite C2, meaning that the landlord could not satisfy the objective test.

Decision

The judge noted that “there is a real possibility that such proceedings [for an injunction] will be issued by the claimant if the work commences and that they may succeed (to a certain extent) if the works cause disruption”.

However, the judge reasoned that even if an injunction of some kind was granted, “a court would be reluctant to leave the parties in a situation whereby one party (the defendant) is prevented from carrying out works on their own property…”.

The judge concluded that, notwithstanding the risk of an injunction, the landlord had established a reasonable prospect of being able to carry out its works to suite C2, thereby satisfying the objective test.  The judge also concluded that the landlord had satisfied the necessary subjective test.

Good news for landlords

Often redevelopment works will be noisy and intrusive meaning that there is a high risk of complaints from neighbouring landowners and adjoining tenants, which may often result in legal letters threatening injunctions.  However, what this case helpfully demonstrates is that the mere threat or possibility of an injunction should not be used by a tenant to create another hurdle for a landlord seeking to oppose a tenant’s right to renew its lease.

London Kendal Street No3 Limited v Daejan Investments Limited (2019)

Posted in Real Estate News

Section 21 is dead. Long live section 8!

The future of the UK rental market is emerging. The government wants views on its plans for removing the assured shorthold tenancy (AST) regime and bolstering the court process for gaining possession of a property. Will it be enough to fill the vacuum left by the AST regime?

Background

In April, we blogged about the government’s plans to abolish section 21 of the Housing Act 1988 which, the government said, left tenants vulnerable to indiscriminate and arbitrary eviction. Under section 21, landlords can terminate a tenancy on two months’ notice following the initial fixed term of not less than six months, without an underlying reason. The government also assured landlords that it was mindful of their need to legitimately and swiftly end tenancies to reclaim their property under the section 8 process.

This consultation, published on 21 July and lasting 12 weeks until 12 October, will help put the flesh on the bones of what James Brokenshire, former Communities Secretary, described as “a generational change to the law that governs much of the rental sector”. While the government has set out its broad principles and objectives, there are unanswered questions on the scope and nature of the changes. This consultation will inform the detail of what comes next and how the government will balance the interests of tenants and landlords, which it says at the moment is “not as fair as it should be”.

Specifically, the government is still pondering a number of issues including:

  • Should it go further and introduce a minimum length for fixed term tenancies?
  • How can it beef up the section 8 process?

The fixed term tenancy: an endangered species?

Abolishing section 21 does not mean the end of fixed term tenancies. Parties can specifically agree a tenancy agreement for a fixed length of time or for a period that continuously rolls over. Contractually agreed break clauses are a common feature of fixed term ASTs and give both parties the ability to exit the tenancy at given points during the agreement. How will these break options operate in the post section 21 regime?

A tenant will (as currently) be able to end a fixed term tenancy after the end of the fixed term or at an agreed break point but a landlord will only be able to end the tenancy (fixed term or periodic) by issuing a section 8 notice and demonstrating one of the statutory grounds for seeking possession. It could operate a break clause but, if the tenant refuses to leave, the landlord will have to seek possession under section 8.

As with its previous consultation, the government is still considering whether to introduce a minimum length for fixed term tenancies and seeks views on whether that should be six months, 12 months or two years.

It says that a minimum term: “would provide landlords with the assurance of guaranteed rental income for a defined period of time. Tenants would benefit from the certainty of established terms and conditions, without the worry of having to routinely agree to end the tenancy early”.

Eight with weight

Without section 21, landlords will need to rely on section 8 to reclaim their properties. The government is considering enhancing section 8 powers in two ways – by expanding the grounds to end a tenancy and by expediting the underlying court process.

Under the current rules, a landlord may only issue a section 8 notice to possess their property in specific circumstances, principally where the landlord wishes to occupy or redevelop the property themselves or where the tenant has substantial rent arrears. The government is contemplating allowing section 8 notices to be served if a member of the landlord’s family wishes to live in the property. It is also pondering allowing section 8 evictions when the landlord wishes to sell the property, although this right would only be available after two years of a fixed tenancy. Neither of these grounds will benefit institutional investors.

According to the Ministry of Justice, it takes on average 22 weeks for a landlord to take possession of its property under the section 8 court procedure. The government hopes it can reduce this by two weeks by freeing up bailiff resources to enforce judgments and amending the Civil Procedure Rules requirement for a first hearing between four and eight weeks after the Notice is served. This timeframe could be reduced by one week, with Civil Procedure Rules Committee approval, the government says.

Conclusion

The government’s reform of the rental market is still at a relatively early stage and many issues are still in play. Its intended direction of travel is clear though and landlords and tenants should prepare for a future without section 21.

Posted in Real Estate News

Motive Matters … Can land owners rely on redevelopment plans to resist Code rights?

It has been almost 18 months since the new Electronic Communications Code changed the legal landscape for telecoms operators and land owners. At its core, the Code is a framework for operators to obtain rights to install their apparatus on private land. The policy behind the Code is to improve our communications infrastructure so that the public has access to a choice of high quality telecoms networks. Once an operator has Code rights, they can only be terminated on limited statutory grounds and it is often a lengthy and complex process. However, land owners can oppose the grant of Code rights if they intend to redevelop their land and could not reasonably do so if Code rights were granted. The Upper Tribunal (Lands Chamber), which is the judicial body tasked with resolving disputes under the Code, has now released its first decision on this issue.

The operators, EE and Hutchinson 3G, had masts on an Estate in Hampshire owned by The Meyrick Trust. They sought to renew their rights under the old Code but negotiations had stalled, so the operators applied to the Tribunal to impose fresh rights under the new Code. The Trust opposed the application. It alleged that it proposed to redevelop the land by installing its own masts which would provide a private, wireless broadband network for the Estate as well as providing space for any operator to install apparatus for their mobile network. An important point to note is that operators can only obtain Code rights over land, which expressly excludes equipment such as masts. Therefore, by installing its own masts, the Trust would be able to negotiate terms (and importantly higher rents) with the operators free of the constraints of the Code.

The Tribunal considered the cases regarding the Landlord and Tenant Act 1954, where a landlord can oppose the grant of a business lease renewal if it intends to redevelop. Whilst the 1954 Act cases are not binding on the Tribunal and there are differences in the drafting between the relevant provisions of the 1954 Act and the Code, the Tribunal adopted relevant principles from the cases:

  • The land owner’s intention to carry out the redevelopment must be firm, settled and unconditional (the subjective test);
  • There must be a reasonable prospect of bringing about the redevelopment (the objective test); and
  • Both tests are judged at the date of the hearing.

The Tribunal was satisfied that the Trust had met the objective test: it had obtained planning permission for the masts and it had the finances to implement the scheme. However, the Tribunal doubted that the Trust had an unconditional intention to implement the scheme and instead found that the Trust’s true motive for the redevelopment was to prevent the acquisition of Code rights.  Land owners seeking to rely on redevelopment plans to resist Code rights should take note. If the evidence doesn’t stack up, the Tribunal has sent a strong message that they will not allow a land owner to purposefully frustrate a central policy of the Code.

EE Ltd and Hutchison 3G UK v Meyrick 1968 Combined Trust of Meyrick Estate Management [2019] UKUT 164 (LC)

Posted in Real Estate News

Game, set and match for leasehold housing and ground rents: Government responds to its consultation on leasehold reform

Last week saw a volley of government announcements for the private rented sector and investors in leasehold residential property.  At the Chartered Institute of Housing Conference on 27 June, Prime Minister Theresa May and Communities Secretary James Brokenshire  announced “bold action”, as soon as parliamentary time allows, to empower tenants and tackle perceived inequality in the private rented sector between landlords and tenants.  On the same day, the government published its response to the consultation on “Implementing reforms to the leasehold system in England”.

In October 2018, the government opened its consultation on reforms to the leasehold system in England, focussing on what it described as the unjustified use of leasehold for new build houses, and tackling “pernicious” ground rents with a proposal to implement an annual cap.

At last week’s conference, the Prime Minister announced that an action plan and implementation document will be published in September, “enhancing the tenant’s rights” and the Communities Secretary promised measures to “confront unfairness in the leasehold market”.

The promised reforms include the main legislative changes that were foreshadowed by the consultation: banning the grant of new leases of houses; and imposing penalties on landlords who are slow to provide the information leaseholders need when they are looking to sell their properties.

As for the future of residential ground rents, the Communities Secretary has announced that all ground rents for new leases will be reduced to a peppercorn (that is no financial value).  Ahead of the consultation in the Autumn, the government had contemplated a £10 cap, but it appears that consumer opinion has persuaded the Communities Secretary to revert to the government’s original proposal, which was effectively to ban ground rents altogether on the basis that they have “no clear benefit to consumers”.  Leaving aside the question of whether this outright ban is a proportionate response to the unfairness of a specific category of ground rents (those that increase exponentially) it seems that it won’t be long before investing in ground rent income is a thing of the past.

The highlights of the government’s response to the consultation replies are:

• A ban on ground rents of any value, for all new leases, with limited exceptions for retirement properties and community-led developments;

• A ban on selling new houses on a leasehold basis (with a house being defined as single dwellings, and self-contained buildings or parts of buildings, structurally detached or vertically divided), with exceptions for shared ownership and community-led developments, retirement living and home-purchase schemes;

• A right for any tenant mis-sold a lease of a new house (that is, after the reforms become law), to acquire the freehold for no premium;

• A statutory right of first refusal for leasehold owners of houses whose landlord wishes to sell their freehold interest (echoing the existing right for tenants of flats);

• Financial penalties for landlords who take more than 15 working days to provide tenants with the vital information they need to be able to sell their lease; and

• Measures seeking to promote more fairness in the way that maintenance charges for communal areas are charged to freeholders and leaseholders.

In spite of concerns within the housing and development sectors, the ban on ground rents, and on new leases of houses will take effect immediately when legislation is passed, with only owners of leasehold land as at December 2017 allowed to continue to develop leasehold houses on their land.  The government has decided that by the time the legislation comes into effect the industry will have had plenty of time to adjust.  Legislation has been promised as soon as parliamentary time allows which, bearing in mind how busy parliament is at the moment, may be a few years away.

There seems little doubt that for a large number of investors and developers these legislative changes will have a significant effect on their developments and investments.  Time will tell how the industry will adapt to these changes, and how it will affect the future supply of much needed housing stock.