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Print articleThe legal changes set to shape the UK’s real estate industry in 2024
January, 2024 - Shoosmiths LLP
Introduction of biodiversity net gain in England
New biodiversity net gain requirements will be introduced for large development sites from 12 February 2024 and are set to also apply to smaller sites from 2 April 2024.
Biodiversity net gain aims to create and improve natural habitats by measuring the impact of a development on biodiversity. Developers will have to deliver a biodiversity net gain of at least 10% - providing an increased or higher quality natural habitat than there was before development was undertaken as part of the planning process.
Building Safety Act 2022
Most of the Act’s provisions were brought into force by 1 October 2023. However, some secondary regulations are not yet in force, particularly in relation to the provision of information in the occupation phase, the introduction of the Building Safety Levy and a mandatory 15-year new homes warranty.
As the industry adjusts to the new regime, new practice is likely to develop in relation to standard due diligence and drafting - providing clarity as to responsibility for compliance with the Act’s many requirements throughout the lifecycle of a development.
For the time being, it is critical that development agreements are consistent with the building contract and other construction documentation - taking into account the wider implications of the Building Safety Act that apply to all construction works, including the new competency requirements for the developer and key members of the development team.
For more in-depth analysis, Shoosmiths has investigated the construction legal developments to prepare for in 2024.
The Levelling up and Regeneration Act 2023
The Act received Royal Assent in October 2023, with further regulations expected in 2024 to bring the various aspects of the Act into force.
The Act includes wide-reaching changes affecting the real estate sector, including reforms to the planning system, and the Community Infrastructure Levy. This is alongside key provisions around rental auctions – allowing local authorities to intervene to improve the local economy by creating lettings of high streets or in town centres, the compulsory disclosure of agreements that give a person control over the development of land and detailed obligations to disclose beneficial interests in land.
Further regulations will set out how the rental auction process will work, including the terms of the agreement for lease and the lease that will be imposed on landowners whose land is subject to the rental auction process.
The government has recently launched a major new consultation on its proposals to capture information about contractual control agreements intended to secure land or property for residential, commercial or mixed-use development. The scope of the contracts disclosable under the proposed regulations is very wide and will affect many forms of contracts for the development of land.
The government has also issued a separate consultation on transparency of land ownership where trusts are involved in the ownership structure.
Changes to the Register of Overseas Entities to tighten transparency rules under the Economic Crime (Transparency and Enforcement) Act 2023
The precise timetable for implementation is unclear, but some measures will come into force in 2024.
Overseas entities will be required to disclose and verify HM Land Registry title numbers for their qualifying estates and provide further details about trust structures. This will apply to new registrations and to the annual updating of registration details.
If an overseas entity fails to respond to any requests for information from Companies House, it will not be able to dispose of UK real estate assets, as it will not be a “registered entity”.
The Act contains many other changes for companies, aimed at providing further transparency over ownership and combatting financial crime.
Charity land disposal provisions in the Charities Act 2022
The third stage of implementation of the Charities Act 2022 is due in early 2024.
Some provisions relating to the disposal of charity land came into force on 14 June 2023, but others are outstanding. These include changes about what must be included in statements for disposals and mortgages by charities, together with no future need for charity trustees to certify compliance with the Charities Act 2011 regime.
New provisions will also cover the taking out of mortgages by liquidators, provisional liquidators, receivers, mortgagees, or administrators.
Minimum Energy Efficiency Standard (MEES)
Formal responses to consultations relating to MEES are expected in early 2024, with secondary legislation to follow to implement Government policy.
Following Government announcements in autumn 2023, it appears that the MEES scheme in relation to residential properties will not change. Commercial properties may still be subject to higher EPC ratings, but on a slower trajectory than the previously announced B by 2030.
EPCs will also be reformed through delivery of the EPC Action Plan.
Leasehold and Freehold Reform Bill
The Leasehold and Freehold Reform Bill was introduced to Parliament in November 2023 and is likely to be subject to debate and amendment throughout the first half of 2024.
The Bill implements some of the government's longstanding proposals to make further reforms to the residential long leasehold market, including making it cheaper and easier for existing leaseholders to extend their lease or buy their freehold, while also increasing the standard lease extension term from 90 to 990 years for both houses and flats, with ground rents reduced to £0 under those leases.
Some of the qualifying conditions for tenants exercising their rights have been removed or reduced to enable more tenants to exercise their rights.
Residential service charge protections are extended to freehold owners on private estates.
Abolition or capping of ground rents under existing residential leases
The government issued a consultation paper on its proposals for abolishing or capping ground rents in December 2023. Once the preferred option is settled, it will be included in the Leasehold and Freehold Reform Bill. The government is consulting on whether there should be a transitional period.
Although the use of ground rents in new residential leases has largely been prohibited since June 2022, this had no impact on existing residential leases reserving a ground rent.
Whichever of the options in the consultation are adopted, landlords are likely to lose ground rent income. The government does not intend to compensate for this, or allow landlords to recover it through other means, such as the service charge.
Renters Reform Bill
The Bill was introduced into Parliament in May 2023, but is going through a lengthy process to become law and is in the Report stage of the House of Commons. At the moment, there is no indication of when the Bill will complete its passage through Parliament and be brought into force.
The intention of the Bill is to improve security for tenants and standards in the private rented sector. Its flagship policy is to abolish section 21 ‘no fault’ evictions and move to a simpler tenancy structure where all assured tenancies are periodic. However, it was announced in October 2023 that the abolition of section 21 would be delayed until stronger possession grounds and a new court process is in place.
Future Homes Standard and a Future Buildings Standard in England
To allow the real estate industry time to adapt, legislation to implement these standards will be introduced in 2024, with either a six or 12-month period before it comes into force in 2025, followed by a 12-month transitional period.
The aim of the standards is to decarbonise new residential and commercial buildings in England through changes to the Building Regulations and Approved Documents. The focus will be on improving heating, hot water systems, and reducing heat waste.
A Government consultation was issued in December 2023.
Government-backed Law Commission consultation on the Landlord and Tenant Act 1954
The consultation is due to be launched as soon as possible in 2024.
The security of tenure aspects of the 1954 Act will be comprehensively reviewed to ensure they are consistent with modern business leases. The aim is to create a legal framework that is widely used and supports the efficient use of space in high streets and town centres. It will take into account other legislative frameworks, including those within the government’s net zero and levelling up policies.
Law Society Code for signing and exchange of contracts
This is currently under consultation – intended for launch in 2024 – with Law Society proposing a complex code for use to agree protocols for signing and exchange of contracts. It is unlikely to be mandatory for use for commercial agreements, but is intended to be mandatory for Conveyancing Quality Scheme residential transactions.
Law Society real estate sector specific guidance on the impact of climate change
This is under development by the Law Society and intended for launch in 2024.
The guidance will set out the Law Society’s view of solicitors’ duties specifically in relation to climate change and real estate transactions. This follows the Law Society’s guide to the impact of climate change on solicitors, including in-house lawyers, issued in April 2023.
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