Legal development

2023 The Year of the Rabbit but will there be carrots or sticks

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    Well, last year was certainly a busy one in Whitehall, but now that the dust has settled, what does this year have in store for the real estate industry? Will planning gain be revolutionised? Will communities have more say? Will any houses be built or will developers be blamed for everything? In the face of economic uncertainty, real estate owners and investors will need to get to grips with the changing regulatory landscape. The first milestone in 2023 will be for overseas entities. If they own land in the UK then they must register their beneficial owners at Companies House before the end of January 2023 or face draconian consequences.

    Here are our top ten predictions on what lies ahead this year:

    1. The Levelling Up and Regeneration Bill

    Already causing havoc within the Tory party, the "LURB" as it has become known, is due to become law this year. Covering a whole raft of changes it will give councils more power against developers that do not have good build out rates. Definitely more sticks than carrots there. Some of the key reforms are:

    • replacing CIL with a new Infrastructure Levy to capture land value uplift;
    • punishing developers with slow build out rates and a new requirements for developers to submit a development progress report to the council so it can closely monitor build out rates;
    • putting a stronger emphasis on beauty and good quality design;
    •  community land auctions which allow landowners to grant options over land with a view to the land being allocated for development in the local plan. Councils will then have power to exercise or sell the option, allowing it to capture some of the increased value that would result from the allocation;
    •  requiring water companies to upgrade sewage treatment works by 2030 to unblock permissions in sensitive areas affected by nutrient pollution;
    • compulsory registration of short-term rental properties; and
    • giving more power to communities (including street votes, allowing residents to propose and vote on development in their street).

    The Bill has now gone to the House of Lords and is due to have its second reading on 17 January 2023.

    2. Renters Reform Bill

    Michael Gove has indicated that this will progress in 2023. Amongst other things it will scrap section 21 – no fault evictions – under the Housing Act 1988. Section 21 is reassuring for a landlord who can be safe in the knowledge that aside from the relevant notice period, they are virtually guaranteed a possession order. To address this, the Bill promises to strengthen landlord's grounds for possession.

    3. New NPPF

    As you know, much of the planning system is embedded in policy, as well as law. Alongside the infamous LURB comes an overhaul of the National Planning Policy Framework. Published just before Christmas, the consultation "Prospectus" sets out more detail on the reforms including:

    • making delivery rate and developer bad behaviour material considerations when determining planning applications (so you're more likely to get refused);
    • requiring developers to explain how they will maximise a development's absorption rate to minimise land-banking;
    • allowing authorities to refuse to determine planning applications submitted by applicants with a bad track record (this isn't defined yet, but probably means planning breaches and/or poor rates of delivery);
    • name and shame' measures where data will be published on developers who fail to build out according to their commitments;
    • council-friendly changes to local plan policy to encourage faster adoption of local plans, including the relaxation of housing land supply requirements;
    • changes relating to climate change and energy including support for the renovation of buildings to improve their energy efficiency; and
    • the scope of new National Development Management Policies which will set out how councils should determine planning applications. The detail will be included in a later consultation.

    The consultation closes on 2 March 2023, so there's plenty of time to comment. The changes will be brought in quickly (by Spring 2023 they say) and a further, fuller review will be conducted "in due course", once the LURB becomes law. This will look at issues such as infrastructure, climate change and a new financial penalty for slow built out rates.

    4. Economic Crime Bill

    Following the enactment of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA 2022) last year, the Economic Crime and Corporate Transparency Bill will build in further measures to ensure corporate transparency in the UK. The Bill will reform the role of Companies House and improve transparency over UK companies and other legal entities in order to support national security and combat economic crime, whilst delivering a more reliable Companies Register to underpin business activity.

    The Bill includes a number of changes for the role of Companies House, including:

    • Introducing identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar;
    • Broadening the Registrar of Companies House’s powers so that the Registrar can become a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the companies register;
    • Providing Companies House with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies. Companies House will be able to proactively share information with law enforcement bodies where they have evidence of anomalous filings or suspicious behaviour; and
    • Enhancing the protection of personal information provided to Companies House

    The Bill makes some changes to limited partnerships which includes tightening registration requirements and introducing wider transparency requirements. The Bill also strengthens anti-money laundering powers, enabling better information sharing on suspected money laundering, fraud and other economic crimes.

    There are two significant amendments that relate to the UK’s Register of Overseas Entities (ROE). Firstly, when applying to Companies House for registration on the ROE an overseas entity would need to provide details of all the registered land that it owns in the UK. This could impose a greater administrative burden where the overseas entity has significant land holdings in the UK. The second amendment will mean that all trustees are automatically registrable on the ROE if they meet any of the beneficial owner conditions under ECTEA 2022. Currently a non UK trustee legal entity would only qualify as a registrable beneficial owner where it provides trust services which is a regulated activity in the entity's home jurisdiction.

    It is also worth remembering that the transitional period for overseas entities that already own land in the UK (and were registered as proprietor prior to 1 August 2022) expires on 31 January 2023. Failure to register will have draconian consequences as the overseas entity will not be able to transfer the land, grant a lease for more than 7 years or grant a legal charge over the land and is at risk of significant criminal penalties.

    5. Compulsory Purchase Reform

    As part of its Levelling Up agenda, the Government wants to break down the barriers around compulsory purchase and give communities more power to acquire and rejuvenate land to boost growth. The Law Commission has been tasked with a comprehensive review of compulsory purchase procedure and compensation. The aim is to bring the mind-numbingly complex compulsory purchase legislation into one Act and make it easier to use and understand.

    The Commission will try to modernise the drafting; repeal any out of date provisions and rectify any technical inconsistencies. It is expected to take 3 years to complete the review and a large part of this will be engagement with key stakeholders to collate critique and new ideas. Watch this space for more in due course.

    6. Product Security Act

    This Act received royal assent on 6th December 2022, but most of the provisions are not yet in force and will be brought into force by secondary regulations. The Act amends the existing Electronic Communications Code to rectify some of the issues which have emerged from cases decided since the Code came into force in 2017. The Landlord and Tenant Act 1954 will be amended to align its rental valuation provisions for electronic communications leases with the more operator-friendly provisions under the Code. The Act also seeks to extend upgrading and sharing rights to equipment installed before the Code came into force and to streamline the renewal of Code agreements.

    7. The "Brexit Freedoms" Bill

    Will 2023 see the enactment of the Brexit Freedoms Bill? It's proper name is the Retained Law (Revocation and Reform) Bill 2022. This Bill allows the UK to remove retained EU law. Under the Bill, any retained EU law not expressly preserved will automatically expire by 31 December 2023.
    What are the implications for real estate? Many environmental-related laws are EU derived, so some will be reviewed as part of this colossal exercise. The Bill would give individual ministers wide powers on these laws as they can amend them (instead of repealing them) by statutory instruments. This process involves less scrutiny than primary legislation, so some are concerned that this process (especially if rushed through) could lead to unintended consequences.

    8. Building Safety Act – secondary legislation

    There are various provisions of the Building Safety Act 2022 which are likely to come into force next year which landlords and developers will need to plan for.

    For owners of residential buildings over 18 metres there must be an "accountable person" who is responsible for the repair of the structure and common parts of the building. The accountable person will have a statutory duty to manage building safety risks and provide information to the regulator.

    The Act also introduces the concept of the "golden thread" to ensure that all the information obtained during the planning, construction and occupation of the building is collated, maintained and can be given to interested third parties. Furthermore, in order to recover service charge from the residential leaseholders, the landlord will need to include certain prescribed building safety information in rent demands.

    This is in addition to the current restrictions on the recovery of service charge for remediation of historical building safety defects and the new liabilities for current and previous building owners to remedy such defects under a remediation order or a remediation contribution order . In certain circumstances it is possible to obtain an order against group companies, associated partnerships, majority shareholders and corporate directors of the responsible party.

    The Act also gives the Secretary of State the power to set up a Building Industry Scheme. Developers and contractors who agree to undertake or fund the cost of remedial works to their buildings will be able to join the scheme. The Secretary of State will have the ability to prohibit those outside the scheme from undertaking development work if it is considered necessary to secure safety or building standards.

    Over the holidays, the Government launched another consultation on more fire safety measures. It is considering rules to mandate second staircases in new residential buildings over 30m and sprinkler systems for all new care homes. The consultation closes on 17 March 2023.

    9. The Supreme Court's ruling on Finch

    Last year saw some highly controversial cases which set Linkedin and Twitter alight. This year, an important Environmental Impact Assessment (EIA) case is due to be heard by the Supreme Court (R (Finch) v Surrey County Council).

    The judgment could have major implications for the development industry as it is about how far one has to go when assessing indirect environmental impacts. The planning permission in question was for the extraction of oil (but not its refinement). The County Council had taken the view that the greenhouse gases that would be generated from the eventual combustion of the oil were not indirect effects of the proposed development. The ultimate use of the product was not part of the development proposal.

    The Court of Appeal was split on the issue, but the majority said that the council's approach was lawful. We now wait to see what the Supreme Court will decide.

    10. HM Land Registry (HMLR)

    HMLR are continuing to progress towards a digital register. They launched the Digital Registration Service last year and on 30 November 2022 became "digital by default". As part of this process it wants to move away from manually checking applications and is piloting a system for conveyancers to provide confirmation of the data in their applications.

    Ultimately, HMLR's goal is to reach the point of instantaneous processing so that applications to change the register are started before completion and the registration requirements are therefore dealt with as part of the conveyancing workflow. If this can be achieved it will speed up registration and improve the efficiency of the land registration system.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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