Looking ahead to 2020

Brexit

Brexit is likely to continue to dominate the headlines in 2020. If the conservatives win a majority at the upcoming election then they will no doubt seek to implement the withdrawal agreement that the government has agreed with the EU. If the conservatives do not win a majority then there may possibly be another referendum, a renegotiated withdrawal agreement or even no Brexit at all.

The press is reporting that open-ended property funds are experiencing high levels of investor withdrawals and this has led some funds to suspend trading blaming Brexit related political uncertainty. This also happened after the 2016 referendum. However despite the continued Brexit uncertainty there is evidence that the UK property market is still attracting foreign investors. Although recently there has been some shift in the sources of capital, due to the perceived advantages of investing into the UK, including favourable exchange rates, which seem to outweigh concerns about the UK’s withdrawal from the EU.

The housing market

This topic is never far from the top of the agenda. It is generally accepted that supply is not keeping up with demand for affordable housing. However commentators agree that there is no magic wand and we need to look at a variety of solutions across a number of policy areas.

The 2017 Housing White Paper "Fixing our broken housing market" set out suggestions for "a comprehensive package of reform to increase housing supply and halt the decline in affordability". The White Paper focused on:

• Building the right homes in the right places
• Building homes faster
• Widening the range of construction materials used and builders
• Investing in new affordable housing

Some two years after the publication of the White Paper there is still a long way to go and testament to this is the fact that all three major political parties cover housing issues in their manifestos. Both the Conservatives and Labour have pledged to go ahead with so-called open-ended tenancies for private renters and to abolish the "no-fault" eviction under the Housing Act 1988.

All parties have made a commitment to build more homes and have suggested a number of ways to tackle the affordability issues. Labour and the Liberal Democrats have focused on increasing the number of social rented housing while the Conservatives have indicated that there would be a million new homes "of all tenures" built.

What we do know for sure is that this particular issue will run and run and there is certainly no consensus of political opinion on the best way forward.

Infrastructure

Of course the housing problem cannot be fixed in a vacuum. Essential infrastructure is required to support increased housing development. The Government launched the Housing Infrastructure Fund in 2017. Since then it has provided funding for a number of schemes mostly in London, the South East and South West of England. This is definitely a positive step but critics suggest that funding should be allocated on a more strategic basis to unlock potential development nationwide.

It is not surprising that the major parties' manifestos focus on more spending on national infrastructure. The Liberal Democrats also suggest reforms to the planning system so that local infrastructure is provided with new housing. The Conservatives go even further, suggesting that local infrastructure (such as schools, roads, etc.) must be provided before new housing is occupied. At the moment these are just manifesto promises. Whatever comes of those promises it will be important that the next government demonstrates a coherent infrastructure strategy.

Climate change

As is to be expected the Conservative manifesto repeats its legal commitment to reaching net zero carbon emissions by 2050. Tackling climate change resonates across all the main parties' manifestos.

The built environment accounts for 39 per cent of global carbon emissions and so whatever the outcome of the election the property industry will no doubt face increased regulatory controls to reduce emissions and improve energy efficiency.

Already this year we have seen the publication of a number of government consultations in this space. These range from proposals for electric charging points in new buildings and existing commercial buildings that have [with] more than 20 car parking spaces, changes to Parts L and F of the building regulations to achieve a new "Future Homes Standard" for future proofing new build homes and the proposals to raise the minimum energy efficiency standard to an EPC rating of B by 2030.

For those in the property industry tasked with implementing changes to achieve net zero, the UK Green Building Council has developed a framework for reaching the net zero targets for the construction and operation of buildings.

It is clear that investors are looking much more closely at the carbon footprint of buildings and factoring in the risk of increased regulation and higher energy prices into their investment decisions.

Existing portfolios will also need to be audited to identify poor performing assets and assessed to determine the feasibility of retrofitting.

There is no doubt that it is becoming ever more important for property companies and funds to demonstrate their ESG performance by obtaining a recognised benchmark, for example the Global Real Estate Sustainability Benchmark or GRESB rating as it is more commonly referred to.

There is much work to be done to achieve the 2050 target of net zero and it appears that further regulation is on its way.  Perhaps one of the most ambitious statements comes from the Liberal Democrats who have pledged to ensure that all new homes are built to zero carbon standards by 2021. Whether that is achievable is another matter. 

Legal Developments on the horizon

From 1 April 2020 the minimum energy efficiency standard will apply to all residential private rented property which has a valid EPC. Landlords of F and G rated properties will have to consider making energy efficiency improvements. Residential landlords are obliged to fund such improvements up to £3500 (inc. VAT) or claim a high cost exemption which applies to properties rated F or G that cannot be improved to band E at a cost of £3,500 or less.

We are likely to see legislative progress on the Draft Registration of Overseas Entities Bill. The Bill will require any overseas entity that wishes to own land in the UK to take steps to identify their beneficial owner(s) and to register them. Once registered, an overseas entity will obtain an overseas entity ID and will have to update their information annually. Failure to update is an offence under the Bill, as is providing misleading or false information. In order to register title to land, an overseas entity will have to be registered with Companies House to become a "registered overseas entity".

The Joint Committee responsible for scrutinising the draft Bill published their report on 20 May 2019. The Committee recommended presenting the Bill as soon as possible given that the Fifth Anti-Money Laundering Directive is to be implemented before this draft Bill and we are still expecting the register to go live in 2021.

The Telecommunications Infrastructure (Leasehold Property) Bill had its first reading in the Commons on 15th October 2019 and will continue through Parliament next year. The Bill amends the Electronic Communications Code as contained in Schedule 3A to the Communications Act 2003. It provides a bespoke process for telecoms network operators in the UK to gain access to multiple dwelling buildings (blocks of residential flats and apartments) to deploy, upgrade or maintain fixed-line broadband connections, where a tenant has requested an electronic communication service but the landlord has repeatedly failed to respond to an operator's requests for access.

The Tenant Fees Act 2019 applies to assured shorthold tenancies (ASTs) granted on or after 1 June 2019. It sets out payments which are "permitted payments" and landlords and agents are prohibited from charging any other sums not listed as permitted payments. From June 2020 the Act will apply to all ASTs (including those predating the Act).

There are also a number of proposals for residential leasehold reform including a ban on ground rents, abolition of "no fault" evictions and simplifying the enfranchisement process for acquiring the freehold or extending a lease. These reforms have been widely reported and we will have to wait and see whether they make it on to the statute books in 2020.
All in all it looks like 2020 will be a busy year!