UK & Europe
UK Real Estate Insights
2022 proved to be another turbulent year for the UK real estate sector. As we moved on from the Covid-19 pandemic, the war in Ukraine and its knock-on effects gave rise to new challenges for the property industry and dominated the political agenda. However, 2022 also saw significant progress on key legislative reforms relevant to real estate that will take effect in the new year. We will be tracking these throughout the year, so look out for future Insights from us
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The Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) introduced a new Register of Overseas Entities at Companies House to identify the beneficial owners of overseas entities which own registered property. ECTEA came into force on 1st August 2022 (with provisions relating to property ownership and the Land Registry requirements taking effect on 5th September 2022).
ECTEA requires any overseas entity which acquires or has acquired registered property in England and Wales since 1st January 1999 (and for Scotland, 8th December 2014) to register on the Register of Overseas Entities. Under transitional provisions, overseas entities which owned registered property before 1st August 2022 have a six month deadline, ending on 31st January 2023, to register in the Register of Overseas Entities. If an overseas entity does not apply to register by this date, it will commit a criminal offence and will effectively be unable to sell, lease or charge its registered property.
Once an overseas entity is registered on the Register of Overseas Entities, it must update the information on the register annually. It is important that this is done as the Land Registry will require the overseas entity to comply with its updating duty before a sale, new lease or charge of the land can be registered.
From 1st April 2023, landlords of commercial properties may not continue to let a property with an EPC rating below an E (so-called ‘sub-standard’ properties) unless they have:
Any landlord currently letting a property which falls below an EPC E rating must act urgently to comply with the above requirements to avoid financial penalties. Investors acquiring a let property (or lenders funding the acquisition) must carefully investigate MEES compliance.
Looking ahead, given rising energy costs and the UK’s target of net-zero emissions by 2050, a key government policy is to further reduce energy consumption and emissions from the built environment. The 2022 Autumn Statement contained a new commitment of funding for energy efficiency improvements and the Chancellor, Jeremy Hunt, set the country a new ambition announcing that, “by 2030, we want to reduce energy consumption from buildings and industry by 15%”.
Given the government’s direction of travel, we expect it to implement proposals for MEES reforms to tighten the minimum energy efficiency standard for commercial properties to an EPC B rating by 1st April 2030 (possibly with a phased implementation requiring an EPC C rating by 2027).
Many commercial property landlords and occupiers now have ESG policies which include energy efficiency targets, but it is likely they will need to do more to actively meet MEES requirements, particularly with the raising of the EPC rating from an E to a B rating. Landlords need to engage with tenants on improvement works and will want to consider whether it is appropriate to share the MEES compliance burden with them and if they are able to do so under existing leases.
The Building Safety Act 2022 (BSA) was passed on 28th April 2022. It is a substantial piece of legislation introducing fundamental changes to building safety for residential properties, with a particular focus on ‘higher-risk’ buildings (being buildings that are at least 18 metres or seven storeys in height).
Under the BSA, new obligations will apply throughout the life cycle of a building meaning building owners, developers, designers and contractors, funders and occupiers all need to be aware of the significant financial and operational impact the BSA will have.
The BSA will be implemented in stages. Several key measures (focusing on remediation of fire safety defects and extending limitation periods for liability for these) are already in force (see our Insight Buildings Safety Act 2022 now in force: what does this mean for real estate developers?). But the government is still consulting on the detail of other wide-reaching measures which it intends to bring into force between April and October 2023. Briefly, of particular importance to the property sector, are:
The Levelling Up and Regeneration Bill - first introduced to parliament in May 2022 - promises to make fundamental changes to the current system of local government, planning, developer contributions and regeneration.
The Bill is wide-ranging. For example, it includes measures to tackle slow build out by developers (involving new development progress reports, financial penalties & refusal of further permissions); a new permanent pavement licensing scheme; discretionary powers for councils to apply a council tax premium of up to 100% on empty and second homes in their areas; and a variety of changes to the planning regime. The latter, though much narrower than those originally envisaged by the ill-fated Planning Bill (which presaged this Bill), remain wide-reaching.
Such is the scope of the Bill and the furore that has surrounded it that we expect many refinements before the Bill comes into law in 2023. So, for now, and setting aside the planning changes, we highlight just three key proposals to watch out for next year:
Set to be introduced to parliament before May 2023, the government promises that the Renters Reform Bill will bring about a ‘generational shift’ between landlords and tenants. As you might envisage, the measures in the bill are expansive. For more information on its potential impact, see our recent Insight on this topic - Sweeping changes proposed by the Renters’ Reform Bill.
Our Insurance Predictions Campaign, fronted by Clyde & Co’s leading insurance practice, highlights the trends, risks and opportunities likely to impact the insurance industry in 2023. For property, our team’s prediction is that conditions are ripe for a spate of subsidence claims – see here for our Insight on this topic.