Real Estate

As we discussed in our spring edition of Insights, the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) established a new Register of Overseas Entities (Register) at Companies House and came into force on 1 August 2022. Following this date, overseas entities which own UK real estate (or have a lease of more than 7 years) must have registered their beneficial ownership at Companies House. If none of the owners meet the criteria to be deemed "registrable beneficial owner" or if some of them are unknown, the overseas entity's managing officers.

One year on

The new regime is now one year old, which means that registered overseas entities are (or soon will be) obliged to make their annual update return. This must be made within 14 days of the anniversary of its initial registration and must either confirm that the previous beneficial ownership information submitted remains accurate or give details of any changes.

Catch me if you can – gaps in the Register

A recent report found that that beneficial ownership of 71% of the 109,000 UK properties owned by overseas entities is still not transparent, despite the ECTEA regime, with essential information about their beneficial owners missing or publicly inaccessible. This means that we still cannot know whether sanctioned individuals, money-launderers or other corrupt individuals may be benefiting from these properties. The report cites five key factors:

1. Failure to register – 10% of all properties known to be held via an overseas entity cannot be found in the Register.
   
   
2. No beneficial owners – 10% of overseas entities (relating to 11,000 properties) have not registered any beneficial owners. The authors think this is probably because the entity has no shareholders with at least a 25% shareholding or who exercise control.
   
   
3. Trusts – at least 27% of overseas entities (relating to 69,000 properties) are part of a trust structure, meaning that the beneficial owners of the property are not made public. We discuss this further in this briefing.
   
   
4. Partnerships – 2% of overseas-owned properties are part of an unincorporated partnership structure. 85% of these have given details of at least one partner, but this means there be may additional ‘silent’ partners. For the remaining 15%, the overseas entity itself appears to be acting as a partner in an unincorporated partnership.
   
   
5. Corporate beneficial owners – 34% of overseas entities report at least one corporate beneficial owner, whose individual beneficial owners should be registered elsewhere, for instance on the PSC register or on an equivalent overseas register. As things currently stand, it is not currently possible to verify whether this is true.

What’s next?

The Government acknowledges that the Register is not working as well as it could and is in the process of amending the legislation to give Companies House powers to impose a range of financial penalties for offences relating to the Register. It also maintains that the Register is not designed to reveal the beneficial owners of the property, but instead the beneficial owners of the overseas entity that holds the property. It also holds that trusts are caught by the Trust Registration Service not by the Register.

In addition, the new Economic Crime and Corporate Transparency Act 2023 reforms the role of Companies House to improve transparency and reliability of corporate data on the registers it maintains. Its main changes in the real estate context are to extend the scope of who constitutes a registrable beneficial owner, by including beneficiaries of overseas entity nominees and trustees if certain conditions are met. Disclosure requirements have also been added in respect of changes to beneficial ownership as part of the annual updating duty. To find out more about the Economic Crime and Corporate Transparency Act 2023, see our  Company Law section.

The Minimum Energy Efficiency Standards regime (MEES) was brought into effect by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

Residential private rented property 

Since April 2020, the MEES rules have required landlords leasing a dwelling, that falls within the regime, to obtain an energy performance certificate (EPC) for the property with a rating of E or above, unless they have registered an exemption.

Following the Government's 2020 consultation on improving the energy performance of privately rented homes, it was anticipated that the Government's next step would be to shift the minimum EPC rating requirement for landlords letting dwellings from E to C by 2025. However, the Government announced in September 2023 that this trajectory would no longer be pursed. Instead, the Government would continue to encourage households to upgrade their property's energy efficiency, where they can. It also announced that the Energy Efficiency Taskforce would be disbanded. The current MEES rules remain in place, but these decisions have left the real estate sector confused about the direction of travel.

Commercial rented property 

Until 31 March 2023, the MEES rules required landlords granting a new lease of a commercial premises to produce an EPC for the property with a rating of E or above, unless they have registered an exemption. Landlords are prohibited from granting a new lease of commercial properties with an EPC rating of F or G. From 1 April 2023, it became unlawful for a landlord to continue to let a commercial property with an F or G rating unless they have carried out all the cost-effective energy efficiency improvements prescribed for it in its EPC, and the EPC still shows a rating of F or G, or one of the exemptions applies. This briefing includes a useful flowchart designed to help you work out how the MEES regime applies for your property.

The Government's 2021 consultation mooted that the MEES requirements for letting commercial property would increase to C by 2027 and B by 2030. However, the Government's September announcement in relation to private rented housing has left the real estate sector feeling uncertain about whether the intended trajectory for commercial properties will also be abandoned or delayed.

Diminution of value from Japanese knotweed on your own land is not an actionable nuisance, even if its presence causes a diminution in value because of the risk of encroachment. However, once the plant (and even just its roots or rhizomes) encroaches on a neighbour's land, this will be considered damage to land and not pure economic loss (which would not normally be recoverable in tort) and so an actionable nuisance and a claim can be made for diminution in value.

In the recent case of Davies v Bridgend County Borough Council [2023], the Court of Appeal went even further, and also factored in the residual diminution in value due to the ongoing stigma attached to a property even after the knotweed had been treated. The case has been given leave to appeal and the Supreme Court will be considering whether this decision on residual diminution occurring even before there had been a breach, should stand.