Real Estate Briefing May 2023

Following the Government's 2021 consultation, it is anticipated that the next step in the Government's plan to achieve net zero by 2050 is that all the minimum requirements for landlords letting commercial property will shift to C by 2027 and B by 2030. The real estate sector hoped that the Government would reduce uncertainty for commercial property owners by announcing the details of this trajectory on Green Day in March 2023, but the Powering Up Britain statement did not refer to this issue.

The most recent revaluation of business properties for business rates came into effect on 1 April 2023, based on property values as at 1 April 2021. It is 6 years since a revaluation took place, and this revaluation is in accordance with the Government's Review of the business rates system in 2021.

Various measures were announced in the Autumn Statement in November 2022 to reduce the burden of business rates which the Government says will provide targeted support worth £13.6 billion over the next 5 years, including:

• freezing the business rate multiplier in 2023-24;
• ensuring that transitional relief relating to next year's revaluations does not come at the expense of those whose property's rateable value decreases; and
• extending and increasing Retail, Hospitality and Leisure Relief.

In addition, the Government has confirmed that the previously announced Improvement Relief (to ensure ratepayers do not see an increase in their rates for 12 months as a result of making qualifying improvements) will be introduced from April 2024 and will be available until 2028, at which point the Government will review the measure.

In the March 2023 budget, the Chancellor announced full expensing of qualifying capital expenditure incurred in the next three years, with the intention of making this permanent afterwards. This means that 100% of any qualifying expenditure on main rate expenditure will be deductible in the year it is incurred, giving immediate relief in 25 pence in the pound. This is significantly more generous than the UK's previous system of capital allowances, which only allowed 18% of the expenditure to be deducted each year on a reducing balance basis, giving tax relief at 3.4p in the pound in the first year, and lower in following years, though gives similar relief to the "super deduction" which was available from 2021 to 2023. For "special rate" expenditure, a 50% first-year allowance will be available, with the balance being deducted at 6% a year on a writing down basis.

The Chancellor noted in the budget speech that this would give the UK the most generous capital expenditure relief regime in the G7 and the joint most generous regime across advanced economies in the world. It will cost the Exchequer £9 billion a year but the OBR expects it to increase investment in the UK by 3% a year.  As well as giving generous tax relief, this will significantly reduce compliance burdens in calculating capital allowances and maintaining sufficient records to establish their availability. You can read more about the Spring Budget here.

The Town and Country Planning (Development Management Procedure) (England) (Amendment) Order 2023 has been published, and amends the Town and Country Planning (Development Management Procedure) (England) Order 2015 (SI 2015/595) (DMPO 2015).  It adds Active Travel England as a statutory consultee for certain planning applications made on or after 1 June 2023, including those with more than 150 dwellings.  According to its website, Active Travel England will lead the delivery of the Government’s strategy and vision for creating a new golden age of walking and cycling where half of all journeys in towns and cities are walked and cycled by 2030.

Applicants should be mindful of the practical effect that the addition of a further statutory consultee may have on the determination timeframes for applications, and the need for early and meaningful engagement to elicit supportive responses. In particular, this will lead to increased scrutiny of proposed travel measures for new developments, and necessitate careful consideration, from the masterplanning stage, about how best to integrate sustainable travel solutions within the proposed scheme design. Measures proposed will need to effectively interact with surrounding sites where appropriate.

It has been generally agreed for some time that this area of planning law is in need of modernisation. The Law Commission carried out a project in this area in 2003/4  but its recommendations were not implemented in full.  This new project will involve a review of the current law on compulsory purchase, focussing on:

3.3.1 the procedures governing the acquisition of land through compulsory purchase orders; and

3.3.2 the system for assessing the compensation awarded to parties in relation to such acquisitions.

The Government has published a consultation on the revised National Planning Policy Framework and its proposed approach for preparing National Development Management Policies. The consultation closed on 2 March 2023. One of the more controversial proposals is that local planning authorities with an up-to-date local plan will no longer need to continually show a deliverable five-year housing land supply.  We have a briefing on this consultation, in so far as it refers to retirement housing, here.

Changes of the nature proposed in the consultation were considered by the Government to be better framed as revisions to the NPPF, rather than being introduced through new legislation such as the Levelling Up and Regeneration Bill which is currently passing through Parliament. That may reflect a perception that the path towards introduction via national policy may be less perilous. However, elements of the proposals have provoked strong feelings from consultees. This is particularly true of the proposed housing land supply and plan-making changes, with many perceiving that these will exacerbate the housing crisis. As such, it will be interesting to see whether the proposed changes survive intact to form part of the revised NPPF that eventually emerges.

The Building Safety Act 2022 received Royal Assent in April 2022. It impacts on the design and construction of all buildings, and the operation of higher-risk residential buildings. It establishes a new safety regime which will be overseen by a new Building Safety Regulator, and imposes safety-related duties that will apply throughout the whole lifecycle of a building. The key themes of the Act are as follows:

• "Higher risk buildings" are given a higher level of statutory protection. This regime will impact on the design and construction of affected buildings, and safety provisions that related to their occupation. In England, a higher-risk building during design and construction is a building that is at least 18 metres in height or has at least 7 storeys and contains at least two residential units, or is a care home or hospital. In England, a higher-risk building during occupation is a building that is at least 18 metres in height or has at least 7 storeys and contains at least two residential units, and is not a care home, hospital, secure residential institution, hotel, or military accommodation.
• There are mandatory requirements for competence of professionals involved in the building control process. This has resulted in the publication of 3 new Publicly Available Specifications (PAS 8671, PAS 8672 and PAS 8673) to establish core principles, terminology and requirements on competence thresholds for professionals. The Building Safety Regulator has carried out a number of consultations regarding the new standards for building control in England, which it will apply in carrying out its various functions.
• The Act introduces the concept of "the golden thread of information" that dutyholders in relation to higher-risk buildings will be obliged to provide during the design and construction of the building, and which an accountable person will have to keep and maintain while it is occupied. According to the Policy Paper, "Building Regulations Advisory Committee: golden thread report, 21 July 2021", "the golden thread is both the information that allows you to understand a building and the steps needed to keep both the building and people safe, now and in the future". These requirements are not yet in force.
• It provides for the establishment of the New Homes Ombudsman, which provides a free and independent service to consumers who have bought a new home and have concerns about the purchase process or defects that have arisen within the first two years of their ownership.

There have been some recent changes to the fire safety regime. Our briefing in January 2023 focuses on the new Fire Safety (England) Regulations 2022, and there have also been some other amendments to the Regulatory Reform (Fire Safety) Order 2005 via the Fire Safety Act 2021, in particular making it clear that the regime applies to the structure, external walls (including cladding and balconies) and individual flat entrance doors between domestic premises and the common parts of a multi-occupied residential building. The Government's guidance is here.

The Government has published the final version of the contract it has been negotiating with developers who have signed its Building Safety Pledge, committing them to remediating unsafe buildings in England with which they are associated.  Once the deadline of 13^th March 2023 passed, 11 developers were placed on a non-compliance list, the implications of which are that they would not be able to carry out any new developments.  Subsequently, at least one of those developers has entered into an amended version of the contract, recognising that their buildings have never had any cladding or fire safety issues.

In the case of Abbey Healthcare (Mill Hill) v Simply Construct (UK), the Court of Appeal decided that collateral warranties could, depending on their precise wording, be construed as construction contracts which would mean that adjudication under the Construction Act will apply to disputes under the warranty.  This is a useful reminder of the benefit that collateral warranties provide.

Read more about the benefits of collateral warranties for building projects.

In MUR Shipping BV v RTI Ltd, the Court of Appeal held that a party's reasonable endeavours obligation to overcome a force majeure event required it to accept payment in a different currency to that specified in the contract.   Our briefing here  considers the case, which has clear application to the construction industry.

There are two recent cases of interest examining aspects of the law on nuisance: 

• In Fearn v Tate, the Supreme Court found that "intense visual intrusion" from the Tate's viewing gallery can amount to an actionable nuisance. The Court distinguished this case from "overlooking", meaning a situation where one property is capable of being seen from a neighbour's property, which was described as "a minor annoyance of a kind that neighbouring occupiers have to put up with under the rule of give and take, live and let live." By contrast, the Court described how in this case the Tate actively invites members of the public to visit and look out from the gallery in every direction, including at the claimants’ flats situated only 30 odd metres away, and permits and invites this activity to continue without interruption for the best part of the day every day of the week, with the predictable consequence that a very significant number of the roughly half a million people who visit the Tate’s viewing gallery each year peer into the claimants’ flats and take photographs of them. The court rejected reasonableness as a test for whether behaviour amounts to nuisance and confirmed that the criteria was whether the use being challenged was a common and ordinary use. Lords Sales and Kitchen dissented from this view. This remains an area for argument on the facts in nuisance claims and applies to private nuisance generally and not just intense visual intrusion. The matter of deciding on a remedy has been remitted to a first instance court.
• In Davies v Bridgend, the Court of Appeal found that although pure economic loss alone was not a ground for a claim in private nuisance, where there is other nuisance such as the encroachment of knotweed onto neighbouring land, damages for diminution in value can be recovered. The judgment also means that the owner of the infected land was responsible for the residual diminution in value of the neighbour's land (due to perceived blight) even if the knotweed rhizomes had spread to the neighbour's land before the defendant was in breach of its duty. The breach was a continuing breach. This is good news for landowners whose property has been affected by nuisance emanating from neighbouring land, and reminds all landowners to be vigilant in checking that any potential nuisances originating from their own property are investigated and mitigated promptly.