It has been an unusually busy year for landlord and tenant law reform. As we edge closer to a general election, the frantic and often erratic announcements/publications bestowed upon the property industry often feels like a game of whack-a-mole! We've seen government U-turns (and a partial turn back again) on no-ground terminations in the private rented sector, a draft Leasehold and Freehold Reform Bill missing promises from the King's Speech and a consultation on existing ground rent income opening the door for human rights challenges.
The pipers have indeed been piping, but the question is whether they are playing from the same sheet of music? In this short blog, we summarise what's currently in the pipeline and highlight the issues landlords and investors need to know as we look towards 2024.
One thing that is clear from the developments this year is that they all raise complex issues for parliament to make sense of. These will take time to explore properly with the various stakeholders to give the best chance that legislation is passed which is clear and consistent. Otherwise, it is likely to lead to uncertainty and disputes in the years ahead.
Private Rented Sector
We blogged when the Renters (Reform) Bill was published in May 2023, with the headline abolition of section 21 of the Housing Act 1988 and so called no-ground terminations. The bill proposes to simplify tenancy structures in this sector by removing all fixed-terms and banning rent review clauses. After 5 months and the aforementioned policy U-turn, the bill finally had its second reading in October and we blogged again. The latest position remains that the ban on no-fault terminations is going ahead... but not before significant improvements of the court system with end-to-end digitisation. This is at least a couple of years off, so combined with the transition period for existing tenancies if the Bill is brought into force, landlords and investors should consider this a medium‑term priority.
However, the ban on all rent review clauses is likely to cause problems for investors, particularly in the build-to-rent sector. If passed in its current form, it removes any certainty of rental forecasts and will add a significant administrative burden to managing agents.
Providers of student housing which is not purpose-built should feel more comfortable about their position following the announcement that a new ground of possession would be introduced to allow landlords to terminate tenancies in line with an academic year and secure new tenants for the new one.
Residential long leaseholds
We blogged following the King's Speech in November, which included a sweep of leasehold reforms including a ban on new leasehold houses. Not quite ground-breaking, as leasehold houses only account for 1% of leasehold sales, but the Leasehold and Freehold Reform bill published on 27 November failed to include any drafting on this point!
What the bill does include is changes designed to make it easier and cheaper to extend a lease for 990 years or to acquire the freehold. It is early days for this bill, but specialists in the sector have rushed to point out many examples of poor drafting and inconsistencies.
Particular points to note at this stage include an increase in the 25% ‘non-residential’ limit in mixed‑use buildings to 50%, meaning tenants in buildings with up to 50% commercial parts may buy their freehold or take over management of the building. We expressed our concerns in our last blog, although a sharp increase in enfranchisement of buildings within this new threshold may not arise due to the capital and management experience that tenants would need to successfully do so.
A consultation in the pipeline which has commanded the attention of both property lawyers and human rights specialists relates to capping ground rents in existing long leaseholds. We blogged about it here, but in case you missed it, the government is proposing zero compensation for lost income streams if it adopts one of its five methods for capping ground rents. Those wishing to comment have until 21 December to respond directly to the consultation. We will be putting in our own submission and if you would like to give us your views before 15 December we can look to factor in additional comments.
Business lease renewals
At the start of 2023, the Law Commission announced a consultation on the Landlord and Tenant Act 1954 which was due to be launched this month. The launch has been delayed until the start of 2024, but the Law Commission has indicated that it is a full review of the Act and nothing is off the table. It has spent the year consulting with stakeholder groups to better inform the scope of the consultation, so it will be interesting to see what the paper looks like once published. Whilst there are some within the property industry calling for a repeal of the Act, it is likely to stay but will hopefully undergo a make-over so that it is fit to meet the needs of modern business leases. Issues like turnover rents, clearer termination grounds, ESG and a simplified contracting-out procedure should be high on the agenda.
2023 Yule Blog
A link to the previous post in our 2023 Yule Blog is below.
Yule Blog 2023 – 12th Day – Drum roll please…
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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.