A Season of Joy? 2024's Key Real Estate Developments

Tradition has it that at this time of year we should take stock of what the year has brought and look forward to what the next might hold. We'll take a look ahead later in this Yule Blog, but today we look back to consider some of the key real estate developments of 2024.

ESG – UK Net Zero Carbon Buildings Standard and Updated Green Lease Toolkit

Unsurprisingly ESG continues to be a material issue for those involved in the development and ownership of real estate.  Over the past 12 months we've advised our clients on a number of ESG related projects, with two particular areas of focus taking centre stage. 

The first relates to the industry's efforts to reduce embodied and operational carbon in new-build developments and existing buildings that are being retrofitted.  There is appreciation from the industry that real estate assets are one of the biggest contributors to carbon emissions, and this year has seen a significant move towards an agreed methodology as to what constitutes a 'net zero carbon building'.

As reported in our blog, September saw the publication of the pilot version of the UK Net Zero Carbon Buildings Standard (the "Standard").  The Standard adopts a whole-life carbon approach and aims to provide a new single and clear definition of net zero carbon for different building types against which buildings can be verified.  The pilot testing scheme is due to be launched early next year and then version 1 of the Standard published in late 2025.  As part of the legal working group on the Standard, we are at the forefront of working on how, once launched, the Standard should be reflected in legal documents, including construction, lease and loan agreements. 

The second area of concern for Real Estate clients with an ESG focus is that of green leasing, and in January of this year, the Better Buildings Partnership launched an updated version of its green lease toolkit.  As we reported in our blog, the toolkit comprises a collection of green lease standard provisions and guidance which is aimed at improving the energy performance and sustainability of commercial buildings.  Although the toolkit has no legal or regulatory status, the majority of our landlord clients are aiming to include tailored green provisions in their letting documents to meet their specific objectives – a move regularly supported by tenants who often have their own sustainability targets to meet.

With ESG remaining a key board-level issue, feel free to reach out to our ESG team for guidance on how to navigate this rapidly developing area of law and regulation.

High Street Rental Auctions

The Labour party's victory in July's general election led to a raft of announcements as to how the newly elected government would reinvigorate the housing and retail market.  Whilst Labour had indicated the term "Levelling up" would be axed if they won the election, the Levelling Up and Regeneration Act 2023 ("LURA") remains on the statute books, and with effect from 2 December 2024, Part 10 of the Act comes into force, allowing local authorities to auction leases for high street properties which have been vacant for longer than 12 months in a 24 month period.

The implementation of the auction regime has come as something of a surprise to the market, as the government had given no prior indication of introducing an idea conceived by a previous government.  The regulations implementing Part 10 of LURA were not offered for consultation before being laid before Parliament, and as such, there is some scepticism as to how well-prepared local authorities will be for the operation of the auction regime.  The regulations require the local authority to engage with the landlord in order to try and achieve a letting without proceeding to auction, but if attempts fail, the local authority can proceed to begin the auction process for a grant of a lease between one and five years.

National Grid Connections Reform

It's taking too long to connect the generation and demand that Great Britain needs to meet net zero, with some projects receiving connection dates into the late 2030s. This year, the new government, in collaboration with the National Energy System Operator ("NESO") and Ofgem, has been continuing work towards reforming grid connections to accelerate the deployment of renewable energy projects and reduce connection timescales.

A key development was the publication of both NESO's Clean Power 2030 advice and NESO's Consultation on the Connection Reform Methodologies in November 2024, which outline pathways to achieve clean power by 2030 and proposes reordering the grid connections queue to prioritise 'ready projects' that align with the government's Clean Power 2030 Plan ("CP30"), starting in Q2 2025.   Ofgem also launched a consultation in November 2024 proposing changes to the regulatory framework around electricity grid connections.

We are supporting clients on how to structure and progress new, and already planned, energy projects in line with these reforms and will be closely following the government's publication of further details regarding its CP30 which is due by the end of the year.

Leasehold and Renters' Reform

It has been a busy year for leasehold property reform, with progress across various sub-sectors. Here's a breakdown of the key developments:

Business Tenancies (Commercial and Mixed Use)

We spent most of the year eagerly awaiting the Law Commission's consultation on the Landlord and Tenant Act 1954, announced in March 2023 and published on 19 November 2024. The first stage of the consultation invites views on whether the legal right to renew for business tenants remains relevant or should be scrapped entirely. The consultation is open until 19 February 2025 and may be followed by a second phase, exploring reforms to the security system if it is not abolished, such as an "opt-in" model rather than the current "opt-out" model.

Short/Medium-Term Renters (Residential)

Both major political parties agree that the private rented sector needs overhauling. The former Conservative government initiated the Renters (Reform) Bill, which did not pass before the general election. It was soon replaced by Labour's Renter's Rights Bill. Both bills propose radical changes, such as ending short-term rental agreements and abolishing a landlord's right to no-fault termination under the existing section 21 process. Despite their similarities, there are important differences between the bills, which we have summarized in our blog. The key takeaway for landlords and investors is that significant changes in the private rented sector are now taking shape and could be in force as early as summer 2025.

Long Leaseholders (Residential)

Long leases, typically granted for 99-125 years at a high premium with a low annual ground rent, expect changes with the Leasehold and Freehold Reform Act 2024, passed in May. Although a controversial proposal to cap or abolish ground rents without compensation did not make it into the Act, several important changes were included:

• Increased limit on non-residential floor space for enfranchisement and right to manage from 25% to 50%, widening the pool of eligible mixed-use buildings.
• All lease extensions to be granted for 990 years.
• New valuation basis for lease extensions/enfranchisement that excludes marriage value (currently subject to legal challenge).
• Further tightening of service charge regulation.

In late November, the government announced its intention to implement these changes next year, along with further reforms and consultations in this sector. The landscape of leasehold and renters' reform is rapidly evolving. These changes will have significant implications for landlords, tenants, and investors.

Planning Reform – Getting Britain Building Again

The change of government didn't radically change the message on planning, which is that if England is to achieve the levels of housing and economic growth at the pace and scale desired, then the planning system must be reformed. The government spared no time in bringing forward the long-awaited consultation on the National Planning Policy Framework ("NPPF") (see our blog post here), which undid many of the changes pushed through in December 2023 by the previous administration. However, rather than starting completely from scratch, the new government is taking forward many of the unimplemented elements of the previous government's Levelling Up and Regeneration Act 2023, including new National Development Management Policies, changes to the local plan making system and the introduction of local design codes (albeit without the help of the newly disbanded Office for Place). The NPPF consultation response is expected within the next few weeks at which point we will know more about what we can expect and when.

Biodiversity Net Gain

One of this year's headlines has to be the introduction of mandatory biodiversity net gain for all town and country planning development. This is the national requirement for all development (with some limited exceptions and exemptions) to provide a 10% increase in biodiversity which must be maintained over a 30 year period – see our blog post here for the detail. The introduction hasn't been smooth sailing. Even with delayed implementation from November 2023, the National Audit Office voiced concerns that Defra had "launched its policy before having all the elements in place that it needs to ensure statutory BNG is a success in the long term". There are still relatively few registered biodiversity gain sites (we understand that there are now 20) and only 17 designated responsible bodies (including only nine councils) who can enter into conservation covenants, and it was only in October that the government finally provided templates for the biodiversity gain plan for phased development which are needed for most major development. However, despite recent reports of "mass abuse" of BNG exemptions, Defra recently posted that "early indications are that the system is working as intended" and the new government has confirmed that it intends to implement mandatory biodiversity net gain for nationally significant infrastructure from November 2025 as planned.

Construction

This year saw the release of several new standard forms for use in the construction of real estate development projects. The JCT released its much anticipated 2024 suite of contracts, the first since 2016. The changes do not represent a significant re-write of the JCT terms, but they do soften some of the risks taken by the contractor and seek to align the terms more closely with the Construction Playbook. For details see: New JCT Design and Build 2024 edition – What has changed? and The JCT Major Project Construction Contract 2024 – a new edition. The City of London Law Society ("CLLS") has also published a new version of its widely used letter of intent, alongside a detailed guidance note. This replaces the original 2007 edition. With input from firms including Herbert Smith Freehills, the CLLS has modernised the form, including making changes to reflect new building regulations requirements. In addition, in response to the new regime under the building regulations, the Association of Building Control Approvers released a new appointment for a Registered Building Control Approver and the Royal Institute of British Architects ("RIBA") issued a new RIBA Building Regulations Principal Designer Professional Services Contract 2024 (for more details, visit Construction Notes).

Come back tomorrow to open the door to our podcast on heat networks!