The property world is experiencing a period of profound change, brought about by Covid-19, new technology and the environmental threat. How might these seismic movements affect property law in the next 5-10 years?
1. Law reform
Earlier this month the government announced new measures to help landlords and tenants settle disputes over arrears accrued with the pandemic, and we await details of the “binding arbitration process” that the government proposes will settle such disputes where the parties cannot do so themselves. Pending that, the commercial eviction ban and the restrictions on CRAR have been extended until at least March 2022, with the current restrictions on statutory demands and winding-up petitions to remain in place for a further three months. Tenants have been told that they must pay the rent if they can do so.
The government’s direction of travel clearly emphasises negotiation over litigation. Perhaps the Civil Procedure Committee will introduce a pre-action protocol covering solely rent arrears claims which in effect compels settlement discussions before proceedings by directing the court to penalise landlords on costs if they don’t comply. The government may even dust off the 2006 Law Commission report proposing that a landlord must give a tenant notice of its intention to forfeit before peacefully re-entering the premises.
The so-called “residential eviction ban” ended in May but a recent London School of Economics report recommends stopping “section 21 evictions” while streamlining the court procedure for landlords to recover rent in particularly egregious cases. These proposals mirror the government’s own 2019 proposals and it is surely only a matter of time before they are implemented.
More generally, the proposals for leasehold law reform in last month’s Queen’s Speech only scratch the surface of the Law Commission’s 2020 recommendations, which included the abolition of marriage value on enfranchisement and lease extensions. As many of these changes are technical, we will have to wait longer for detailed proposals.
2. The future of the high street
Covid has accelerated the decline of the high street, already under strain from the explosion in internet shopping. For city centres to survive, commercial arrangements must be much more flexible than hitherto. It seems likely that alienation, alterations and user covenants in newer leases will be more liberal, and the changing reality of town centres will lead to interesting developments in case law concerning when landlords under older leases might reasonably withhold consent to tenants’ proposals in these arenas. Expect radical proposals from the Law Commission, which is considering whether security of tenure under the 1954 Act continues to perform an important function.
3. Adapting building stock
We are on the brink of a refurbishment cycle like no other. Buildings will need to be adapted, at some speed, to comply both with Covid regulations and with new environmental standards expected in the wake of the COP 26 Summit in November. We can expect a raft of cases testing whether landlords can use the service charge machinery in their leases to recover the cost of such adaptations from their tenants. Landlords and tenants of buildings that are not Covid-compliant may face penalties, and the courts may have to determine damages claims brought by visitors who contract the disease while on the premises.
Enforced alterations will inevitably generate disputes, as progressive tenants wanting to burnish their own green credentials take action to force landlords to adapt their premises, while others try and argue that the adaptation works cause them to suffer loss.
4. Blockchain
The points made above pale into insignificance compared with the likely impact of blockchain. This purportedly “failsafe” system for accurately recording and utilisiing information is already generating numerous proptech applications, including “tokenisation,” allowing property owners to issue tradeable “shares” for individual buildings. Where the “landlord” might consist of thousands of individual shareholders, will there need to be minimum ownership thresholds before a “shareholder” has a say in the management of the building?
Storage of information digitally brings its own challenges as the system is only as accurate as the inputted information. Proptech users and operators must be alive to the risk of fraud, which will be even harder to detect than under current systems. Rules will need to be developed to identify such issues, and to apportion liability appropriately for any loss suffered as a result of information recorded incorrectly.
5. Smart contracts
One application of blockchain to property is in the use of so-called “smart contracts”, which automate large parts of the conveyancing process. In November 2019, the Law Society’s taskforce concluded that smart contracts can be considered contracts under English law. The Law Commission is preparing its own report, expected to cover the circumstances in which smart contracts will be legally binding, how such contracts are to be interpreted, how factors such as mistake can apply to such contracts, and the remedies where a smart contract does not perform as intended.
The future is now
The next decade will likely see unprecedented changes to the way this country uses its property stock. These changes will be accompanied by an equally unprecedented liberalising of the conveyancing process, and the ability through proptech for investors to trade in property assets in entirely novel ways. The government and courts must embed these radical changes within the time-honoured framework of property law. The government will probably also legislate to allow landlords and tenants the flexibility to move in and out of new arrangements as suits them, while at the same time promoting and increasing protections for those tenants who require security. Practitioners need to ensure that leases adequately reflect the needs of their clients in these changed times. There is certain to be much more of interest to write about as we move through the 2020s.
Scott Goldstein is a partner at Payne Hicks Beach
