Sarah Jackman and Jess Harrold cast their minds back over the past 12 months and reflect on the key legislative changes affecting property professionals in 2022.
Like 2020 and 2021 before it, 2022 is unlikely to be recalled fondly. It will live in the memory for many things, not least the war in Ukraine, surging energy prices, the death of the UK’s longest-reigning monarch and the ignominy of its shortest-serving prime minister.
Given the turmoil, both economically and politically, it would be understandable if few legislative changes of note had taken effect. On the contrary, however, a trio of significant new Acts has entered the statute books to occupy the minds of those in real estate.
The Economic Crime (Transparency and Enforcement) Act 2022
The most notable Act of the three was fast-tracked through parliament in a fortnight. Having been introduced on 1 March, the Economic Crime (Transparency and Enforcement) Act 2022 received royal assent on 15 March, giving practitioners little time to get to grips with the detail.
The Act makes provision for a number of things, including sanctions, unexplained wealth orders and the creation of a new Register of Overseas Entities detailing the beneficial ownership of UK properties by overseas entities. The provisions in relation to sanctions came into effect immediately. The provisions relating to unexplained wealth orders and the creation of the new register came into force on 1 August 2022.
Of all the changes contained in the Act, it is the register that represents the most significant change for property professionals. First mooted in 2016 as a means of deterring criminal activity, it was ultimately brought forward in response to Russia’s invasion of Ukraine, to enable the government to ensure that assets held by sanctioned individuals can be controlled and disposals prevented.
Subject to limited exemptions, overseas entities that own, buy, sell, transfer, lease (for more than seven years) or charge UK real estate will need to register with Companies House. The process has had a significant effect on due diligence and transactional work, with an ongoing requirement to update entries in the register annually.
Failure to do so is a criminal offence, and the directors of the overseas entity concerned could face a penalty of up to five years in prison. Despite this, as at the end of October, just 7% of overseas entities had lodged their applications and, with the deadline of 31 January looming, the clock is ticking on the registration period. The impact of that will be one to watch in early 2023.
The Commercial Rent (Coronavirus) Act 2022
Coming into force on 24 March, the Commercial Rent (Coronavirus) Act 2022 provided for a legally binding arbitration process to resolve outstanding disputes relating to what, at that stage, was an estimated £8bn mountain of commercial rent arrears accrued during the pandemic when businesses were forced to close.
The government’s impact assessment estimated that 15,500 businesses would be within the scope of the arbitration procedure, of which an initial estimate of around 7,500 cases were expected to go to arbitration. After four months of operation of the six-month arbitration scheme the number of awards actually published stood at rather less: three. A late flurry of applications in the weeks before the deadline may have swelled the overall total somewhat, but still the scheme fell dramatically short of expectations, in terms of numbers of awards at least.
Some feel that it was, nevertheless, a success in encouraging even more landlords and tenants to negotiate a settlement of outstanding rent – not least because those awards that were made established that the scheme was going to be no panacea for tenants.
The orthodox position – firmly restated by the Court of Appeal in Bank of New York Mellon (International) Ltd v Cine-UK Ltd; London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2022] EWCA Civ 1021; [2022] EGLR 34 – is that the pandemic is no defence, and landlords are entitled to recover any lockdown rent still owed.
Now the arbitration scheme has run its course, the courts may have a few more cases to deal with next year – landlords will be “champing at the bit to litigate”, according to Guy Fetherstonhaugh KC (as an aside, getting used to writing “KC” rather than “QC” has been one of 2022’s biggest challenges, for legal editors at least).
Perhaps the enduring legacy of the Commercial Rent (Coronavirus) Act 2022 may be in shining additional light on the use of arbitration as a mechanism for dispute resolution. Will there be greater emphasis on its use going forward? Could we see its widespread adoption in other hotly contested property disputes, such as under the Landlord and Tenant Act 1954? Add that to the list of things to monitor next year.
Building Safety Act 2022
The third major piece of legislation has its roots in the response to the Grenfell Tower tragedy of 2017 and Dame Judith Hackitt’s review of the building industry: Building a Safer Future. It aims to improve building safety across the built environment, with particular emphasis on the residential sector.
The Act itself is extensive and, despite receiving royal assent in April, is not yet fully in force, with the remaining provisions due to be implemented in stages.
Already in force are provisions that amend the Defective Premises Act 1972, with the 2022 Act extending the period under which a claimant can commence a claim under the 1972 Act (from six years to 30 years for works completed before 28 June 2022), as well as extending the scope of the work for which claims can be made. As a result, there is an increased likelihood of claims being brought for historical building defects.
Also in force are the provisions relating to historical fire safety defects, which permit the First-tier Tribunal to grant a remediation order requiring a building owner to remedy specified defects or make a remediation contribution order to require a landlord, developer or associated person to financially contribute to the cost of remediating relevant defects. Restrictions on service charges recoverable from leaseholders for fire safety defects have also been imposed for certain types of building. In addition, the changes remove leaseholder liability for unsafe cladding.
Other provisions are yet to come into force but are anticipated in 2023. Among them will be the establishment of the Building Safety Regulator and the new building control regime for higher-risk buildings, which will introduce two new approval stages to the existing “gateway” regime: “gateway 2” and “gateway 3”.
The 2022 Act also gives the government new powers to introduce regulations to establish building industry schemes to improve standards and safety. And, as Ian Hardman, real estate partner at Shoosmiths, noted when writing in EG earlier this month: “Membership may be conditional on remedying or making financial contributions towards remedying defects in buildings.”
While there is much still to be finalised by secondary legislation, there is plenty that developers can be doing now to prepare. As Hardman said: “By continuing to take steps to meet current and future obligations, developers can minimise risk and avoid unnecessary costs or legal implications, while keeping project timings on track.”
Final word
There is little doubt that each of these developments will continue to have a significant effect on those in the industry. Further developments in relation to building safety in particular can be expected in 2023, along perhaps with a Renters’ Reform Bill and the eventual enactment of the long-gestating Levelling-up and Regeneration Bill. No matter what else is going on in the world, the legislative wheel keeps on turning.
Hear more
Listen to EG’s In on the Act podcasts covering these pieces of legislation:
- Martin Dray discusses the Economic Crime (Transparency and Enforcement) Act 2022
- Guy Fetherstonhaugh QC discusses the Commercial Rent (Coronavirus) Act 2022
- How the rent arrears arbitration scheme has worked in practice
- The Building Safety Act 2022
To send feedback, e-mail jess.harrold@eg.co.uk or tweet @jessharrold or @EGPropertyNews
