One of the Law Commission’s stated aims when launching its 13th Programme of Law Reform was to “boost Global Britain and help enhance the UK’s competitiveness as we leave the EU”.
But among laudable proposals for disposing of the dead and automated vehicles, there was one glaring omission: any reform of commercial real estate.
Problems with commercial leasehold law were said to adversely affect 1.2m businesses in England and Wales, and “create needless red tape, inhibit economic growth and productivity and cause tenants, landlords and central government to suffer significant preventable financial losses”.
So why did the government decline to support any reform? Because of “other departmental priorities” – presumably Brexit.
This seems to miss the point. Commercial real estate is massively important to the UK economy in attracting domestic and overseas investment. According to figures from the British Property Federation (BPF), UK real estate contributes £94bn a year to the UK economy – or 5.4% of GDP.
Here are the Property Litigation Association’s (PLA’s) top 10 areas in need of reform.
1. 1995 Act
The Landlord and Tenant (Covenants) Act 1995 is laden with unintended consequences. Rather than protecting tenants, the law stifles and prevents legitimate and consensual transactions. This has led to a rash of cases reaching the courts, according to the Law Commission, “giving rise to costs of £100,000s, and huge losses to the value of freeholds”. The PLA has drafted a bolt-on amendment to the 1995 Act that solves these problems. All government has to do is adopt it.
2. 1954 Act
Security of tenure in the Landlord and Tenant Act 1954 is not operating to the benefit of the tenants it was designed to protect, or working for landlords. In 2016, a working group proposed amendments to reduce costs and simplify unnecessarily complicated processes, including replacing the cumbersome “contracting out” process and referring disputes to a valuation expert, rather than a county court judge.
3. 1987 Act
The Landlord and Tenant Act 1987 has been widely criticised for poor drafting. A case that has caused particular problems is Dartmouth Court Blackheath Ltd v Berisworth Ltd [2008] EWHC 350 (Ch); [2008] 2 EGLR 141, which criminalised the grant of commercial leases in mixed-use schemes without first offering them to qualifying residential tenants. A radical solution would be to abolish the right of first refusal altogether, given the extensive enfranchisement rights that residential tenants already have.
4. CRAR
The law of distress was abolished in April 2014 and substituted by the new statutory regime of commercial rent arrears recovery (CRAR). The Ministry of Justice subsequently carried out a review, but none of the industry’s concerns has been addressed. CRAR covers only pure rent and not service charge and insurance costs, and the seven-day enforcement notice that landlords have to serve is an open invitation for tenants to put goods beyond reach or appoint administrators, preventing further action.
5. Forfeiture
Once a right to forfeit has arisen under a lease, the landlord has to stop dealing with the tenant as if the tenancy were continuing. Otherwise, the doctrine of “waiver” may result in the landlord losing its right of re-entry. It is a trap for unwary landlords, and limits the parties’ ability to work together to resolve problems. In 2006, the Law Commission proposed that the doctrine of waiver should be abolished.
6. Business rates
As a consequence of Woolway (VO) v Mazars LLP [2015] UKSC 53; [2015] EGLR 56, the current practice of the Valuation Office Agency is that separate parts of a shared building should be treated as separate units for business rates, regardless of whether they are contiguous and in the same occupation. The consequence of this is a higher overall business rates liability for affected businesses. Fortunately, the government is consulting on reinstating the previous practice, but it needs to get the details right.
7. Squatting
In 2012, squatting in residential property became a criminal offence. But this has made commercial buildings even more susceptible. Businesses have to endure illegal parties in empty units, with the attendant risk of harm to people and property, and lose income when commercial properties are taken over by trespassers. The law should apply to all buildings, or none.
8. Rights of light
Under the current law there is no time limit for a neighbour to claim that their right to light would be infringed by a new building. Disputes can drag on for years, holding up developments, and the courts can order construction to be halted or a building to be demolished. In 2014, the Law Commission proposed a statutory procedure allowing developers to serve a notice on neighbours requiring them to seek an injunction or lose the right. This has not been progressed further.
9. Rentcharges
The recent case of Roberts v Lawton [2016] UKUT 395; [2016] PLSCS 245 has drawn attention to the problems with rentcharges. Although the Rentcharges Act 1977 will abolish rentcharges in 2037, sensible reform could involve making payment conditional on a demand being made giving prescribed information and alerting the property owner to their statutory right to redeem the rentcharge.
10. Options
There has been a flurry of recent case law in this area. To allow one party to deprive another of a valuable break right based on some trivial non-compliance with conditions causing no material prejudice seems wrong in principle. Reform could confer on the courts a discretion to grant relief in such circumstances.
Mathew Ditchburn is joint head of Hogan Lovells’ real estate disputes team and chair of the Property Litigation Association’s Law Reform Committee
