Problems with commercial real estate law are a needless drag on the property industry and cause preventable financial losses to businesses across England and Wales. Sadly, the government appears too preoccupied to do anything about it. To highlight the issue, the Property Litigation Association launched its 10-point programme for reform last year (EG, 17 March 2018,), and has now followed up with a wide-ranging survey of its membership. The results are quite illuminating.
The worst offenders
PLA members – comprising 1,400 specialists in all aspects of property litigation from a variety of firms in terms of size and location – found many areas of property law to be overly complicated, costly and in urgent need of clarification and refinement. In some cases, wholesale renewal is required.
The Landlord and Tenant (Covenants) Act 1995 (the 1995 Act) and the Landlord and Tenant Act 1987 (the 1987 Act) were viewed as the most serious offenders, with 72% and 71% of respondents respectively considering them unfit for purpose. Although only 14% said that the 1995 Act (dealing with lease assignments and guarantors) should be abolished, nearly 45% called for the 1987 Act (which gives residential tenants a right of first refusal) to be scrapped entirely.
Those not calling for abolition of the 1995 Act recognised that it gives tenants protection from historic leasehold liabilities but pointed to the serious problems arising with intra-group assignments and the provision of repeat guarantees. Amendment of the relevant provisions to remove these unintended consequences was the preferred option.
Only 4% thought that the 1987 Act is fit for purpose (with the remaining 25% undecided). The requirement for landlords to give tenants first refusal if they wish to dispose of any interest in a building containing two or more flats was considered prohibitive in many cases, especially in relation to the disposal of commercial parts in mixed-use schemes. Even minor technical breaches could result in criminal sanctions.
Some pointed out that the 1987 Act is no longer needed in view of later legislation and the complete overhaul of leasehold enfranchisement on which the Law Commission has recently consulted.
The usual suspects
The Landlord and Tenant Act 1954 (giving security of tenure to business tenants) has long been a source of debate in the property industry and this appears set to continue. The PLA’s respondents were reasonably split, with 51% believing it is fit for purpose and 43% thinking that the current contracting-out procedure needs a complete rethink. A clear majority (85%) were opposed to scrapping the Act outright.
Two-thirds thought that the commercial rent arrears recovery (CRAR) regulations are unfit for purpose. Seventy-one per cent thought CRAR should cover service charge and insurance premiums as well as rent, and 72% believed the seven-day enforcement notice should be abolished. Many thought the law is a pointless waste of time and money and that the notice requirement takes away any element of surprise, giving tenants time to remove items from premises.
Almost as many (64%) wanted to see the current criminalisation of residential squatting extended to commercial properties. At the same time, they recognised that there could be difficulties with enforcement, given how stretched police resources are already. Those supporting reform may be about to get their wish, at least in part, with home secretary Sajid Javid considering criminalising the act of trespassing when setting up a traveller encampment.
In need of rehabilitation
Over half (55%) of respondents thought that rights to light law is not fit for purpose. Some 63% felt that reform should be in the form of a time limit (of up to a year) in which to claim an injunction to stop a new development from interfering with light, after which it would be too late.
Asked whether neighbouring properties should lose the right to an injunction altogether, to be replaced with a damages award instead, 56% said no. Others recommended wider use of notices or tighter control at the planning stage to avoid disputes and provide greater certainty.
The issue of rights of light drew strongly opposing views. One respondent said: “It seems rights to light results in developers being held to ransom by their neighbours.” In contrast, another said: “Many would rather have light than cash. Being able to stop developments is an important property right.”
PLA members were also divided on the question of break options, with 39% saying the law is already fit for purpose and 42% stating it isn’t. They were similarly split when asked whether the law should be changed to give courts discretion to grant relief when break conditions are not fully observed: 48% said yes, 35% no.
Several said that break options are a matter of contract and, if drafted properly, the law should not need to intervene; granting relief was thought to remove much-needed certainty.
Others to look out for
Suggestions for other areas of law reform are diverse, including company voluntary arrangements, easements, boundary disputes, residential possession actions and eviction procedures, long leasehold reform and enfranchisement.
In a useful summary, one respondent said: “You have ignored the elephant in the room. Government policy needs to change, to finance civil justice properly… There is no point ‘taking back control of our laws’ if those laws cannot be enforced adequately, affordably and promptly. There are few higher priorities for a civil society than the effective rule of law.”
Rest assured that the PLA will be taking up the charge.
Mathew Ditchburn is a partner and head of real estate disputes at Hogan Lovells, and chair of the PLA’s law reform committee
