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2021 predictions: What is on the horizon for real estate?

If 2020 has taught us anything, it’s that no one can predict the future. But as we start 2021, we look at some of the legislative changes impacting real estate and expected to come into force, or be progressed, this year.

Residential

With Brexit concluded and the prospect of vaccinations bringing the Coronavirus pandemic under control, the government is keen to pursue its agenda of levelling up the country. An easy win towards this is championing the rights of homeowners by implementing the reforms that the government has heralded over the past few years. The Department of Communities, Housing and Local Government has already announced its intention to bring forward legislation to achieve this.

The proposals to ban the sale of leasehold houses and to require new leases of flats to be granted at a peppercorn rent are to be progressed, including (as a new proposal), for retirement properties. An announcement about bringing residential estate service charges within the same or similar statutory controls to those that govern service charges for residential buildings has not been made but may form part of the government’s proposals.

In addition, the Law Commission produced a series of substantial reports last year on reforming the rights of leaseholders to extend their leases or collectively to acquire the freehold to their flats at a more affordable cost, to make it easier for tenants to take over the management of their flats and to introduce a more flexible and workable commonhold title system to overcome the perceived weaknesses of leasehold title.

The government has announced that the proposals for extending leases will be implemented. The proposals for commonhold will, it appears, proceed more slowly. The government is setting up a “Commonhold Council”, a partnership of leasehold groups, industry and government, that will prepare homeowners and the market for the widespread take-up of commonhold.  The government will respond to the remaining Law Commission recommendations, including commonhold, in due course.

Implementation of these reforms will produce profound changes in the residential property market.

Land law

To implement the residential reforms, it is likely that the long overdue reform of covenants and easements outlined in the Law Commission’s 2011 report “Making Land Work: Easements, Covenants and Profits à Prendre” will also need to be implemented. Although more technical in nature, the changes will modernise and simplify a complex area of law. They will affect almost every area of real estate work.

Last year, the government consulted on creating a register of contractual control agreements such as options, rights of pre-emption, development agreements, etc that give third parties control over the use and development of land. The aim of the register would be to give greater transparency to local communities about the potential future uses and development of land in their areas as well as to make it easier for smaller developers to identify development opportunities. The proposals would create new reporting obligations for developers entering into land agreements and restrict the ability to protect those agreements at the Land Registry without first complying with the reporting obligations. A response to that consultation is expected this year.

Commercial leasing

The government has announced a major review of commercial landlord and tenant law that will be launched in March 2021. The extent of the review is not known, but it is likely that it will include a consideration of whether security of tenure is still required for business tenants. Although any proposals are unlikely to be implemented until 2022, this consultation will be an important one and will shape the future of commercial lettings for years to come.

On the subject of commercial leasing, the Court of Appeal will hear an appeal by TFS Stores Limited this spring. If TFS successfully argues that its leases were not properly contracted out of the Landlord and Tenant Act 1954 because the paperwork required did not accurately specify the term commencement date of the lease, many thousands of commercial leases that landlords thought were contracted-out may have inadvertently given the tenants security of tenure.

National Security and Investment Bill

This bill is currently being debated by parliament. When enacted, it will allow the secretary of state to scrutinise and intervene in business transactions to protect national security. The provisions in the bill would allow intervention in real estate transactions involving sensitive land assets within, among others, the data infrastructure, energy and transport sectors. The acquisition of land close to such assets could also be the subject of an intervention.

There will be a voluntary notification system to encourage notifications from parties who consider that their transaction may raise national security concerns. Mandatory notification will apply in some cases where the purchaser would gain control of more than 25%, 50% and 75% of votes or shares in a qualifying entity, would be able to block or pass a corporate resolution or would gain control of more than 15% in shareholding or voting rights in a qualifying asset. Where mandatory notification applies, the transaction will be void if advance clearance is not obtained. The provisions will also operate retrospectively to enable the secretary of state to intervene in qualifying transactions entered into since 12 November 2020. Lawyers and clients will need to understand the new requirements. The bill is likely to become law in the Spring of 2021.

Overseas ownership of land

In 2020, the government reported on its proposals to create a register of beneficial ownership information for overseas entities that own or buy land in the UK. A draft bill was published and comments were invited on its provisions.

Any overseas entity will have to identify its beneficial owners and to register them. In order to register title to land, an overseas entity will have to be registered with Companies House and to have complied with its registration and updating duties. If details are not kept up-to-date, the overseas entity would not be able to sell that land to a third party, charge the land or create leases over seven years.

A response to the consultation on the draft bill is likely to be published this year and the bill proceed in parliament.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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