Lucie Barnes considers the key themes that are affecting landlords and tenants north and south of the border, and reflects on how they might translate into disputes over the coming months.
So far, 2023 is proving to be another busy year for UK commercial real estate, not least from a legislative and regulatory perspective. Key themes include changes to EPC regulations for England and Wales; an energy crisis and who should pay for it; building safety; leasehold reform; occupational protest; and updates to the Electronic Communications Code. Close scrutiny of the legal and regulatory frameworks is required in each area, particularly as the UK jurisdictions continue to diverge.
Building safety
Scotland has an equivalent to section 38 of the Building Act 1984, allowing claims to be brought for breaches of building regulations in so far as they cause damage, but it has not to date introduced further legislation to determine liability for the cost of the required improvement works. Scotland is instead looking to obtain undertakings from developers for fire risk assessments and remedial works. By contrast, in England, enactment of the Building Safety Act 2022 has introduced a cascading list of landlord liability. BSA service charge disputes are already coming through, for example Batish and others v Inspired Sutton Ltd and others (LON/00BF/HY1/2022/0002), where a developer was required to pay the costs of cladding replacement works because it was “just and equitable” to do so. We expect to see more building safety-related decisions as the true extent and cost of remedial works are crystallised.
Improving energy performance
From 1 April in England and Wales, the market has had to contend with changes to Part 3 of the Minimum Energy Efficiency Standards regulations, which require landlords to have an energy performance rating of E or above (subject to limited exceptions) to continue to let the property. Failure to comply could lead to landlords receiving financial penalties for breach, while tenants face the risk of increased rents and service charges. Disputes in relation to the cost of energy performance improvements are inevitable.
Occupational trespass
Whether it is obstructing a Premier League football match or delaying traffic on busy commuter roadways, occupational protest has been well publicised and is set to continue. In England and Wales, historic common law eviction powers still exist allowing certified agents to peacefully remove trespassers, as well as relatively quick court possession actions. Urgent injunctions are also available for non-exclusory protest and threatened trespass. In Scotland, the right to self-help is limited and it is usually necessary to obtain a removal order from the courts. If the risk is anticipated, an interim interdict (injunction) may be sought.
Legislative reform
In England and Wales, the Law Commission has confirmed that it will undertake a review of the Landlord and Tenant Act 1954, which allows tenants an automatic right of lease renewal at the end of the term. A consultation paper is due to be published before the end of the year (see p54). Given the implications of statutory compensation entitlement in the changes to UK business rates on 1 April, meaning in some asset classes the uplift will be substantial (for example, industrial is increasing by an average of 32%), expect disputes involving compensation payments and transitioning to a potentially post-1954 Act environment. The situation in Scotland is entirely different. With a notable (if rarely used) exception in relation to shops, leases terminate on the contractual expiry date so long as either party serves a notice to quit not less than 40 days prior to expiry. If not, a lease continues on the same terms for a further 12 months, known as tacit relocation. In theory, tacit relocation can operate an infinite number of times. Uncertainty in this area has made it a fertile ground for disputes. In late 2022, the Scottish Law Commission recommended codification of the law of tacit relocation and notices to quit. In the meantime, disputes are bound to continue to arise about whether or not a lease has ended on its expiry date.
Talking telecoms
In England and Wales, the Product Security and Telecommunications Infrastructure Act 2022 is now in force and has made changes to the UK-wide Electronic Communications Code, which turned five in December. As at 17 April, telecoms operators now enjoy express rights relating to upgrading and sharing apparatus. Disputes to determine the interplay of these new rights on existing and new agreements and any additional burdens over land as a result, should be expected.
In Scotland, the Court of Session decision EE Ltd and Hutchison 3G UK Ltd v Duncan [2021] CSIH 27 determined that Scottish leases continuing by tacit relocation are subsisting agreements under the Electronic Communications Code. In England and Wales, an operator with a subsisting agreement protected by the 1954 Act may only renew under that Act. Rent valuation comparables are so far uniform, with Scottish, English and Welsh decisions making up the “Affinity Water table”. However, a full body of comparables is still not available and jurisdictional divergence is possible. Finally, regulations accompanying the Telecommunications Infrastructure (Leasehold Property) Act 2021 are now in force in England and Wales, but will not come into force in Scotland until 1 July 2023. For now, only operators in England and Wales have the right to gain access to a block of flats without the landlord’s permission, where the landlord has failed to respond to access requests.
This article first appeared in Estates Gazette.
