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Yearly Archives: 2022

Ground Rents Abolished for New Long Residential Leases

From 30 June 2022, anyone buying a new long residential lease in England or Wales (which has been granted for a premium) will not be charged ground rents under the Leasehold Reform (Ground Rent) Act 2022.

Ground rents are often found in long leases (granted for a term of more than 21 years) and are annual payments a tenant must make to its landlord, which gives the landlord an incentive to retain some interest in the property. Some leases contain mechanisms for ground rents to increase over decades which can make the payments quite substantial. This has become problematic for prospective purchasers who cannot get funding as banks are refusing to lend because of the increased liability of ground rents.

Following a consultation on leasehold reform undertaken in 2018, (the subject of our previous blog post on the Government response), this change has been introduced to make leasehold ownership fairer and more transparent for tenants.

The Act will only affect new leases and not existing tenancies. If a new lease is granted, or the term of an existing lease is extended, or additional land is added to the demise (a deemed surrender and regrant), a landlord will need to ensure that no ground rents are charged, or they may face penalties of up to £30,000.

A new long residential lease can make provision for collection of a ground rent, but this must be a peppercorn rent (which has no value). If a landlord can recover administrative charges from the tenant, these cannot relate to any collection of the ground rent.

This change is part of the Government’s wider focus on leasehold reform to create a fairer housing system. The Government is also considering reform of the enfranchisement rules (which govern the extension of a lease or the purchase of the freehold), and right to manage (taking control of the management of their building). Further changes on leasehold reform are not expected until next year.

The Register of Overseas Entities – Buying Land in the UK

New Registration Requirements for Overseas Entities Buying Land in the UK

For several years, the UK government has sought to cut property fraud and money laundering activity in the UK. One key element they have focused on is making the ownership of property in the UK more transparent. Overseas entities have sought to invest in property in UK, but the ultimate beneficial owners of these overseas entities are often not known. The proposals for an overseas entities register were put forward in a government bill in 2018, but have now been passed into law under the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”).

The Act, (which, for the main part, is not yet in force) creates a new registration requirement at Companies House for any overseas entity who:

  • Is buying a freehold property or a lease (with a term of more than 7 years) in the UK; or
  • Owns a freehold property or a lease (with a term of more than 7 years) in the UK, which was purchased on or after 01 January 1999.

Once the relevant provisions of the Act are in force, an overseas entity will be required to register at Companies House and provide the required information about their beneficial owners.

A beneficial owner is anyone who holds:

  • More than 25% of the shares or voting rights in the overseas entity;
  • Has the right to exercise, or actually exercises, significant influence or control over the overseas entity;
  • Holds the right to appoint or remove a majority of the board of directors of the overseas entity.

This works on the same principle as the PSC register (people with significant control).

Once registered at Companies House, the overseas entity will be issued an overseas entity ID number. This ID will then be provided to HM Land Registry to enable land transactions to be registered.

There will be a six month transitional period from the date the Act commences for overseas entities to register at Companies House.

During this six month window, HM Land Registry will register a restriction on the registered title of land owned by an overseas entity. This restriction will limit the overseas entity’s ability to transfer, let (for more than 7 years) or charge the property unless they have complied with the registration requirements. Some exceptions will apply, but these are beyond the scope of this post.

There is a further obligation on overseas entities to ensure that the register at Companies House is up-to-date, and they will be required to update this information annually.

Failing to comply with the registration requirements under the Act can result in a criminal offence, with the penalties for non-compliance of the Act including fines and imprisonment.

We will continue to monitor this and update our portfolios if and when necessary, once the implementation dates are known and if any supporting legislation is passed following the Act receiving Royal Assent.

Occupation Contracts – The New Form of Tenancy Agreement Under the Renting Homes (Wales) Act 2016

The Renting Homes (Wales) Act 2016 (“the Act”) (passed six years ago) will be coming into force on 15 July 2022. This Act will fundamentally change the current system for letting residential property in Wales.

The change has been introduced to simplify the letting process and make it easier for contract-holders (the new term for tenant) and landlords by having one overarching Act in place which sets out the parties’ rights and obligations, (as opposed to various pieces of legislation).

For the purposes of this post, we will be looking at occupation contracts (which are the new form of tenancy agreement) which will replace most assured shorthold tenancy agreements and licences to occupy in Wales.

Standard vs. Secure

There are two types of occupation contracts: 1) Standard; and 2) Secure.

Secure occupation contracts are intended for use by community landlords. As a result, we will be focusing on standard occupation contracts, which are to be used by private landlords.

Fixed Term vs. Periodic

Standard occupation contracts can either be for a fixed term (an agreed period of either months or years (less than 7 years)) or periodic (week to week or month to month). A fixed term contract will become a periodic contract on expiry of the term if the contract-holder remains in occupation.

Written Statements

Occupation contracts must be in writing and must contain certain terms. Landlords must give their contract-holder a written statement setting out the terms of the occupation contract within 14 days of the date the contract-holder is entitled to begin occupying the property.

Written statements must be used for standard occupation contracts entered into on or after 15 July 2022. In the case of existing tenancies and licences that fall within the definition of an “occupation contract”, these will automatically convert to occupation contracts on 15 July 2022, and landlords will need to provide a written statement to the contract-holder within 6 months (no later than 14 January 2023).

Written statements can be issued in hardcopy or, if agreed by the contract-holder, can be sent electronically.

Terms

These are broken down into four categories:

  • Key matters – information about the property, occupation date, amount of rent or other consideration.
  • Fundamental Terms – these are the essential rights and obligations of landlords and contract-holders.
  • Supplementary Terms – these are practical matters to make the occupation contract work, access for repair
  • Additional Terms – other agreements not dealt with elsewhere (for example the keeping of pets).

Model Written Statements

Model written statements for both periodic and fixed term standard occupation contracts have now been published by the Welsh Government. The model statements incorporate all the fundamental and supplementary provisions to be included (without modification). The model statements can be found here.

When an existing tenancy is converted to a standard occupation contract, the existing terms of the tenancy will apply unless they conflict with the fundamental terms. Supplementary terms will be included unless they conflict with the terms of the existing tenancy.

Joint Contract-Holder

Parties can be added to the contract as joint contract-holders with the consent of the landlord. A contract-holder can leave the contract without the tenancy ending.

Succession

On the death of a sole contract-holder, the contract will terminate unless there is someone who qualifies to succeed the contract-holder.

Termination

A contract-holder cannot be evicted without a court order unless the contract-holder abandons the dwelling.

For no-fault evictions, the minimum notice period is six months. A landlord will not be able to give a possession notice until 6 months after the contract starts. This will give contract-holders a minimum 12-month contract.

A landlord can still terminate early if the contract-holder is in breach of contract. Typical grounds include serious arrears of rent (if the rent is paid monthly, at least two months’ rent unpaid), anti-social behaviour, or failing to take proper care of the property. A court must find it reasonable to evict the contract-holder.

Most grounds require one month’s notice; however, where there are grounds of anti-social behaviour and other prohibited conduct, the landlord can make a possession claim on or after the day on which the possession notice is served. Where there are serious rent arrears, the notice period is 14 days.

Fundamental changes are being made to how the private rented sector will operate in Wales. This blog post is only a high-level summary on occupations contracts. For more information on this and other key changes being introduced please read Renting Homes (Wales) Act 2016. We will be producing more detailed guidance and publishing new templates for Wales over the coming months.

Why You Should be Looking at ESG – Environmental, Social and Governance

What is ESG About?

“ESG” stands for “Environmental, Social and Governance”. The ESG acronym is being increasingly used as a shorthand term for a wide range of issues relevant to how a business can have a net positive impact on the world and how it can demonstrate that it is having that impact.

All ESG issues relate in some way to the running and resilience of a business and what that business must do to be a “good corporate citizen”. ESG issues are usually listed under three broad headings: “Environmental”, “Social”, and “Governance”, but there is a degree of overlap between issues that fall under each of those headings.

Origin of ESG

There is a growing body of standards and requirements that regulate this area, some legally binding, others not. ESG did not come from any single source, but rather it was a development sparked by institutional investors demanding that if they are to invest in a business, it must meet certain standards in a variety of areas, depending on the type of business in question.

Being a Good Corporate Citizen

ESG establishes what a business needs to do to be a “good corporate citizen”.

A business firstly needs to comply with all measures having the force of law that are applicable to it, including statute and common law, regulatory rules, and other legal obligations or duties (see “Legal Compliance”, below). Increasingly though, legal compliance alone is regarded as insufficient, and the ESG concept embraces a good deal more.

ESG secondly recognizes that, in the interests of stakeholders (such as suppliers, customers, tenants, employees, shareholders, investors, suppliers of finance, neighbours, and the community at large), businesses should, in relation to their activities and conduct, also meet other relevant domestic (and often international) codes, standards, and behaviours, including appropriate standards of business ethics and morality, as well as others’ reasonable requirements and expectations. More widely, it also embraces “sustainability”, i.e., a business’s efforts to reduce its negative impacts and increase its positive impacts on the world around it.

Resilience

The “good corporate citizen” and sustainability aims are important aspects of ESG, but ESG is ultimately about resilience of businesses. The Covid-19 pandemic has led to an increased focus on business resilience. If a business complies with ESG “good corporate citizen” and sustainability principles, laws, and behaviours, it not only benefits stakeholders and the environment, but it also renders it more resilient, i.e., more likely to survive and succeed. In contrast, failure to comply can ultimately damage the business, its goodwill and reputation, or it can prevent it from meeting its maximum potential (see “Why should you take ESG on board?”, below).

Legal Compliance

As to ESG-related standards, codes, behaviours and other requirements which do not have the force of law, these are so numerous and wide-ranging that it would not be practicable to set out here even a small portion of them as examples. Whether any particular requirements of that nature are relevant to a business will depend on many factors including the size and type of business.

As to ESG-related obligations and regulation of businesses which do have the force of law, although they are only a part of the totality of ESG requirements, standards, codes, and behaviours, they are set to keep increasing. Such legal measures are already considerable and wide-ranging, and the following offers no more than a flavour of just a few of them that might be relevant to businesses. Such legal measures include:

  • Companies Acts requirements for certain companies to issue statements and reports on dealing with various ESG issues (including climate-related, environmental, and other non-financial matters such as social and employee-related matters disclosures, as well as financial matters);
  • Bribery Act;
  • Modern Slavery Act;
  • Equality Act;
  • Health & Safety at Work Act;
  • Common law obligations and duties, e.g., the law relating to negligence, nuisance;
  • Consumer Protection Act (product liability);
  • Environment Act, Environmental Permitting (England and Wales) Regulations, Environmental Damage (Prevention and Remediation) Regulations, Water Resources Act, and various other environment law statutes.

What is the Subject Matter of ESG?

ESG brings together disparate elements, a number of which are outlined below. The following lists include some key ESG areas, but are by no means a comprehensive listing of ESG elements. However, this does illustrate the breadth of topics falling under the ESG umbrella. Whilst a variety of separate issues fall under that umbrella, those issues are increasingly linked to each other.

It should be emphasized though that not all of the following elements of ESG will be applicable to all businesses. Whether any particular ESG element, issue, or risk is relevant to a particular business will depend on various factors including the type of business, its size, whether it is a company or is in unincorporated form, whether it has shares that are publicly traded, whether it is engaged in an activity that is highly regulated, whether it operates outside the UK, or whether it has dealings with anyone outside the UK.

Environmental Elements of ESG

This aspect of ESG focuses on improving the environmental performance of a business. It measures a business’s impact on the natural environment and the natural environment’s impact on the business, for instance, through physical climate risks. It takes into account factors including a business’s carbon footprint, its impact on biodiversity, and its production of waste and pollution. It includes the following topics:

  • climate change;
  • greenhouse gas emissions (in particular carbon dioxide);
  • emissions to air, water, and land;
  • product carbon footprint;
  • pollution and waste (toxic emissions and waste, packaging material and waste, electronic waste);
  • biodiversity;
  • deforestation and land use;
  • treatment of animals;
  • energy efficiency;
  • raw material sourcing;
  • resource depletion (including water);
  • recycling;
  • environmental opportunities (clean tech, green building, renewable energy).

Social Elements of ESG

This aspect of ESG focuses on a business’s impact on people. It measures how a business treats people such as employees, customers, and the communities in which it operates. It includes the following topics:

  • human resources and hiring;
  • human rights (including modern slavery and child labour);
  • supply chain labour standards;
  • health and safety;
  • product safety, quality, and liability;
  • chemical safety;
  • financial product safety;
  • wide ranging diversity and inclusion requirements, including anti-discrimination and anti-harassment (D&I);
  • equal pay;
  • privacy and data security;
  • conflict zones and conflict minerals;
  • controversial sourcing;
  • stakeholder/community relations and engagement;
  • customer satisfaction;
  • company cultures;
  • employee advancement opportunities;
  • employee education and welfare;
  • philanthropy (e.g., donations to local community, employee volunteering programmes).

Governance Elements of ESG

This aspect of ESG focuses on a business’s leadership and structure. It measures how a business operates in terms of audits, board diversity, internal controls, and shareholder rights. It includes the following topics:

  • bribery and corruption;
  • executive pay;
  • board independence;
  • business ethics;
  • board composition and audit committee diversity and structure;
  • financial system instability;
  • tax transparency;
  • political contributions;
  • whistleblowing;
  • conflicts of interest;
  • anti-money laundering;
  • anti-competitive practice.

Why Should You Take ESG on Board?

ESG is inevitably relevant to larger businesses, but it is also increasingly becoming more material to start ups and smaller organizations. Businesses should be seriously considering ESG in view of the potential positive impact on it of taking ESG on board on the one hand and the potential negative impact of not doing so on the other.

What, then, might such positive and negative impacts be?

Positive impacts of adopting ESG

  • meeting shareholder activists’ expectations or requirements so that they are kept “on-side” and supportive of the business;
  • encouraging potential investors to invest in the business. Many major banks and investors include ESG investing criteria in their processes and products;
  • improving relations with regulators/government;
  • enabling the business to contract with those suppliers and customers who require their business partners to adhere to ESG standards;
  • attracting and retaining employee or volunteer talent;
  • better productivity;
  • positively influencing customer sentiment;
  • achieving costs savings (e.g., reduced waste or energy consumption).

Negative impacts of not adopting ESG

  • harming or failing to improve reputation or morale of staff;
  • failing to realize full potential sales turnover;
  • dissuading potential investors from taking, retaining, or increasing a stake in that business;
  • loss of opportunities to tender for contracts due to failure to meet ESG standards required by tender conditions;
  • failing to attract investment or to meet qualifying conditions for grants or other financing;
  • incurring additional costs, expenses, fines, or other penalties;
  • incurring additional legal liabilities.

Adopting an ESG Policy and ESG Strategy

Adopting, publishing, and implementing an appropriate ESG policy can assist a business to identify and state clearly those factors that pose a risk to the business, i.e., factors that can directly or indirectly harm the business in any way. Such risks include the risk of litigation or liability; regulatory enforcement; risk of physical damage, loss, personal injury, or harm to health; commercial risk; and reputational risk. Identifying risks is the first step to minimizing them and planning for the eventuality that they materialize.

If a business additionally includes in its ESG policy a commitment to measure its degree of compliance with the policy (and report to its board or publicly on its compliance), it will not only have a basis for informing stakeholders and others about the extent of that compliance, but it will also highlight for itself and others how it is mitigating risks. In short, adoption, publication, and implementation of an ESG policy can aid business resilience.

Once a business has formulated an ESG policy, it needs to work out and document a strategy for implementing it. This will entail creating processes for doing so, including the means for measuring and reporting periodically on progress in implementing its ESG policy. In that connection, it should specify – using clear metrics – what will be achieved and when it will be achieved.

Prudence dictates that a business firstly ensures that the ESG policy that it formulates is consistent with its culture and values. Secondly, it must be realistic: a business may be tempted to cover a very wide range of matters, but should only say what it can realistically do, only set targets and timescales that it reasonably expects to achieve, and be prepared to report on why it has not achieved them. Otherwise, it will have failed to comply with its own ESG policy, producing a damaging effect to its reputation and its success.

Supply Chain

For many businesses and other organizations, being able to meet some of the aims set out in their ESG policy depends to a significant extent on taking steps to ensure that companies in their supply chain comply with aspects of their customer’s ESG policy.

A business might carry out due diligence checks or take other steps to assess prospective suppliers’ management of ESG issues. Some businesses have a supplier code of conduct (covering a range of ESG criteria) to which they require suppliers to sign up. Many businesses include a standard “compliance with ESG and other policies” clause in their contracts with suppliers that obliges suppliers to comply with ESG-related policies which the business lists in a schedule attached to the contract. This might be combined with a “self-certification” clause whereby the supplier certifies periodically that it and its subcontractors are meeting the compliance requirements. Some businesses include an audit clause in their supply agreements giving them a right to audit aspects of the supplier’s provision of the goods or services under the contract. In each case, the contract can specify the consequences (e.g., termination, remediation) of the supplier’s non-compliance with ESG clauses in the contract.

Conclusion

It can be seen from the above that ESG is not, and should not be treated as, just a “box-ticking” or “flavour-of-the month” topic. In the interests of the long-term survival and success of any business, it should be seriously considering how ESG is relevant to it.

Simply-Docs ESG Materials

There are currently a number of template environmental policies and environmental policy statements available to download. Whilst these specifically cover environmental matters and can assist with implementation of some environmental aspects of ESG, those templates are not designed to cover other ESG issues as well. However, from time to time, templates and checklists will be added to the website to deal with Social and Governance issues as well as Environmental issues. The first of these, a template set of Company Directors’ Board Minutes adopting an ESG strategy, is available here.

Formalities for Signing Tenancy Deposit Protection Prescribed Information

Since 06 April 2007, landlords of assured shorthold tenancies in England and Wales have been legally required to protect their tenants’ deposits in an authorised tenancy deposit scheme within 14 days of receipt of the deposit monies. Landlords must also provide tenants with prescribed information about the scheme (which contains a confirmatory certificate from the landlord) within 30 days of the deposit being received. If the legislation is not complied with the landlord may be prevented from serving a valid section 21 notice to recover possession of the property and/or the landlord may have to pay a fine.

The case of Northwood Solihull v Fearn & Ors called into question the signing of prescribed information by a corporate landlord or agent. The prescribed information had been certified by the property manager who was authorised to sign this document. The tenants argued that the prescribed information had not been validly executed which in turn invalidated their eviction notice. This case also looked at the execution of section 8 possession notices, but that is beyond the scope of this post.

In January 2020, the High Court ruled that where the landlord is a corporate landlord, they must sign the prescribed information in accordance with s44 of the Companies Act 2006 which requires signatures from two directors, or a director and company secretary, or a director who signs in the presence of a witness. The High Court held that the prescribed information had not been signed in accordance with s44 of the Companies Act 2006 and was therefore not valid.

The Court of Appeal overturned this decision (which will be welcomed by landlords and letting agents) and held that the prescribed information can be validly signed by an authorised individual on behalf of a corporate landlord or agent. It can also be signed in accordance with s44 of the Companies Act 2006. The Court of Appeal also confirmed that if the prescribed information had not been signed by an authorised individual on behalf of a corporate landlord or agent, nor signed in accordance with s44 of the Companies Act 2006, it wouldn’t necessarily invalidate the document. Each case would be considered on its own merits, taking into consideration the specific facts of that case.

Note that it has now been announced that the Renting Homes (Wales) Act 2016 (which will change all aspects of renting residential property in Wales), is due to come into force 15 July 2022. This Act will introduce a new tenancy deposit scheme in Wales. We will be producing further content on the new rules for Wales in due course.

Anticipated Changes for Property in 2022

2022 is set to see more legislative and regulatory change for both residential and commercial property in England and Wales.

In this blog post we look at anticipated changes and recent government announcements. It is not a conclusive list, and we have focused on those matters of particular relevance to our customers. As we have seen over the past two years, legislative changes are frequent, and introduced often with little notice.

Residential

Residential Property Outlook 2022

Renting Homes (Wales) Act 2016

It has been announced that this Act will finally come into force in July 2022. This Act will fundamentally change all aspects of renting residential property in Wales. Model contracts will be available and will give tenants in Wales a minimum 12-month contract with eviction notice periods of 6 months for “no-fault evictions”. Further legislation will be introduced to put in place additional measures to support the existing legislation.

Carbon Monoxide Alarms

The government intends to extend the 2015 regulations so that landlords must install a carbon monoxide alarm in any room with a fixed combustion appliance (excluding gas cookers). Legislation only currently requires landlords to fit an alarm where there is a solid fuel burning source. Landlords will be required to repair or replace smoke and carbon monoxide alarms once they have been informed by the tenant that they are faulty.

Right to Rent

On 5 April 2022, the temporary measures introduced during the coronavirus pandemic are set to end. Updated guidance will be published before 6 April 2022, as the way in which checks of biometric residence cards and permits, and frontier worker permits are set to change. These checks will be done using the Home Office online service only.

Eviction Notice Periods (Wales)

The modified notice periods in Wales were extended until 24 March 2022. Save for any further legislation being introduced, the notice periods will then revert to pre-pandemic lengths.

Renters’ Reform Bill

Draft legislation is anticipated relating to the abolition of section 21 notices, the introduction of a lifetime tenancy deposit, and changes to the court procedure for eviction cases. This Bill may also deal with the question of whether landlords will be required to be members of a redress scheme (which deals with complaints) or an obligation for private landlords in England to be registered.

Minimum Energy Efficiency Standards

The government is committed to raising the minimum energy efficiency rating from E to C by 2028. We may see draft proposals from the government this year.

Anti-Money Laundering (AML) and Agents

Agencies which are regulated for AML purposes and earn over £10.2million will be liable to pay a levy which is intended to be used to tackle money laundering in the UK. The amount of the levy varies depending on the revenue of the company. This levy is part of the Finance Bill 2021-22 which is making its way through Parliament. This provision is intended to commence in April 2022.

Letting agency business guidance for money laundering supervision is still awaited.

Regulation of Property Agents

It is still uncertain whether steps will be taken to regulate property agents. A report was published in 2019 by the working group RoPA (Regulation of Property Agents). There has been little progression since the report was published. This question may be addressed in the Renters’ Reform Bill.

Leasehold Reform (Ground Rent) Bill 2021-22

Ground rents payable in new long leases must be one peppercorn (unless the property is exempt). This Bill is likely to be passed this year.

Building Safety Bill 2021-22

This Bill will have a significant impact on those constructing premises, those involved in property management and health and safety of ‘higher-risk buildings’ (buildings with at least two residential units and at least 18 meters in height or seven storeys). The Bill currently proposes a New Homes Ombudsman scheme, with a new code of practice on standards of construction, increased obligations under the 2005 Fire Safety Order and restrictions on landlords and developers recouping remedial costs from tenants.

Commercial

Commercial Property Outlook 2022

Moratorium on Forfeiture Proceedings, Commercial Rent Arrears Recovery (CRAR), and Winding Up Petitions

The moratorium on forfeiture proceedings for commercial leases (for non-payment of rent) in England and Wales is in place until 25 March 2022. The use of the CRAR regime was also extended. 554 days’ rent needs to remain unpaid for a landlord to exercise CRAR. The ban on landlords issuing a winding-up petition for debts relating to rent or other sums payable by a tenant under a business lease (among other conditions) is due to expire 31 March 2022.

Commercial Rent (Coronavirus) Bill 2021-22

This Bill addresses the issue of commercial rent arrears built up during the pandemic and will establish a binding arbitration procedure to resolve ongoing disputes. This Bill is progressing through Parliament and is expected to come into force in England and Wales from 25 March 2022.

Charities Bill 2021-22

The Bill aims to make land disposal for charities easier. It aims to give greater flexibility, remove certain prescriptive requirements, and make the legal framework for disposing of charity property clearer and less burdensome.

Minimum Energy Efficiency Standards

From 01 April 2023, it will be unlawful for a landlord to continue to let commercial property with an Energy Performance Certificate (‘EPC’) rating of ‘F’ or ‘G’ unless an exemption applies and has been registered.

The Government intends to make it unlawful to let commercial property with an EPC rating of below B by 2030. Proposals to address this are likely to be published this year.

Here at Simply-Docs we will continue to monitor the development and progress of these proposed legislative and regulatory changes and will update the portfolio and notify you when necessary.

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