UK: English/Welsh Commercial Real Estate In 2018: The Magnificent Seven

Last Updated: 18 December 2018
Article by Emma Broad and Carla Revelo

2018 has been an interesting year for commercial real estate in England and Wales. Besides the endless speculation around the impact of Brexit on the market, there have been a number of important legal developments, of which the following are some of our top picks.

1. Recreational and sporting easements

In November 2018 the Supreme Court handed down its judgment in Regency Villas Title Ltd v. Diamond Resorts (Europe) Limited. The Supreme Court confirmed by a majority of four to one that the grant of purely recreational (including sporting) rights over land which genuinely accommodate adjacent land can constitute easements. On the facts of the case in question a valid easement had been granted for the owners of one plot of land to use facilities such as a swimming pool, croquet lawn, billiard room, golf course, restaurant and gardens on the neighbouring property. It helped that the use of the land with the benefit of the right was itself used for recreational purposes – namely as holiday timeshares.

Going forward it will be interesting to see what impact this decision will have on the use of easements. What is clear is that, while every case will turn on its own facts, it will still be necessary to demonstrate that the four well-established conditions for an easement are satisfied, namely:

  • there must be a dominant and servient tenement (so there must be a parcel of land with the benefit and one with the burden of the easement);
  • the easement must accommodate the land with the benefit;
  • the owner of the land with the benefit and the owner of the land with the burden must be different; and
  • the right must be capable of forming the subject-matter of a grant.

2. Ban on new lettings of sub-standard properties

Since 1 April 2018 landlords have been prohibited from granting new leases of certain premises with an energy performance rating of F or G. The ban was introduced via the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and applies to both domestic and non-domestic private rented property. While a breach of the ban will not invalidate the underlying lease, a landlord in default could face substantial fines.

It is possible for landlords to register exemptions from the ban in certain circumstances (for example, where the landlord has made all relevant energy efficiency improvements that can be made and the property is still rated F or G). The Exemptions Register is now live although landlords should note that an exemption is not transferable – on any sale of the property the new landlord will have to apply for a new exemption.

For more information on the ban and minimum energy efficiency standards see our update.

3. Draft bill for the register of beneficial ownership of overseas entities

In July the Department for Business, Energy & Industrial Strategy published a draft Registration of Overseas Entities Bill. The Bill sets out a scheme for requiring overseas entities that own, let or dispose of land in the UK to register details of their beneficial owners. The draft confirms that, if implemented, the register will be kept by Companies House and will be open to inspection by the public. The Bill also provides that the key methods for enforcing any new requirements will be via a mixture of criminal liability and restrictions on title at the Land Registry.

As the government hopes to take the register live in 2021, overseas entities involved in UK land will want to pay close attention to the Bill and any future developments towards its implementation.

For more information on the draft Bill please see our previous update.

4. The new Electronic Communications Code

2018 saw the market adjusting to the new Electronic Communications Code, which grants telecommunications operators statutory rights to install and retain their equipment on private land.

The new Code came into effect on 28 December 2017 and arguably changed the balance of power between operators and landowners in the operators' favour. Under the Code operators benefit from automatic rights to assign, upgrade and share equipment while the compensation payable to landowners has been watered down by the incorporation of a "no scheme" valuation principle. The new statutory procedures for terminating Code rights and forcing the removal of equipment also work against landowners – it could now take in excess of two years to remove an operator from a site where its equipment benefits from Code protection.

At the end of October we also had judgment in the first substantial case on the new Code – Cornerstone Telecommunications Infrastructure Ltd v. University of London. That decision,  which was summarised in our update, confirmed that the right to survey a site is a Code right and that an operator can apply for interim Code rights without also having to apply simultaneously for permanent rights. It confirmed that the priority under the Code is the provision of a choice of high-quality electronic communication services to the public rather than the interest of individual landowners.

5. Welsh Land Transaction Tax (WLTT)

From 1 April 2018, Stamp Duty Land Tax (SDLT) was replaced by WLTT for land transactions involving property in Wales. The Welsh Revenue Authority rather than HM Revenue & Customs oversees the collection of WLTT.

While WLTT is broadly similar to SDLT there are some differences between the two. For example, there are differences in the rates of tax charged and also in the application and availability of various reliefs.

6. Plans for reform of residential leasehold

Among our clients one of the most talked-about developments this year has been the government's proposals to press ahead with a ban on the sale of new leasehold houses and to impose a £10 statutory cap on ground rents for residential long leases.

Many new and existing developments have a residential component therefore both developers and investors want to understand how things are going to change so that they can plan ahead. The problem is that, while the consultation given in October provided some idea of how these reforms will be implemented (for example, that the Land Registry will have a key role in ensuring compliance), a lot of the detail is still lacking. Will the cap on ground rents apply to leases of more than one unit? How can a seller be forced to deliver the freehold to a buyer if it only has a leasehold interest? What measures will be taken to help existing leaseholders?

This issue will continue to rumble into 2019 but for a more detailed review of the proposals put forward in October 2018 please see our update.

7. Grounds for opposing a renewal lease

The Supreme Court handed down an early Christmas present for tenants when it gave its decision in the case of S Franses Ltd v. Cavendish Hotel (London) Ltd.

The case concerned a landlord's attempt to oppose its tenant's request for a renewal lease pursuant to the Landlord and Tenant Act 1954 (the Act) on the basis of ground 30(1)(f). That statutory ground for opposing a renewal lease applies where the landlord can show, as at the date of the hearing, that it intends to demolish or reconstruct the premises or carry out substantial works of construction to the premises or part thereof and cannot do so without obtaining possession. The unusual feature of the case was that the landlord openly admitted that its intention to carry out the works was conditional on them being necessary to get the tenant out and it being generally accepted that the works were not being undertaken for any other commercial reason. This gave rise to the central issue in the case – is it open to a landlord to oppose the grant of a new tenancy if the works it intends to carry out have no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily?

The Supreme Court confirmed that while the landlord's motive is irrelevant it may still be material in determining whether or not the landlord has proven a firm and settled intention to carry out the works. Further, the landlord's intention to do the works must exist independently of the tenant's statutory claim to a new tenancy. On the facts of this case, the landlord's intention was conditional on the works being required in order to remove the tenant (and so was not independent of the tenant's statutory claim) and the landlord did not intend to do the works if the tenant left voluntarily. As such the necessary intention required by the Act had not been established.

This decision will therefore provide some protection to tenants against landlords that have the resources to construct schemes of works with the sole purpose of defeating the protection afforded by the Act. Going forward it will be interesting to see how this decision plays out in practice in 2019.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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