Real Estate Focus – January 2023

Register of Overseas Entities and related “transparency” issues

• Most overseas entities (OEs) who were registered (or had applied to register) at the Land Registry as owner of a “qualifying estate” before August 1, 2022 must register in the Register of Overseas Entities (ROE) before January 31, 2023.  A “qualifying estate” is a freehold interest or a lease for a term of more than seven years.  
• Details of certain dispositions made by an OE since February 28, 2022 must also be submitted to Companies House by January 31, 2023. These dispositions are: a transfer of land, the grant of a lease for a term of more than seven years and the grant of a legal charge over land. This is the case even if the OE no longer owns land as a result of the disposition.

In this month’s Real Estate Podcast, real estate partner David Hawkins and Tobias Latham, Director of Governance and Corporate Services at Elemental CoSec, discuss the registration requirements under the ROE, the challenges and what’s ahead.

• The Economic Crime and Corporate Transparency Bill is expected to receive Royal Assent in 2023. If enacted in its current form, it will (amongst other things) introduce significant Companies House reforms, including a requirement to verify the identity of directors and people with significant control of UK companies. It will also amend certain aspects of the ROE regime. 
• The Levelling-up and Regeneration Bill (see below) includes controversial proposals to give the Secretary of State power to require the Land Registry to collect additional information on the ownership and control of land, certain rights concerning land and extensive “transactional information”.

Landlord and tenant – commercial property

• More onerous minimum energy efficiency standards (MEES) for landlords of commercial premises come into force on April 1, 2023. From that date landlords of commercial property will not be able to continue to let a property unless it has an EPC rating of at least “E”.  
• The Government intends to go further by introducing a minimum EPC “B” rating for privately rented non-domestic buildings by 2030, with a phased implementation starting in 2025.
• The Government also consulted in 2021 on a national performance-based framework for rating the energy and carbon performance of large commercial and industrial buildings. Will this be taken forward in 2023?

Landlord and tenant – residential property

• The Secretary of State for Levelling Up, Housing and Communities recently stated that a Renters’ Reform Bill will be introduced in 2023 fundamentally to reform the residential private rented sector. The reforms are likely to include: abolishing section 21 ‘no fault’ evictions, new measures to tackle arbitrary and unfair rent increases, and a single system of “periodic tenancies”.
• Wales are slightly ahead in this particular game. The Renting Homes (Wales) Act 2016 came into force on December 1, 2022, introducing a radically different legal framework for renting homes in Wales. Tenancies must be one of two types of “occupation contract” in a prescribed form and with prescribed content. Most existing residential tenancies and occupational licences are automatically converted into an occupation contract.
• The Government has consulted on improving the energy performance of privately rented homes in England and Wales and is currently analysing consultation responses. Its preference is for a minimum EPC “C” rating for new tenancies from 2025 and for all tenancies from 2028.
• On the long leasehold front, the Leasehold Reform (Ground Rent) Act 2022 came into force last year limiting ground rents in new long leases to a peppercorn. From April 1, 2023 its reach will be extended to apply to long leases of retirement homes. The Government has long been considering further reforms to the long leasehold and commonhold regimes - will we see further developments in 2023?
• The Social Housing Regulation Bill is making its way through parliament. As the name suggests, it aims to improve the regulation of social housing. The Bill is expected to be passed in 2023 with the revised regime implemented in 2024.

Building safety

• The wide-ranging Building Safety Act 2022 (BSA) imposes new legal responsibilities on those who commission building work, participate in the design and construction process and those who are responsible for managing structural and fire safety in “higher-risk” buildings when they are occupied.  
• The majority of its provisions are coming into force piecemeal, as secondary legislation is developed. Those already in force include (amongst other things) provisions that extend limitation periods for defective premises and which create leaseholder protections for certain remedial work. 
• Looking ahead, further elements of the BSA framework are due to be implemented before the end of April 2023, including fire safety reforms and the establishment of a Resident Panel, with  yet more expected to come into force by the end of October 2023.
  
  For further details please see our November 2022 Real Estate Focus.

• The Government is currently consulting on the implementation of a new Building Safety Levy that will raise revenue to replace defective cladding and remediate other historical building safety defects. It will apply to all new residential buildings in England requiring building control approval, regardless of their height. The consultation closes on February 7, 2023.

Real estate tax

• One of the key tax changes for 2023 is the increase in the rate of UK corporation tax. With effect from April 2023, the rate of corporation tax on income and gains will increase from 19% to 25% for companies with profits of over £250,000 (and with a tapered rate for smaller companies). While this will affect both UK and non-UK resident corporate property investors, many property investment groups will have already factored the increase into their financial models, as the rise has been on the table for some time.
• From a VAT perspective, HM Revenue & Customs (HMRC) are making some changes to the process for notifying an option to tax and will no longer issue an acknowledgement of an option to tax. It is a legal requirement that a person wishing to exercise the option to tax should notify HMRC of that decision within 30 days and then charge VAT on relevant supplies of land. If the VAT 1614A form is used to notify via email, an automated response will still be generated; however, where the notification is sent by any other means, no response will be issued. It is therefore important for taxpayers to ensure that any such option has been validly made and to keep records of notifications.
• Companies that hold an interest in residential property are required to revalue their property every five years in line with the Annual Tax on Enveloped Dwellings rules. Such companies should note that the 2023/2024 chargeable period is a revaluation year and should use a valuation date of 1 April 2022 (or the date of acquisition, if later) to revalue their properties as required.
• We await the outcome of the HMRC consultation in relation to SDLT on mixed use transactions and reform to the multiple dwellings relief rules. One to watch for 2023 as this could have an impact on the overall amount of SDLT payable in particular transactions.
• The Electricity Generator Levy (EGL) has been introduced into the UK with effect from January 1, 2023. With some exceptions, this is a levy on excess revenues from electricity generation in the UK, its territorial waters and the renewable energy zone offshore.
• The EGL is charged on a group-wide basis on groups generating more than 50GWh per annum. The rules are complex but in simple terms, the levy will be charged at a rate of 45% of revenue receipts above an average benchmark price of £75 per MWh, with each group benefitting from a de minimis revenue threshold of £10 million. Payment of the EGL is not tax deductible, and companies will remain liable to corporation tax in the usual way.
• In the light of the imminent increase in corporation tax rates, certain investors are considering the UK Real Estate Investment Trust (REIT) as a vehicle through which to hold UK real estate. In December 2022, the Government announced that it will remove the requirement for a REIT to own at least three properties in its property rental business provided the REIT holds a single commercial property worth £20 million. It will also amend the deeming rules in relation to properties which are treated as sold in the course of a trade, if sold within three years of development by a REIT. These changes will take effect from April 2023.
• March 15, 2023 is Budget day, and we will keep you updated of any key changes that are announced.

For further information please contact real estate tax partner Julia Lloyd.

Reforms to the Electronic Communications Code

• The Product Security and Telecommunications Infrastructure Act received Royal Assent on December 6, 2022. Part 2 introduces wide-ranging changes to the Electronic Communications Code, which governs the relationship between network operators and site owners/occupiers in respect of electronic communications apparatus on land. The changes are intended to address “problem areas” in the Code and the way that it has operated in practice. 
• These changes, once in force, will complement those in The Telecommunications Infrastructure (Leasehold Property) Act 2021, which came into force on December 26, 2022. The Act focuses on the difficulties faced by operators wishing to provide broadband services to apartment blocks. It allows the courts to impose Code rights giving operators access to install broadband in such blocks where a tenant has requested it but the landlord has repeatedly failed to respond to an operator’s requests for access.

Levelling-up and regeneration

• The wide-ranging and controversial Levelling-up and Regeneration Bill was introduced in May 2022. Of particular interest from a real estate perspective are: Part 4, which introduces a new Infrastructure Levy; and Part 10, which as currently drafted grants local authorities the power to instigate rental auctions for vacant commercial high street premises. The Bill also introduces changes to the planning, compulsory purchase and environmental assessment regimes.

What next for environmental law?

• If enacted, the Retained EU Law (Revocation and Reform) Bill will automatically revoke retained EU law, whilst granting the Government new powers to restate or replace such laws into domestic legislation. The “sunset date” is December 31, 2023, with the ability to extend that date to June 23, 2026 at the latest.
  
  The environmental regime in the UK is largely founded on EU-derived legislation and so, if enacted, the Bill would have a significant impact on it. However, the Government is coming under increasing pressure to scrap the Bill. Will it do so? Watch this space.

And finally

• Judgment is (still) awaited in Fearn and others v Board of the Trustees of the Tate Gallery, heard in the Supreme Court in December 2021: if visitors to the Tate Modern public viewing platform can see straight into the interior of neighbouring flats with floor to ceiling windows, does this amount to an actionable private nuisance?