Commercial Property Update December 2022

Posted:7th December 2022

Developers – New Homes Quality Code

The New Homes Quality Board applies to homes built by a registered developer which were reserved on or after the developer’s registration date.

The introduction of the new Code has brought in a number of new rules and requirements for developers’ pre-completion processes.

  1. The Developer must allow the Buyer to appoint a suitable qualified inspector to carry out a pre-completion inspection on their behalf. The Buyer is allowed access to carry out the inspection before completion and within five days after the notice to complete has been served. The Developer and Buyer can, however, agree that the inspection should be carried out earlier than this.
  2. Developers can refuse entry to inspectors who are not suitably qualified. The NHQB’s guidance for develops explains that in order to be suitably qualified, an individual must be a member of a recognised professional association undertaking surveying services.
  3. The Buyer must pay for the inspector. If a Buyer chooses to instruct an inspection then that customer alone is responsible for meeting the inspector’s fees.
  4. Inspectors do not have to be allowed unaccompanied access. A site manager or member of the developer’s team can be present during the inspection.

SDLT Cuts – An Update

The Chancellor, Jeremy Hunt has confirmed that the SDLT cuts announced by his predecessor in the mini-budget will remain. However the cuts will now only be temporary rather than permanent. These provisions will remain in place until 31 March 2025.

Please see below a reminder of the planned changes:

  1. The nil-rate threshold of SDLT from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland with immediate effect;
  2. The nil-rate threshold for first time-buyers has increased from £300,000 to £425,000.
  3. The maximum price, for which First Time Buyer’s Relief can be claimed was increased from £500,000 to £625,000.

The government will now amend the Stamp Duty Land Tax (Reduction) Bill to reflect the fact these changes will now be temporary.

The Energy Crisis and Commercial Lease Implications

Insurance

It will be important for owners and occupiers to establish whether or not there are any special insurance requirements during blackouts. Specifically with regard to fire safety and damage to equipment, stock and materials.

Keep Open

Certain lease contain obligations to ‘keep open’ especially in a retail context. For a Tenant who is considering temporary or permanent closure to reduce costs across its portfolio should be aware of the risks presented by such clauses. A Landlord may seek to enforce breach of such obligations by way of an injunction. Although not certain, a Tenant may look to the ‘force majeure’ provisions for protection.

Repair

The current times pose the risk that both Landlord and Tenant will attempt to constrain cash flow by ‘cutting back’. Therefore both parties may ignore the need for cyclical repair and maintenance. Landlord’s should keep an eye on the state of repair and think about their prospective remedies during the term.

Access

It is key to consider whether interruption to electricity will affect rights granted in a lease. A Landlord should be able to maintain access to the building controlled by security systems if power is down. This is more of an issue with large multi-let buildings with extensive common parts.

Services (‘outgoings’)

Most commercial leases provide that a tenant is to be liable for outgoings including the cost of utilities. These costs can either be payable direct to the Landlord, a relevant supplier or rolled up into an inclusive rent. There can also be additional element of outgoings payable by tenants via service charge for supply of these items to common parts. A tenant who is directly liable to a utility company may be able to negotiate a supply contract. However, supplies which are provided via the landlord will find themselves under the Landlord’s discretion. Most leases oblige a tenant to pay outgoings ‘when demanded’. A tenant who is in arrears for its utility payments will be in breach of its lease covenants. Tenants will likely find themselves facing demands for increased contributions.

In respect of a Landlord, when cutting back on key building or estate services such as electricity and heating consideration should be given to the terms of the service obligations under the Lease. Some services will be mandatory and others will be at the discretion of the Landlord.

Case Law

Kenneth Treacy v Lee James Menswear Limited and James O’Regan [2022] IEHC 600.

The recent High Court judgement by Meenan J. reflects how the Courts are continuing to deal with the effects of Covid-19 restrictions, particularly their impact on commercial leases.

Case Facts:

Although the Defendant was forced to close its retail Premises for the period between March 2020 to May 2021 rent and insurance premiums continued to accrue under its lease. Despite the Defendant making a part payment during this period, the remainder was outstanding and was owing pursuant to the lease.

The Defence:

The defendants sough to rely on the following provisions under the Lease:

  1. Not to engage in any activity or on the demised premises which may result in: The landlord incurring liability or expense under any statutory provision; and
  2. Not to use the demised premises- for any illegal- purpose

Judgement:

While the Covid-19 regulations had a profound impact on commercial leases they did not amount to frustration of contract. The defendants arguments did not amount to a defence at law and the commercial arrangement was entered into freely by both parties.