Commercial Property Update November 2022

Posted: 14th November 2022

An introduction of Paperless Property Transactions

From 30 November 2022, instead of a scan or a PDF form (AP1) being uploaded to the Land Registry Portal, the details of the application are to be entered directly into the Land Registry services or via a case management system.

The digital registration system has been available for use for limited applications since April 2021 but following 30 November 2022 this will become mandatory. However, this is not applicable for first registration.

The Land Registry have published figures indicating that the digital system has already reduced requisition for basic errors by 30% and reduced the time to make an application by 50%

Minimum Energy Efficiency Standards (MEES)- new implications for 2023

The current MEES require landlords granting a new lease of commercial premises to hold an Energy Performance Certificate (EPC) with a rating of E or above (or register a valid exemption).

This requirement will be extended on 1 April 2023 to include all existing leases of commercial premises. Landlords should be taking steps now, to identify properties that fall below the April 2023 standard and action appropriate works where required to improve energy efficiency.

Whilst non-compliance with MEES does not invalidate the subject lease and tenants will be required to continue to pay rent, non-compliance may result in a fine for the landlord. This fine can be up to £150,000 per offence as well as reputational damage from publication penalties.

Database of Rogue Landlords

The Department for Levelling Up, Housing and Communities currently operates a database of rogue landlords and property agents subject to banning orders or convicted of a banning order offence.

It was decided on 8 September 2022 in a consultation outcome that the Department would be widening access to its database to allow tenants, landlords and local authorities access.

The new Property portal will enable landlords to understand their responsibilities, tenants to access information about their landlord’s compliance and local authorities to have access to better data in order to crack down on criminal landlords.

This change is said to enhance the existing databases functionality to mandate the entry of all eligible unspent landlord offences and make them publicly visible.

Plans to abolish Section 21

A section 21 notice also known as a “no fault eviction notice” allows a landlord to end an assured shorthold tenancy without having to prove that a ground for possession under Schedule 2 of the Housing Act 1988.

Currently, so long as, the Landlord provides sufficient notice (usually at least 2 months) it can usually proceed to serve a section 21 Notice. However, the Landlord must also meet certain pre-requisite requirements covering EPC’s, gas safety and deposits. If the Tenant does not vacate the property on expiry of the notice then the Landlord may commence a possession claim to evict the Tenant.

Since the introduction of the Deregulation Act 2015 issuing a Section 21 notice has been tricky.

Proposed Changes

The White Paper published in June 2022 “A fairer private rented sector white paper” set out the plans for the changes that are likely to be introduced once section 21 notices have been abolished. There are plans for an introduction of a new and simpler tenancy system. In short, all tenants who are subject to assured tenancies or assured shorthold tenancies will be moved into a single system of periodic tenancies providing tenants with greater security.

Impact on Landlords

This means that once Section 21 notices have been abolished it will become impossible for most landlords to recover possession of their property through the courts without being able to rely on and satisfy one of the grounds of possession.

Modifying restrictive covenants in a Lease

The recent case of Schwarzschild Ochs Pty Ltd v Concerto Properties Ltd: [2022] UKUT 150 (LC) has confirmed that it is possible to modify a restrictive covenant in a lease.

The tenant of a long sub-underlease had made an application under S84 of the Law of Property Act 1925 to modify a tenant covenant restricting the use of its premises. The Tenants use of the premises was restricted with the qualified consent of the landlord for any business use under the Use Classes Order. The 1987 Order remained relevant under the terms of the lease and included medical use. The tribunal allowed the Tenant’s application to assign the lease to an assignee in the medical sector and sought to modify the permitted user.

The tribunals reasoning was that preventing the use of the premises for medical purposes did not confer any practical benefit of advantage to the Landlord. In summary, the intended modification would not cause the Landlord to lose control over the premises.

Confirmation that Heads of Terms are not legally binding

The case of Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd: [2022] EWHC 1467 (Ch) has confirmed the general principle that heads of terms are not legally binding.

The facts of Pretoria revealed that a heads of terms had been agreed for the grant of a new lease. When the landlord failed to proceed with the deal, the proposed tenant brought a claim for breach of contract on the grounds that it had incurred expenses in reliance on legally binding heads of terms.

The court confirmed that the heads of terms had not been intended to be legally binding.

The key points are as follows:

  • The inclusion of a exclusivity period confirmed the Landlord was free to deal with other parties at the end of that period;
  • The heads of terms lacked a number of necessary provisions that would of required further negotiation and tailored drafting;
  • The heads of terms described the lease as a proposed agreement. There was no words stating this was subject to contract.
  • The heads confirmed the lease was to be contracted out of security of tenure. There was no confirmation that the tenure provisions of the 1954 Act and the procedural implications had been complied with.