Head of Developer | Head of Property Litigation | Real Estate
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This yearly horizon scanner provides clarity on what legal and regulatory changes lie ahead for the developer sector so that you can plot your course with confidence throughout 2022 and beyond.
We’ve identified key issues and legislative changes that may impact your business throughout the next 12 months and split them down into high, medium and low impact issues in our yearly horizon scanner. These include everything from Nutrient Neutrality and Biodiversity net-gain to Leasehold Reform and drafting for net zero.
Move through our timeline to see the key dates and upcoming changes you need to know to support your business and plot your course for 2022.
This scanner is accurate as of 21 June 2022 and will be updated on a yearly basis.
The Government has said it will be issuing a ‘final response’ to the planning white paper in early 2022 with legislation to follow. The focus is expected to shift to the ‘levelling-up’ viewpoint with support for key themes such as net-zero and certain elements favoured such as street-based neighbourhood planning. A renewed drive on encouraging building on brownfield sites is also expected.
The Building Safety Act 2022 is the biggest shakeup to building safety since the Building Act 1984. In direct response to the Grenfell Tower disaster in 2017, the legislation overhauls how the current building control regime is regulated and will apply to anyone developing, designing, building and managing property. The legislation creates new obligations which apply throughout a building’s life cycle (including requirements for periodic building safety and fire risk reviews), new competency requirements for those involved in the design and construction of buildings, new means of enforcement for breaches (including criminal sanctions), extensions to limitation periods, and the imposition of financial levies on developers. The Act will come into force in stages, the first of which will be effective law after 2 months (July 2022) with the rest of the provisions coming into force within 18 months.
The Environment Act 2021 introduced the concept of conservation covenants in relation to land used for biodiversity net gain. This is relevant to developers providing solutions on-site but also having to engage with third party landowners, or businesses such as EnvironmentBank who are professionally managing land in order to sell credits.
The Environment Act 2021 has introduced a new general condition to all planning permissions in England, which requires that a biodiversity gain plan must be submitted and approved before development can commence.
A mandatory biodiversity net gain of at least 10% will be required on new developments.
The issue of nutrient neutrality is ongoing in the UK and has spread to 74 local authority areas. This requires developers of housing and other developments which may cause excess nutrients, to achieve nutrient neutrality through on-site and off-site solutions. It is unlikely that any legislation will come forward relating to this, but each local authority will adopt its own approach in consultation with Natural England as to what may be an acceptable solution. This will likely continue to affect developers for many years to come.
In January last year, the Government published the outcome of the Future Homes Standard consultation seeking views on changes to be made to Parts L (conservation of fuel and power) and F (ventilation) of the Building Regulations. The Building Regulations changes (which come into effect from June 2022) include a requirement for new homes to produce around 30% less CO2 than current standards, and a 27% reduction in emissions from other new buildings (such as shops and offices). The measures are said to be ‘interim uplifts’ in energy efficiency, ahead of stricter rules – named the Future Homes Standard and Future Buildings Standard – being introduced in 2025. Five new Approved Documents were also published along with the changes to the Building Regulations. Transitional provisions are outlined the government Circular Letter 01/2021 which states that the amendment regulations and new approved documents do not apply in relation to building work on a particular building, where a building notice or an initial notice has been given to, or full plans have been deposited with, a local authority, in respect of that building, before 15th June 2022, provided that the building work on that building is started before 15th June 2023.
Judgment has now been passed down by the Supreme Court in respect of the 3 cojoined appeals in: Cornerstone v Compton Beauchamp  EWCA Civ 1755 &  1 P&CR 15, CA; Arqiva Services Ltd (now On Tower UK Ltd) v AP Wireless II (UK) Ltd  UKUT 0195 (LC); and Cornerstone v Ashloch  EWCA Civ 90, CA, to confirm:
These decisions will provide clarity to a number of matters currently on “hold” pending judgment on the above. In particular, operators who are in occupation of a site will welcome clarity as to their ability to apply for new or amended rights (as appropriate).
As things stand off the back of the decisions above, operators who are in occupation pursuant to agreements protected by the 1954 Act will need to use the renewal procedures under the 1954 Act. However, the proposed Product Security and Telecommunications Bill (the Bill) as currently drafted will alter the position and is set to amend the 1954 Act such that the financial terms of a tenancy conferring Code rights shall be determined by reference to provisions of paragraphs 24 and 25 of the Code.
Other key changes as currently proposed by the Bill include:
The Fire Safety Act 2021 amends the Regulatory Reform (Fire Safety) Order 2005 and it is part of changes to fire safety and building safety following the Grenfell Tower fire in 2017. The Act clarifies who is to be responsible for managing and reducing fire risks in different parts of multi-occupied residential buildings. This includes requirements for fire risk assessments for buildings which include two or more dwellings to include external wall and individual entrance doors between domestic premises and common parts.
Originally intended for use on residential or mixed used buildings 18m+ their use expanded to buildings below 18m following Government guidance from January 2020. That guidance was withdrawn on 10 January 2022 and the Government is pushing ahead with plans to encourage lenders and valuers to limit their use to buildings 18m+ again. It has been seen that some lenders/funders are requesting a ESW1 as a matter of course, and so it would be prudent to understand their requirements at an early stage.
The Code replaces the Consumer Code for Home Builders and will apply across the UK for the benefit of purchasers buying new build homes for their own occupation. The aim of the Code is to “drive up the quality of new build homes and strengthen protections for customers. It covers “every aspect of a new home purchase” starting from when a customer walks into a sales office, through to two years after their purchase. Developers and builders will be required to have an effective after care service to address issues and “snagging” items, and to offer a complaints service that deals with a customer’s concerns “in a timely manner and to their satisfaction”. If not, customers will be able to complain to the New Homes Ombudsman Service (NHOS), which will enforce the Code. Housebuilders and developers have until 31 December 2022 to register with the New Homes Quality Board and advise their customers whether the provisions of the Code apply to their new home.
The current minimum energy efficiency rating is E but there have been various consultations proposing increases to band C by 2035 for domestic properties and B for non-domestic properties by 2030.
Environmental considerations continue to be the main focus particularly in light of the IPCC’s recent report which notes that limiting warming to around 1.5°C requires global greenhouse gas emissions to peak before 2025 at the latest, and be reduced by 43% by 2030. In response to the climate emergency, new Building Regulations have come into effect on 15 June 2022 (See Building Regulations section) and will comprise five new Approved Documents, including uplifts to Part L (fuel and power) and Part F (ventilation). This will have a significant impact on new homes and existing homes. The Net Zero Strategy: Build Back Greener and the Heat and Buildings Strategy have been published by the Government, albeit the latter has shortcomings as identified by the UKGBC. New RICS valuation guidance, published in November 2021, will also keep the focus on environmental issues. This sector will see an emphasis on future-proofing homes focusing on net zero, and measuring success/outputs through data collection. This measurement will focus on operational emissions through retrofitting and new build projects, but will also in due course extend to cover embodied carbon and scope 3 emissions.
The Chancery Lane Project’s (TCLP) free resource of net zero contract provisions continues to be a great resource to embed net zero clauses in contracts. Foot Anstey was instrumental in drafting TCLP’s Madhavi’s clause which focuses on net zero provisions in off-site construction. NEC have also published a consultation draft of its new climate change provisions: Secondary Option X29 (reducing the impact of the works on climate change). As members of TCLP’s built environment advisory group we contributed our responses to NEC’s Option X29 consultation.
Guidance on right to work checks was updated on 6 April 22 and included the following key changes:
On 17 March 2022, the Government published its Inclusive Britain policy paper which confirmed that ethnicity pay gap reporting would not be introduced “at this stage”. However, the Government intends to support employers with voluntary reporting by issuing new guidance. While ethnicity pay gap reporting may not become mandatory in the near future, businesses conscious of ESG may choose to voluntarily report in which case BEIS guidance will apply.
In response to the Government Equalities Office consultation on tackling sexual harassment in the workplace (to which 54% of overall respondents had experienced harassment at work), a new statutory duty is to be introduced, (“as soon as parliamentary time allows”), for employers to prevent sexual harassment in the workplace. Statutory protections against third party harassment in the workplace will also be re-introduced (having previously existed until 2013).
Residential Property Developer Tax (RPDT) is to apply from April 2022 to the profits of UK residential property development activities. It will align with Corporation Tax and the rate is set at 4%. It will only apply if the group’s profits from that activity exceed £25 million per year.
From 30 June 2022, subject to certain exceptions, the Ground Rent (Leasehold Reform) Act 2022 will ban ground rent in most new long (more than 21 years) residential leases (defined as regulated leases). The Act limits the ground rent chargeable on those leases in England and Wales to one peppercorn per year, effectively restricting ground rents to zero financial value. It also prohibits payment of administration charges in relation to peppercorn rents but a sum expressed to be payable in respect of rates, council tax, services, repairs, maintenance, insurance or other ancillary matters is not rent for the purposes of the Act merely because it is reserved as rent in the lease. As it only relates to new leases granted after it comes into force, it will not help existing leaseholders whose leases are subject to onerous ground rent provisions, but further legislation could emerge. The contentious nature of ground rents will continue for some time and could give rise to other issues such as split developments, where some units are already let on ground rent leases and others completed after 30 June 2022 will be at nil ground rent.
In 2021 the government announced that leaseholders will be given the right to extend their leases by a maximum of 990 years at zero ground rent removing the existing bureaucracy and additional expense of the current extension regime. The announcement also confirmed the abolition of “marriage value” when calculating value and instead an online calculator with prescribed rates will simplify the process for leaseholders. Legislation to give effect to these changes is awaited.
Commonhold is a form of ownership for multi-occupancy developments where each unit holder owns the freehold of their home, and a commonhold or residents’ association owns and manages the common parts of the property. So far, this has had little traction but in 2021 the government set up a Commonhold Council to prepare the market for more widespread uptake. Further developments are expected.
A consultation on Law Commission recommendations in early 2022 looked at further proposals for collective enfranchisement in mixed use properties. Currently if non-residential use in a building takes up over 25% of the floorspace, leaseholders cannot collectively enfranchise. The proposals increase this limit to 50%. The consultation also aims to make it cheaper for leaseholders to collectively buy the freehold.
This legislation was passed at pace in March and it is yet to be announced when it will come into force. It establishes a register of overseas entities which own UK property which will be maintained by Companies House. Once in force, on any property transaction involving an overseas entity it will need to be considered because failure to comply with the requirement to register is a criminal offence and, if purchasing from an overseas entity which has not registered a restriction will prevent registration of the transaction at the Land Registry. Guidance is expected from Companies House and the Land Registry. This is relevant for developers purchasing from foreign entities and may need to be covered in the transaction documents.
The model house and flat leases were updated on 21 September 2021, and providers should use them going forward for homes funded through the SOAHP 2016 to 2021 programme. Providers do not, however, need to reissue updated model leases where scheme documentation was prepared prior to this date and, while Homes England recommend early adoption of the updated form of lease, they have confirmed that the previous forms of lease for the SOAHP 2016 to 2021 remain compliant.1. Changes to Shared Ownership Model – introducing ability for buyers to purchase minimum stake of 10% and allows micro staricasing in smaller increments e.g. just 1% increments.
The Government’s intention is that national planning policy will change to ensure that all new shared ownership homes delivered through section 106 developer contributions will need to be based on the new model – planning team to keep watchful eye on this for latest postion.
The National Security and Investment Act 2021 provides the Government with powers to scrutinise and intervene in acquisitions and investments where there is a potential national security risk. A voluntary or mandatory notification to the Government may be required depending on whether there is a qualifying entity or asset being acquired. The Government may call-in a transaction for assessment where it has a reasonable suspicion that the acquisition may post a national security risk. A mandatorily notifiable transaction will be void if completed without notification to and clearance from the Secretary of State.
The Government has made MMC a condition of its strategic partnership grant programme. The key players/manufacturers in this market are transitioning the focus on off-site construction to embed net zero solutions for clients. A 2020 report called Build Homes, Build Jobs, Build Innovation re-affirms that modular construction of homes will be the driving force for delivering the Government’s ‘build, build, build’ agenda. The continued incorporation of renewables into new build off-site construction projects and the importance of standardisation of products in MMC are gaining importance in this space. Organisations such as the Offsite Alliance and the Bristol Housing Festival, more locally to Bristol, or framework operators such as Building Better or SWPA/LHC continue to drive the industry’s need to share and collaborate on success & best practice in MMC.
From 1 April 2023, the Corporation Tax main rate for non-ring fenced profits will be increased to 25% applying to profits over £250,000. A small profits rate will also be introduced for companies with profits of £50,000 or less so that they will continue to pay Corporation Tax at 19%.
An SDLT consultation is seeking views on introducing a new apportionment method of calculating tax in mixed-property cases. Apportionment would mean that the residential portion of a mixed property purchase would be taxed as residential property and the remaining, non-residential portion of a purchase would be taxed as non-residential property rather than rendering the whole transaction subject to the lower, non-residential rates.
As a reminder, from 1 March 2021 the domestic VAT reverse charge must be used for most supplies of building and construction services. The charge applies to standard and reduced-rate VAT services for individuals or businesses who are registered for VAT in the UK which are reported within the Construction Industry Scheme.
On 21 March 2022, a new international data transfer agreement (“IDTA”) was confirmed into UK law by the UK Government and the ICO, replacing the previous European standard contractual clauses. When transferring personal data outside of the UK and EEA (for example by appointing a payroll provider or IT support based outside of the UK and EEA), if the receiving territory is not a territory that the UK Government has deemed as having ‘adequate’ data proteciton provisions, an IDTA must be entered into. The old European clauses can’t be used from 21 September 2022 and must have been replaced with IDTAs by 21 March 2024 (i.e. a two year transition period to replace any existing standard contractual clauses with the new IDTA).
As part of the Queen’s Speech, the Government has announced plans to refom the UK’s data protection laws in a new ‘Data Reform Bill’. It is not anticipated that there will be fundamental changes to the current law (for risk of the UK losing its EU adequacy status), and the details are not yet clear, however the Government has made it clear that it wishes to remove ‘tick-box compliance’ steps and remove disproportionate burdens on businesses.
What this means in practice is yet to be seen, but a draft Data Reform Bill has been suggested as possibly being made publicly available by the end of the Summer/early Autumn.
Head of Developer | Head of Property Litigation | Real Estate
Developer | New Homes
Environmental Issues | Planning | Real Estate
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Head of Conveyancing | Head of New Homes | Real Estate