Developer Horizon Scanner 2022

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 to be the biggest shakeup to building safety since the Building Act 1984. Set about in direct response to the Grenfell Tower disaster in 2017, the legislation looks to overhaul how the current building control regime is run and regulated and will apply to anyone developing, designing, building and managing property. The legislation will create 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 is to 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.

As highlighted above, the Building Safety Act will make significant changes, most notably by the implementation of a more onerous safety regime for ‘Higher Risk Buildings’ (buildings which are 18m+ or at least 7 storeys and contain at least 2 residential units as well as care homes and hospitals) during both the design and construction phase as well as during occupation. The Building Safety Act 2022 defines Higher Risk Buildings differently depending on the provision of the Act, so this definition need to be reviewed on a case by case basis. The Bill also introduces a new Building Safety Regulator who will be responsible for enforcement matters and all regulatory decisions during design, construction and occupation. In addition, the Act will significantly extend limitation periods, specifically for claims under the Defective Premises Act, which allows occupiers of newly constructed dwellings to bring a claim where they are not fit for habitation (including where improper materials have been used). In order to protect leaseholders from the financial costs of rectifying ‘building safety defects’, the Act will impose a number of safeguards by legally requiring landlords to explore alternative cost recovery for rectifying defects. Developers have also been asked to enter into legally binding agreements to commit to remediating (at their own cost) those buildings which they played a role in developing or refurbishing and to contribute to a remediation fund for buildings where those responsible for the existing building safety defects cannot be identified. Currently £2 billion has been committed to the remediation fund by over 35 developers and the Act empowers the Government to make regulations to block planning permission and building control sign-off for those unwilling to commit to remediation.

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 such solutions on-site but also having to engage with third party landowners, or businesses such as EnviroBank who are professionally managing land in order to sell credits.

The Environment Act 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 similar developments 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.

Building Regulations changes to help deliver net zero. 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. 5 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.

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, we will have new Building Regulations which will come into effect from 15 June 2022 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. We have also seen the publication of the Net Zero Strategy: Build Back Greener and the Heat and Buildings Strategy 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.

We await the judgments for 3 cases heard in the Supreme Court in February 2022 regarding:

1. the meaning and effect of paragraphs 20 and 27 of the Code as set out in Schedule 3A to the Communications Act 2003 (On Tower UK Limited (formerly Arqiva Services Limited v AP Wireless II (UK) Limited)
2. whether the Upper Tribunal has jurisdiction to confer rights in favour of an operator for the purposes of the Electronic Communications Code, where that operator has a tenancy protected by the Landlord and Tenant Act 1954 and is in occupation of that land (Cornerstone Telecommunications Infrastructure Limited v Ashloch Limited and AP Wireless II Limited)
3. whether the Upper Tribunal has jurisdiction to conger rights on an operator where a third party is currently in occupation of the same site over which rights are to be conferred (Cornerstone Telecommunications Infrastructure Limited v Compton Beauchamp Estates Limited)

Those judgments will provide clarity to a number of matters currently on “hold” pending judgment and have the possibility to widen the current remit of the Electronic Communications Code for operators who occupy pursuant to agreements protected by the Landlord and Tenant Act 1954 and those occupiers who are not currently in occupation of the subject site – e.g. where a connected company is in occupation, or an infrastructure provider rather than the network provider.

Notwithstanding the above, following a consultation of stakeholders in January 2021, the Government is proposing further reforms to the Electronic Communications Code, primarily to facilitate the granting of agreements between operators and site providers by addressing the following: obtaining and using Code agreements, rights to upgrade and share apparatus, and the status of expired agreements.

To further facilitate the delivery of mobile infrastructure the Government are seeking to make additional changes to planning legislation (via secondary legislation) to promote the sharing of new sites and mitigate the impact of new development. Amendments to the Code of Best Practice is likely to be published at the same time.

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 will replace the current 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.

Guidance on Right to work checks was updated on 6 April 22 and included the following key changes: Employers are no longer able to accept physical biometric residence permits/cards and frontier worker permits for the purposes of right to work checks; Employers do not have to use a certified Identity Service Provider to conduct right to work checks on British and/or Irish nationals; and the end date for the temporary adjusted right to work checks has been deferred to 30 September 2022.

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. We await further guidance on this from Companies House and the Land Registry.
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 staircasing 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 position.

The National Security and Investment Act provides the Government 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 acquisition or asset being acquired. The Government may call-in a transaction for assessment where there is reasonable grounds for a national security risk. A 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. This and the key players/manufacturers in this market are transitioning the focus on off-site construction to embed net zero solutions for clients. A 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. We will also see the continued incorporation of renewables into new build off-site construction projects, and the importance of standardisation of products in MMC is 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.

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. As a firm we were 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 clause X29 (reducing the impact of the works on climate change). The industry has also seen significant pressures in respect of materials supply. This has been further exacerbated by the conflict in Ukraine which means materials are also out of circulation as they are classified as conflict timber. This same effect is felt in renewable projects, which is also seeing a materials short supply, and will continue to affect house building projects incorporating renewables.  There are a number of data collection and software tools that are emerging which will mean contracts will see innovations in the next few years as the industry changes to respond to climate change. Finally, JCT has published the 2022 Edition of its JCT Project Bank Account Documentation.

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).

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.

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