Property Sector Update 2022

Although 2021 was yet another year dominated by the Coronavirus pandemic, for the property sector, it was also an interesting year full of policy announcements and legislative reforms. So, what are some of the key measures coming in 2022?

Cladding Crisis

Seen as one of the biggest improvements to building safety in nearly forty years, the Building Safety Bill will introduce new and more stringent requirements for residential buildings following the Grenfell disaster in 2017. The bill continues to make its way through Parliament, but in summary, the new design and construction regulatory framework to be introduced by the bill for higher-risk buildings (which are buildings at least 18 metres high, or with at least 7 storeys, and with at least 2 residential units) will apply the following measures:

• Competence requirements - those appointed to work on a higher-risk project must have the relevant skills, knowledge, experience and behaviours necessary to undertake the role;
• Duty holders that will have accountability and statutory responsibilities when buildings are designed and constructed;
• Gateway regimes that will ensure building safety risks are considered at each stage of a building's planning, design construction and pre-occupation;
• Requiring a 'golden thread' of building information to be created, stored and updated throughout the building's lifecycle;
• Requiring mandatory reporting to the new Building Safety Regulator of fire and structural safety occurrences which could cause a significant risk to life safety.

Gateways

Gateway one - covers the planning stage of a building. Planning applications will need to demonstrate that fire safety requirements have been considered and incorporated into the proposals. The Building Safety Regulator will have specialist fire safety input, to assist the Local Planning Authority in their approval processes.

Gateway two - will replace the building control deposit of plans stage, before building work starts, for higher-risk buildings. It requires the Building Safety Regulator to be satisfied that a building's design meets the functional and safety requirements of the building regulations. Construction duty holders will need to submit critical information to the Building Safety Regulator to demonstrate how the building, once built, will comply with the requirements of building regulations.

Gateway three - begins when construction of the building is completed, and the building control body assesses whether the work has been carried out in accordance with the Building Regulations. Documents and information on the final, as-built building must be submitted to the Building Safety Regulator who will then issue a completion certificate, if they are satisfied.

Accountability

The bill will also introduce the following roles;

Accountable Person - defined as the dutyholder of a building during its occupation (after the building has passed gateway three). An Accountable Person's responsibilities include; registering a building with the Building Safety Regulator; applying for a Building Assurance Certificate; assessing and reviewing building safety risks and taking all reasonable steps to prevent the occurrence/impact of a major incident arising from building safety risks in or around the building; preparing and maintaining a safety case report for a building which contains their assessment of the building safety risks and the steps that have been taken to prevent a major incident; keeping information on a building and ensuring it is up to date; developing systems for investigating complaints and for Mandatory Occurrence Reporting and appointing a Building Safety Manager.

Building Safety Manager - whose principal role is to support the Accountable Person in the day-to-day management of fire and structural safety in the building. Their responsibilities include; managing occupied buildings in accordance with the safety case report; ensuring requirements of the Building Assurance Certificate are complied with; notifying the Accountable Person if the building safety assessment is no longer valid or more needs to be done to prevent a major incident; operating the building's complaints system; Mandatory Occurrence Reporting; complying with all directions given and statutory notices issued by the Building Safety Regulator; cooperating with other occupiers or owners of the building, including any other person acting as the Responsible Person under the Fire Safety Order, to secure an integrated approach to managing building safety risks.

Special Measures Manager - Where there have been repeated breaches of the statutory obligations by the Accountable Person, the Building Safety Regulator can apply to the First-Tier Tribunal for an order to put in place to appoint a Special Measures Manager, who will be appointed to manage the fire and structural safety of the building in accordance with measures set out in the order made by the Tribunal.

However, there are no equivalent provisions in the bill for residential buildings that are less than 18 metres high. The Government is also concerned to address 11-18 metre residential buildings with unsafe cladding and does not want the cost of this to sit with the tenants of such buildings. As such, residential property developers have been given a deadline by the Government of early March 2022 to agree a fully funded plan of action to fix the cladding crisis in England. The Government's recent letter to residential developers of 10 January 2022 focuses on 11-18 metre buildings, but also relates to buildings 18 metres or higher. The Government expects clear commitments from developers to address the issue and failure to do so may lead to the Government imposing a further legislative solution.

Residential Property Developer Tax (RPDT)

In addition to the above, a further part of the Government's five-point plan (the "Building Safety Package"), is to introduce a new tax on residential developers "to ensure developers play their part and make a fair contribution" towards the removal of unsafe cladding from high-risk residential buildings. The new RPDT will come into force in April 2022.

The Government aim is to raise at least £2 billion over a 10-year period (starting from the RPDT's introduction in April). The RPDT will work by taxing the largest corporate residential property developers on their profits, which are attributable to UK residential property development and will apply to profits in excess of £25 million per year.

The £25m allowance is group-wide, not per company (and cannot be rolled over). Profits in excess of this allowance will be taxed at a 4% rate. The tax will apply to profits arising in accounting periods ending on or after 1 April 2022 (with profits from periods straddling that date being apportioned accordingly). The new tax will form part of the corporation tax process, with details included in a company's corporation tax return.

A person is only taxable if they, their group or a related party has, or had, an interest in land. Thus, a building contractor will not be taxable, but land promoters could be

RPDT will not apply to companies that develop residential property for build-to-rent. However, the government has said it will keep this under review. The legislation does not allow companies relief where a development was started before the RPDT was announced but will be completed after April 2022. Non-profit registered providers of affordable housing will be exempt from RPDT, as will care homes, hotels and specialist purpose-built student accommodation.

The tax will not end on a fixed date but will be repealed once sufficient revenue has been raised to deal with the cladding problem.

Further guidance from HMRC on RPDT is expected within the next few months. Prior to then, companies should prepare for the changes that may impact their business.

Residential Leasehold Reform

The Leasehold Reform (Ground Rent) Bill is due to become law early this year, with the provisions coming fully into force within six months of receiving Royal Assent. The bill will restrict ground rents of houses and flats in most new long residential leases (those with a term over 21 years) to a peppercorn. A "peppercorn rent" has no financial value and is effectively zero. It also prohibits the charging of administration charges in relation to those peppercorn rents. Landlords who breach the new law will be liable for a fine of up to £30,000.

The ground rent restrictions will not apply to new leases granted pursuant to a contract made before the date the new law comes into force, nor will they apply retrospectively to existing leases. Business leases, statutory lease extensions of houses and flats, community led housing and home finance plan leases are all excepted from the restrictions. Special rules will also apply to shared ownership leases.

The Commercial Rent (Coronavirus) Bill – new legal process for COVID-19 rent arrears

In response to the coronavirus pandemic, the Government passed wide ranging legislation to protect business tenants from eviction for failing to pay their rent. The measures that were put in place are due to come to an end on 25 March 2022.

On 9 November 2021, the Government introduced The Commercial Rent (Coronavirus) Bill ("Coronavirus Bill") and accompanying new Code of Practice, designed to deal with rent arrears that accrued during lockdown. The intention is to "ring-fence" the arrears, so that landlord's remedies in respect of those arrears remain suspended.

Ring fenced debts include rent, service charge and interest where the tenancy was "adversely affected" by Coronavirus. A business is "adversely affected" by Coronavirus where they have been required to close all or part of the business due to a Government requirement during lockdown. The ring fencing applies to debts accrued between 21 March 2020 (when the first lockdown was imposed), until the end of the restrictions in place for the relevant business ("Protected Rent"). This will therefore be sector specific. The Government has advised that those tenants who have not been affected by COVID-19 and enforced closure, and who have means to pay their landlord, should pay.

The bill introduces mandatory provisions for arbitration to settle how much, if any, rent should be paid for the closure period and when it should be paid. Either the landlord or the tenant can request arbitration. If neither party applies for arbitration within six months of the bill becoming law, the rent arrears will stop being ringfenced and will be subject to normal recovery procedures if not paid by the tenant. Existing rent arrears agreements between landlords and tenants will not be capable of being re-opened under the new provisions.

Whilst the arbitration process is a useful addition, the government is still eager to encourage parties to reach their own agreement through negotiation instead of resorting to binding arbitration.

The new Code of Practice will replace the previous one for commercial property relationships, published in June 2020 (updated in April 2021). It will apply to all commercial leases where there has been a build-up of rent arrears because of tenants being unable to pay due to the impact of the Coronavirus pandemic.

The aim of the Code is to assist commercial landlords and tenants who are in dispute over rent arrears resulting from the tenant having their business restricted or closed during the pandemic.

The Code provides the following:

• guidance on the Coronavirus Bill, in particular, a proposed binding arbitration process;
• best practice for landlords and tenants who are outside of the scope for arbitration; and
• encourage good practice between the landlord and tenant, particularly when negotiating.

The function of the Coronavirus Bill is therefore to prevent further debt recovery actions and to encourage landlords and tenants to resolve rent arrears within the scope of the new Code, or the arbitration process. For debts outside of the Coronavirus Bill's scope, landlords will be able to exercise their ordinary remedies in the ways they did prior to the introduction of the moratorium period (although parties are still encouraged to adhere to the principles of the new Code).

Omicron Hospitality and Leisure Additional Restrictions Grant

On 21 December, in response to the rapid spread of the Omicron variant, the Chancellor announced grants of up to £6,000 to be available to hospitality and leisure businesses. Central Government has now provided guidance on what business will be eligible and how much funding each business will receive based on the rateable value of the property occupied.

Categories for eligible businesses

Hospitality

A business whose main function is to provide a venue for the onsite sale and consumption of food and drink.

Leisure

A business that provides opportunities, experiences and facilities for:

• culture
• recreation
• entertainment
• celebratory events
• days and nights out
• betting and gaming

Accommodation

A business whose main lodging is used for holiday, travel and other purposes.

Grant Thresholds

Eligibility

To be eligible for a grant, you must have been the rate payer of eligible occupied property in the Non-Domestic Rating List on 30 December 2021.

Any property that was not within the rating system on 30 December 2021 will not be eligible to receive funding under this scheme. This includes changes made to the rating list (rateable value or hereditament) after 30 December 2021, even if the changes are backdated to before this date.

Also, you will not be eligible for funding under this scheme if your businesses:

• has already received grant payments that equal the maximum permitted subsidy allowances; or
• is in administration, insolvent or where a striking-off notice has been made.

The scheme is now live, so businesses are encouraged to contact their local Council for more information and to apply for the grant funding where eligible.

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*This article is provided for general information purposes only and does not constitute legal advice or other professional advice.