The King’s Speech: real estate and construction soundbites
The speech established three key Government priorities which, in turn, will underpin the legislation to be brought forward during this parliamentary session. These priorities included:
- increasing economic growth and safeguarding health and economic prosperity;
- reducing inflation to ease the cost of living for families and to help business fund new jobs and investments; and
- assisting the Bank of England to return inflation to target by taking responsible decisions on spending and borrowing.
From a real estate perspective there were a number of key takeaways from the speech, most notably the plans for leasehold reform and the carrying over of the Renters (Reform) Bill. There are also a couple of points to note from a construction perspective.
In his speech, the King announced that ministers would ensure "stronger security of tenure and better value" for tenants and certainty for landlords who will benefit from forthcoming legislation to enable them to "regain their properties when needed." This lends weight to the assurance, given at Business Questions on 14 September 2023, by the Leader of the House that Government is "committed to the Renters (Reform) Bill."
Having been the subject of anticipation since it was first announced in 2019, the Renters (Reform) Bill was introduced by the Government in the House of Commons on 17 May 2023. Proposals under the Renters (Reform) Bill (the Bill) will effectively replace ASTs with monthly periodic assured tenancies. Currently, ASTs are the default tenancy in the private rented sector and are usually fixed-term. The Bill will also abolish section 21 "no fault" evictions – putting a Conservative manifesto promise from 2019 on a statutory footing and protecting tenants from unscrupulous landlord practices. To balance the protections afforded to tenants, the Bill also strengthens existing landlord grounds for possession and adds a new mandatory ground.
However, the slow passage of the Bill through Parliament has been criticised. From a legal standpoint, the greater issue has been the recent announcement that the implementation of this aspect of the Bill will depend on when the "court system is ready". This has been viewed as potentially kicking the proposals "into the long grass" - perhaps two to three years down the road. The Government will need to elaborate on its proposals for reform of the legal system and changes will need to ensure efficiency and fairness to ensure landlord and tenant confidence.
The Bill is at an early stage, the second reading took place on 23 October 2023 and the Bill will now move forward to Committee stage (on a date yet to be announced). Given its infancy there is great potential for amendment to the Bill as it passes through both houses. There remains opportunity for concerns, such as the fear that there will be a "spike" in the service of s21 notices before the new law comes into force, to be addressed. If the Bill is to succeed in having the desired effect, then certain loopholes will need to be closed – landlords feel exposed because tenants can leave on short notice and tenants remain concerned that landlords can still evict with relative ease creating a ‘back door’ to no-fault eviction.
A notable exception from the initial draft of the Bill is a ban on landlord discrimination against tenants in receipt of benefits or with children. However, the background briefing notes to the King’s speech indicate that the Bill will be amended to make this illegal. Amendment will also be introduced, in the form of an additional mandatory ground of possession, to protect student lettings which operate in a different manner to the standard residential lettings market.
Assurance was given in the speech that legislation would be introduced to "reform the housing market to make it cheaper and easier for leaseholders to purchase their freehold" and to tackle "exploitation of homeowners through punitive service charges."
The topic of leasehold reform is nothing new. In 2021, the Queen’s Speech included reference to the commitment by the Government to deliver a "better deal for renters" in England. A White Paper followed that autumn and the Law Commission published three reports containing recommendations for change back in the summer of 2020.1 However, since then, only one piece of legislation has been forthcoming (the Leasehold Reform (Ground Rent) Act 2022) which caps future ground rents on long term residential leases. The ground rent Act was the first of two pieces of legislation designed to implement leasehold reform, the second of which was expected to give effect to the proposals specified in the Government’s press release of January 2021 which set out the stall for "millions of leaseholders" to be "given a new right to extend their lease by 990 years."
When asked when this second statute might appear on the books, Lord Greenhalgh stated (in January 2021) that primary legislation would be required and to get such legislation ready for consideration "will take approximately one year." In the same month, the then housing minister Robert Jenrick announced wide-ranging reforms to leasehold ownership in the U.K. There has been nothing substantive regarding leasehold reform since that date, with the exception of the introduction of the Renters (Reform) Bill detailed above.
However, the comments in the King’s speech are indicative of the Government’s continuing intention to reinforce leaseholder’s rights and to deliver on the promises made in the 2021 press release. In particular, the announcement of the Leasehold and Freehold Reform Bill aims to deliver on the Government’s manifesto commitments.
It is intended that lease extensions, purchase of freehold and the ability for tenants to take control of the management of their own building will all be legislated for. Key provisions include:
- making lease extensions cheaper and increasing the standard length of a lease extension term from 90 years to 990 years. The accompanying notes to the King’s speech are silent as to whether or not "marriage value" is to be abolished – this was suggested in the Law Commission’s reports and valuation exercise in 2020 and has the potential to have a significant impact. Draft legislation will need to be published before this aspect becomes clear;
- removing the current 2-year ownership requirement to allow lease extensions to occur immediately from point of ownership (bringing this in line with collective enfranchisement legislation); and
- increasing the non-residential floorspace threshold from 25% to 50% to allow tenants in mixed-use buildings where up to half of the floorspace is non-residential to purchase the freehold of or otherwise manage the building that they live in.
The Bill will also ban the creation of new leasehold houses and create new consumer protection measures to improve leaseholders’ rights. A consultation into capping existing ground rents will also be launched "to ensure that all leaseholders are protected from making payments that require no service or benefit in return, have no requirement to be reasonable, and can cause issues when people want to sell their properties." The Government estimates that such a cap could generate an average saving of £6,000 over the remaining term of a lease. It is unclear on what basis these calculations have been made and how a cap would be calculated in practice (perhaps by reference to market value). Presumably the cap would be retrospective and apply to existing leases, on that basis, ground rent investments may be impacted to a greater extent than they have been under the Leasehold Reform Ground Rent Act 2022. Interestingly, the proposal is to cap rather than to ban ground rents, presumably this is to avoid certain challenges (i.e. on a Human Rights Act basis from investors) whilst also seeking to protect leaseholders from unfair practices.
The proposals stop short of ending the "feudal form of tenure" promised by Michael Gove back in February 20232 and, in particular, the ban on leasehold houses does not appear to extend to flats. It is more akin to a gentle "phasing out" than an outright abolition and therefore is a somewhat diluted version of more ambitious proposals initially suggested by ministers. It is, however, a step towards addressing criticisms of practices in the leasehold sector which continue to be challenged by the Competition and Markets Authority. As always, the devil will be in the detail – for example, there is no indication as yet, as to whether or not matters such as rent charges will be addressed alongside this ban on tenure style.
The King’s speech also included a statement that ministers would tackle "the exploitation of millions of homeowners through punitive service charges" through the new Leasehold and Freehold Bill. To date, freehold owners on housing estates and mixed tenure estates have not had the legal standing to challenge unfair estate service charges or to seek to appoint an alternative estate manager through the first-tier tribunal. This position meant that freeholders had fewer rights of redress than leaseholders over service charge issues. The new Bill will introduce greater powers of freehold management by granting freeholders "on private and mixed tenure estates the same rights of redress as leaseholders." This delivers on the Government’s recently stated intention (July 2023) to create a new statutory regime for freehold homeowners "based on the rights that leaseholders have".
What remains to be seen is the speed at which these reforms are brought forward to the statute books.
Under the banner of national security, rather than sitting within the levelling-up and communities section of the speech, we find a promise to introduce “Martyn’s Law” with the Terrorism (Protection of Premises) Bill. The King explained in his speech that this statute is intended "to protect public premises from terrorism in light of Manchester Arena terror attack."
The draft Bill has been published for pre-legislative scrutiny by the Home Affairs Select Committee before the final version is drawn up by the Government. The proposals are entirely new and do not amend, repeal or otherwise touch upon existing legal regimes (save for some amendments to the Licensing Act 2003). It is wide ranging and sanctions for non-compliance are significant. Costs of compliance are also likely to be costly. Businesses will be impacted as they will need to consider to what extent their premises or events are captured by the legislation and prepare for the likely costs associated with compliance.
As drafted, the Bill provides that a person responsible for "qualifying public premises" or a "qualifying public event" will be subject to the terrorism protection requirements set out in the Bill and a person will be responsible if they have "control" of the premises or event. Qualifying public premises may be either standard duty premises (public capacity of 100 to 799 individuals) or enhanced duty premises (public capacity of 800 individuals or more). A qualifying public event will be an event with a capacity of 800 or more.
The King’s speech included reference to efforts that will be made to seek to attract record levels of investment to "strengthen energy security" including investment into renewables and a reforming of grid connections. This was positioned as a solution to deliver both on national security grounds but also to "help the country to transfer to net zero by 2050 without burdening households" and build on the "track record of decarbonising faster than other G7 economies."
This appears to be the next step in achieving the Prime Minister’s promise of a radical reform of grid infrastructure made during his speech on 21 September 2022 and supports reports that ministers are planning to relax planning restrictions to facilitate the delivery of onshore wind. However, the Kings Speech did not proffer any legislation in respect of these matters, with reference being made only to investment. Before such changes can be realised in full, these reforms will need to be priced and delivered so input from both the Treasury and the legislators should be expected.
The King’s speech did not include a great deal on infrastructure and planning matters, which in some ways is surprising, given the initial impetus that the planning White Paper had and the desire to deliver a reformed planning regime.
However, investment in Network North was pledged "to deliver faster and more reliable journeys between, and within, the cities and towns of the North and Midlands, prioritising improving the journeys that people make most often."
The focus of the speech remained localised when discussing infrastructure with community matters such as long-term plans to "regenerate towns and put local people in control of their future" and the "safeguarding of football clubs" being the key takeaways. A Football Governance Bill will be tabled to address the latter but otherwise no accompanying legislation was identified in support of these broader community and infrastructure measures with the stated intention being of a fiscal nature only.
There was little specifically aimed at the construction sector in the King’s speech. However, references by the Prime Minister to "improve skills" and a recognition of the importance of apprenticeships will be welcome, although it remains to be seen whether the plans to implement the Advanced British Standard will make much progress.
The Government remains committed to protecting leaseholders from the costs of building remediation work and ensuring "freeholders and developers are unable to escape their liabilities to fund building remediation work" and is proposing to extend "… the measures in the Building Safety Act 2022 to ensure that it operates as intended …". As there are significant measures already in place to ensure that remedial works are carried out or funded by those involved with the development or refurbishment of affected buildings, not least the Responsible Actors Scheme, it will be interesting to see what further plans the Government has.
On environmental measures, the King stated that the Government would "continue to lead action on tackling climate change and biodiversity loss" but this was expressed in terms of "supporting developing countries with their energy transition" and "holding other countries to their environmental commitments", rather than a domestic focus.
There had been some expectation that nutrient neutrality would be mentioned in light of reports in the real estate press regarding comments made by Michael Gove at a fringe event at the recent Conservative Party Conference. Changing the Habitats Regulations to "scrap nutrient neutrality" was also identified as potential subject of legislation in the Commons Library Research Briefing, 13 October 2023. However, it is a notable absence from the speech– possibly because its introduction would have required another bill to "make way." Proposals to scrap nutrient neutrality via amendment to the Levelling up and Regeneration Bill (now an Act of Parliament) were voted down in September 2023 by the House of Lords – albeit certain assumptions about nutrient neutrality standards have made their way into the Act. The amendments were put forward in an attempt to unlock development sites for housing delivery.
The Government’s programme will be debated by both Houses for four to five days. The debate on the topic of levelling-up housing and communities is expected to take place on day two on 9th November 2023. The King’s Speech is voted on by the Commons but there will be no vote taken in the Lords.
Although the King’s Speech contains a number of statements of intent, the challenge will be whether the Government will be able to push these proposals forward and onto statute books before the next General Election.