Great Estates: What property law developments are expected in 2025?
There are seismic legal changes which are likely to significantly affect many Great Estates during 2025. This summary provides an overview of the key developments which are expected and their anticipated impact.
Leasehold reform
2024 saw the Leasehold and Freehold Reform Act 2024 (“LAFRA 2024”) hit the statute books during the wash-up before the general election. The only provisions which have been implemented by the Government so far relate to building safety. LAFRA 2024 will make substantial changes to lease extensions, enfranchisement, service charges payable under long residential leases and freehold estate management charges when its provisions are brought into force.
For example, LAFRA 2024 will change the qualifying criteria for statutory lease extensions and freehold acquisitions, so it is no longer necessary to own a property for 2 years before making a claim. When extending the lease of a house or a flat, a tenant will acquire a 990-year lease extension rather than an extension of 50 years for a house and 90 years for a flat, with ground rent reduced to a peppercorn.
Of most concern to many Great Estates are the provisions in LAFRA 2024 which change the valuation methodology for calculating the premiums payable. The general effect is expected to be a significant reduction in the premiums payable by leaseholders to extend the lease of a flat or house or collectively purchase the freehold of a building or house. As the secondary legislation with some key elements of the calculation, such as the deferment rate and capitalisation rate, is yet to be published, the extent to which the premiums will be reduced is not yet fully known.
The increase of the non-residential limit from 25% to 50%, which will bring more mixed-use buildings within the scope of both collective enfranchisement and right to manage, is also a major issue. There are serious fears that this could lead to a detrimental fragmentation of estates which are carefully curated and maintained.
Matthew Pennycook, Minister of State for Housing, Communities and Local Government issued a statement on 12 November 2024 suggesting that there are “flaws” in LAFRA 2024 which “prevent certain provisions from operating as intended” and those provisions need to be rectified. To which “flaws” he was referring, is not entirely clear, however, from the statement, it is evident that 2025 will see the following:
- The abolition of the two-year qualifying ownership rule by implementation of the relevant provisions of LAFRA 2024;
- Activation of the provisions which increase the amount of non-residential parts in order to qualify to acquire the right to manage from 25% to 50% and make changes to voting rights so leaseholders retain the right to manage in those buildings;
- A consultation on the regulation of service charges and legal costs;
- A consultation on the valuation rates to calculate premiums for lease extensions and enfranchisement; and
- Implementation of the provisions in LAFRA 2024 regulating estate management charges. However, these will not apply to statutory estate management schemes adopted by many Great Estates.
A number of landlords have brought judicial review claims against the Government in respect of the valuation elements of LAFRA 2024 and a permission hearing is due to be heard in early 2025 which could impact the implementation and timings of the legislation.
Leasehold and Commonhold Reform Bill
The Government has committed to implementing all of the recommendations made by the Law Commission in its 2020 reports on commonhold, enfranchisement and right to manage, including those not currently covered within LAFRA 2024. It is expected that there will be a white paper and consultation during early 2025 with publication of a Leasehold and Commonhold Reform Bill during the second half of 2025.
The Government has made clear that it aims to make commonhold the main model of home ownership and the default tenure for new flats. This is a gargantuan task given that there were over 4.77 million estimated leasehold properties in England in 2022/2023. This equates to 19% of the total housing stock across England and 36% of dwellings in London according to Official Statistics on Leasehold Dwellings 2022/2023, published by the Ministry of Housing, Communities and Local Government on 9 May 2024. Whilst initial focus will be on new developments, a move to commonhold for existing leasehold properties will have an unprecedented impact on Great Estates and fundamentally alter the residential landscape. Conversion of existing properties to commonhold will raise numerous issues including the financing of conversion where leaseholders cannot afford to do so and potential objections from lenders. More information is awaited from the Government on how it intends to clear the path to commonhold.
Renters’ Rights Bill
The other significant piece of legislation currently making its way through Parliament is the Renters’ Rights Bill (“the Bill”) which is expected to receive Royal Assent in Spring/Summer 2025. It will primarily abolish fixed term Assured Shorthold Tenancies (“ASTs”) and prevent landlords from terminating tenancies on a no-fault basis by serving a Section 21 Notice. Unless the rent exceeds £100,000 per year or the property is let to a company, the default position will be that a tenant will acquire an assured periodic monthly tenancy.
Landlords will need to prove a ground of possession in order to terminate a tenancy and it is likely that more matters will proceed to a Court hearing than under the Section 21 regime. This is likely to significantly increase the time it takes landlords to obtain possession and the costs involved. Where the ground of possession is rent arrears, the Bill increases the amount of arrears which must be outstanding to obtain a mandatory possession order from 2 months to 3 months. The other main development is the creation of a private rented sector database. All landlords are likely to need to comply with certain requirements to remain active on the database to let properties, leading to additional administrative time and costs.
Energy efficiency
Currently, a residential or commercial property must have a minimum Energy Performance Certificate (“EPC”) rating of E or higher for landlords to lawfully let it.
The Government has recently launched a consultation: Reforms to the Energy Performance of Buildings regime, seeking views on reform of the energy performance of buildings framework. The proposal is to expand the metrics displayed on an EPC for residential properties to include the energy cost, fabric performance, provide details of the building’s heating source and assess the building’s smart readiness to use smart technologies to reduce energy usage during peak periods. However, the Government is planning to retain the carbon metric rating as the single headline metric on non-domestic EPCs. The consultation closes on 26 February 2025. A second consultation is anticipated during 2025 on the methodology used to estimate the energy performance of residential properties, with changes to EPCs being made during 2026.
The current consultation also considers reducing the period of validity of an EPC from 10 years to a lower figure and widening the scope of the types of buildings where an EPC is required to include heritage buildings and other categories. This may lead to EPCs being required more frequently and for a wider range of properties than under the current regime, which may increase costs.
In December 2024, the Government also published its response to the Climate Change Committee’s 2024 progress report, which indicates that the current Government continues to adopt the proposal for homes in the private rented sector to meet improved minimum energy efficiency standards (“MEES”) by 2030, preventing landlords from renting out homes under an EPC rating of C or equivalent. It intends to issue a consultation on these proposals in early 2025. The Government also intends to publish its response to the non-domestic private rented sector consultation in 2025 to confirm the MEES trajectory for commercial properties.
Short-term lettings
2024 continued to see a rise in short lettings through sites including Airbnb and Booking.com in London and other popular towns and cities. According to a House of Commons Library paper published in May 2024, London has seen an 11% increase in short-term lettings since 2019. For landlords, including Great Estates, short term lettings of this kind can cause management issues with complaints from other tenants in the building around noise, nuisance issues, security problems and a loss of control over their buildings. This in turn has led to an increase in property management disputes and litigation by those landlords. Such enforcement action usually arises out of long leaseholders breaching their leases by letting on a short-term basis or local planning legislation, if properties are let for more than 90 nights in a year (whether consecutive or not).
Provisions in the Levelling-Up and Regeneration Act 2023, which may be brought into force in 2025, give the Secretary of State the power to make regulations governing a short-term lettings registration scheme in England. A consultation was carried out in 2024 by the previous Government but the results have not yet been published. Alongside this, there are potential powers to introduce a use class for short-term lets and new permitted development rights. This would provide flexibility so that planning permission would be required: -
- Where a residential property moves from being occupied by the home owner to being let on a short-term basis; and
- In areas where short lettings are of particular local concern.
Construction and building safety
With an increase in insolvencies in the construction sector (an ongoing trend from 2024), the vigilant selection of contractors will be crucial when undertaking works.
It is also clear that building safety will remain a key theme during 2025. A number of Great Estates have buildings over 18 metres in height (or at least seven storeys) with at least two residential units which will be subject to the higher-risk buildings regime in England.
With a number of high-profile building safety related cases listed for hearing in 2025, a picture should start to form of how effective the tools already put in place by the Building Safety Act 2022 are for procuring the remediation of defects creating building safety risks.
In early December 2024, the Government announced its ‘Remediation Acceleration Plan’ to ramp up the pressure to progress remediation works, including:
- An intention to introduce new legal obligations on landlords to remediate unsafe cladding, with ‘severe penalties, including criminal and civil sanctions’ for inaction; and
- A joint plan that commits developers for the first time to stretch targets to assess all of their buildings by July 2025, to start or complete remedial works on 80% of their buildings by July 2026, and on all their “unsafe” buildings by July 2027.
Planning
The heated debate between rebuilding and retrofitting properties is expected to continue into 2025, especially in Central London. The advantages of retrofitting properties include environmental benefits and reusing materials, helping landlords meet their ESG targets. However, it is not always possible or practicable to retrofit a property and it can be more cost-effective to rebuild it, offering a stronger investment profile for landlords. In one of the most high-profile decisions of 2024, Deputy Prime Minister Angela Rayner approved Marks and Spencer’s scheme to demolish and rebuild its flagship Oxford Street Store.
A significant proportion of Great Estates’ portfolios are located on “brownfield” (that is developed) land and as such could be impacted by some of the recent revisions to the National Planning Policy Framework (“NPPF”). As part of a raft of changes to the NPPF introduced in December 2024, the Government has strengthened the policy presumption that development of brownfield land should be regarded as acceptable in principle. The Government has confirmed that it intends to continue to consider whether there are further opportunities for providing “faster and more certain routes to permission for urban brownfield land”. Sophie Willis, Associate in our Planning team comments: “Subject to what policies are ultimately introduced, Great Estates may be able to utilise these changes to more easily obtain planning permission, be that for the purpose of extensive retrofitting or full-scale redevelopment”.
Landlord and Tenant Act 1954: Business tenancies
The Law Commission has recently published an initial consultation on whether the current model of security of tenure should be retained or varied, which closes on 18 February 2025. The current model requires landlords and tenants to agree to opt out of the security of tenure regime. However, the consultation is seeking views on changing to an opt in model, removing security of tenure altogether or making security of tenure mandatory with no opt out. The results to the Law Commission’s consultation are anticipated in 2025 and potentially the Law Commission will be proceeding with phase 2 of its consultation which will look at the operation of the statute, including the forum in which disputes are heard, grounds of opposition and rent determinations, amongst other things.
Like all landlords, Great Estates will be interested in the outcome of the consultation but as it is a Law Commission consultation, whatever the outcome, it may not lead to immediate change. In addition, the impact will depend on any particular internal policies adopted for lettings of commercial properties. Many Great Estates are well known for their placemaking, curating high streets with a wide range of commercial tenants, and that may remain their focus beyond the specifics of whether or not the tenancy has the protection of the Landlord and Tenant Act 1954.
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