The short answer is nothing. The Energy Savings Opportunity Scheme implements an EU Energy Efficiency Directive and is all set to continue after Brexit on the same basis as before. Draft regulations were published on Thursday 22 November 2018 to make some changes to the current ESOS Regulations once Brexit happens, but this is to address deficiencies in the ESOS Regulations that will be caused by Brexit, not to change their substance.
What’s going to change?
Whether or not an undertaking has to comply with ESOS depends on whether it is “large” (or in the same corporate group as a “large” undertaking). One of the tests for this is whether the undertaking meets financial thresholds that are set out in euros. After Brexit, these thresholds will be converted to pounds sterling.
Qualifying undertakings can comply with their obligations under the Regulations by having a certified Energy Management System. Post Brexit, certification will still be permitted by bodies accredited by the United Kingdom Accreditation Service (UKAS).
In other words?
It’s business as usual.
What do I need to do now?
Phase 2 of ESOS is now well underway; the compliance deadline is 5 December 2019, by which time the Phase 2 audits must have been carried out and compliance reports submitted by undertakings that are required to participate. An undertaking must participate if it is either (a) a UK company that (i) employs 250 or more people or (ii) has an annual turnover of more than €50m (£44m after Brexit) and an annual balance sheet total of more than €43m (£38m after Brexit) or (b) an overseas company with a UK registered establishment which has 250 or more UK employees paying income tax in the UK. A corporate group must participate as a whole if one or more of the companies in it is large enough to fall within ESOS. ESOS does not distinguish between property investors, developers, occupiers or funders, so any business that is large enough to meet the qualification criteria must participate in it.
A major problem in the run up to the Phase 1 deadline (5 December 2015) was the difficulty that participants had in finding lead assessors and auditors to carry out their audits. Participants are therefore strongly advised to get ahead of the crowd and start work on their audits straight away, and in particular to engage now with the auditors and lead assessors that they would like to instruct while they still have capacity to undertake the necessary work.
We fully anticipate a last minute rush in Q4 2019, just as we saw in Q4 2015, but participants that can get ahead of the curve should get better quality audits and will have plenty of time to ensure that they have complied in full, especially where careful analysis of complex corporate group and/or property ownership structures are required. There is always the possibility of implementing sooner something that may actually save energy and money, too!
Following the Court of Appeal decision in Network Rail Infrastructure Limited v Williams and Waistell, Parliament is digging deeper to untangle the effect of Japanese knotweed on the built environment. The Science and Technology Commons Select Committee has been tasked with ensuring that Government decisions and policies are underpinned by good scientific foundations and is calling for submissions.
Back in July we blogged on the Court of Appeal decision which awarded damages to two property owners who each owned a bungalow neighbouring part of Network Rail’s land, from which Japanese knotweed had spread. The issue is that this invasive weed spreads rapidly and can smash through a building’s foundations causing substantial damage, affecting valuations and making the financing of impacted properties very difficult.
The Select Committee has announced it will hold a one-off oral evidence session with relevant experts in early 2019 to explore “the science behind the effects of Japanese knotweed on the built environment”.
So what does the Committee want to know? Ahead of the session, it is calling for written submissions on:
1. scientific evidence regarding the impact of Japanese knotweed on the built environment;
2. how the presence of Japanese knotweed affects lending decisions and property valuations;
3. whether lending decisions relating to Japanese knotweed are based on sound scientific evidence of its effects on the built environment; and
4. what guidance for the sector currently exists, the impact of existing legislation, and how else evidence-based responses to the presence of Japanese knotweed can be encouraged.
If you would like to respond the inquiry page contains a submissions form.
The Committee is also keen to hear from the public about their experiences of dealing with Japanese knotweed, whether this arises through being a homeowner, a tenant, a prospective purchaser or a developer. You can respond via this webform, and the Committee will be inviting a number of those who respond to an engagement event in Westminster on 21 January 2019.
All written submissions and contributions should be provided by 31 December 2018.
Watch this space – we’ll be blogging the latest developments in the New Year.
The Supreme Court has handed down its judgment in the case of S Franses Limited v The Cavendish Hotel (London) Ltd in the most important 1954 Act case for decades. The Court’s decision clarifies the nature of the ‘intention’ which a landlord must have in order to oppose a tenant’s right to renew its tenancy on the ground that the landlord intends to demolish or reconstruct the tenant’s premises.
Whilst the Court confirmed that a landlord’s motives for carrying out works are irrelevant, the Court made clear that a landlord’s intention to carry out works must be unconditional.
A landlord’s right to redevelop
The Landlord and Tenant Act 1954 (the “Act“) provides tenants with a statutory right to renew their tenancies of business premises, subject to the ability of the landlord to oppose renewal on a limited number of grounds.
The most commonly used ground by landlords to oppose renewal is set out in section 30(1)(f) of the Act, known as ground (f), and provides that a landlord may oppose renewal if:
“on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding“
The existing case law had established that a landlord must have a fixed and settled intention, as at the date of trial, to carry out works of redevelopment to satisfy ground (f) and that, provided a landlord has this intention, the landlord’s motive for carrying out works is irrelevant (even if the sole aim of the works is to satisfy ground (f) and remove the tenant).
S Franses Limited (the tenant) has a lease of premises at 80 Jermyn Street, London and deals in antique tapestries and textile art. Its landlord is the Cavendish Hotel.
In 2015, the tenant sought to renew its lease and the landlord opposed renewal relying on ground (f). Over the next 18 months the landlord proposed three different schemes of works, the latest of which was known as Scheme 3, which was the scheme of works which it ultimately relied upon at court.
The first instance decision
At first instance:
the judge acknowledged that “some aspects of the intended works have been contrived only for the purposes of ground (f)“;
it was acknowledged by the landlord that the works would not be undertaken if the tenant left voluntarily, but that if possession on redevelopment grounds was ordered, the entirety of the works would be carried out; and
it was acknowledged that the works that the landlord intended to carry out would not provide any utility to the landlord without further works that required planning permission.
At first instance the judge decided that the landlord had satisfied ground (f) and was entitled to possession of the premises.
The tenant appealed to the High Court on a number of grounds; however, the High Court rejected the tenant’s appeal in relation to the landlord’s intention. The tenant was then given permission to appeal directly to the Supreme Court.
In the Supreme Court the tenant argued that:
when Parliament said that a landlord has to intend to do works of demolition, reconstruction or construction in order to satisfy ground (f), what it meant was that such works had to have some commercial purpose beyond trying to get vacant possession from a tenant; and
when the Act says that the landlord ‘intends’ to carry out works, that intention needs to be unconditional, i.e. the landlord does not have the necessary intention if it would not carry out the works if it could get possession of the premises by some other means (i.e. if the tenant leaves voluntarily).
Significantly, the Supreme Court made clear that a landlord’s intention to carry out works to satisfy ground (f) must be unconditional. Lord Sumption stated: “The landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim“.
In this case, the landlord had admitted that it would not carry out the works if the tenant left voluntarily. As a result, the landlord’s intention was not unconditional, so was not sufficient to satisfy ground (f). In Lord Sumption’s view: “The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily“.
However, the good news for landlords is that the Supreme Court was clear that a landlord did not have to show that the works were reasonable or had some commercial purpose (above and beyond removing the tenant) in order to satisfy ground (f). That argument was “not only more radical in its implications but more difficult to reconcile with established authority on the Act of 1954“. Therefore, it remains the case that a landlord’s motive for carrying out the intended works is strictly irrelevant.
What does this mean for landlords and tenants?
Going forwards, if landlords are seeking to rely on redevelopment grounds to remove tenants, they will need to be prepared for the fact that they will have to show that they will carry out the required works whether or not a tenant leaves voluntarily. This may well be more difficult to show in cases (such as Franses) where the only reason for doing the works is to remove the tenant and will, naturally, provide tenants with further opportunity to seek to challenge a landlord’s intention to carry out works.
S Franses Limited v The Cavendish Hotel (London) Ltd  UKSC 62
The demand for electric cars is rising. In 2011, only 1,000 electric vehicles were sold in the UK. In 2018, this number increased to 485,000, with a new electric vehicle being registered with the DVLA every 3.6 seconds, and whilst only 3-4% of all vehicles are now plug in, this figure is expected to be 10% by 2020.
Why is the market for electric vehicles expanding so rapidly? Arguably the most important reason is that consumers are increasingly concerned about climate change and air pollution and are adapting their spending patterns accordingly. However, although electric vehicles are a more environmentally friendly alternative to petrol cars, the market continues to lag behind the traditional automotive sector for a number of reasons
1. “Range Anxiety”
One of the most significant concerns of consumers is that they won’t be able to find a charging point when they need one and so their electric vehicle will run out of charge mid-journey. Whilst in reality this is unlikely, owing to the large and ever improving capacity of the batteries powering electric vehicles, until consumers get used to the technology and feel assured that they will be able to charge their cars whenever they need to, electric vehicles are unlikely to be used on a mass scale.
Of course, this means an enormous investment in charging infrastructure in residential areas (it is estimated that about 56% of charging will take place at home), workplaces and destinations such as retail parks and shopping centres. However, it is not as straightforward as just increasing the availability of charging points. A number of issues need to be considered including: the right connectors for different fleets; the right speed of charge; and how the vehicle owner will pay for use of the charging point.
Dwell time also needs to be factored in. “Quick-charge” points for short stops at petrol station type venues will be essential to tackle range anxiety. Equally, if slower speed charging points are installed at shopping centres and retail parks, range anxiety could be capitalised on to increase both footfall and dwell time and to encourage customer spend.
2. Grid connection
Particularly in urban areas, the uptake of electric vehicles on a mass scale will put strain on grid infrastructure. As things like lighting and appliances are anticipated to become more efficient, and the use of renewable energy increases, there is likely to be some surplus capacity in the power system so in aggregate, electric vehicle adoption will probably keep the supply/demand ratio for power flat, rather than increasing it. However for this to be the case and to avoid costly upgrades in grid infrastructure, we need to improve how we manage the energy we already generate and continue to invest in renewables.
3. Reliability of technology
Service levels and the reliability of the technology are critical too. Battery storage and battery degradation contribute to range anxiety and also lead to rapid product redundancy. This means many consumers do not feel confident using an electric vehicle, or will want to wait until they feel the technology is proven before making the leap from the traditional combustion engine.
At present batteries represent 40% of the cost of an electric vehicle and increasing the storage capacity and lifespan of a battery is extremely expensive on a large-scale. The majority of electric vehicles are therefore small cars; logistics vehicles are lagging behind because of their weight and the distances they travel.
However, hopefully this issue will soon be resolved as manufacturers are investing heavily in improving batteries and expect to develop a battery that can power an SUV in the next year. This in turn should help overcome range anxiety and lessen pressure on the grid by reducing the regularity of charging.
4. Barriers to entry
The costs of investing in infrastructure, batteries and other associated technologies are currently all being passed on to consumers, so electric vehicles are, for now, unaffordable for many. However price parity between electric vehicles and traditional vehicles is expected by 2022, and once it becomes cheaper to own and operate an electric vehicle rather than one with an internal combustion engine, we can expect to see their take up surge.
Other issues to consider are insurance and maintenance (whilst electric vehicles have 10% fewer moving parts, a more qualified electrical engineer is required to repair them). Even if electric and non-electric vehicles are the same price, in order for consumers to perceive the electric vehicle as the better buy, they need to feel that once they have purchased the vehicle it will not be more difficult to maintain than a traditional car.
By 2040 all vehicles sold in the UK must be zero emissions, so a mass adoption of electric vehicles seems almost inevitable. However, a distinction needs to be drawn between urban, suburban and rural areas. In the short term, electric vehicles are most likely to be used in urban areas where shorter distances are driven, there are more charging points and there is greater pressure to reduce emissions. Whilst electric vehicles are on the cusp of becoming mainstream in cities and large towns, it will likely take longer for them to become commonplace in rural areas where we will may continue to see traditional car ownership in the medium to long term.
It is no secret that this is a challenging time for the hotel industry in London with peak prices, a shortage of viable sites, uncertainty over labour and rising costs and taxes. Notwithstanding, one London Borough has decided that hotels should also be doing their bit to address the housing crisis.
In its draft City Plan, published on 12 November, Westminster City Council has proposed affordable housing requirements for many hotels in the Central Activities Zone. In particular:
• hotels of 750m2 – 999m2 would need to pay a financial contribution for the provision of affordable housing; and
• hotels of 1,000m2 or more would have to provide 35% of their floor space as affordable housing.
The draft document has scant detail on how this would work in practice. And whilst it does recognise that there may be some areas where a contribution might be more appropriate than onsite provision (provided the developer can demonstrate that it is not practicable or viable to provide it on site), the Plan is clear that in most cases the starting point should be affordable homes being provided as part of the same development.
The practicalities of onsite provision are unlikely to be the only issue. Assessing the viability of providing affordable housing may pose its own challenges. Many local authorities have enough difficulty trying to apply their affordable housing assessment models to Build-to-Rent housing. This does not bode well for trying to apply affordable housing requirements to an entirely different type of use on which the local authority is not resourced with expertise. Will the local authority appreciate that hotel developments can be intricate and how common areas are used and accessed, hotel lay-outs, design and the type of brand or operator a site may attract are all important considerations in a hotel development?
Further, whilst the Plan does recognise the need to maintain Westminster’s draw as a visitor destination, and protect all the benefits that brings, including by protecting existing hotel facilities, there are also other key points that hotel developers and operators should be aware of:
• There will be a bar on new hotels over 2,500m2 in the Soho Special Protection Area;
• New hotels will be directed to the CAZ, meaning those looking to develop hotels elsewhere to avoid the affordable housing requirements are likely to have little joy; and
• Extensions to existing hotels will be linked to upgrade of that hotel, and will not generally be able to include new or additional facilities to be used by non-residents. This comes at a time when it is important for the industry to be innovative and explore sources of income and models other than room lettings or traditional F&B services.
The consultation on the draft Plan closes on 22 December, and those with hotel interests in not only Westminster, but the wider London area should consider making representations, as where one borough leads, others often follow. And whilst it may be optimistic to think that the affordable housing policy will be abandoned all together, the industry should take this opportunity to voice its concerns and explain how its sector needs to operate to thrive.
As the number of people in privately rented accommodation increases, the ability of tenants to manage their homes in a way that works for them is becoming increasingly important. The Right to Manage (“RTM”), which landlords cannot contract out of, was introduced to give tenants of flats more control if they are dissatisfied with the way a landlord or property manager is managing the services in their building.
How does it work?
Under the Commonhold and Leasehold Reform Act 2002, the RTM applies to premises that:
• consist of a self-contained building or part of a building;
• contain two or more flats held by qualifying tenants; and where
• the total number of flats held by qualifying tenants is not less than 2/3 of the total number of flats in the premises.
Qualifying tenants are those who have long leases of 21 years or more from the date of grant.
Certain premises are excluded from the RTM. They include premises owned by local housing authorities and buildings where more than 25% of the internal floor area (excluding common parts) is non-residential .
The RTM must be exercised through a private company limited by guarantee set up by the qualifying tenants (the “RTM Company”), which must give notice to each qualifying tenant inviting them to participate in the RTM. The RTM Company then has to serve a claim notice on anybody who is:
• a landlord under a lease of the whole or any part of the premises;
• any party to those leases that is not a landlord or a tenant; and
• a manager appointed (under Part II of the Landlord and Tenant Act 1987) to act in relation to the premises or any part of them.
On the date that the claim notice is given, the number of qualifying tenants that are members of the RTM Company must be at least half of the total number of flats in the premises. If a person given a claim notice disagrees that the RTM Company is eligible to acquire the RTM, it will need to serve a counter-notice; the RTM Company may then apply to a tribunal for determination of its right.
If the RTM Company acquires a RTM of the premises, it will assume management functions in relation to services, repairs, maintenance, improvements, insurance and management. This excludes landlord functions in respect of re-entry or forfeiture and matters relating only to flats not held by qualifying tenants.
Worthwhile? Possibly not.
For a group of tenants willing to act together and with the right skillset, this can be a great way to ensure quality management of shared areas and services and expenditure on services that are important to them. However, the Law Commission has commented that take up is limited and those who have done so “have found delays, costs and uncertainty” in the statutory process for acquiring the RTM. Stumbling blocks identified include the prescribed form of notices, difficulties in managing additional parts of properties used by others (e.g. access roads) and the inability for one RTM Company to manage multiple blocks on the same estate. At a time when mixed use development and redevelopments are finding favour (with residential development above retail and leisure assets, for example) it is arguable that the exclusion of buildings with more than 25% of commercial space deprives an increasing number of flat tenants of the right to manage their building.
Given these problems, it might be unsurprising that the take up of the RTM scheme has been slow since 2002. However, with the Law Commission looking to publish a consultation paper by the end of 2018 with a view to “making the procedure simpler, quicker and more flexible”, it may well be that landlords will face more RTM claims in the future.
Whilst capital allowances have been available for plant and machinery that forms an integral part of buildings, there has been no relief available for the capital investment to construct most structures or buildings themselves.
The Chancellor announced in the 2018 Budget that the government will introduce a new Structures and Buildings Allowance (“SBA“) for new non-residential structures and buildings.
Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of two percent on a straight-line basis over a 50 year period once the building comes into use.
The key features of the relief are that:
relief will be given at a flat rate of two percent over a 50-year period;
relief will be available for new commercial structures and buildings, including costs for new conversions or renovations;
relief is available for UK and overseas structures and buildings, where the business is within the charge to UK tax;
relief will be limited to the costs of physically constructing the structure or building, including costs of demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence;
relief is available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29 October 2018;
claims can only be made from when a structure or building first comes into use;
land costs or rights over land will not be eligible for relief, nor will the costs of obtaining planning permission;
the claimant must have an interest in the land on which the structure or building is constructed;
dwelling houses will not qualify, nor any part of a building used as a dwelling where the remainder of the building is commercial;
sale of the asset will not result in a balancing adjustment – instead, the purchaser takes over the remainder of the allowances written down over the remaining part of the 50-year period;
expenditure on integral features and fittings of a structure or building that are currently allowable as expenditure on plant and machinery, will continue to qualify for writing down allowances for plant and machinery including the Annual Investment Allowance (“AIA“) up to its annual limit;
SBA expenditure will not qualify for the AIA; and
where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure will qualify for a separate two percent relief over the next 50 years.
As the allowance will pass to a buyer of the new commercial building, the amount of available relief will need to be disclosed by the seller. Buyers of new commercial buildings will need to raise this issue in pre-contract enquiries.