King Charles III has laid out the government's plans for the year ahead in his first King's Speech as monarch, with updates of interest for commercial property relating to Energy Performance Certificates (EPCs) and flat owners at mixed-use developments.
The tradition marks the formal start of the parliamentary year and sees Rishi Sunak's government propose a series of new laws, in this case 21 Bills, in a critical 12-month period as a General Election looms.
The legislation of interest to real estate includes the government's emotive Leasehold and Freehold Bill and the Renters (Reform) Bill, both of which focus principally on residential.
Commercial property experts have pointed out that buried in the detail too are some proposed reforms that could have significant implications for commercial real estate investors.
Henry Moss, partner at law firm Ashurst, said: "Many of the proposals are sensible and have been well flagged, but the proposal to allow flat owners to take over management of buildings where they are up to 50% non-residential will worry commercial investors. An investor that has a large shopping centre or office below flats will want to control how the commercial areas are run and will be concerned if flat owners can take this over unilaterally."
Ian Fletcher, director at the British Property Federation, added that the Leasehold and Freehold Reform Bill, by raising the enfranchisement threshold on mixed-use property, "damages the mixed-use property investment market, as more landlords lose their development rights, and control of their property’s management, hurting levelling-up in the process".
He continued: "Though they may not know it, the Bill will wipe billions of pounds off the savings of not just investors, but charities, pensioners, and local authorities."
Elsewhere much-trailed plans to scrap requirements for domestic energy performance certificates (EPCs) to reach a target of C by 2025 have been followed by movements for commercial property EPC requirements that could be hugely significant as well.
A property’s EPC rating is dependent on the amount of energy it uses per metre squared and the level of carbon dioxide it emits in tonnes per year with a C grade meaning a property is moderately efficient.
From 1 April of this year, a tenancy cannot be granted to new or existing tenants if a property has an EPC rating of E, F or G, unless the property is registered on the PRS Exemptions Register. The penalty is based on the rateable value of the property and is between £10,000 to £150,000 per breach.
Government has indicated that these requirements will tighten again in the near future, with a proposal that commercial properties must have an EPC rating of C or higher by 1 April 2027, and B or better by 2030. PwC recently estimated that UK office landlords may need to spend over £65 billion over the next seven years to meet these regulatory requirements.
But Alison Murrin, expertise counsel at law firm Ashurst, explained: "The King's Speech reiterated the Government's position to scrap the proposals to require landlords of domestic property to reach an EPC target of C by 2025. However it appears that the Government is also rowing back on it proposals for commercial property as indicated in its response to the Committee on Climate Change (CCC) 2023 Progress Report on 26th October 2023. The Government has acknowledged that the proposed timeline to require landlords of commercial property to reach an EPC of C by 2027 and EPC of B by 2030 will need to be revised in light of the fact that the Government has yet to publish a substantive response to its 2021 consultation on the revised minimum energy efficiency standards. This does bring some much needed clarity for commercial landlords, but it is disappointing to note that the Government has also paused the rollout of an operational energy rating pilot scheme."
King Charles said the government will make it easier for leaseholders to purchase their freehold and fight "punitive service charges".
"My Ministers will bring forward a bill to reform the housing market by making it cheaper and easier for leaseholders to purchase their freehold and tackling the exploitation of millions of homeowners through punitive service charges [Leasehold and Freehold Bill].
"Renters will benefit from stronger security of tenure and better value, while landlords will benefit from reforms to provide certainty that they can regain their properties when needed [Renters (Reform) Bill].
The Renters (Reform) Bill will ban no fault evictions and enable landlords to evict anti-social tenants faster.
The King said government plans to "regenerate towns" but little other details have been provided. It has committed to a long-promised Holocaust Memorial and Learning Centre in Victoria Tower Gardens in London that will be given planning permission via a Bill in Parliament as the government commits to tackling anti-semitism.
A Bill will invest in 'Network North' to deliver faster and more reliable journeys between and within towns in the North and Midlands.
In its guidance note with the Speech, the government writes that it will be "spending every penny that would have gone towards HS2".
"We will invest £36 billion in improvements that will benefit far more people, in far more places, far more quickly, helping to transform the economy in the North and the Midlands."
Elsewhere, new legal frameworks will be introduced to ensure "safe commercial development for emerging industries such as self-driving cars". Legislation will also be introduced to protect public premises from terrorism in light of the Manchester Arena attack.
Despite the pledges around Leasehold and Freehold reforms, and Renters Reform, there remains much confusion as to what the government is committing to, how much of it is new, and whether any of it can be introduced in this Parliamentary session.
To see the government's published commitments today click here.
Lauren Fraser, Senior Associate, Charles Russell Speechlys, described the lack of detail as surprising. "This comes in the wake of recent proposals to ban leasehold houses which are not new at all; these commitments were announced four years ago by the Government, now simply being repackaged as new plans.
"These proposals are based on an underlying presumption that a radical overhaul of the system is required, which is an oversimplification of a very complex issue. A proper analysis of the criticisms of the existing leasehold system should first be undertaken and if it is found that changes are required further regulation of the leasehold system could be implemented."
Armel Elaudais, Partner at UK law firm Fladgate, said of the Renters (Reform) Bill: “The King’s Speech confirmed that the Renters Reform Bill remains on the agenda after the Government recently came under criticism for the delay in implementing the reforms. But given the recognition that the long-awaited ban on section 21 no-fault evictions cannot happen until the Court system has been improved, it remains to be seen how much of the Bill will become law in this parliamentary session and what will be continue to be kicked off into the long grass.”
Mark Wilson founder member of ALEP, RICS Registered Valuer and Managing Director of myleasehold, said while leasehold reform is very much welcome, it is "crucial"that the government addresses it with caution.
"With so many moving parts and with so much regulation already in place, including the administrative chaos of the Building Safety Act, I am concerned about the ability to deliver any meaningful reform within the time remaining this Parliament."