All of this may prompt a pick-me-up for deal activity in both the commercial and residential sectors. There will also be a number of regulatory changes to keep up with in 2024, but with a general election on the cards, making accurate predictions of what will happen in the sector and what the legislation will end up looking like is probably best avoided.  What we can safely do is provide a rundown of some of the more significant developments in property law expected in 2024, with the finer details to be fought over in Parliament.

Leasehold and freehold reform

The Leasehold and Freehold Reform Bill will enable leaseholders to extend leases to up to 990 years, abolish marriage value and also limit ground rent. These changes will make it cheaper and easier for leaseholders to extend leases or buy the freehold or share of the freehold.

Renters reform

The Renters Reform Bill is likely to come into law this year, and it will make significant changes to the way in which landlords let properties to tenants.  This is the one promising the abolition of so called “no fault” evictions, but the reforms have been delayed due to the lack of a framework for the courts to deal with the proposed new eviction process.

Ending of lower residential stamp duty

The increase of the residential nil-rate tax threshold from £125,000 to £250,000 will end on 31 March 2025.  This means that buyers will go back to paying the full amount of stamp duty next year.  This may result in an increase in transactions towards the end of 2024 and the beginning of 2025, before the lower rate ends.

Building safety

The Building Safety Act 2022 brought in several measures intended to make buildings and residents safer, in light of the Grenfell tragedy.  In October, a number of measures were brought into law, which now relate to all projects, not just high-risk buildings.  The regime is complex and specialist advice should be sought when building or re-developing property.

Biodiversity net gain

Intended to ensure that development has a measurably positive impact, or “net gain” on biodiversity, developers must deliver a BNG of 10%. This means a development will result in a better quality natural habitat than there was before development. New BNG rules came into force for most new developments from January 2024. Draft regulations and government guidance were published at the beginning of December.          

To find out more, contact Chris Piggott or get in touch with law@sherrards.com. 

This ambitious expansion was flawlessly orchestrated through a strategic alliance with the Commercial Property team at Sherrards, under the guidance of Terry Fendt.

PLAYGROUND Brand’s Dance Legacy Broadens Its Horizon. Boasting acclaimed studios in LA, Playground London stands as the newest addition to the illustrious PLAYGROUND Brand, gearing up to offer master classes and dynamic daily sessions helmed by industry-leading choreographers.

Seamless Expansion: Thanks to the diligence and expertise of the Commercial Property team, Playground LA Limited secured a smooth lease agreement, culminating in a mid-July completion. With eager anticipation, PLAYGROUND LONDON is poised to swing its doors open on Oct 2nd!

Frequented by stars like Jennifer Lopez and Justin Bieber, and associated with brands such as Nike and Adidas, Playground LA’s legacy is set to continue in London. Dive into the PLAYGROUND brand and check out PLAYGROUND LONDON.

Erin, a trainee solicitor in our Dispute Resolution team, explores the recent judgment in BMW (UK) Ltd v K Group Holdings Ltd highlighting the balancing act required in respect of a landlord’s business aspirations and a commercial tenant’s rights when negotiating break clauses in a lease.

Introduction

The realm of commercial leases is a complex landscape governed by legal provisions aimed at balancing the interests of both landlords and tenants.

One such provision that plays a pivotal role in commercial lease agreements is the break clause.

Break clauses in a commercial lease are provisions that allow either the tenant or the landlord to terminate the lease before its designated end date. These clauses offer flexibility within the lease agreement, allowing parties to adapt to changing circumstances or business needs.

However, a recent decision in the County Court highlighted the difficulties that landlords can face when seeking a break clause for their business needs in a renewal lease protected by Part II of the Landlord and Tenant Act 1954 (the Act).

BMW (UK) Ltd v K Group Holdings Ltd

The case concerned a car showroom in Mayfair, demised under four separate leases from the landlord, K Group Holdings Limited, to the tenant, BMW (UK) Limited.

These leases were subject to renewal proceedings under the Act and therefore, were to be granted on essentially the same terms as the previous leases.

The previous leases did not, however, contain a landlord break option. Accordingly, the onus was on the landlord to demonstrate the proposed terms were fair and reasonable and should be granted. 

If a break clause was to be included, the landlord accepted that it would have to prove a ground of opposition under s30(1) of the Act in order to exercise the break option.

HHJ Monty KC, in considering whether to grant a break clause, made it clear that the court must try and strike a balance “between granting a reasonable degree of security to the tenant on the one hand, and not preventing the landlord from recovering possession if one of the statutory grounds can be proved on the other”.

Section 30(1)(g) – Landlord’s intention to occupy the premises for the purpose of a business to be carried on by the landlord

The relevant ground in this case was ground (g), namely that on termination of the tenancy, the landlord intends to occupy the property for the purposes of a business to be carried on by the landlord.

The renewal leases themselves were unopposed and so it was for the landlord to prove that they would be able to establish ground (g) at some point in the future when exercising the break option. That is, the landlord needed to show a bona fide intention to operate the break clause if one was granted.

When giving evidence, the landlord agreed that a car business would be an entirely new business for K Group Holdings Ltd. It was further contended by the landlord’s witness that members of his family who controlled entities within the same group as the landlord were only a “little bit inclined to have a study and see the possibilities” of the electric car market. 

In this case, the landlord’s inadequate evidence and the effect the break clause would have on the tenant meant that the court found in favour of the tenant in refusing the inclusion of the landlord’s proposed break clause.

Practical considerations

This decision highlights the raising of the bar in respect of the landlord’s intention to exercise a break option, particularly where the landlord may have aspirations to start a new business venture or expand an existing one.

A landlord should ensure they can evidence a real intention that the operation of the break clause is more than a vague possibility. Therefore, evidence of any steps taken to progress the possibility of occupation for the purpose of a business would be worth documenting.

Although a complete and comprehensive business plan may not be required, the landlord should seek to substantiate any request for a break clause with supporting evidence detailing any “genuine and workable” intention to occupy the premises.

Sherrards’ Real Estate Litigation team

This article has been fact-checked and authorised by the Head of the Real Estate Litigation team, and Training Partner Michael Lewis. If you have any questions or thoughts, please reach out to him by clicking here.

Our Real Estate Litigation team can support you with an entrepreneurial, commercial and considered approach to break options to help you achieve your goals. Our specialist team can advise you on your options, including, where appropriate asking the court to determine the matter.

For advice and assistance, contact the Real Estate Litigation team at Sherrards.

Minton Care Homes is a family-run and specialist provider of residential and dementia care in the Hertfordshire and Norfolk areas.

The Sherrards Corporate team supported Minton Care Homes in the targeted acquisition of their second care home, Thurleston House, based in Ipswich, and the operating business which has since been added to Minton care Home’s growing portfolio.

The team at Sherrards assisted with the transfer of the home from the previous care provider to Minton Care Homes as well as notices and correspondence with CQC.

The team worked closely with colleagues across departments in both our Employment department and our Commercial Property department, to help our clients and ensure the acquisition was a success.

To find out more about Minton Care Homes, please click here.

A huge congratulations to Esquires Coffee who have recently celebrated the opening of their newest store in Brackley.

Esquires Coffee is an ethical coffee chain with a community spirit, and have over 50 stores across the UK and Ireland.

Our team, led by Terry Fendt, assisted the Esquires team with their new commercial lease.

To find out more about Esquires, click here: https://esquirescoffee.co.uk/

As detailed in our previous article, as a result of the Covid-19 pandemic the Government implemented The Coronavirus Act 2020 which, amongst other things, offered protection to Tenants of commercial premises by imposing a moratorium preventing Landlords exercising most of the usual remedies for the recovery of rent arrears. A lot has happened since then, but where we are now?

The Commercial Rent (Coronavirus) Act 2022 (“the Act”)

The moratorium imposed by the Government expired at the end of March 2022.

To prevent Landlords taking immediate action in relation to outstanding arrears, the Government implemented the Act, which offered a further period of protection to Tenants, preventing Landlords from exercising their usual remedies in relation to ‘Protected Rent Debts’, those being rents due under a tenancy between 21 March 2020 and 18 July 2021 when the business in question was subject to a closure requirement.

The Act implemented an arbitration scheme which entitled both Landlords and Tenants to refer matters to an Arbitrator to decide whether the Tenant was entitled to relief in relation to their protected rent arrears, but the deadline for the matter to be referred to arbitration was 25 September 2022.

Beyond 25 September 2022

In the event either Landlord or Tenant did not refer the matter to arbitration by 25 September 2022, all protection offered by the Act in relation to the rent arrears is lost.

The result being that a Landlord could exercise their usual remedies (as set out below) and, irrespective of the financial position that the Tenant is in as a result of the Covid-19 pandemic, it could not use is it as a defence to any claim or remedy exercised by the Landlord.

This will be welcome news for Landlords of Tenants who, despite being in strong financial positions, have refused to settle arrears on the basis that the Act afforded them protection.

Tenants still in arrears who were reliant upon the protection of the Act and did not refer matters to arbitration should be conscious of their vulnerability to any of the remedies available to the Landlord.

Options for Landlords

Now that it is “open season” in relation to commercial rent arrears, Landlords should ensure they seek advice as soon as possible in relation to the outstanding arrears. Taking steps to recover the debt sooner, rather than later, will improve the likelihood of recovery and avoid further arrears accruing which may see the Landlord recover pence on the pound in the event of the Tenant becoming insolvent.

As a brief reminder, some of the options open to Landlords are:

 

• Forfeiture of the Lease – however, Landlord’s will need to ensure that they have not waived their right of forfeiture in respect of the previously protected arrears before forfeiting the lease;
• Issuing Court proceedings for the recovery of the debt;
• Commercial rent arrears recovery (CRAR);
• The service of a statutory demand and the subsequent presentation of a winding-up petition; and
• Pursuing former tenants that are subject to an Authorised Guarantee Agreement and/or pursuant guarantors

If you would like any assistance in relation to issues relating to commercial rent arrears, please contact Mike Lewis of our Real Estate Litigation Team.