Property litigation weekly update - 20 May 2021

19 May 2021

Members of the team this week have reported on what the Queen's speech means for housing as well as a recent Supreme Court case concerning liability for business rates and an update on the Ground Rents Bill. All this, alongside insight from our colleagues around the firm and positive news.

The Queen's Speech and Housing

The State opening of Parliament on 11 May 2021 was a very different affair to what we are used to seeing. Due to Coronavirus restrictions and social distancing, only about 70 members of the House of Lords were present out of the normal 600. Whilst much of the focus was on the recovery from the pandemic, there were a number of housing announcements and we have focused on three of these below.

Leaseholder Reform (Ground Rent) Bill

This Bill is the first in the Government's plan for leaseholder reform. It aims to restrict the charging of ground rents on new long residential leases. New ground rents will be set in law at a peppercorn rent level. There will be civil penalties for freeholders who charge a ground rent in breach of these provisions, including fines of up to £5,000. There will be a few selected exemptions including some parts of the community led housing sector, certain financial products which depend on leases where rent replaces interest bearing mortgage payments and business leases to allow people who need to live in the same premises as their work place to continue to do so. We have prepared a short summary which sets out particular points of note in the bill which will affect landlords and tenants going forward, available here.

Renters' Reform

The Speech stated that the Government will help more people to own their own home whilst enhancing the rights of those who rent. Later in the year, we can expect to see the publication of the results of a consultation which took place on reforming tenancy law to abolish Section 21 "no fault" evictions and improve security for tenants in the private rented sector as well as strengthening repossession grounds for landlords when they have a valid cause. We will also find out the outline proposals for a new "lifetime" tenancy deposit model that eases the burden on tenants when moving from one tenancy to the next. Reforms will be brought forward to drive improvements in standards in rented accommodation, including by ensuring all tenants have a right to redress and ensuring well targeted, effective enforcement that drives out criminal landlords. The White Paper in this respect will be published in the autumn.

The reform package is also expected to require all private landlords to belong to a redress scheme in order to drive up standards in the private rented sector and to ensure that all tenants have a right to redress. Consideration will be given for further reforms of the private rented sector enforcement system including a set of measures to hold unreasonable landlords to account. Improvements and possible efficiencies to the possession process in the courts will be explored in order to make it quicker and easier for landlords and tenants to use.

The Government also committed to delivering on the Social Housing White Paper proposals including the implementation of the Charter for Social Housing Residents and to bring forward legislation to drive social landlords' compliance with improved consumer standards, placing social renters' interests at the heart of the regulatory system. A review of the Decent Homes Standard has been launched as has a working group on electrical safety and a consultation on smoke and carbon monoxide alarms has been held.

Building Safety Bill

The Speech also announced that the Government would be bringing forward its Building Safety Bill, which will implement the recommendations of the Hackitt Review that was undertaken following the Grenfell Tower tragedy.

The Bill will create a Building Safety regulator, establish a new regulatory regime for buildings of 18 metres height (or 7 storeys) or more, and will introduce new obligations on those who manage high rise buildings as well as a new category of service charges called Building Safety Charges. The Speech announced that the Bill will include provisions to support the removal of unsafe cladding, including a financing scheme to pay for costs and a levy to ensure the development industry contributes towards the costs of remediating unsafe cladding.

Are rates mitigation schemes still a good idea following a recent Supreme Court judgment?

In its judgment of 14 May 2021, the Supreme Court held that Rossendale Borough Council and Wigan Council had raised an argument regarding liability for business rates that should be considered at trial rather than struck out. The local authorities argued there were reasonable grounds for claiming non-domestic rates on unoccupied commercial properties from the defendant landlords.

The defendants had each implemented business rates avoidance schemes which involved granting leases of unoccupied properties to a series of special purpose vehicles (“SPVs”). The purpose of the schemes was for the SPVs to become the "owner" for the purposes of non-domestic rates liability. The SPVs were then dissolved or put into liquidation.

Upon dissolution, the SPV’s property was transferred by law to the Crown as bona vacantia. The liquidation scheme involved placing the SPVs in voluntary liquidation shortly after granting the lease to trigger an exemption from business rates. The Supreme Court considered whether the ratings legislation should be interpreted purposively to take account of the intention behind that legislation (the Ramsay principle) or, alternatively, whether the "corporate veil" should be pierced to look behind the SPVs and affix rates liability on the defendants on grounds they had used the SPVs to evade liability.

The Supreme Court held that the dissolution and liquidation schemes' sole purpose was to avoid liability for business rates. It was never intended that business rates would be paid by any of the SPVs. It considered the leases were ineffective to make the SPVs the owners of the relevant properties and entitlement to possession "in the relevant real and practical sense" remained with the defendants.

Consequently, the Supreme Court held a triable issue arose, in connection with the Ramsay principle, as to the defendants' liability for rates on the basis they remained the owner under the ratings legislation, notwithstanding the grant of leases to the SPVs. On the second issue, the Supreme Court held that there was no principle which could justify piercing the corporate veil on the facts of the case. The judgment is expected to have far-reaching implications for owners of unoccupied commercial premises, creating uncertainty around the identity of the owner under statute, and may put the viability of business rates avoidance schemes in question. Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16

Insight from our colleagues around the firm