REAL ESTATE LITIGATION: An Introduction

Property market in 2022 

The average UK house price has hit a new record high in 2022. The value of an average home in the UK increased by 12.8% in the year to May 2022, according to the latest data from the Office for National Statistics (ONS).

There are, however, tentative signs of a slowdown in the housing market, as the weakening economy, high inflation and the rising prices of energy, food and fuel damage consumer confidence. Nevertheless, the housing market has retained a surprising amount of momentum given the mounting pressure on household budgets. The stock of homes on the market has remained low, keeping an upward pressure on house prices. Part of the resilience is also likely to reflect the current strength of the labour market, where the number of job vacancies has exceeded the number of unemployed people in recent months.

Covid-19’s impact on property litigation 

The pandemic saw an unpresented flurry of legislation being introduced to protect tenants and businesses that were unable to pay their rent from certain enforcement action. These measures have now all come to an end.

The moratorium on commercial evictions was one of the last restrictions to end on 24 March 2022 and was replaced by the Commercial Rents (Coronavirus) Act 2022. It creates a binding arbitration system and allows rent arrears that fell due under certain tenancies to be 'ring-fenced' if they relate to periods of time during which the tenant's business was subject to mandatory Covid-19 closures. The Act was introduced to prevent a glut of tenant insolvencies, but its impact is not yet known. Five months in, vanishingly few awards have been published.

Leasehold reform in England and Wales 

Leasehold reforms have been slow in coming. On 30 June 2022, the Leasehold Reform (Ground Rent) Act 2022 came into force. The Act abolishes ground rent for new qualifying residential long leases, with the exception of retirement properties (for which it will not come into force before 1 April 2023). Under the Act, the landlord is prohibited from recovering ground rent which is more than a peppercorn for regulated leases. Landlords who fail to comply with the Act can be fined up to £30,000.

Despite concerns about ground rent provisions in existing leases, these new restrictions are not retrospective in effect, and do not apply to pre-existing leases.

There was no mention of the Law Commission’s remaining recommendations on enfranchisement, commonhold and right to manage in the Queen’s Speech on 10 May 2022. This omission means leaseholders will have to wait at least another year to see whether the next phase of leasehold reforms will be introduced in Parliament.

Development  

The government has made a concerted drive to encourage property development across the UK. £1.8 billion has been earmarked for brownfield land development, community regeneration and new affordable housing projects. The government’s ‘levelling up’ agenda has added further impetus: a £1.5 billion Home Building Fund now offers loan finance for property and infrastructure development.

Yet the situation on the ground remains perilous. The twin effects of the pandemic and Brexit have hit house building, exacerbated by the Russian invasion of Ukraine affecting global supply chains. Labour costs have jumped by 15% and costs of construction materials have risen by 23% over the last year. In addition, the Environment Act 2021 imposes costly new biodiversity requirements on developers.

The forecast for 2022 is therefore that construction activity is likely to remain strong near-term due to existing projects; however, over the next 12 months, the rapidly rising cost of living and the slowdown in economic growth will undoubtedly impact on investment going forward.

Finally, the Building Safety Act 2022 came into force in April and will have a phased entry over the next two years; it is likely to have a dramatic effect on the property and construction industry. The Act increases liability periods for defective/unsafe residential premises to 30 years for existing buildings and 15 years for new builds. It also introduces a Building Liability Order designed to ensure that those directly involved in the development and construction of a building cannot avoid liability in the event the building is found to be defective and thus unsafe. This is likely to have a significant effect on the approach to procurement strategy and risk allocation for both residential and commercial development. Watch this space for its impact on property development.

Mortgage repossession 

Although mortgage possessions are still significantly down compared to pre-pandemic figures, mortgage actions have increased by over 100% since 2021.

Many homeowners are on exceptionally low fixed rates, which has supported their ability to maintain payments. There are, however, real concerns about what will happen when fixed rates come to an end, which will only be exacerbated by a rise in inflation. It is likely that the desire among lenders to recover properties where borrowers are in default will continue to increase – and is expected to accelerate throughout 2022.

Private rented sector 

The number of properties available to rent has fallen by 26% year-on-year, pressing up rents across the country. Average rental values rose by approximately 12% in the last year. In 2022, this gap between supply and demand began to show signs of narrowing — albeit slowly — with the number of available rental properties rising 8% in the year to June.

Notwithstanding the increased costs of renting, when compared to 2019, landlords’ possession claims, orders, warrants and repossessions by county court bailiffs are almost half of what they were pre-pandemic. However, when compared to 2021, there have been increases of over 100% across the board.

Against this backdrop, in June 2022 the Department for Levelling Up, Housing and Communities published its White Paper: "A fairer private rented sector". The White Paper sets out significant proposals to reform the privately rented sector, and builds on the government's wider plans for levelling up. The key proposals, which will be of interest to both landlords and tenants, include a requirement on landlords to comply with a legally binding ‘Decent Homes Standard’; the abolition of section 21 “no fault” evictions; strengthening other grounds for possession; ending the use of rent review clauses; and introducing a new single Ombudsman that all private landlords must join. Whether this Renters Reform Bill will be brought forward in this Parliamentary session remains unclear.

Electronic Communications Code 

The awaited decision from the Supreme Court in EE Limited and Hutchinson 3G UK Ltd v Stephenson and AP Wireless II (UK) Ltd [2022] UKUT 180 (LC) on the Electronic Communications Code was handed down in June 2022. The most significant part of the decision is that telecoms operators with apparatus already in situ can apply for additional rights under the Code during the term of the agreement.

Although the Code came into force less than five years ago, it is already being reformed. The Product Security and Telecommunications Infrastructure Bill 2021-2022 seeks to bridge gaps which remain between the Communications Act 2003 and the Code. In theory, the amendments will speed up the process of finalising new telecoms agreements. It remains to be seen, however, whether this will happen in practice and, crucially, whether it will significantly reduce the current amount of litigation. The Bill is set to become law later this year.