REAL ESTATE LITIGATION: An Introduction to London (Firms)

Impact of current economic conditions 

After two years of COVID-19 and Brexit repercussions, the real estate industry was hoping for a calm 2022. However, this year has brought further turbulence, with the war in Ukraine, a new king and new Conservative Government in the United Kingdom, and economic uncertainty from persisting supply shortages, soaring energy prices and rising inflation. Uncertainty makes a challenging bedfellow for the property industry and all of these elements have a seismic impact on the market, making it a busy time for real estate litigators.

Long-term commitments made to invest in or develop real estate may no longer be attractive or even commercially viable and real estate litigation specialists will be called upon to help investors and developers navigate these difficult times. Likewise, with the UK workforce being slow to return to the office, corporate occupiers are likely to be reassessing their office space requirements and looking to their legal advisors to help them reduce or exit long term lease commitments.

Lenders will face an increase in loan defaults secured on residential and commercial real estate assets. This means they will need to assess prospective enforcement action including repossession and the appointment of fixed charge receivers against a backdrop of falling values and increased loan-to-value ratios.

New legislation 

Business tenancy reform 

The COVID-19 pandemic saw the Government suspension of centuries' old remedies that underpin property rights, which provide a foundation for the UK's attractiveness as a stable and predictable jurisdiction of long-term investment in real estate. Looking towards the future, there can be no doubt that property remains in the gaze of the policymakers, with a root and branch consultation in relation to the Landlord and Tenant Act 1954 likely to be on the cards in the next 12-18 months.

Residential leasehold and private rental reform 

The Leasehold Reform (Ground Rents) Act 2022 came into force in June and brought about the abolition of ground rents for new long residential leases. This was part of a wider package of leasehold reform. It remains to be seen whether further legislation will follow to deal with proposed changes to lease extensions, enfranchisement and the push towards commonhold. The end of no-fault evictions for private tenants was part of the Government's manifesto pledge and, despite suggestions of a U-turn, this looks set to go ahead. The White Paper 'A Fairer Private Rented Sector', published in June, sets out a number of other suggested reforms in this area, including the introduction of a Decent Homes Standard for the private rented sector, controls on rent increases, and the creation of a single Ombudsman to deal with private rental issues.

Building safety 

The Building Safety Act 2022 provides a new regulatory framework for overseeing construction and building safety systems in relation to high-rise buildings.

The Government has threatened "consequences" for homebuilders who refuse to sign a pledge committing to remediate life-critical fire safety works in buildings over 11 metres tall that they have constructed in the last 30 years and to agree in principle that leaseholders should not have to pay any costs associated with such remediation works. Despite this, a pipeline of litigation between freeholders and residential leaseholders is to be expected.

Trends and developments 

Litigation funding 

Litigation funding is on the rise. Mishcon de Reya has launched its own litigation funding facility, MDR Solutions 1, with leading litigation funder Harbour. This allows us to offer greater access to funding for potential claimants.

Litigation funding has yet to be widely used in the real estate sector but that is only a matter of time. Companies face a growing and compelling level of legal and regulatory pressure to behave in a way that is environmentally, socially and governmentally "better". To date, this has fuelled claims in relation to data breaches, infringements of competition and COVID-19-related business interruption insurance claims.

Restructuring  

In the aftermath of the pandemic and in a turbulent economic environment, the trend of increasing company voluntary arrangements (CVAs) seems set to continue particularly in the retail, hospitality and leisure sectors. Companies may also look to use a new process introduced by the Corporate Insolvency and Governance Act 2020, which enables them to enter into a restructuring plan with their creditors.

Each process requires the company to make proposals to deal with existing and future liabilities. This includes waiving or reducing debts and sums which will fall due for payment in the future, and a CVA proposal that will bind all of the company's unsecured creditors if a sufficient number (in value) and the company's shareholders vote in favour.

CVAs have historically had a disproportionate impact on landlords compared with other creditor groups and it has proved difficult for disgruntled creditors to challenge either process.

Technology  

The real estate industry is experiencing a digital revolution with ever more technological innovations specifically designed for the property market. Whilst such developments are to be welcomed, the ancient concepts of land law do not always sit easily with the use of modern technology and the advance of PropTech is likely to provide fertile grounds for dispute.

Technology is now being routinely used to reduce the costs of litigation, particularly in disclosure exercises where it has become acceptable to use highly accurate artificial intelligence systems to undertake a substantial part of the document review process in place of paralegals and junior lawyers.

Mishcon de Reya remains at the centre of PropTech and LegalTech developments with its MDR Lab incubator. MDR Lab's portfolio of successful alumni includes Orbital Witness, a platform which uses artificial intelligence to extract property data from the Land Registry and other public sources. Whilst in mainstream use by transactional lawyers, it is also a secret weapon in the armoury of real estate litigators.

One positive outcome of the COVID-19 pandemic is that it accelerated the use of technology within the civil justice system. Remote court hearings have proven to be effective and look set to stay at the procedural stage of proceedings in the majority of case and the use of electronic bundles is now the norm.

Development disputes 

Despite trouble in the economy, development activity continues and disputes at all stages of the development cycle remain rife.

We have seen surveyors and solicitors combining to scour planning websites for new developments in order to identify potential rights of light claims. The increase in claims of this nature has resulted in a contracting of the insurance market with a lack of competition and heightened risks leading to higher premiums and excesses. This is likely to result in some developers questioning the value of insurance and assessing whether they are better off self-insuring. We may also see developers exerting more pressure on local authorities to use legislative powers to override easements.

Residential property 

The adage "an Englishman's home is his castle" continues to hold true, with residential boundary disputes over small strips of land and claims against nuisance neighbours showing no signs of abating. Behind every such claim is often a team of real estate litigators, such as the Mishcon de Reya team, offering commercially intelligent advice underwritten by significant trial and court experience.