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Residential Lease Conveyancing in 2022

Article contributed by Ian Quayle

 

As I look back on 2022 there have been a number of developments in the area of residential leasehold conveyancing.  

 

In May 2022 we had the new CQS (Conveyancing Quality Scheme) Guidance requiring firms to explain to clients buying leasehold property the difference between freehold and leasehold ownership, provisions in leases relating to high ground rents, ground rent review provisions, service charge and term. It also reminds practitioners of the need to check whether restrictions on a leasehold title can be complied with and to advise of risks associated with higher risk buildings and fire safety issues.  

 

In June 2022 we saw the Leasehold Reform (Ground Rent) Act 2022 become law which prohibits monetary ground rents for most residential long leases. Thus, we now have a dual market with older leases containing traditional ground rents and ground rent review provisions and new leases without ongoing ground rent liability. Two points flow from this. Firstly, if we are acting for clients who are acquiring existing leases, they should be warned that the property being purchased may not be as attractive a purchase as a new build property without a monetary ground rent to worry about. Secondly with new residential leasehold care must be taken to see if the landlord has included what would have been ground rent as a management fee or increased management fees within service charge. A separate point to be aware of is that on lease extensions that are agreed by negotiation a landlord can insist that the existing ground rent provision in the old lease continues for the remainder of the term of the old lease. Where the extension involves the formal process the ground rent on the extended lease must be a peppercorn.  

 

The Building Safety Act 2022 was granted Royal Assent and passed into law at 1.38pm on 28 April 2022. It is divided into 6 Parts, with the major substantive reforms set out in Parts 2 to 5 and contains (as section 1(1) announces) ‘provisions intended to secure the safety of people in or about buildings and to improve the standard of buildings.’  

 

The Act generates some important issues for conveyancers. Part 2 of the Act creates a new Building Safety Regulator (‘BSR’), charged with certain specific objectives, guided by given regulatory principles, and subject to a series of duties with regard to building safety. Those objectives are (a) to secure the safety of people in and around buildings and (b) to improve the standard of buildings. As for the governing principles, in the exercise of its regulatory activities the BSR must act in a way which is transparent, accountable, proportionate, and consistent, and target its regulatory activities only at cases where action is needed.  

 

The Building Safety Regulator’s primary duty specified under section 4 of the 2022 Act is to facilitate building safety in higher-risk buildings.’  and it is required to ‘provide such assistance and encouragement to relevant persons as it considers appropriate with a view to facilitating their securing the safety of people in or about higher-risk buildings in relation to building safety risks as regards those buildings.’  

 

The definition of ‘relevant persons’ for the purposes of Section 4 include residents of higher-risk buildings, owners of residential units in such buildings, and persons who are accountable persons notably ‘building safety managers’ (referred to in the draft bill but not specifically mentioned in the Act). and persons on whom duties are imposed under the new paragraph 5B of Schedule 1 to the Building Act 1984.  

 

‘Higher risk buildings’ in this context are both those as defined under Part 4, section 65 of the 2022 Act (i.e., 18m or more in height or having at least 7 storeys and containing at least 2 residential units) and as defined for the purposes of the Building Act 1984 (i.e. 18m or more in height or having at least 7 storeys, see section 31).  

 

A new jurisdiction is introduced to enable any ‘prescribed decision’ of the BSR to be reviewed and then appealed to the First-tier Tribunal. The 2022 Act provides for the creation of multiple new jurisdictions in the First Tier Tribunal to determine appeals and applications related to building safety.  

 

Part 4 of the Act, contains ‘provisions about the management of building safety risks as regards occupied higher risk buildings.’  

 

Section 62 of the 2022 Act defines a building safety risk is a risk to the safety of people in or about a building arising from spread of fire, structural failure, or any other prescribed matter. For the purposes of Section 62 a higher risk building being a building that is at building at least 18m in height or has at least 7 storeys and contains at least 2 residential units or as otherwise as may be prescribed (see section 65 of the 2022 Act. 

 

The meaning of building safety risk and the definition of higher risk building can be varied by regulations created by the Secretary of State (see sections 62 to 64 and 65 to 70 respectively). 

 

Significantly the 2022 Act contains further reform by way of proposed amendments to the Landlord and Tenant Act 1985 (see section 112) and the Landlord and Tenant Act 1987 (see section 113).  

 

Section 112 of the 2022 Act implies terms relating to building safety into the lease of any dwelling in a higher risk building. Landlords will be obliged to comply with their building safety duties, cooperate with any relevant person fulfilling like duties and comply with any special measures order.  

 

Tenants will be obliged to allow access for the purposes of the landlord’s implied obligations, under ss94 and 96 of the 2022 Act (not to act in a way that creates a significant risk of a building safety risk materialising etc.) and likewise to comply with any special measures order as far as it relates to them as tenant (see section 30C).  

 

The 2022 Act implies terms into relevant leases relating to the collection of building safety charges (see section 30D). The result should enable recovery of charges incurred in taking building safety measures in the same way as any other service charge under any relevant lease i.e., the costs of complying with the various building safety duties imposed on the accountable person or principal accountable person, as the case may be, under sections 78 to 92 of the 2022 Act.  

 

The final version of the Act introduces new Section 30E into the Landlord and Tenant Act 1985 Act provides for the remuneration of the building safety director of a resident management company to be treated as one of the matters for which the service charge is payable.  

 

In addition, 4 Section 20F of the Landlord and Tenant 1985 protects lessees of higher risk buildings by ensuring certain building safety costs are ‘excluded costs’ not to be taken into account in determining the amount of service charge payable by a tenant under the lease.  

 

‘Excluded costs’ are costs incurred in connection with Part 4 of the 2022 Act or regulations made under Part 4 – and include  

  1. Costs incurred or to be incurred by or on behalf of a relevant person (landlord or superior landlord) solely as a result of any penalty imposed or enforcement action taken by the regulator;  
  2. Legal costs incurred or to be incurred by or on behalf of any such relevant person in connection with special measures proceedings;  
  3. Costs incurred or to be incurred by or on behalf of a relevant person by reason of any negligence, breach of contract or unlawful act on the part of that relevant person or a person acting on their behalf;  
  4. Costs of a description prescribed by regulations made by the Secretary of State that are incurred or to be incurred by or on behalf of an accountable person or special measures manager for the building in connection with the taking of building safety measures (as defined under section 30D).  

 

Conveyancers need to be aware that clients buying relevant leasehold property should be aware of –  

 

  • The new implied terms in relevant residential leases 
  • The additional documentation owners, management companies, and or managing agents might hold or might provide to leaseholders to comply with the 2022 Act   

 

AND conveyancing practitioners need to be aware that the UK Finance Mortgage Lenders Handbook has been updated with a new clause 5.14.17

The new clause reads:

5.14.17 This section applies only to leasehold property purchases in England. See Part 2s for our requirements on purchases and remortgages. Where the security will comprise a leasehold flat you must request the following information from the seller’s conveyancer about the safety of the building in which the flat is situated:
 

  • Confirmation as to whether the building has been or will be remediated under the Building Safety Act 2022. 
     
  • Copies of any Landlord’s Certificates, signed by the Landlord in the form set out in the Building Safety (Leaseholder Protections) (England) Regulations 2022.   
     
  • Copies of any executed Leaseholder Deed of Certificate (in the form set out in the Building Safety (Leaseholder Protections) (England) Regulations 2022) and confirmation that they have been submitted by the relevant leaseholder to the landlord.
     

 

You may want to consider any guidance from your professional body and/or regulator about the information and advice you should provide to the homebuyer relating to building safety. You should also consider any implications for section 4.4 of the Handbook.