The King's Speech And The Living Sector – The Key Updates

With Labour's manifesto plan to restore mandatory housing targets at the forefront, and with a renewed Whitehall focus on tackling the UK housing crisis, this week, the new Labour Government announced its sweeping legislative agenda for the upcoming parliamentary session through the King's Speech.

In this article, we consider the key legislative proposals relating to the Living Sector in the form of the following:

1. Planning and Infrastructure Bill;
2. Renters' Rights Bill; and
3. Draft Leasehold and Commonhold Reform Bill.

Whilst we await further detail, we understand that the below proposals are set to affect both England and Wales.

Planning Reform - Get Britain Building Again

As a key component of the Labour manifesto pledge, the Government will attempt to reform the current planning system as part of its plan to deliver its 1.5 million homes per year target principally through the introduction of the Planning and Infrastructure Bill. This Bill will contain long-awaited planning reforms. For the Living Sector, key features include:

1. Accelerating housing delivery by improving the planning system at a local level: This will be achieved through enhancing and modernising local authorities with additional planning officers to streamline the approval process for planning applications. It is also anticipated that planning rules will be reformed so that local communities can only have input into ''how, and not if'' new homes are built. Labour have previously promised to overhaul the National Planning Policy Framework to prioritise the release of lower quality ''grey-belt'' land for necessary housing, whilst introducing ''golden rules'' to ensure that councils adopt a ''brownfield-first'' approach. Research has previously indicated that there are enough brownfield sites in the UK for 1.2 million homes¹, which would certainly help towards Labour's mandatory housing targets.
2. Reforming compulsory purchase compensation rules: Hope value is the perceived future value of land (when potential planning permission is factored in) which historically was considered as part of the compensation which landowners should be entitled to when their land is subject to a CPO. Under current legislation, Local Authorities can currently disregard ''hope value'' when acquiring land for housing on limited occasions. The proposed CPO reform could signal a more widespread change in CPO usage, giving Local Authorities the ability to disregard ''hope value'' all together, meaning that land can be acquired by Local Authorities more easily to ''turbo-charge'' housebuilding.
3. Streamlining the delivery process for critical infrastructure: Developers will be well aware of the delays caused to housing delivery due to the length of time infrastructure consents take to be decided - the Government is aiming to simplify the process for major infrastructure projects and bring forward new National Policy Statements which are to be renewed every five years so as to give more certainty to developers.

Renters' Rights Bill - Pro-Tenant Reform

As a probable reboot of the previous Renters Reform Bill (the ''RRB''), which was announced and analysed by our team in the last King's Speech, Labour will be continuing the trend of pro-tenant reform through the Renters' Rights Bill by:

1. Strengthening tenants' rights and protection through granting rights to challenge rent increases and ending rental bidding wars: As first mooted by Sir Kier Starmer in the televised debate in late-June and later clarified by the Labour Party, Labour intends to overhaul the private rented sector to halt the practice of rental bidding wars by only allowing tenants to make ''voluntary'' higher offers above the original rental asking price. Tenants will also gain the right to challenge unreasonable rent increases, which is aimed at promoting fairness and transparency in any rent reviews.
2. Immediate abolishment of Section 21 Evictions: The Bill will remove the threat of arbitrary evictions, therefore increasing tenant security and stability. Whilst it is unclear as to the immediacy of the abolition of s.21, Landlord's will now need to provide their tenants with an exact reason for ending a tenancy, such as a need to sell the property or a breach of contract. Landlord's will still benefit from the recently expanded Section 8 grounds for possession but will have to pursue their right to recovery through the courts system. Many BTR operators and the Association for Rental Living have been sceptical of removing a landlord's right to issue a S.21 notice² and have argued for specific exemptions for professionally managed schemes, and so it remains to be seen whether a dilution of landlord rights may inadvertently stifle prospective investors from entering the Living Sector. It is also unclear as to whether the Government will delay the introduction of the prohibition until such time as the Courts are able to deal with the expected volume of cases.
3. Awaab's Law: Following the tragic death of Awaab Ishaak due to extensive mould in the social housing he was living in, Awaab's Law has now been expanded to bind the private sector. This new legislation will oblige landlords in the private rented sector to address dangerous hazards in their properties, such as damp or mould, within specific timeframes. Private sector landlords will now need to become familiar with the guidance and ensure that they have infrastructure in place to respond within the prescribed timescales.
4. Digital database for landlords, tenants and councils: Though initially mooted in the RRB, this Bill will introduce a new centralised information database which will enable tenants to make informed choices when entering into new tenancies, whilst making clear to [all parties their obligations under their tenancy agreements. Councils will also be able to access the database to target enforcement. We have not yet seen any such database in action, though it will be important for all Living operators to ensure that they integrate this database into their businesses. In any event, the introduction of the digital database will inevitably take time to roll out and then maintain. For the Living sector it is unclear that the database will enable operators to accurately differentiate their products from those of other landlords.

Leasehold and Commonhold Reform Bill - Out with the Leasehold, in with the Commonhold?

Though the Leasehold and Freehold Reform Act 2024 received Royal Assent prior to the General Election, Labour will introduce a Draft Leasehold and Commonhold Reform Bill which will introduce secondary legislation to bring the Leasehold and Freehold Reform Act 2024 into force. The Leasehold and Commonhold Reform Bill will also continue to build upon the pro-homeowner foundations set by its predecessor by:

1. Abolishing the leasehold system and reinvigorating commonhold through a comprehensive new legal framework: There are around 5 million leasehold dwellings in England and Wales, and so it is unclear whether existing leaseholders will be given the right to convert their property interest into a commonhold tenure, or whether this means only future generations benefit from absolute homeownership. A common criticism of the existing legal framework for commonhold is that it is does not sufficiently cater for complex development structures and the ability to convert from a leasehold to a commonhold structure is overly complex. The devil really is in the detail here and the Government will carry out a consultation prior to introducing the Bill to Parliament. The proposals will need to sufficiently consider complex mixed-use schemes which, especially in urban areas, are fundamental for housing delivery in all sub-sectors within the Living sector. There is also a concern that some Living sector operating models, which are heavily dependent on the specialist services the landlord or operator provides, are fundamentally inconsistent with a commonhold tenure model. This reform will be the subject of very close scrutiny from the sector.
2. Restricting the sale of new leasehold flats. This ties into the Government's intention to bring about commonhold reform, although it remains to be seen how the Government intend to restrict the sale itself, or whether strengthened pro-tenant leasehold provisions will be required for new leases.
3. Bolstering leaseholders' rights to extend their lease and buy their freehold: The Government is promising to adopt the Law Commission's recommendations to bolster leaseholders' fundamental rights to buy their freehold and remove the inconsistencies of enfranchisement. The Leasehold and Freehold Reform Act 2024 (which was passed just before the last Parliament dissolved ahead of the General Election) already contains a number of reforms in this area although most of its provisions need secondary legislation to bring them into force. The Government has promised to implement these provisions. We will need to see the detail of the Bill to see what further reforms the Government intends in this area.
4. Regulating existing ground rents: Whilst the Leasehold Reform (Ground Rent) Act 2022 already limits ground rents in most new long residential leases to a peppercorn, the Government is aiming to tackle existing ground rents so that leaseholders no longer face unregulated and unaffordable costs. The previous Government consulted on reform to existing ground rents but their proposals did not find their way into the Leasehold and Freehold Reform Act 2024 as expected, mainly because there are implications of depriving property owners of income in this way under the Human Rights Act 1998.

Developers, operators and investors in the Living sector will no doubt fully engage with the consultation process in relation to all of these proposed reforms to ensure that the institutional voice is heard and that the broad sweep of legislative change does not have the unwanted consequence of stymying growth across the fast expanding Living sectors.

Next steps

Housing will be at the forefront of this new Government's plan to promote economic growth. As the UK faces a housing crisis, and homeownership for adults in their prime working age has plunged in recent years, it is apparent that these new legislative measures attempt to unlock some of the shackles on housing delivery, whilst advancing the protections for the consumer. Living clients will be carefully considering how the reforms to planning, renters' and leaseholder rights will affect their business models.

We now await more detailed legislation/guidance to show the mechanics of how the Government proposes to put these measures into action. Expect further analysis as these explanatory documents are published.

Read the original article on GowlingWLG.com

Footnotes:

1.  Our view on Labour's five golden rules for development on the 'grey belt'

2.  UKAA response to second reading of the Renters (Reform) Bill

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.