Real Estate Update – What to expect in 2023

Energy Efficiency and The MEES Regime

Minimum energy efficiency standards (MEES) will be key in the new year for commercial landlords. The MEES regime aligns with the government’s plan to achieve net zero by 2050. Consequently, the MEES regime seeks to improve energy efficiency standards in commercial properties. Landlords will be required by law to grant, renew, or extend commercial leases in properties that have an EPC rating between A+ and E. Properties with F and G ratings will be considered as sub-standard or low quality. Due to their sub-standard ratings, landlords will not be able lease out such properties. These rules apply from 1 April 2023. To avoid fines and name shame publications, landlords must improve sub-standard EPC ratings.

Register of Overseas Entities

The register of overseas entities will require foreign companies that own or want to own UK real estate (freehold or leasehold (7 years or more) interest) to disclose their details on Companies House. This is a requirement under the Economic Crime (Transparency and Enforcement) Act 2022. One of the main reasons behind the register is corporate transparency. Therefore, it requires companies to reveal information such as the name of the overseas entity, their country of incorporation, the name and address of their beneficial owners, and when their interest began. Failure to disclose necessary information on Companies House can led to fines and criminal liability. Furthermore, the Land Registry will put restrictions on the titles of all non-UK entities who fail to comply with the register. Consequently, overseas companies with properties in the UK will need to make sure they are entered on the register by the end of the transitional period (31 January 2023). Additionally, from 1 February 2023, Companies House will issue a Unique Overseas Entity ID number (OE ID) needed by overseas entities if they want sell, charge, and grant out leases on their UK properties.

Business Rates Revaluation

Business rates are taxes on commercial properties that are worked out based on a property’s rateable value. From 1 April 2023, a reappraisal of business rates will take place. The revaluation will be based on the property’s value as at 1 April 2021. The Autumn Statement (November 2022) seeks to encourage the use of relief schemes to reduce the burden of business rates due to current difficult market conditions. For instance, business owners can take advantage of extended reliefs in the retail, hospitality, and leisure industries. However, such targeted reliefs are capped at £110,000 per business. Business owners can also rely on varying reliefs from properties that qualify for small business rate reliefs. Downward transitional penalties will also be removed from 1 April 2023. This will help businesses who have had a decrease in their property’s rateable value. The revaluation of business rates will also play a key role when it comes to the renewal of protected leases under the Landlord and Tenant Act 1954. The 1954 act aims to help business tenants negotiate lease renewals effectively. However, if a landlord decides not to renew a protected lease under the specified grounds in the 1954 act, the statutory compensation payable will be affected. This is because section 37 of the 1954 act gives the tenant a right to claim statutory compensation if their security of tenure is affected by the landlord’s decision not to renew. Consequently, the amount payable will depend on the rateable value of the property and length of time the tenant occupied the property.

Levelling–up and Regeneration Bill – Vacant Shop Auctions

The Levelling–up and Regeneration bill was introduced in 2022 and should attain Royal Assent in 2023. The bill aims to promote local growth and inspire local leaders to revitalise their local economy. Consequently, part 8 of the bill seeks to give local authorities the power to auction off certain vacant high street buildings that will be beneficial to the local economy. This power will allow local authorities to take over an owner’s right to let out the premises. To auction off a building, the local authority must assign the area in which the building is located as a “designated high street” or “town centre” because of its importance to the local economy. If the premises falls within the designated area, it can be used for restaurants, bars, shops, public entertainment, and numerous services that benefit the economy of the area. However, the premises must be unoccupied for a year or 366 days within the previous two years. Furthermore, local authorities must give owners the opportunity to let out the property before any auction.

If you would like any more information please don’t hesitate to contact our Commercial real estate team.