The Levelling Up and Regeneration Act 2023 (the Act), a mammoth piece of legislation over 500 pages long, was passed today. When first introduced into Parliament, it intended to support the Government's manifesto pledge to "level up" the United Kingdom by reversing geographical disparities between different parts of the country by spreading opportunities more equally. However, as it made its way through both the House of Commons and the House of Lords, it grew in scope and, as passed, could transform the environment in which the real estate market operates.
Disclosure of information about land interests
The Act sets out a framework allowing the Secretary of State (SOS) to make regulations requiring certain information to be provided to the Chief Land Registrar or anyone else exercising public functions on behalf of the Crown. Further legislation is therefore needed to bring the provisions into force, and there are currently no details as to what this will look like or when it might be brought forward – no doubt the devil will be in the detail.
The Act identifies three "permitted purposes" for which the SOS may require disclosure as detailed below.
1. The "beneficial ownership" purpose
Information will be within the beneficial ownership purpose if it would be useful for:
- Identifying persons who are beneficial owners of land in England and Wales, or
- understanding the relationship of those persons with the land they beneficially own.
Broadly, a person will be considered a beneficial owner if the legal title is held:
- By a body corporate or partnership, or
- as part of a trust, foundation or similar legal arrangement,
and in either case the person is a beneficial owner in relation to that body corporate, partnership, trust, etc.
The first element looks to the beneficial ownership of the entity, which owns the legal estate in the land. Where this entity is already listed on a regulated market, subject to the obligations in the people with significant control (PSC) register, or registered on the Register of Oversees Entities, this information will already be in the public domain.
The second limb includes trusts. Most express trusts are registered on the Trust Registration Service (TRS). However, the TRS is not public – by bringing the beneficiaries of a trust of land into the public domain, the Act may bring land held by UK trustees into line with land held by overseas trustees. We won't know how this will work until the regulations are published (e.g. whether it will be registration at the Land Registry which will make it essentially mandatory or whether it will be something else). In relation to land held by overseas trustees, the beneficial owners of that land (as opposed to the beneficial owners of the overseas entity itself) will become registrable on the Register of Overseas Entities as part of changes to the Economic Crime (Transparency and Enforcement) Act 2022.
2. The "contractual control" purpose
Information is within the contractual control purpose if the SOS considers it useful for understanding relevant contractual rights, including identifying the persons holding them and the circumstances in which they were created. Relevant contractual rights are ones that:
- Arise under a contract,
- relate to the development, use or disposal of land, and
- are held for the purposes of an undertaking (including a business, charity and body exercising public functions).
3. The "national security" purpose
Information is within the scope of the national security purpose if it appears that:
- There is a threat to national security in connection with the location of the land or anything being done on it,
- the information would be useful for identifying persons who own relevant interests in the land, have relevant rights concerning the land or have the ability to control or influence a person with such interests or rights (or understanding the relationship of those persons with the land), and
- requiring the provision of the information would be justified in the interests of national security.
What kind of information is covered?
Assuming it falls into one of the permitted purposes, the information that may have to be provided includes transactional information about contracts and other arrangements which create, change, terminate, evidence or transfer interests or rights in land. The definition is very broadly drawn and could conceivably include sale contracts, agreements for lease, options, pre-emption agreements, lock-out agreements, promotion agreements, development agreements, forward funding agreements, share sale agreements for property-owning special purpose vehicles (SPV) and more. We will need to wait and see what the regulations specify.
Transactional information will include:
- Details of the parties to a transaction
- Details of persons on whose behalf or for whose benefit the parties to a transaction are acting
- Details of the terms of a transaction
- Details of the persons providing professional services in relation to a transaction
- Details of the source of any money paid or any consideration given in connection with the transaction
- Copies of documents giving effect to or evidencing a transaction.
Will the information be public?
The Act authorises regulations which may provide for both:
- The sharing of information with persons exercising functions of a public nature; and
- the publication of information.
We will need to wait for the regulations to be published but it must be assumed that at least some of this information may find its way into the public domain.
What about transactions which pre-date the Act?
The Act specifically authorises regulations that may relate to things done or arising before the Act comes into force. Again, the detail in the regulations will be key, but it seems likely that the Government will cast its net as widely as possible.
Will there be sanctions for not providing information when required to do so?
There will be two main methods of enforcement:
- Regulations may provide that where the required information has not been provided, no change can be made to the register of title at the Land Registry. This will effectively be a bar to dealing with the land.
- A person who fails to provide required information (or provides false or misleading information) will commit a criminal offence. The officers of an entity may also commit the offence e.g. company directors.
Overall the Act seriously reduces the extent to which market players can keep ownership and transactional information confidential. By making it harder to keep details of property transactions, property rights and interests and land ownership and control private, the Act may alter how the property market has historically worked.
Auctions of vacant premises
Another aspect of the Act which may prove controversial is its aim to bring into re-use vacant high street premises through a rental auction orchestrated by the local authority. These provisions apply in England but not in Wales.
What premises are affected?
The new regime will apply to commercial premises (other than premises last used as a warehouse, which are specifically exempt) which satisfy the following criteria:
- situated in an area which a local authority has designated as being a high street or town centre. These will be areas with a high concentration of premises with high street uses. These uses include "traditional" uses associated with a high street, like shops, restaurants and pubs, as well as others which are perhaps not typical e.g. offices and public entertainment spaces Manufacturing processes are even included in high street uses as long as they are carried on near to the other sorts of uses,
- unoccupied for the last year or for 366 days in the last two years,
- suitable for high street use and
- considered by the local authority to benefit the local economy, society or environment if occupied for high street use.
How will the auction work?
- The local authority will serve an initial notice on a landlord indicating that it will conduct a rental auction. For these purposes, the landlord is the person entitled to possession of the premises and is able to grant a tenancy of at least one year.
The initial notice can last for ten weeks, and during this time, the owner may not grant or agree to grant a tenancy or licence of the premises without the local authority's consent (unless it is pursuant to an agreement for lease which pre-dates the initial notice). While consent must be given within a reasonable time, no time limit is specified. Although the owner may sell its interest during the life of the initial notice, the Act provides that the letting notice will not be affected by a change of landlord, and it will bind the buyer.
A local authority must give consent to a proposed letting if it would commence within the next eight weeks, be for a term of at least one year and would result in occupation for high street use. The Act anticipates that landlords may try to circumvent the term requirement by use of break clauses and therefore specifically sets out that a landlord break within the first year will mean that the term is deemed to be less than a year. Tenancies or licences entered into in breach of these provisions will generally be void.
- After eight weeks have passed, the local authority has a two week window to serve a final letting notice if no tenancy has been entered into with consent. A final letting notice will last for 14 weeks.
A landlord has 14 days from when the final letting notice took effect to serve a counter-notice stating that it intends to appeal on one of the grounds set out in the Act (e.g. the landlord intends to carry out substantial works affecting the premises, which cannot reasonably be done without retaining possession of them).
The same restrictions on granting leases, licences, etc. apply during the final notice period In addition, the landlord must not carry out any works to the premises during this period without the local authority's consent, although there are a few narrow exceptions to this. A local authority is obliged to give consent to proposed works unless there are reasonable grounds to refuse it and consent must be given or refused within a reasonable time. A landlord carrying out works in breach of this provision will be committing a criminal offence.
- Before the final letting notice expires and it is no longer possible for it to be revoked on appeal and assuming no tenancy has been entered into with consent, the local authority can arrange for a rental auction to take place. The exact procedure for carrying out the auction will be specified in regulations, so no further detail is available.
Grant of the tenancy
After the auction and a minimum of six weeks after the final letting notice (but before it expires), the local authority may enter into a tenancy agreement with the successful bidder under which the landlord agrees to grant a short-term tenancy.
The Act provides that a tenancy contract entered into in this way has the effect as if it was entered into by the landlord. The tenancy itself is to be granted by the landlord – if the landlord does not do so the local authority has the power to grant the tenancy itself. Both the tenancy contract and the tenancy are deemed to have been entered into with the express consent of any superior landlord or lender.
The term of the tenancy, which will be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954, must be between one and five years. It is unclear how the rent under the tenancy will be determined – presumably it will happen via the auction process itself.
The tenancy contract may include provisions requiring the landlord to carry out pre-tenancy works and may allow the tenant into occupation to carry out works. In deciding the terms of the contract, the local authority must have regard to any representations made by the landlord.
Will there be any compensation?
A person interested in the land will be entitled to compensation from the local authority for any damage caused as a result of the exercise of the power to enter and survey the premises. However, no compensation is payable in respect of the power to auction the property because it appears that the landlord will be able to retain the rent paid under the tenancy.
Practical considerations
It will be interesting to gauge the reaction of local authorities to the auction process. Will there be the appetite, capacity and/or the budget within local authorities to action it? The procedures do not appear easy to operate and involve tight time limits at every stage.
High street premises remain vacant for a number of reasons, including business rates and changing consumer behaviour. Even if local authorities are anxious to engage with the process, it isn't clear that there will be many willing potential tenants. Will tenants want to begin a landlord and tenant relationship with someone who was not directly involved in selecting them to occupy their space?
It seems likely that landlords may choose to avoid premises being vacant by entering into short-term lettings. While this may reduce the number of unoccupied premises, the lettings may not be to tenants who are desirable to the landlord or the local area. It may also push landlords towards repurposing their commercial premises for residential use.
We will have to wait for specific regulations to detail the many uncertainties in the Act in order to assess its impact on the real estate market.
The Act also makes important changes to planning law - look out for further updates from our planning and environment team.
To discuss any of the points raised in this article, please contact Matt Walker or Salwa Ali.
You can also view our previous insight: Levelling up or opening up? Looking at what the Bill sets out and the contractual purpose.