Real Estate bulletin - April 2024

JCT Design & Build -- 2024 update

The new JCT Design & Build Contract (2024 Edition) was released earlier this month. There has been a lot of anticipation in the industry over what these changes may bring, particularly given the landscape that the industry has had to navigate since the last set of updates in 2016.

The headline point to note is that the updates do not appear to be as ground-breaking as had been anticipated. Emphasis has been placed on 'modernisation' and 'future-proofing', but a conservative approach has been taken by JCT to the bigger topics facing the industry, such as the legislative changes brought in by the Building Safety Act 2022.

A summary of the key changes is as follows:

• Modernisation: Gender neutral language has been adopted throughout. There is also now provision for notices to be issued via email, and acknowledgement that electronic signatures may be used for executing the contract. 

• Supplemental Provisions: What were previously optional provisions relating to collaborative working, negotiation of disputes and sustainable development, have now been incorporated into the main body of the contract. 

• Fluctuations: The fluctuations provisions are now located separately to the JCT contract, and instead can be found online on the JCT website.

• Fitness for Purpose: There is a new fitness for purpose clarification, confirming that the Contractor owes no greater liability in respect of design than to exercise the required level of skill and care, and that there is no requirement that any design is fit for its purpose.

• Relevant Events: A new Relevant Event relating to epidemics has been included, where such an event limits the availability of labour or securing goods, materials or services, which has an impact on the progress of the works. There has also been a widening of the Relevant Event that deals with statutory powers to include "the publication of any guidance" by UK Government and Local Authorities. 

• Relevant Matters: There is an optional entry in the Contract Particulars to select whether the two new Relevant Events set out above are also Relevant Matters, entitling the Contractor to loss and expense, as well as additional time.

• Timing for EOT claims: The timeline for making a decision on an extension of time claim has decreased from 12 weeks to 8 weeks. Where previously there was no time limit on the Employer to request further information in relation to an extension of time claim, such request must now be made within 14 days of receipt of a claim.

• Termination: The termination provisions have been amended to follow the process for the payment and payment related notice requirements of the Construction Act.

• Building Safety Act:  Drafting relating to the new Dutyholder Regulations has been catered for. However, the Higher Risk Building regulations and the gateway regime has not been addressed, leaving the risk profile relating to the same to be negotiated on a deal by deal basis.

April 2024 Building Safety Update

6 April 2024 saw the end of the transitional period for the new building regulations relating to Dutyholders and building control processes; as well as the start of a new era in regulation of the building control profession. We round up recent developments in the building safety arena here

Renters (Reform) Bill continues its passage through parliament

There had been criticism as to the lack of progress in relation to the Renters (Reform) Bill (the Bill) which had reportedly stalled due to opposition from Conservative MPs.  However, the Bill returned House of Commons on 24 April 2024 and passed through its Report Stage and Third Reading.  The Bill will now move to the House of Lords.

What does the Bill do?

Some of the key measures in the Bill include abolishing assured shorthold tenancies and section 21 'no fault' evictions, reforming possession grounds, introducing a new Ombudsman scheme that private landlords must join and a new Property Portal including a database of residential landlords and privately rented properties in England.   The Bill also contains measures which will make it illegal to have blanket bans on renting to tenants in receipt of benefits or with children and introduce a Decent Homes Standard (DHS) to the private rented sector.

What's been happening?

A House of Commons research briefing paper published on 18 April 2024 highlighted that in February 2024, the BBC reported that the Government was consulting backbench Conservative MPs on amendments to address their concerns about the Bill. It also noted that a 'leaked letter from the Levelling Up Minister, Jacob Young, to Conservative MPs on 27 March 2024....confirmed the Government's intention to bring forward amendments at report stage in the Commons'.

What are the government's latest amendments to the Bill?

Some of the latest government amendments to the Bill include:

• an amendment to prevent a tenant from ending a tenancy within the first six months unless the landlord agrees to an earlier expiry date.  The tenancy will continue as a normal periodic tenancy terminable on two months' notice after the initial six month period. The government notes that potential exemptions are being explored (such as the death of a tenant, domestic abuse or significant hazards within the property).

• a requirement for the Lord Chancellor to publish an assessment of the readiness of the county court possession system before abolishing section 21 'no fault' evictions. During the debate the government also stated that it will 'ensure the relevant funding is in place' for the assessment to be carried out.

• an amendment to apply the new ground for possession for student lettings to all properties, not just HMOs. Written notice must be given to the tenant at the outset of the tenancy that the ground may be used to evict them.

• an amendment to prevent landlords from letting their property as short-term or holiday accommodation for at least three months after using the possession grounds to move into or sell their property. The government notes this is intended to close a loophole in the Bill.

• a requirement for local authorities to work with tenants who have been served a section 8 eviction notice to prevent them becoming homeless.

• a new clause requiring an independent review of the new tenancy system and 'in particular the impact of removing fixed terms and the operation of grounds for possession' within 18 months of the earliest date on which the new tenancy system is applied to existing tenancies.

The Labour and Conservative parties have differing views on the timeframe for the abolition of section 21. As noted above, the Conservatives envisage significant court reform and an assessment of the court system prior to the abolition of s.21 notices meaning there is no clear timeline for implementation.  Whereas Labour's position is that unless there is clear timeline on court reforms abolishing s.21 evictions should not be dependent on this and that s.21 should be removed immediately upon the Bill receiving Royal Assent.   

Labour has also tabled several other significant amendments to the Bill during its passage to strengthen the Bill further in favour of tenants, so far these have been rejected. 

The government also made a commitment to 'a review of selective licensing and the licensing of houses in multiple occupation to consider how we can reduce burdens and make the system more effective for landlords, tenants and local authorities'.  Further details will be provided in 'due course'.

Interest and beneficial entitlement

The Court of Appeal has confirmed the earlier decisions of the FTT and UT that interest on loans paid to a UK entity as part of entirely tax motivated arrangements did not benefit from the exemption from withholding tax in ITA 2007 s.933: Hargreaves Property Holding Ltd v HMRC [2024] EWCA Civ 365. The question whether the UK entity was "beneficially entitled" to the interest in the circumstances had to be judged by reference to a purposive construction of the legislation as applied to the facts viewed realistically. Parliament had not intended the exemption to benefit the involvement of a UK entity on an "ephemeral basis by way of steps that were entirely tax-motivated" where its involvement not only had no commercial purpose but had no practical or real effect.

The Court of Appeal's decision, applying a straightforward Ramsay approach to the question, comes as a welcome clarification. While the UT's decision was mostly expressed on this basis, some conflicting suggestions in the UT decision as to the potential relevance of an Indofoods style "international fiscal meaning" to domestic provisions relating to beneficial ownership had given some cause for concern. However, the Court of Appeal has expressly rejected any such approach.  

You can read more about this case here.