What does 2025 hold for the property industry?

High Street Lease Auctions

In 2024, the Levelling-up and Regeneration Act 2023 was enacted, which includes provisions allowing local authorities in England to auction the leases of empty shops on high streets without needing landlord permission. These new rules aim to fill up empty high street properties to help the local economy. They apply to commercial properties that have been empty for a year or more within designated high street areas. There’s a strict timetable, and landlords might face criminal charges if they don’t comply. The auction process means that local councils can temporarily change what the property is used for and pass some costs to the new tenants. If a landlord gets a notice about an upcoming auction, they have eight weeks to rent out the property or face the auction proceeding. Failing to comply can lead to fines, and the council might lease out the property themselves. New landlords will be bound by these auctions, as will any superior landlords or mortgage lenders. The leases from these auctions won’t give tenants the right to renew after the term ends, and the properties must meet energy efficiency standards. More guidance is expected soon, and some local authorities will start implementing these changes as early adopters. However, there’s doubt about how effective this will be due to the financial and administrative burden on local councils and whether there will be enough interest from potential tenants. Our Property Disputes Resolution team did a recent video update which you can find here

Landlord and Tenant Act 1954

On 19 November 2024, the Law Commission kicked off a review of Part 2 of the Landlord and Tenant Act 1954 (LTA 1954) with a consultation paper. They are exploring whether the current system, which gives tenants automatic security of tenure unless opted out, is suitable for today’s commercial lease market. They are considering these four models for security of tenure:

1. No security of tenure (i.e. get rid of the LTA 1954).
2. A regime where tenants must opt-in for security.
3. The current opt-out regime.
4. Mandatory security of tenure for all.

The consultation paper also asks if the types of tenancies covered by the LTA 1954 are still appropriate. The views collected will shape a second consultation paper. If some form of security of tenure is kept, the next paper will address issues like dispute resolution, grounds for opposing lease renewals, compensation, lease terms (including rent), and issues with “registration gaps.” If they decide to scrap security of tenure, the second paper will explore how to do that effectively. More to come on this from Mike Lewis and Sunira Patel in our Property Disputes Resolution.

Service Charge Best Practice

The Royal Institution of Chartered Surveyors (RICS) is consulting on updates to their professional standard for service charges in commercial properties, which was first released in 2018. This standard applies to RICS members and firms, outlining mandatory requirements, core principles, and best practices for managing service charges. The second edition proposes the following updates:

1. Enhancing general standards and promoting best practices, fairness, and transparency in managing service charges.
2. Ensuring timely issuance of service charge budgets and year-end accounts.
3. Reducing disputes and providing guidance on resolving them.
4. Offering best practice advice to solicitors, landlords, tenants, and service charge managers on lease negotiations and management.

The new rules will apply to all service charge periods starting six months after the publication of the second edition.

Minimum energy efficiency standards (MEES)

The Government plans to consult on proposals for private and social rented homes to achieve EPC C or equivalent by 2030. This has been on the cards for several years now. It is considering updates to how energy performance certificates (EPCs) measure and report building performance, aiming to enhance energy data quality and improve air conditioning inspection reports (ACIRs). They are seeking feedback from various stakeholders, including builders, developers, financial institutions, housing associations, and local authorities, on several proposals to improve the Energy Performance of Buildings (EPB) framework. Given that buildings contribute to around 20% of the UK’s greenhouse gas emissions, the Government believes better energy data and significant changes in building energy use are essential for achieving net zero targets. Key features of the consultation include:

1. Multiple Metrics: Introducing multiple metrics for EPCs by the second half of 2026 instead of the current single metric.
2. EPC Validity Period: Reducing the EPC validity from 10 years to less than 2 years, 2, 5, 7, or 10 years.
3. Renewal Requirements: Mandating a valid EPC throughout tenancies, requiring renewal upon expiry for let properties.
4. Marketing Restrictions: Eliminating the 28-day grace period for EPCs before marketing properties for sale or let.
5. HMO Inclusion: Extending EPC requirements to individual rooms rented within Houses in Multiple Occupation.
6. Short-Term Rentals: Including holiday lets under EPC regulations.
7. Heritage Buildings: Ending debates by requiring EPCs for listed buildings.
8. Display Energy Certificates: Adjusting the validity period options to between 1-7+ years.
9. Public Register: Removing the option to opt-out of public EPC registration.
10. Data Sharing: Allowing data sharing at the Secretary of State’s discretion.
11. Energy Assessor Training: Increasing oversight of energy assessor training.
12. Compliance and Penalties: Enhancing enforcement, increasing penalties (e.g., from £5k to £10k for non-compliance with non-domestic EPCs).
13. ACIRs: Strengthening compliance and increasing penalties in respect of ACIRs.