COP26 has sparked huge debate across the world on how we treat our planet and how we can better use the resources that we have. The construction industry is coming under increasing pressure to innovate and to reduce its carbon footprint – having been found by one United Nations report to contribute up to 36% of final energy use and 39% of energy and process-related CO2 emissions in 2018.

It is notable that sustainable construction in the private sector is becoming increasingly common and the government last month announced some £440 million of funding for construction projects to kick start the net-zero carbon emission strategy, focussing largely on the production of cleaner energy. So as a funder, developer or contractor, how do you ensure that your project doesn’t harm the planet without costing you the earth? Here are a few ways that we have helped our clients to ‘build green better’.

One way to enhance the green credentials of a project is to start at the beginning – with the procurement process and contract strategy. Whilst the traditional preferred funding mode of single point, design and build remains popular, developers and their funders are increasingly looking at more efficient procurement methods – including the use of off-site and modular construction to reduce material wastage and to reduce over-specification and transportation impacts. That has lead to a revival in more diverse construction procurement methods such as construction management which allows for greater diversity in the sub-contract chain. Tender enquiries can also be used to flush out, at an early stage, how well contractors and their supply chain would fit within a project where a key criteria is to enhance sustainability and reduce environmental adverse impact.

A further way to promote sustainability and environmental considerations in a construction project is in the materials that are specified for use and used within it. It is no longer unusual to come across provisions in a design appointment or construction contract which require the appointee to specify and use sustainably sourced timber, to permit the use of recycled materials where appropriate and to encourage parties wherever possible to source build materials locally to prevent significant transportation.

Finally, and perhaps most obviously, setting out contractual requirements for the performance of the completed works is a great way of ensuring that a project meets its conceptual environmental goals. We have seen examples where, for example the achievement of a certain BREEAM rating is either a condition precedent to practical completion being awarded, or failure to so achieve that or a particular EPC rating is subject to a liquidated damages regime. Parties are increasingly looking also at using key performance indicator regimes to attach to sustainability and waste targets to attach real weight to the importance of these factors to both developers and end users.

At present the standard forms of construction contract contain little more than a ‘nod’ in the direction of environmentally friendly contractual provisions. The JCT, for example as an option in its supplemental provisions allows the parties to encourage the Contractor to “suggest economically viable amendments to the Works, which if instructed as a Variation, may result in an improvement in environmental performance in the carrying out of the Works or of the completed Works”. This is a box often ticked, but then often forgotten – but the idea of producing standard clauses in relation to climate change has been picked up by a group of lawyers called The Chancery Lane Project – who have now produced a set of innovative provisions which can be used by any parties to a construction contract. These clauses include provisions regarding sustainable on-site working practices, a climate duty of care, the reinvention of a waste management plan, energy efficiency requirements, emissions management and material procurement, to name a few.

These are testing times for the construction industry as it adapts both to the policy changes and societal expectations placed on it in respect of environmental responsibility and we expect these issues to only grow in importance as we move towards net-zero CO2.

Levelling Up the United Kingdom, a White Paper, was presented to Parliament on 2 February 2022. Its mission is to rebalance the UK economy and redress regional inequalities – i.e. to provide a more even distribution of wealth and opportunity across the UK. ‘Levelling Up’ is a multi-layered concept which focusses on spreading opportunities and improving public services where they are most needed, boosting productivity, pay, jobs and living standards through the expansion of the private sector and restoring communities, local pride and belonging and empowering local communities.

It should be noted that the White Paper is policy-driven and so the finer detail is to come but it does include some key themes which will be of interest to those in the housebuilding sector:-

Brownfield Regeneration

The Government will promote the regeneration of brownfield sites across 20 towns and cities. This is to be backed by a £1.5bn ‘Levelling Up Home Building Fund’ targeted towards SMEs, the creation of an ‘Office for Place’ (to pioneer design and ensure that brownfield developments enhance existing settlements) and the bolstering of CPO powers. The overall target is for the delivery of 160,000 homes on brownfield sites, primarily within the proximity of existing transport infrastructure which is often seen as an advantage vs. greenfield schemes where the delivery new roads and facilities are required to unlock development potential.

£11.5bn Affordable Homes Programme

Will deliver 180,000 affordable homes (75% of which will be outside of London) funded by an additional £38bn in public and private investment. There is also a greater role for Homes England to use its ‘resources, experience and buying power’ to help local leaders to fulfil greater affordable housing quotas.

Focus on First-Time Buyers

In addition to the re-vamped Help to Buy Scheme launched in 2021 more focus will be placed on lenders to maximise the availability of low deposit mortgages. First-time buyers will also be assisted by a ‘First Homes’ scheme which provides a discount of up to 30% for younger buyers and key workers. Further, the Government also vows to unlock the barriers to entry for those looking to get on the property ladder and the problems of locals being priced out of their local markets. Finally greater transparency at the outset of the purchasing process is advocated – which will involve availability of key digital information (including tenure type, lease length and service charges) to help avoid housing transactions from falling through (currently around 1/3 do).

Reform of the Planning System

Proposed reforms include greater CPO powers to aid site assembly for brownfield schemes. There is also an emphasis on streamlining the Local Plan process with improved data resources (the White Paper flagged the fact that only 39% of all Local Authorities have adopted a Local Plan within the last 5 years). The Government also claims to be ‘developing models for a new infrastructure levy’ and there is mention of providing support for the transition to Net-Zero.

Decent Homes Standard

Is to be introduced for the private rented sector as part of a wider review. Also proposed is a ‘National Landlord Register’ and the possible end of section 21 ‘no-fault evictions’.

Scrapping of 80/20 Funding Rule

Which provided that 80% of Government funding for housing delivery was directed towards ‘lowest affordability areas’. This model had become somewhat obscured by focussing purely on affordability rather than availability. The result was that certain parts of the country (most noticeably the midlands and north of England) were at a comparative disadvantage, notwithstanding that their ‘house price to earnings ratio’ was lower, due to the fact that the low levels of housing supply available to them were not taken into consideration.

Michelmores has advised on an innovative partnership between Environment Bank Ltd and specialist alternative asset manager Gresham House to introduce a first-to-market compliance solution driving biodiversity net gain (BNG).

Through establishing a nationwide network of habitat banks, Environment Bank’s BNG Credits offer developers a simple and risk mitigated way to implement biodiversity net gain in line with the Environment Act 2021, while also generating income for landowners.

Michelmores advised on the partnership arrangement between Environment Bank and Gresham House, structuring the suite of legal documents required to support the business model in line with the requirements of the Environment Act 2021.

Partners Alexandra Watson (corporate) and Ben Sharples (agriculture) led the team, drawing upon expertise from across the firm’s corporate, commercial, agriculture, real estate, tax and regulatory teams.

Partner Ian Holyoak and Senior Associate Chloe Vernon-Shore advised on the commercial agreements; Partner Stephen Newson and Senior Associate Crispin Carpenter advised on property arrangements; and corporate Associate Adam Quint supported with the partnership arrangements.

James Cross, CEO of Environment Bank, says:

“We’re working closely with landowners to offer a solution that will help deliver sustainable development through the creation of woodland, meadow and wetland habitats. Our unique habitat banks provide a long-term opportunity for landowners to diversify their income, a biodiverse haven for plants and animals, and a simple, risk-free way for developers to meet changing regulations.

“Thanks to Michelmores expert advice and the support of Gresham House, we are able to offer an end-to-end solution for developers that are required to implement biodiversity net gain when it’s not viable to deliver on site.”

Alexandra Watson, Partner in the Corporate team at Michelmores LLP says:

“The new biodiversity net gain requirements introduced by the Environment Act 2021 are a game changer for any development after the transition period – this will heavily impact on developers and local authorities. In response, Environment Bank will be offering an end-to-end commercial solution through its partnership with landowners.

“It has been a pleasure to work with my colleagues at Michelmores, the leading teams at Environment Bank and Gresham House in tracking this ground-breaking legislation through Parliament and supporting them with the ongoing roll out of their business model as the secondary legislation comes through.”

Ben Sharples, Partner in the Agricultural team at Michelmores LLP, says:

“Natural habitats are key to locking up carbon, so the agricultural sector is in a unique position to help tackle climate change and dwindling biodiversity. This is why I’m delighted we’ve supported Environment Bank and Gresham House in this venture which is at the forefront of the biggest upheaval in land management since the Second World War. The depth of our agricultural knowledge, combined with the breadth of expertise across the firm, enabled us to create the documents which will deliver a solution that will benefit landowners, developers, local authorities and the environment.

“A new asset class has emerged with land providing vital environmental benefits. The race to net zero and the legal requirement for biodiversity net gain will mean that such benefits quickly acquire a substantial and quantifiable value. The next task is to assist a number of clients in providing a response to DEFRA’s consultation on the vital secondary legislation required in this area. Historically, farmers and landowners have shown their ability to adapt and by continuing to do so will no doubt unlock the full potential of this new opportunity.”

Like many trainees (although by no means a pre-requisite), I gained experience working as a Paralegal prior to starting my training contract.

This has numerous advantages such as giving you an understanding of the day-to-day work of a law firm, building your legal and commercial knowledge and honing the competencies that are useful in any workplace such as communication and organisation. In addition, it has provided some initial exposure to different areas of law so I have been able to get a flavour of what I may like to do in practice.

This is ideal at Michelmores, as the firm lets me shape my training contract around my interest in contentious work.

My first seat has been in the Commercial and Regulatory Disputes team. This has been thoroughly enjoyable as I have never worked in a purely contentious area of law before. Moreover, the matters have been really varied; ranging from IP infringement claims, to insurance disputes, to pursuing settlements in jurisdictions around the world.

My work on these matters has included document review, drafting correspondence, undertaking legal research and attending virtual hearings, among other tasks. I have been pulled in many different directions in this seat which has been invaluable and something I have really enjoyed. What is additionally encouraging is that there are further opportunities for contentious seats at Michelmores to provide me with more “pure” litigation experience such as Contentious Probate, Agriculture, Family and Property Litigation.

Balance

Whilst I know I have an interest in contentious work, I am keen to get a breadth of experience during my training contract and experience seats that undertake non-contentious work. To make an informed choice, it is definitely worth experiencing both sides of the coin.

As a full-service law firm, Michelmores is well set up to offer me this. We have a wide range of purely transactional seats within the Corporate and Transactional Real Estate teams as well as purely advisory seats such as the Tax, Trusts and Succession team. With an interest in litigation, I am particularly drawn to the variety of “split” seats available that can provide me with both contentious and non-contentious work. These include:

• Employment;
• Projects; and
• Banking, Restructuring and Insolvency.

I remain open minded about the different areas of law available to experience during my training contract. My training contract has also taught me that it’s ok not to be purely contentious or non-contentious, and it’s also fine to start off thinking that you might be best suited to one area and end up changing your mind (that’s the importance of the seat rotation process) – Michelmores allow me to shape my training contract around what interests me (even if that changes over time).

This approach is the best way to enable me to find the work I enjoy the most and will continue to enjoy upon qualification.

The Electronic Communications Code (“Code”) which came into force on 28 December 2017 has been the subject of extensive criticism from landowners and operators alike and has resulted in numerous disputes, which have passed through the courts. So, following consultation in early 2021, a series of amendments had been proposed, which will be implemented by Part II of the Product Security and Telecommunications Infrastructure Bill, introduced to Parliament on 24 November 2021.

Obviously, there is plenty of opportunity for amendments to the Bill as it passes through the Houses of Parliament. However, the current draft provides a good indication of the direction of travel. We consider the key points of note for landowners and highlight actions they may wish to take.

Existing operator occupiers

Operators who are already in occupation of land, but are unable to require a new code agreement, will be permitted to acquire a new agreement.

There is some concern that on the current drafting an operator will be able to request a new code agreement, even if it is still within the term of an existing code agreement, or if no code agreement ever existed. However, this would directly contradict the Government’s stated intention that operators should not be able to modify ongoing code agreements, so it remains to be seen how this will be affected.

Alternative dispute resolution

Operators will be under a duty to consider using Alternative Dispute Resolution (ADR) before making an application to the court to settle any disputes and will have an obligation to make landowners aware that ADR is available as an option. However, there is no requirement on the parties to use ADR and whilst the courts can consider a refusal to engage in ADR on the question of costs, there is a real risk that operators will use the possibility of ADR to cause delays, rather than facilitate agreement.

Upgrading and sharing apparatus

There will be an automatic right for the operator to upgrade its apparatus and share with other providers, so long as it will have no adverse impact/no more than a minimal adverse impact on the appearance of the apparatus and will impose no additional burden on the landowner.

Code rights where a landowner does not respond to an operator

Under a new process, operators will be able to obtain Code rights for a maximum period of 6 years, where they can demonstrate that they have made reasonable efforts to agree on Code rights but have received no response from the landowner. The process can be halted by a landowner engaging with the operator before an order is made, and a landowner will be able to apply for compensation at a later date if any loss or damage is caused by the operator exercising their rights.

Conclusion

Following the consultation, landowners would not have been expecting any major shift in their favour, but will nevertheless be disappointed, that the Government did not revisit the current valuation framework under the Code, which has resulted in significantly lower rents. Indeed, the Government has stated it has no intention of doing so.

Given the amendments will assist existing operator occupiers, particularly those in occupation under an expired agreement with no right to renew, landowners who wish to seek possession of a site would be well advised to take action before this Bill becomes law and the operators are given enhanced rights. It would also be prudent for landowners in negotiations with Telecoms providers now to review whether they want to push matters forward more quickly so that any agreement is concluded before the new provisions take effect.

“Quite literally it is the last-chance saloon. We must now translate fine words into still finer actions.” These were the words spoken by Prince Charles, the Duke of Wales, in his speech to G20 leaders at COP26 in Glasgow in November 2021. The message is loud and clear – now is the time for proper and meaningful action if the UK is to meet its ambitious target of achieving net zero carbon emissions by 2050. Crucial to that goal is the commercial property sector (and use and development of general real estate), as the World Green Building Council estimates that the built environment contributes almost 40% of greenhouse gas emissions globally. The sector as a whole must take urgent steps to decarbonise and to reduce its harmful environmental impact.

So, how might it do this? Here is a summary of the main ways in which this goal could be achieved using the four “D”s – direction, devotion, delivery and demand. We also consider what this might mean for commercial property investors and owners:

Direction from government

First, it is imperative that the government (at a national, regional and local level) takes the lead in providing direction for the real estate sector by implementing a regulatory framework which prioritises the decarbonisation of the built environment and publishing detailed and fresh guidance on how that can be achieved in practical terms. For example, this may include local planning authorities considering the imposition of green/sustainable planning conditions and a focus on setting targeted sustainability standards (such as EPCs and BREEAM).

This will require working collaboratively with bodies and organisations at all levels of the supply chain, from investors to architects and engineers, and also producers of the raw materials used in the physical building and construction process.

Without direction from the government, the pace of change is likely to be slow and the path to becoming a “greener” sector will become more challenging with the passage of time.

Devotion from investors

Second, if the government can provide adequate direction required to achieve the goal of decarbonising the built environment, then investors in commercial real estate will need to devote their time and financial resources to the practical means of doing so – essentially funding a green industrial revolution.

First and foremost, this includes investing in a wide range of renewable energy sources, such as solar panels, wind turbines, air source heat pumps and hydroelectric systems, which can be used to heat and provide power to all types of buildings.

However, it also involves investing in other green technologies and infrastructure, such as electric vehicles which will eventually replace petrol and diesel powered vehicles as the primary means of transportation on our roads (including the transportation of building materials). Also coming into focus is LED lighting as a more efficient and cost-effective way of providing artificial light to our built environment, and the introduction of a common charging port for electronic devices which aims to put an end to e-waste and consumer inconvenience across the EU.

Delivery from property professionals

Once the regulatory framework and financial investment is in place, it is essential that property professionals (including agents, surveyors, lawyers, architects, engineers, and builders) are able to discuss, design and deliver the physical elements of a “greener”, more environmentally friendly built environment.

This requires all parties to be aware of the various changes which need to be made in order to decarbonise our existing real estate (including during refurbishment works) and to build new properties in a way which is sustainable and in keeping with the framework for change provided by the government and local planning authorities. For example, agents and surveyors can play a key role by recommending sustainable provisions to their clients for use in Heads of Terms, and lawyers can consider using “greener” leases and construction contracts which serve to implement these sustainable provisions.

Clearly, without the property professionals striving to achieve the goal set before them by government and local planning authority’s framework and initiatives, it will be a struggle to make a real difference to the way in which properties are built in the future and the construction methods/materials that are used.

Demand from businesses, government and communities

Finally, none of the above would be achievable or worthwhile without significant demand for radically different, “greener” real estate from businesses, government and communities – the owners, occupiers and investors of these buildings. Increased demand will inevitably drive up the need for change and these sorts of buildings will gradually replace our existing infrastructure.

We need businesses, government and communities to be forward-thinking and innovative as they sharpen their focus on how to become more sustainable. Such ways of thinking must include a practical and achievable strategy for reducing their carbon footprint – with “greener” real estate (e.g. offices, depots, warehouses, shops etc) being a major priority when it comes to making meaningful changes.

As modern-day consumers, it is incumbent on all of us (the owners, occupiers and investors of real estate) to re-evaluate our ways of living and working, and to start demanding that things are done differently – both in the domestic and commercial spheres. Ultimately, we need leaders in all walks of life to take a stand and forge a new path ahead to drastically change the shape of our built environment for the better.

If you require any legal advice on commercial property issues, please visit our website and contact any member of our Real Estate team who would be happy to assist you with any enquiries.

As a trainee at Michelmores, we attend training sessions with a distinct focus on relationship building and developing the skills needed to:

1. work effectively in teams;
2. network; and
3. interact with clients.

For some, the idea of relationship building comes naturally. Networking can however be practiced and honed like any of the other skills you will develop during your training contract with Michelmores.

Networking

Networking provides the foundation for developing new relationships and connections. It is essential to developing both your business connections and your own personal brand ready for when you qualify.

Within the Firm there are many networking events to join such as the Cycling Network, Michelmores Book Club and the running club. In my current seat in the Projects team, there is ample opportunity for client contact and I have also been fortunate enough to attend a site visit. This was a refreshing opportunity to interact with clients in real life.

We also have external opportunities to network such as the Property Awards, Property Developers Club and various training events. The underlying point is that taking the leap to attend any networking event (in-person or virtual) will enable you to meet new people who may become useful career contacts in the future.

Communicating

A key method for working in a team is understanding how to communicate effectively with others. As a trainee it is important to:

1.  acknowledge different working styles;
2. consider the best way to communicate with your supervisor, whether that be ad-hoc calls and emails or regular, diarised catch ups;
3. inform colleagues when you have capacity to take on additional work; and
4. notify the relevant person of the likely timescale to complete a task.

The above actions also enable your team members to plan their workload accordingly. Effective communication will strengthen your relationships as you will be seen as a reliable member of the team.

By coming across as enthusiastic and willing to take on additional tasks it is likely you will become involved with an array of interesting work within your team.

Being authentic

Ultimately, to cultivate relationships with others you have to be yourself. You may find that by joining one of the networking events you have a genuine interest in, such as the running club, you are more likely to find someone who shares similar interests to you.

This can help you to build relationships with both colleagues, existing clients, and potentially even future clients.

It is widely acknowledged that with the rise of technology and the automation of legal tasks, solicitors who can build relationships rather than solely provide legal advice are favoured in the market.  Not only will relationship building help you professionally, it will also make your day more enjoyable as you build rapport and enjoy interesting conversations with others.

Overview

From 1 April 2022, a new tax will be levied on profits from certain residential development in the UK. The policy was announced in February 2021 and HMRC has undertaken two consultations with relevant stakeholders over the following months.

The policy objective is to raise money from large-scale housebuilders to fund remedial work to cladding up and down the country which the Government will be underwriting. The intention is to raise around £2bn of revenue within a ten-year life span of the tax.

The tax will be levied at 4% on profits of such developers above an annual nil-rate allowance of £25m (split between entities in a corporate group).

Which entities are in the crosshairs?

The new tax will only apply to large residential developers. These entities must be companies that hold the land or property in question on a trading account (though non-UK resident companies are also within the scope of the new tax). Investors and those using the build-to-rent business model are excluded.

Interestingly, the tax also applies to companies that are not already in the charge to UK corporation tax (although the vast majority of affected companies would be). If such a ‘non-taxable’ company has either on its own or with other group companies a holding of at least around 10% in another company that is or is within a group of companies carrying on residential development activity for the purposes of the new tax, then any profits attributed to that non-taxable company are also caught.

The developer in question must have or have had an interest in the land from which profits are derived. Once this condition is met, however, the ambit of what counts as residential property development is wide – it includes trading or dealing in land, construction, applying for planning permission, adaptation, marketing and management.

Key exemptions are for non-for-profit outfits with a charitable purpose of providing affordable and social housing, such as housing associations and social landlords. Charities that develop residential property to raise funds to further their causes are subject to the new tax (and their taxable subsidiaries may not apply gift aid income against profits subject to the tax, as they can with corporation tax).

What counts as residential property is broadly similar to the stamp duty land tax (SDLT) regime (designed or adapted for use as a dwelling) and this includes where planning permission for land is secured or is being sought. Despite this, there are a number of exclusions such as for hotels, certain purpose-built student accommodation and care homes / sites that offer personal care. Retirement properties or sites offering no such care are within the scope of the tax.

Calculation of profits and losses and administrative details

Profits and losses are calculated in the same way as one would calculate regular taxable profits for corporation tax, though there are some notable differences.

Only profits from the relevant development activity are included (profits from other ventures such as letting of surplus real estate are not). No capital allowances are possible and no loss relief is possible except for losses arising from the relevant development activity only (which therefore means that interest expenses will be denied). Such losses arising in a prior year can be carried forward to the current year, while it is possible to surrender such losses to fellow group companies for the current year or carry forward for such group members against their profits arising from the residential development in future accounting periods.

Tax will be paid using the same return as for corporation tax, on the same dates and under the quarterly-instalment regime as currently applies for large corporates paying corporation tax on annual profits over £20m.

Comment

Although the specifics of the rules have been drawn more narrowly in the publishing of the most recent version of the Finance Bill for 2022, companies should nonetheless consider whether and how the new residential developer tax affects their business and how best to manage the additional administration.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.

The First Tier Tax Tribunal has ruled in CHF PIP! v HMRC (2021) that the issue of shares to investors purportedly under the EIS scheme did not qualify for tax relief. Although the Company was a trading company, the trade was in the circumstances not being undertaken on a commercial basis with a view to profit.

The Company traded in the field of animation production and had acquired intellectual property rights to exploit an animation concept aimed at toddlers and small children. From this IP was derived the children’s TV show Pip Ahoy! and it was further intended that saleable merchandise based on the TV programme would be sold.  The Company had outsourced the production and licensing of the IP to companies controlled by its shareholders and directors.

Following earlier successful fundraising under the EIS scheme, the Company sought additional EIS-qualifying funding in 2018, but HMRC declined to authorise the Company to issue EIS compliance certificates to the investors for tax relief purposes. This was on the basis that at the time the shares were issued they were not satisfied that the company carried on a trade with a view to profit and there was a genuine risk to the investors’ capital.

Upon appeal, the First Tier Tax Tribunal (FTT) was satisfied that the Company was carrying on a trade (and not an excluded activity) for EIS purposes, this being the creating and exploiting of its intellectual property and monetisation of this by licensing to broadcasters and sale of merchandise.  It did not matter that the vast majority of this work was outsourced to companies in the CHF PIP group (and that the Company had no employees). However, the FTT was not persuaded that the trade was carried on commercially with a view to profit in the circumstances. The Company had made losses each year from 2012 to 2018. Although there was a plan to revamp the programming operations and improve profitability, the profit forecasts were described as “spectacularly optimistic to the extent of being total pie in the sky”.  Subjectively there was no likelihood of the ‘wholly unrealistic’ profit forecasts being met and there was no genuine intention of a profit being made.

In addition, the FTT was also not satisfied that there was a requisite risk to capital as, when viewed in the context of the Company’s poor trading performance and wildly optimistic projections, it could not be reasonably concluded that the Company had objectives to grow and develop its trade in the long term.

For early-stage companies seeking EIS funding (and prospective investors), the case serves as a reminder of the need for a genuine trading operation carried on with a view to profit and having genuinely attainable financial targets. Notable also is that the same requirement will also apply to even earlier-stage companies and start-ups seeking SEIS funding.

In addition, companies that are successful in qualifying for EIS and SEIS fundraising should not assume that such qualification will automatically apply to the next round of funding they seek to secure. The requirements for SEIS and EIS qualification (both specifically with respect to genuine trading/risk to capital and generally) must be met on each funding round, so companies must consider each funding round on its own merits and in the context of the company at the time the new fundraising is sought.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.

The requirements to provide an energy performance certificate (‘EPC’) on the sale or letting of a property and the requirement to commission an EPC before a property is marketed are well known. In addition to these requirements, minimum level of energy efficiency standards (“MEES”) will come into effect for both non domestic private rented properties and domestic private rented properties in 2018. These rules include restrictions on letting of properties with energy efficiency standards which fall below the prescribed standard.

In relation to all these requirements there appears to be an exemption for listed buildings. A quick read of the relevant legislation may give the mistaken impression that listed buildings are automatically exempt. In fact the position is more complicated and requires a building by building assessment against a backdrop of inconsistent guidance. This ambiguity can lead to arguments between buyers and sellers, landlords and tenants and possibly enforcement action, if the relevant authorities disagree with the assessment made.

The law

Section 5 of The Energy Performance of Buildings (England and Wales) Regulations 2012 (“2012 Regulations”), provides an exemption from the EPC requirements for buildings defined as:

“buildings officially protected as part of a designated environment or because of their special architectural or historical merit, in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance;”

Guidance on both the Government and Historic England websites on the EPC requirements indicates that listed buildings are exempt from the EPC requirements, although the Government website does state that advice should be sought from the relevant local authority conservation officer if the work would alter the building’s character.

A strict interpretation of the 2012 regulations would first require an assessment as to whether or not compliance with EPC requirements would “unacceptably alter the character or appearance” of a building. Only if the requirements would alter the character or appearance in this way will the building be exempt from the EPC obligations.

The regulations governing the new MEES are the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 as amended (“MEES Regulation”). These regulations impose restrictions and obligations on the owners of certain properties, which include a restriction on leasing a property with less than a prescribed minimum EPC rating (unless the landlord registers an exemption). However, as the properties affected by these regulations are those which are required to have an EPC, effectively the same exclusions apply under both EPC and MEES regulations.

What is a listed building?

The legal definition of a listed building is contained within section 1(5) of the Planning (Listed Buildings and Conservation Areas) Act 1990 as “a building which is included in a list compiled or approved by the Secretary of State”. Historic England has published numerous guides concerning the different classes of historical buildings and their determining criteria on its website. Historic England states in its guidance that:

“a listing is not a preservation order, preventing change. It does not freeze a building in time, it simply means that listed building consent must be applied for in order to make any changes to that building which might affect its special interest.”  

From this explanation it is clear that alterations to listed buildings are envisaged. It is simply that listed building consent must first be obtained to any proposed changes.

What does this mean?

It is not clear from the 2012 Regulations who should make the assessment as to the alteration of the character or appearance of the listed building mentioned in the exemption. If it is the owner of the building who can make that assessment and if they decide that an alteration would affect the character of the building and they rely on the exemption in the 2012 regulations, then what happens if, subsequently, the assessment is challenged and it is found that the owner was not entitled to rely on the exemption?

The ambiguity of the section 5 exemption coupled with the lack of clarity in the accompanying guidance, could lead to disputes between sellers and buyers or landlords and tenants over the question as to whether compliance with the 2012 regulations and the MEES is required on a particular transaction.

Any failure to comply with the regulations could also lead to enforcement action against the owner by the appropriate authority.

Enforcement

The 2012 Regulations provide that a trading standards officer has the power to request a copy of the EPC for inspection from the landowner. If requested, the EPC must be produced within seven days, failing which, a penalty charge notice could be issued.

The penalty charge for a breach of duty under S6 of the 2012 Regulations (the duty to produce an EPC on sale or letting of a building) where the building is a dwelling is £200. Where the building is not a dwelling, it is calculated by 12.5% of the rateable value of the building. Additional penalties apply under the MEES regulation.

It is worth noting that under section 43(1) of the 2012 Regulations, a person who obstructs an officer of an enforcement authority acting in pursuance of enforcement is guilty of an offence, punishable by an unlimited fine.

Conclusion

The current position regarding listed buildings is ambiguous and leaves parties to both sales and lettings of listed buildings vulnerable to challenge both between themselves and by the relevant authorities. Landowners contemplating the sale, purchase or lease of a listed building would be well advised to seek detailed advice on this issue in light of the nature of the building, its listing category and the likely outcome of an assessment under section 5 of the 2012 regulations. A report could be commissioned from an appropriately qualified surveyor or other professional to support the landowner’s position and provide evidence of an assessment. If the outcome remains uncertain, it may be prudent in the long term for the landowner to take steps to comply with the various regulations or to seek an opinion from the relevant listed building officer, rather than rely on an ambiguous exemption.

Earlier this year in Andrew Green v Petfre (Gibraltar) Limited (trading as Betfred) the High Court heralded a warning to businesses with consumer clients about the need to be even-handed when dealing with their customers and to ensure that any onerous terms are clearly brought to their attention. Please see our full analysis (here).

The recent case of Blu-Sky Solutions Ltd v Be Caring Ltd [2021] now provides an example of the courts’ approach with regard to business to business contracts. Though less regulated than consumer contracts, businesses operating in this space should be mindful that any potentially onerous clauses should be clearly signposted to their counterparty before they enter the contract. Failure to do so runs the risk of such clauses being found unenforceable (i.e. not incorporated into the contract).

The case

As with the Betfred case, this ruling is fact specific, but the underlying legal principles remain highly relevant to companies contracting with other businesses.

Be Caring Limited (Be Caring) a provider of social care services entered negotiations with Blu-Sky Solutions Limited (Blu Sky), a telecommunications supplier, to receive their mobile network offering. As part of this process, Be Caring completed an order form which sought to incorporate Blu Sky’s terms and conditions as hosted on their website (but not included on the order form itself). When Be Caring wished to move to another supplier, they were informed by Blu Sky of expensive cancellation costs for them to do so and as outlined in the terms and conditions.

Be Caring was found by the trial judge to have entered a contract with Blu Sky despite them purportedly being unaware that the form they were signing was a binding agreement rather than heads of terms. The terms and conditions that the agreement referred to were also found to be binding, as they were accessible on Blu Sky’s website.

Despite the terms and conditions being seemingly incorporated into the agreement between the parties, the cancellation costs clauses were found not to be enforceable by the judge.

Onerous clauses

It is a well-established legal principle that any “onerous or unusual” conditions in a contract (including terms and conditions) will not be incorporated unless they have been brought to the counterparty’s attention. Lawyers often refer to a “sliding scale” of how much notice needs be given. Where the clause is more burdensome or unusual there will equally be a greater obligation of notice.

In this case, the cancellation clauses were found to be particularly onerous because, amongst other factors, the costs incurred bore very little relation to and were out of proportion to the actual costs that would be incurred by Blu Sky for Be Caring’s cancellation. Therefore, Blu Sky should have taken care to ensure that these clauses were clearly flagged to Be Caring. However, instead the judge found that the onerous clauses had been “cunningly concealed in the middle of a dense thicket which none but the most dedicated could have been expected to discover and extricate”. The clauses were consequentially found not to be incorporated.

Therefore, it is important that businesses review their terms and conditions (especially where these are incorporated by reference) to ensure that clauses that impose significant burdens on the counterparty are adequately emphasised.

Best practice tips when drafting B2B terms and conditions:

1. Set out any terms and conditions in clear, plain language that can be clearly understood by non-legal readers.
2. Ensure that all terms and conditions are formatted in a way that can be easily read by another user. For instance consider font, spacing, text size, optical character recognition and appropriate use of typographical emphasis (i.e. bold and italics).
3. Clearly mark and signpost any onerous terms (i.e. terms that would cause the counterparty to incur significant financial or other liability). For example by inserting “the customer’s attention is particularly drawn to clause x.” at the start of the terms.

If you require any assistance with developing your terms and conditions or even a simple health check please contact Tom Torkar or another member of the commercial team.

On 15 November 2021, it was reported that Dr Salman Butt had received an apology, significant compensation and payment of his legal costs in his long-running legal action for defamation against the Home Secretary.

Dr Butt, the chief editor of the Islam21C website, brought a case of defamation against the Home Secretary after he was named in a press release on the government’s Prevent policy in September 2015. The policy is aimed at reducing extremism in academic settings.

Entitled, ‘PM’s Extremism Taskforce: tackling extremism in universities and colleges top of the agenda’, the release referred to a finding by the government’s Extremism Analysis Unit that in the previous year there had been at least 70 events on campuses featuring hate speakers. It went on to identify Dr Butt, in a section headed ‘Note to editors’, as one of a number of named individuals “on record as expressing views contrary to British values”.

Defamation claims and the requirement of serious harm

The Defamation Act 2013 (the Act) introduced a requirement of serious harm for defamation claims. A statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the complainant. It would not, for example, be sufficient to allege injury to feelings. Here, Dr Butt alleged that the publication did indeed cause serious harm to his reputation and, within the one year limitation period for the commencement of such claims, launched proceedings against the Secretary of State for the Home Department.

In his claim, Dr Butt asserted that the natural and ordinary meaning of the words in the press release meant and were understood to mean that Dr Butt “is an extremist hate speaker who legitimises terrorism, is likely to radicalise students and from whose poisonous and pernicious influence students should be protected”.

‘Honest opinion’ under The Defamation Act

In her defence, the Home Secretary argued that the natural and ordinary meaning of the words in the press release meant and were understood to mean that Dr Butt “is someone who has expressed views contrary to British values”. She did not admit that the words did, or were likely to, cause Dr Butt serious harm and, accordingly, did not admit that they were defamatory of him. As an alternative position, the Home Secretary relied upon one of the defences available under the Act, namely that of ‘honest opinion’. For this defence to succeed, she would have to satisfy the court in three respects: (i) that the statement complained of was a statement of opinion, (ii) that the statement complained of indicated in general or specific terms the basis of the opinion, and (iii) that an honest person could have held the opinion.

The Act identifies a number of other statutory defences, including:

• truth (where the imputation conveyed by the statement is substantially true)
• publication on a matter of public interest (where the statement complained of was, or formed part of, a statement on a matter of public interest and the defendant reasonably believed that publishing the statement was in the public interest)
• a defence for operators of websites, where the operator can show that it was not the operator who posted the statement
• where the statement is a peer-reviewed statement in a scientific or academic journal
• reports protected by privilege

At a trial of a preliminary issue before Mr Justice Nicol in October 2017 [Dr Salman Butt v The Secretary of State for the Home Department [2017] EWHC 2619 (QB)], the Court had to determine: (i) the natural and ordinary meaning of the words at the centre of the complaint, (ii) whether the statement complained of was a statement of opinion, and (iii) if opinion, whether the statement complained of indicated in general or specific terms the basis of the opinion. If the Home Secretary was successful in (ii) and (iii) she would have a defence to the claim of defamation.

Mr Justice Nicol found that the natural and ordinary meaning of the words at the centre of the complaint were understood to mean that Dr Butt is an extremist hate speaker who legitimises terrorism, is likely to radicalise students and from whose poisonous and pernicious influence students should be protected.

The Judge went on to find that these words were a statement of opinion and reflected the views of Dr Butt in the public domain. These findings enabled the Home Secretary to maintain a defence of ‘honest opinion’ (under section 3 of the Act).

The findings were upheld during an appeal in June 2019.

Disclosure of documents in defamation cases

Following the appeal however, documents came to light that revealed it was a mistake to include Dr Butt’s name in the press release.

Obligations of disclosure of documents arise at various stages of court proceedings. The obligation extends to documents which adversely affect a party’s own case or support another party’s case (usually, at the stage of standard disclosure under CPR 31.6). The disclosing party may not be aware of the existence of such a document until required to undertake a search and searches may not uncover every document that would, if discovered, be required to be disclosed. This appears to be one such case, where a document which revealed that Dr Butt’s name was included in the press release in error, and that the government did not intend to allege that he was an extremist hate speaker, was not uncovered or disclosed during the currency of the proceedings.

Where a document fatally undermines a defence, as appears to be the case here, it is critical that its existence and its impact on the merits of the claim or defence is recognised as early as possible. It can be costly, and damaging, to fail to take it into account when deciding your litigation strategy.

In this week’s statement in open court, it was said on behalf of the Home Secretary that “The government accepts that it was wholly false to allege that Dr Butt is an extremist hate preacher who legitimises terrorism and therefore someone from whose influence students should be protected. It is sorry for the harm caused to him and in particular for the fact that the allegation was made and maintained for so long.”

It is reported that the settlement of the claim includes removing Dr Butt’s name from the press release.