Real Estate Bulletin - March 2023

Spring Budget 2023 - a Hunt for Growth?

Our expert analysis and commentary on the economic and tax aspects of the UK Spring Budget 2023 is here.

Read our viewpoints on the Spring Budget 2023 from client insights lead, Andy Hartwill.

Law Commission announces review of Part 2 of the Landlord and Tenant Act 1954

The Law Commission has announced it is to review Part 2 of the Landlord and Tenant Act 1954 (the Act) which deals with security of tenure for business tenancies. 

In short, the Act provides business tenants with an automatic right to renew their tenancies at a full market rent at the end of their lease term. If certain procedural steps are followed the Act also allows for tenants to give up this right if they choose to do so, meaning they have no right to stay in the property when their lease ends. 

The Law Commission notes that the review will consider in detail how the right to renew business tenancies is working and will consider options for reform.  

The review has been commissioned by the Department for Levelling Up, Housing and Communities (DLUHC) and was set out in the Government's Anti-Social Behaviour Action Plan (launched on 27 March 2023). The Government believes that "complex commercial leasing rules are holding back high streets" and aims to "make the system easier to understand and more transparent and attract more investment into UK commercial property".

The Law Commission notes that they are hearing that the Act is not working well for landlords nor tenants and that aspects of the law are "burdensome, unclear and out-of-date", causing unnecessary delay and cost. The Law Commission also highlights that the legal framework for security of tenure is now almost 70 years old and it is nearly 20 years since the last significant updates were implemented. 

The terms of reference for the project are as follows.

For the Law Commission to conduct a wide review of Part 2 of the Landlord and Tenant Act 1954 with a view to modernising commercial leasehold legislation, with an emphasis on:

• creating a legal framework that is widely used rather than opted out of, without limiting the rights of parties to reach their own agreements, by making sure legislation is clear, easy to use, and beneficial to landlords and tenants;
• supporting the efficient use of space in high streets and town centres, now and in future, by making sure current legislation is fit for today's commercial market, taking into account other legislative frameworks and wider government priorities, such as the "net zero" and "levelling up" agendas; and
• fostering a productive and beneficial commercial leasing relationship between landlords and tenants.

The Law Commission aims to publish a consultation paper by December 2023.

Moulsdale Properties: circularity of the option to tax anti-avoidance rules

The Supreme Court has adopted a pragmatic approach to the anti-avoidance provisions in VATA 1994 Schedule 10 concerning developers of exempt land in Moulsdale Properties v HMRC [2023] UKSC 12. Whilst acknowledging that a literal reading of the rules would lead to circularity, the Court has preferred HMRC's method to untangle that circularity, adopting a narrow approach to the legislation where land is sold and would become a capital goods scheme item as a result of the value of the sale.

The case is an unusual example of a taxpayer seeking to rely on a wide interpretation of anti-avoidance provisions and HMRC arguing for a narrow interpretation. The Court has, however, confirmed that anti-avoidance provisions should be narrowly construed (even in such a scenario) where they seek to limit a taxpayer's entitlement to a tax benefit, as here.

You can read more about this decision here.