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Electronic Communications Code consultation – continued 29 April 2015

This is a follow-up article to the article entitled “Last chance to respond to consultation on new Electronic Communications Code” on 22 April 2015.

The final date for responding to the consultation is Thursday 30 April, so there is very little time left now.  I will be submitting my response at almost the last possible moment.

In response to my earlier article, I received some helpful comments from readers relating to the Government’s proposals on how the revised Electronic Communications Code should co-exist with the land registration system.   In summary, the proposal is that where Code Rights are conferred by a lease, the normal land registration rules should apply; however in other cases the agreement should bind successors as if it were a property interest, but for land registration purposes it would be treated as a new species of overriding interest.

The main point here is that it will not be necessary to register what will be known as Code Rights at the Land Registry unless they are conferred by a lease.  The usual requirement to register easements will not apply (just like old times!).  The principal reason for adopting this approach is because in what we used to call “telecoms agreements”, often it is not clear exactly what sort of right has been granted.  Easements need dominant and servient tenements, so often what is being granted will not be an easement.  But it is not sensible to treat genuine easements one way for land registration purposes and other types of agreement in another way, as superficially the two types of agreements look very similar.  That would be a recipe for chaos.

Two of my correspondents were unhappy with the creation of a new category of overriding interest when one of the drivers behind the Land Registration Act 2002 was to attempt to reduce so far as possible the number of types of overriding interest, so as to make the register as accurate a reflection of the title as possible.  They ideally wanted all Code Rights registered – or at least the requirement for easements to be registered to be retained where a genuine easement has been granted.  For the reason explained in the preceding paragraph, I cannot see that approach being adopted.

A third correspondent pointed out that not all leases need registering, which seems to have been overlooked by the draftsperson.  There is a simple solution: the requirement for registration should apply only to leases that need to be registered under the Land Registration Act 2002.  Unregisterable (or should that be unregistrable – I never know) leases need to be treated as if they are “any other type of Code Right” and will need to be included within the new category of overriding interests.  The drafting needs tweaking slightly to make that clear.  It is not a major point, I think.  I will mention it in my response.

This is but one aspect of a much larger consultation relating to the proposed revision of the Electronic Communications Code.  I have not had the time to delve into any of the other aspects of it, apart from the three other issues that I mentioned in the earlier article mentioned above.  Let’s just hope that other people have been able to devote some time to it.

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Conferences for surveyors in Leeds, Basildon, Peterborough, Nottingham and Southampton 27 April 2015

Here are some opportunities for surveyors to hear me speak about one of my passions, the Model Commercial Lease, at full-day conferences organised by Professional Conferences.  The conference is called “Current Property Issues 2015″ and has been running very successfully in this format for many years.

The remaining conferences at which I will be speaking are in Leeds (30 April), Basildon (7 May), and then Peterborough and Nottingham in June.

My talk is one of seven sessions during the day.  The other talks during the day are all by experts in their field including John Beckett, Lesley Webber and Paul Clark, and will include a variety of topics including landlord and tenant case law update, alternative dispute resolution (ADR), negligent valuations, current sustainability issues and development disputes.

The cost for attending each event is an astonishingly low £105 plus VAT for the whole day.  A hot lunch costs a few pounds more.  Please mention my name if you are booking as a result of seeing this article.

The speakers and their topics vary slightly between locations.  For information about the sessions at each of the conferences below, click on the location name.

Venues

30 AprilLeeds (Royal Armouries)

7 MayBasildon (Holiday Inn)

9 JunePeterborough (Holiday Inn)

16 JuneNottingham (Nottingham Belfry)

30 JuneSouthampton (Novotel) – sadly I cannot speak on that date so the talk on the Model Commercial Lease will be ably presented by Paul Clark

Other than in Southampton, therefore, I hope to see you there !

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The Law Commission’s land registration project 24 April 2015

The Law Commission has started work on its land registration project.  Professor Elizabeth Cooke, the Law Commissioner responsible for the project, explained what it entails at a training event last night organised by the Commercial Real Estate Legal Association (CRELA), held at the offices of Hogan Lovells.

The project comprises a wide-ranging review of the Land Registration Act 2002, with a view to amendment where elements of the Act could be improved in light of experience with its operation over the past 11 years.  Particular areas to be examined will include the extent of the Land Registry’s guarantee of title, rectification and alteration of the register, and the impact of fraud.  There are concerns that the new provisions are not working as intended, and may require a total overhaul.

Other areas that Professor Cooke expects the project to consider include issues around the new adverse possession regime for registered land, the operation of third party rights (including the manner in which section 29 operates), the requirement for substantive registration of easements in short leases (which do not themselves require registering) and complications caused by various categories of overriding interests.

This is not yet a complete list of areas that the Law Commission will be examining.  Professor Cooke would like to hear from anyone who has ideas about provisions of the Act that could be included within the project.  They will only be included if they cause real difficulty (for example, they cost clients money to resolve).  Changes that would be merely “nice to have” will not make the cut.  Suggestions from the audience at last night’s event included the thorny question of mines and minerals (currently the Land Registry’s guarantee of title does not extend to ownership of mines and minerals that may lie below the surface of the land) and a request for the restoration of land certificates as evidence of ownership in an attempt to deter fraud.

Suggestions for topics to be considered within the project should be sent to Professor Cooke’s team at this e-mail address: propertyandtrust@nulllawcommission.gsi.gov.uk.

The timetable for the project is expected to be the publication of a consultation paper in Spring 2016 and the final report and draft Bill in late 2017.  Sadly, Professor Cooke will not be in post to take forward this exciting project, as from June this year she is to become the Principal Judge of the Land Registration Division of the First Tier Tribunal (Property Chamber).  Good news for the FTT but a loss for the Law Commission.

Obviously this leaves a vacancy at the Law Commission.  Details of how to apply to become the next Law Commissioner to lead on law reform work relating to property, family and trust law can be found on the Vacancies page of the Law Commission’s website.   You will need to hurry, as applications have to be submitted by 30 April 2015, with interviews taking place in June.  You will need to demonstrate in your written application examples where your experience matches the essential criteria detailed below.

• Demonstrable expertise in land law and the ability to lead other projects in the field of family and trust law, to a high level, with the standing to represent the Commission;
• Demonstrable interest in law reform with the ability to think creatively to resolve complex legal problems and to take reasoned decisions;
• Strong analytical and logical skills, with the ability to apply these skills to other areas of the law and offer constructive challenge; and
• Excellent oral and written communication skills, with the ability to present complex ideas to a diverse range of audiences including experience of public speaking.

Good luck with your application.

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Last chance to respond to consultation on new Electronic Communications Code 22 April 2015

At the end of February 2015, the Government issued a consultation document on its proposal to update the Electronic Communications Code.

The consultation closes on 30 April 2015 so we are now approaching the last week.  In time-honoured fashion, therefore, it is now time to take a look at the consultation document.  It’s pretty hefty, since it comes with a draft Bill and guidance notes to the draft Bill.  You can download a copy here.

Most of the issues relate to issues that it is appropriate for telecoms operators (on the one hand) and landowners (on the other) and their respective advisers to respond to.  However, there are some property law issues that need considering, particularly the relationship of the Code with land registration law.  There are several questions in the consultation document on this aspect.

Please do respond to the consultation, even if it is only to answer the questions relating to land registration.  There is no requirement to provide an answer to every question.  You are welcome to copy anything I have written here – although this is unlikely to represent my final thoughts. I am hoping that readers may provide me with further thoughts of their own within the next few days and I will write a final article on the topic nearer to the deadline.  (Use the “comment” function at the foot of this article to provide your thoughts please.)

Incidentally, you’ll see that I use “Code” or “code”, “Code rights”, “code rights” and “Code Rights” all interchangeably – exactly as I advise people not to do.  That is because I have a life, or I am trying to have one.  (This consultation isn’t helping, to be honest.)

The relevant consultation questions

For reasons that will be apparent to you if you look at the questions in the consultation document (viz I have no idea whatsoever of how to answer the other questions), I am just looking at the questions that appear under the heading “The role of land registration”.

This is a complex area, because there are three conflicting requirements:

(1) to leave intact where possible the requirements of land registration legislation while

(2) protecting so far as possible third parties who may not be aware that property they are acquiring is subject to Code Rights and

(3) treating all Code Rights in the same manner wherever possible (so that, for example, it is not important whether a Code Right is granted by way of an easement (which is a property right) or a wayleave (which is a personal licence).

The difficulty we have is that Code Rights can be contained in two different types of document: leases and general agreements, and the latter may or may not create property interests depending on the manner in which they are drafted.  Leases need to be registered under land registration legislation.  But other agreements need to be registered only to the extent that they create property interests (easements typically).  Non-property interests cannot be registered at HMLR.

In relation to these issues, the Law Commission’s proposals (in paras 2.128 onwards of its report Law Com No 336) were:

  • where Code Rights are conferred by a lease, the revised Code should make no special provision as to who should be bound by the lease and its provisions, and should not amend or disapply the normal rules of land registration.
  • where Code Rights are conferred otherwise than in a lease, the revised Code should provide for them to bind successors in title to the Site Provider who granted them, and those with an interest subsequently derived from the title of the Site Provider, as if they were property rights. [This effectively means that it is immaterial whether Code Rights that are conferred otherwise than in a lease are easements (which would requirement substantive registration) or wayleaves (which would not).]
  • the revised Code should provide for an amendment to the Land Registration Act 2002 to the effect that Code Rights that amount to an interest in land, conferred otherwise than in a lease, will be overriding interests so that they are enforceable against purchasers of registered land despite not being registered.

 

I remember thinking, when reading the Law Commission’s report, that this seems sensible.  It is non-sensical to exclude leases that happen to confer Code Rights from the requirement for registration for two reasons.  First, they create an interest in land in the same way as any lease and secondly no-one can be 100% sure whether or not a lease confers Code Rights or not throughout the whole of its term, so out of caution people will register them anyway in order to ensure protection against third parties.

So I am generally happy with the Law Commission’s proposals.  There is just one element of ambiguity to be cleared up.  It is not clear to me whether an easement granted within a lease falls within the phrase “Code Rights conferred by a lease”.  This needs to be clarified.  My preference is that it should be made clear that the phrase encompasses both the demise and any easements granted along with the demise within the lease.  One reason for this is that it would be excessively complex to have two separate systems applying to the registration of one document; another is that many easements within leases (rights of access to neighbouring premises, for example) might not themselves be Code Rights and so would need to be registered under normal land registration principles.  Providing that Code Rights in the form of easements granted within leases do not need to be registered would provide a false sense of security to tenants that none of the easements require registration, which might be incorrect.

Paragraph 10 of the proposed new Code

Paragraph 10 of the proposed new Code is intended to follow the Law Commission’s recommendations.  It needs to be complex because there is no automatic concept of successors in title as there is in landlord and tenant law.  It needs to be set out here as it is referred to in the consultation questions.  It reads as follows:

Who else is bound by code rights?

10 (1) This paragraph applies if, in accordance with this Part, a code right is conferred on an operator in respect of land by a person (‘O’) who is the occupier of the land when the code right is conferred.

(2) If O has an interest in the land when the code right is conferred, the code right also binds–

(a) the successors in title to that interest,
(b) a person with an interest in the land that is created after the right is conferred and is derived (directly or indirectly) out of–
(i) O’s interest, or
(ii) the interest of a successor in title to O’s interest, and
(c) any other person at any time in occupation of the land whose right to occupation was granted by–
(i) O, at a time when O was bound by the code right, or
(ii) a person within paragraph (a) or (b).

(3) A successor in title who is bound by a code right by virtue of subparagraph
(2)(a) is to be treated as a party to the agreement by which O conferred the right.

(4) The code right also binds any other person with an interest in the land who has agreed to be bound by it.

(5)  If such a person (‘P’) agrees to be bound by the code right, the code right also binds–

(a) the successors in title to P’s interest,
(b) a person with an interest in the land that is created after P agrees to be bound and is derived (directly or indirectly) out of–
(i) P’s interest, or
(ii) the interest of a successor in title to P’s interest, and
(c) any other person at any time in occupation of the land whose right to occupation was granted by–
(i) P, at a time when P was bound by the code right, or
(ii) a person within paragraph (a) or (b).

(6) A successor in title who is bound by a code right by virtue of subparagraph
(5)(a) is to be treated as a party to the agreement by which P agreed to be bound by the right.

In terms of land registration, there is no mention of the need to register Code Rights that are conferred by leases – because this is already covered by the Land Registration Act.  However, a change is made in Schedule 1 and Schedule 3 to the Land Registration Act 2002, inserting a new type of overriding interest.  The wording is the same in both cases:

“9A  A code right within the meaning of Schedule 3A to the Communications Act 2003 (the electronic communications code), other than a right conferred by a lease.”

Once again, it needs to be made clear whether or not an easement granted within a lease is within the definition of “a right conferred by a lease”.  My preference, as I have said above, is that easements granted within a lease should be within the definition of “a right conferred by a lease”.

Consultation questions

So now, at last to the consultation questions …

Q.14: Are the principles set out in paragraph 10 of the revised Code sufficient to ensure that Code rights bind the land as against a successor in title as if the Code rights were interests in the land, without the need for registration?

[This is a “cold towel” question and I have not yet found a towel that is sufficiently cold to enable me to work out the answer.  Strictly speaking it is not a property law question]

Q.15: If you consider that paragraph 10 is sufficient, is it necessary to provide that some Code rights should be treated as overriding interests, given that overriding interests are not registered?  Does it matter if Code rights in leases and agreements other than leases are treated differently?

[The wording of this question betrays a lack of understanding of land registration basics.  If a right is to bind land without the need for registration at HMLR, it is necessary either to state that it is exempt from the need for registration (as the current code purports to do) or include it in the list of overriding interests.  Otherwise there is a mismatch between the code and the land registration legislation.

It does not matter that code rights in leases and in agreements other than leases are treated differently.  It is not ideal but one can cope with it.]

Q.16: Should the binding nature of Code rights on successor in title and others who acquire an interest in the land depend on whether the Code rights are registered under applicable land registration legislation?

[This is asking the same question from another viewpoint.  It is sufficient to say that the Law Commission’s proposals make sense.]

Q.17: If your view is that Code rights should be subject to land registration legislation, what should be the consequences of a failure to register a lease containing Code rights (assuming it is required to be registered under the general law) against a successor in title?

[Under land registration law, a lease that ought to have been registered but has not been registered is not an overriding interest under paragraph 1 of Schedule 3, but may be an overriding interest under paragraph 2 of Schedule 3 (the rights of a person in actual occupation).  The logic is that if someone is in occupation, a third party will discover this and can quiz the person as to their rights (although in practice this of course never happens).  The question is whether an operator should be treated as being in actual occupation by reason of the presence on the property of telecommunications equipment.  The answer to this is probably No, although one day the court might be asked to rule on the point.  Logically, it is difficult to see why a telecoms operator that has failed to register a lease that requires registration under the land registration legislation should be in a different position from any other tenant.  Its interest will not bind third parties.  So paragraph 10 (set out above) needs to be made subject to the provisions of the land registration legislation that require registration of leases and easements within leases.]

Q.18: If there is no requirement to register Code rights under applicable land registration legislation, what will be the impact on the successors in title, i.e. purchasers of land, given Code rights will not appear on title documents?

[The same as now: sellers will be asked enquiries about the property and if they are not truthful they will be held liable]

Q.19: Are there other ways to protect purchasers of land apart from registration of Code rights under land registration legislation, for example by including questions about Code rights and electronic communications apparatus in standard form inquiries before the transaction is completed?

[Been there, already done that.  Hooray for the CPSEs.  Code rights must surely be within “Adverse rights” under enq 3.4 of CPSE.1, defined as “any covenants, restrictions, agreements, rights or informal arrangements of any kind to which the Property is subject (whether public or private and whether existing or in the course of acquisition)”]

Three changes to landlord and tenant law in the draft Bill

I have unearthed three changes to landlord and tenant law in the draft Bill.  They are not mentioned in the consultation paper itself but the first and second of them were recommended by the Law Commission.

(a)  Landlord and Tenant Act 1954

A new section 23(5) is added to the Landlord and Tenant Act 1954 to provide that there is no protection under that Act for leases to which the code applies.  We also agree that it is not necessary for leases that confer code rights also to enjoy the protection of the 1954 Act.  The proposed wording is:

“[Part 2 of the Landlord and Tenant Act 1954] does not apply to a tenancy the primary purpose of which is to grant code rights within the meaning of Schedule 3A to the Communications Act 2003 (the electronic communications code).”

I am not certain that this wording is sufficient.  If I grant you a lease of part of a field where you are going to build a mast, the primary purpose is to grant you a lease so that you can build a mast, not to grant Code Rights.  I think this wording could do with strengthening.  I haven’t thought of more appropriate wording yet.  Perhaps my readers could assist here.

It would also be handy to make it clear whether this provision is retrospective (ie does it apply to leases already granted or only to leases entered into after the section comes into force?).

(b)  Landlord and Tenant Act 1987

A new type of exclusion will apply in the Landlord and Tenant 1987 so that this does not trigger the residential tenants’ rights of first refusal:

“the conferral of a code right under Schedule 3A to the Communications Act 2003 (the electronic communications code)”

Again, I do not think this emphasises sufficiently the fact that the purpose of the transaction is the grant of a lease not the conferring of code rights.

(c)  Landlord and Tenant (Covenants) Act 1995

A new section 5(5) is added into the Landlord and Tenant (Covenants) Act 1995, to make it clear that the tenant’s release is subject to paragraph 15(4) of the code, which provides that an outgoing tenant of a lease protected by the code is not released until it notifies the landlord of the name and contact details of the incoming assignee:

“This section is subject to paragraph 15(4) of Schedule 3A to the Communications Act 2003 (which places conditions on the release of an operator from liability under an agreement granting code rights under the electronic communications code).”

That is quite enough to be going on with.  If anyone actually manages to remain awake right to the end of this article, please do add a comment below to highlight your achievement.

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Plastic bag? That will be 5p please 21 April 2015

When I order a delivery from my local Waitrose, attracted by no delivery charge if I spend £60 or more, the food and other items are delivered in carrier bags that are themselves contained in green crates.  The driver wheels the crates up to my house on a trolley, hands over the carrier bags and takes away the crates.  I am left with a load of unwanted carrier bags.  The driver will take them back but they are recycled, not re-used.  What a waste of resources.

“What happens in Wales?” I asked the driver once.  He told me that there is an option for customers in Wales to opt out of receiving the bags – because (as both of us knew) in Wales shops have to charge 5p for a non-reusable carrier bag, and it is not sensible to force your customer to buy one – or many, in the case of my Waitrose deliveries.  And now, with relatively little fanfare, the Welsh approach is coming to England.

From 5 October 2015, the Single Use Carrier Bags Charges (England) Order 2015 will require large businesses (those with 250 or more full-time employees) to charge at least 5p for a single-use plastic carrier bag, and to provide reports to the Government annually on the number of bags that have been “bought” by customers.  As in Wales, there are exemptions that cover certain types of goods including uncooked meat and fish and “live aquatic creatures in water” (which presumably means goldfish).  “Bags for life” and sealed bags are not covered by the regulations at all.  Biodegradable bags may be the subject of an exemption in the future.

“What happens if I don’t?” is always the question clients ask.  Enforcement is by local authorities.  They will have various powers to question and inspect.  Penalties of up to £5,000 are possible for not charging for bags, not keeping the necessary records and a host of other misdemeanours.

“What happens to the money?” is a question that customers may ask.  Presumably a single-use plastic carrier bag doesn’t cost the retailer anything like 5p, so there will be a profit.  The Government, rather cheekily, says on its website “Carrier bag charges: retailers’ responsibilities” that “Once you have deducted reasonable costs, it’s expected that you’ll donate all proceeds to good causes.”  For this purpose, it says “reasonable costs” does not include the cost of buying the bags in the first place.  Any business that retains its profits from selling carrier bags rather than giving the money to good causes will no doubt end up on the front pages of the tabloids.

What will consumers think?  The cost is not high, and Marks & Spencer has been charging 5p for plastic bags for years.  Other retailers also do so.  There will be confusion when consumers see some retailers charging for plastic bags (because they have 250 or more employees) and other not doing so.  It seems to me that the organisations that are going to find this most problematical are supermarkets (the Government’s impact assessment says that over 7 billion carrier bags were given out in 2012 by supermarkets alone).  When packing in a supermarket, customers are used to taking as many carrier bags as they want.  One bag costing 5p is immaterial – but ten bags costing 50p is beginning to look expensive (and how many bags do you pay for when you don’t know until you have finished packing how many you are going to need?).  And for deliveries, Waitrose (and presumably others) will need to re-invent their packing and delivery procedures, as I explained at the start of the article.

For more information, have a look on the Government’s website about it: “Carrier bag charges: retailers’ responsibilities” and if you want more detail (much, much more detail) have a look at the Government’s impact assessment, which is an astonishing mixture of analysis and guesswork.

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Improvements to Falco Legal Training’s website 20 April 2015

From today you will see some improvements to Falco Legal Training’s website, suggested by you, the users.  Thank you for your ideas and thank you to Tamsin of Pynto Limited, who looks after the website, for introducing these changes so speedily.

Search function

Several people recently have asked for a search function, so you will now find a search box in the top right of those web pages that feature a separate right hand column (which is most pages on the website).

To be honest, I have no idea how the search function works, but it seems to be pretty good at finding things.  So we’ll leave it at that.

Archive of blog articles

When I launched Falco Legal Training’s website about 16 months ago, I had no idea how quickly the number of blog articles would grow.  It’s become quite difficult to find older articles.  The search function will help, of course, but for people who have only recently started to read the articles, I thought it would be helpful to have a complete list of them.

So I have introduced an archive function, which you can use in two different ways:

  • click on “View All” in the top corner of the Peter’s Blog page (and also in the top corner of each blog article) to be taken to a complete list of all my articles, in reverse chronological order (ie with the latest article at the top).  You can also reach that page from a link at the top of the Articles page.
  • alternatively, further down the right hand column on the Peter’s Blog page (and also in the same place on each blog article), there is a list of months and years headed “Archive”.  Click on the one that interests you and you will see the complete text of all the articles in the chosen month.

 

Complete list of my training sessions

A new flyer is available that lists all nine of the training sessions that I am currently offering:

 

Other courses in the Ten Important Pointers series are still being written but the existing six courses should provide something of interest for everyone for now.

You can open (and print) the flyer by clicking on the link in the “Overview” section at the top of the Training courses page.  Alternatively, for those who like the easy life, click here !

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Last opportunity to book for CRELA’s talk on the Law Commission’s land registration project 16 April 2015

There are still a few places left at the forthcoming CRELA** Commercial Real Estate Update in the City of London.  This takes place on the evening of Thursday 23 April 2015 at Hogan Lovells’ office in the City of London.  I will be one of the speakers, talking about one of my favourite topics – the Model Commercial Lease.  But the star of the evening will be Professor Elizabeth Cooke, one of the Law Commissioners.

The event will comprise a 90 minute session covering three main topics on current commercial real estate issues.  What follows is a summary.  You can see full details in my article on 3 March 2015 “CRELA’s Commercial Real Estate Update in the City of London“.

The Law Commission’s Land Registration project
Professor Elizabeth Cooke (Law Commissioner)

Recent and forthcoming changes to SDLT
Richard Smith and Peter Williams

The Model Commercial Lease
Peter Williams

Venue:

Atlantic House, Holborn Viaduct, London EC1A 2FG
(Offices of Hogan Lovells International LLP)

Timings:

6.00 pm – 7.30 pm (registration and coffee from 5.30 pm)
followed by drinks and networking until 8.30 pm

1.5 CPD points

Tickets:

No attendance restrictions.  Open to everyone.

Please book using the Booking Form which you can find here.

Members £25 + VAT
Others £45 + VAT

** CRELA = Commercial Real Estate Legal Association – see www.crela.org.uk

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ESOS explained 2 April 2015

Among the torrent of acronyms recently, you may have heard ESOS and wondered what it means.  It stands for Energy Savings Opportunity Scheme (many Savings but only one Opportunity), yet another piece of greenery.  It is not directly related to property, but it would be inappropriate for property lawyers to be ignorant of it.  From the client’s point of view, greenery is greenery and they expect their advisers to have a basic understanding of the key issues.  ESOS is definitely a key issue.

Why ESOS?  Yesterday (1 April, in case you hadn’t noticed), in my article entitled “Government promotes the use of green leases through tea and biscuits“, I wrote about Article 19 of the EU Energy Efficiency Directive.  Today is not 1 April but you may need reminding, as is the case when reading many EU initiatives.  ESOS is the product of the UK’s implementation of another provision of that directive, Article 8.  This is headed “Energy audits and energy management systems” and reads (in part):

1.  Member States shall promote the availability to all final customers of high quality energy audits which are cost-effective and:

(a) carried out in an independent manner by qualified and/or accredited experts according to qualification criteria; or
(b) implemented and supervised by independent authorities under national legislation.

4.  Member States shall ensure that enterprises that are not SMEs are subject to an energy audit carried out in an independent and cost-effective manner by qualified and/or accredited experts or implemented and supervised by independent authorities under national legislation by 5 December 2015 and at least every four years from the date of the previous energy audit.

You will see that this is one of the easier EU requirements for the Government to transcribe into UK law.  We can understand what it says, and see exactly what it requires.  The UK requirement is effectively that organisations that fall within ESOS must carry out ESOS assessments every 4 years.  These assessments are audits of the energy used by their buildings, industrial processes and transport to identify cost-effective energy saving measures.

Who is affected?

The most complicated aspect is working out which organisations are subject to ESOS, since Article 8 says that it does not apply to SMEs.  Broadly, an organisation is subject to ESOS if, on 31 December 2014, it met the ESOS definition of a large undertaking.  Corporate groups qualified if at least one UK group member met the ESOS definition of a large undertaking.

A large undertaking is either

(1) a UK company that either:

– employs 250 or more people or
– has an annual turnover in excess of 50m euro (approx £39m), and an annual balance sheet total in excess of 43m euro (approx £33m); or

(2) an overseas company with a UK registered establishment that has 250 or more UK employees (paying income tax in the UK)

Organisations must notify the Environment Agency (which oversees the scheme) by a set deadline that they have complied with their ESOS obligations. There is no registration requirement.  The Environment Agency does not expect to hear from organisations until they are fully compliant, which must be by 5 December 2015.  As there is no registration, it is not possible to say exactly how many organisations will be subject to ESOS. As with the Carbon Reduction Commitment, however, it is not clear how certain structures fit into the ESOS definitions.

What ESOS requires

ESOS requires the organisation to calculate its total energy consumption and identify areas of significant energy consumption (meaning assets and activities that amount to at least 90% of the organisation’s total energy consumption).  It must also identify energy saving opportunities.  Currently (and this is likely to change), there is no requirement to do anything as a result of obtaining this information.  But, as with CRC a few years ago, the very fact that an organisation has this information to hand must make the board sit up and take notice.  HOW MUCH are we spending on energy?  And how can we reduce it?

The implications for landlords are interesting.  Unlike CRC, which requires landlords to report (and surrender allowances for) energy supplied to their tenants, ESOS requires landlords to exclude energy supplied to tenants.  The implications of this were considered in a helpful article by Emma Hoskyn called “Motivation for slimming down” in Estates Gazette (17 January 2015), which is worth seeking out if you have access to EGi or the magazine (I cannot link to the article online as it is behind the Estates Gazette firewall).

This is only a summary of a hugely complex topic.  The Environment Agency’s compliance guide (which you can see here) is 78 pages long.

 

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Government promotes the use of green leases through tea and biscuits 1 April 2015

Readers will have seen that the Government has been working hard at complying with the obligations imposed on EU member states by various Energy Efficiency Directives.

The introduction (with little warning) of the Heat Network (Metering and Billing) Regulations 2014 is part of this process, to implement Articles 9, 10 and 11 of the Energy Efficiency Directive (you can read my most recent article on the topic here).

Now comes another initiative, to comply with Article 19.  Never heard of it?  You are not alone.  It aims to resolve the landlord-tenant “split incentive”, as people call it.  This arises from the fact that landlords tend to pay for the improvements to (for example) energy efficiency in relation to tenanted buildings, but it is the tenants who reap the benefit in lower occupation costs and greater comfort.  Yet there is little evidence so far that more energy-efficient buildings are “worth” more, in terms of rental or capital value.  Therefore, why should landlords spend the money improving their buildings when they gain no reward for doing so?  Article 19 aims to solve the problem by legislating it away.

Article 19(1) reads as follows:

“Member States shall evaluate and if necessary take appropriate measures to remove regulatory and non-regulatory barriers to energy efficiency, without prejudice to the basic principles of the property and tenancy law of the Member States, in particular as regards:

(a) the split of incentives between the owner and the tenant of a building or among owners, with a view to ensuring that these parties are not deterred from making efficiency improving investments that they would otherwise have made by the fact that they will not individually obtain the full benefits or by the absence of rules for dividing the costs and benefits between them, including national rules and measures regulating decision-making processes in multi-owner properties;

(b) …

Such measures to remove barriers may include providing incentives, repealing or amending legal or regulatory provisions, or adopting guidelines and interpretative communications, or simplifying administrative procedures. The measures may be combined with the provision of education, training and specific information and technical assistance on energy efficiency.”

One specific example – possibly the only example – of an initiative aimed at solving the “split incentive” in relation to energy efficiency is the Green Deal.  A landlord borrows funds to improve its building, and the loan is repaid by the tenant through reduced energy bills – so both landlord and tenant win.  This was the basis on which MEES was sold to us.  Unfortunately the Green Deal has not been a success for a variety of reasons, and there is no sign of a commercial version (see my article entitled “MEES commencement order is made” on 30 March 2015).

Green tea leases

Now the Government is pinning its hopes on green leases.  A green lease, according to the Better Buildings Partnership, is “a standard form lease with additional clauses
included which provide for the management and improvement of the environmental performance of a building by both owner and occupier(s)”.  The BBP publishes a variety of excellent “toolkits”, one of which is called the Green Lease Toolkit (available at www.betterbuildingspartnership.co.uk and also available as an app for your iPad).

The concept of a green lease originated with the Australian Government, which for some time has insisted on an environmental schedule in the majority of leases that it enters into (whether as landlord or tenant), aiming to get both parties talking to one another about how to improve the energy efficiency of the building (there is a useful policy document here).  Therefore it is appropriate that the UK Government has just announced a similar initiative – albeit several years later.

The Government’s new initiative is being promoted through the Energy Efficiency (Yearly Oversight Review) (England) Regulations (a separate set of regulations will apply in Wales if the Welsh Government follows the English example).  These are still in draft at this stage, and about to be the subject of a consultation exercise.  They will imply into every commercial lease a series of provisions along the lines of green lease provisions.  The key requirement is for the landlord and the tenant (or tenants) to establish a forum for discussions about the environmental performance of the building.  It is believed that the requirements will be left relatively vague, and this suggestion from the BBP Green Lease Toolkit is likely to prove helpful:

“Owners and occupiers should agree a forum for discussion of issues related to Environmental Performance. This may take a variety of forms depending on the size, nature and complexity of the Building.

The forum should communicate periodically to:
• Ensure effective communication of operational performance data.
• Set and review an environmental management plan for the Building including specific targets.
• Ensure maintenance and cleaning services are aligned with sustainability       targets.”

Much the same sort of requirement is contained in the sustainability schedule in the Model Commercial Lease, of course, although this has been introduced too recently for us to be able to draw any conclusions as to whether this sort of “light green” lease proves popular with owners and occupiers of commercial property.

Refreshing originality

What the BBP toolkit fails to address, however, is the issue of refreshments to be served at the forum meetings, and here the Government’s draft regulations are more directive.  Possibly this is because they have been prepared by civil servants, famous (perhaps unfairly) for liking their afternoon tea and biscuits.  No matter what sort of forum is chosen, it is vital (say the regulations) for appropriate refreshments to be provided.  Two different schedules contain permissible types of beverage (schedule 1) and biscuits (schedule 2), although additional types of each may be provided so long as sufficient advance notice is given when the meeting is called.  Those with food allergies are well catered for, with gluten-free diets (for coeliacs) specifically mentioned.  Home-made cakes and traybakes are encouraged, although the requirements of schedule 3 then need to be complied with in terms of hygiene, listing of ingredients and packaging.  Both landlords and tenants are likely to decide that buying refreshments will be simpler.

People have been asking why it has taken so long for green leases to catch on.  There are a number of reasons, including reluctance on the part of both landlords and tenants to spend money and time sitting around a table discussing what are seen as unimportant issues.  The Government clearly believes that the problem lies with the refreshments, and has set out to solve that aspect, and obtain some brownie** points from the EU Commission in terms of complying with Article 19(1) at the same time.

You can find further details of the Energy Efficiency (Yearly Oversight Review) (England) Regulations, or EEYORE as they will doubtless become known, on this website.

** Pun definitely intended

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