UK real estate: What’s on the horizon for 2025?

As expected, 2024 brought about a new UK Government. They heralded their first Budget in the autumn as a “budget for growth”, but many businesses and forecasters remain sceptical. Meanwhile, in the USA, the return of a Trump administration has already caused shifts in policies and in the global market. Against this backdrop of political tension and economic uncertainty, it is more important than ever to stay on top of the significant legal changes that are set to impact the real estate sector. In this insight, we consider the key issues that investors, occupiers and developers will need to navigate in 2025. 

Planning

The new government promised planning reform and some of the most significant changes to planning regulation in a generation were announced in 2024.  The government has committed to an ambitious target of delivering 1.5m new homes in this Parliament along with the critical infrastructure needed to deliver economic growth.  The real estate sector has welcomed this focus on reform, but key industry figures have criticised the lack of detail in some areas and questioned whether these targets will be met. What further developments can we expect in 2025? 

The revised National Planning Policy Framework (NPPF) was published at the end of 2024 with the new definition of ‘Grey Belt’ land being one of the most publicised changes.   The government remains committed to a brownfield first approach, but the updated NPPF now requires councils to review their greenbelt boundaries to meet targets, identifying and prioritising this lower quality ‘grey belt’ land.  Developers need more detail - the government has acknowledged this and further guidance is due to be published in 2025.

The Planning & Infrastructure Bill is expected to be published in March 2025.  This is intended to improve local decision making and simplify the consent process for major infrastructure projects.  Throughout 2025, we also expect government responses and new consultations on a range of reforms including compulsory purchase, the consenting regime for data centres, the introduction of AI growth zones and a new approach to Nature Recovery.  The latter will see developers paying contributions into a central fund to meet their environmental obligations, representing a move away from the traditional project-by-project method.  We await the details of this reform with interest - will it enable developers to “proceed immediately” as promised by government’s press release?

Building Safety

Described as “the biggest change to building safety regulation in a generation”, the Building Safety Act 2022 introduced radical changes to the regulatory landscape for the built environment.  Our construction team provide regular updates on this important topic and you can read our cladding and building safety insights here. 

Turning to the year ahead, the long awaited building safety levy is set to be introduced in autumn 2025 and developers will need to start considering how to factor this into their project costs for residential schemes (regardless of height).  The consultation response published by the previous government acknowledged that there will be an impact on the viability of some more marginal projects which will impact the number of homes built in the short term.  Concerns have therefore been raised that the introduction of the levy will accelerate the loss of SMEs in the house building industry.  Operators in the living sector will be keen to review the detail of the draft legislation, due to be published in spring 2025.  We understand that there will be certain exemptions, for example developments of fewer than 10 residential units or fewer than 30 bedspaces in Purpose Built Student Accommodation (PBSA). 

We expect further legislation to be published following the announcements made in the Remediation Acceleration Plan at the end of last year. We know that the government intends to introduce legislation imposing (i) a new duty to register buildings that contain two or more residential units and are between 11-18m tall and (ii) a new duty on those responsible for buildings 11m and over to take the necessary steps to fix their buildings within clear timescales.  The government has indicated that there will be both financial consequences for inaction and a new criminal offence.   

The issue of who pays for any necessary remediation works remains contentious and further case law is anticipated throughout the year ahead. We hope that the Court of Appeal will provide clarity on the “just and equitable test” in the context of remediation contribution orders in its upcoming decision in Stratford Village Development Partnership v Triathlon Homes LLP, due to be heard in spring 2025.

The industry has spent the last few years adjusting to the new regulatory landscape but further changes are on the way. Developers, landlords and investors alike will need to monitor this ever-evolving topic given the potential financial and reputational risks involved. The government has bold plans but there will be challenges ahead, not least dealing with the ongoing resourcing issues at the Building Safety Regulator.

Leasehold Reform

Residential leasehold reform has been a hot topic in recent years and we are expecting further significant reforms. The Freehold and Leasehold Reform Act 2024 focuses on long residential leases and includes a ban on new leasehold houses, subject to certain permitted exceptions such as retirement housing, and new rules affecting leasehold service charges, freehold estate charges and property sales information.  However, most of the Act is not yet in force and the government has acknowledged that it contains some specific but serious flaws, relating to valuation and lease extensions, which need to be rectified.  The Minister for Housing & Planning has described this as “an incredibly complicated area of property law” and has acknowledged that “switching the Act on in full will take time”.  He set out the government’s proposed timetable his November statement and we expect to see an extensive programme of secondary legislation throughout  2025.

The Build to Rent sector will be tracking the progress of the Renters’ Rights Bill, due to be enacted by spring 2025.  This will transform the private rented sector by abolishing assured shorthold tenancies (ASTs) and section 21 ‘no fault’ evictions. A new private rented sector database will also be introduced, which will increase administrative costs for landlords, along with a new Private Rented Sector Landlord Ombudsman. The Bill has just completed its passage through the House of Commons and some of the most recent changes may be of concern for professional landlords, for example the abolition on advance rent payments.  The explanatory notes make it clear that PBSA is to be exempt but there remains ongoing uncertainty as to whether the technical wording of the Bill fully achieves this.  The British Property Federation is lobbying for clarity on this issue. 

If that were not enough, we also have the Leasehold and Commonhold Reform Bill to look forward to, due to be published in the second half of 2025.   This will seek to reinvigorate commonhold tenure.  This was first introduced back in 2020 to enable freehold ownership of flats but fewer than 20 commonhold developments have been established to date.  The government has also indicated that this bill will “regulate ground rents for existing leaseholders”.   It will be challenging to balance the legitimate interests of landlords and tenants in this regard and reform could have a significant impact on freeholders and investors, such as pension funds, that rely upon ground rent income streams.   We do not have the details yet, but the use of the word “regulate” may perhaps be indicative of a cap rather than abolition of existing ground rents (they have already been abolished for new leases).

Commercial leases will also be under the spotlight with the Law Commission’s consultation on reforming the Landlord and Tenant Act 1954 remaining open until 19 February 2025.   This is the first step in a two-stage consultation process so it will be a long time before any legal changes are implemented and there is no guarantee that Parliament will act upon the Law Commission’s final report. However, the ongoing consultation is a valuable opportunity for the sector to put forward its views and potentially influence the direction of future reform.

ESG

Following a period of uncertainty, we now have some clarity on the EPC trajectory for both residential and commercial properties.  The government’s recent response to the Climate Change Committee’s progress report indicates that we can (finally!) expect a response to the 2021 consultation on the minimum energy efficiency standard (MEES) for commercial property early in 2025.  The government will also consult early this year on proposals to increase MEES to EPC rating C by 2030 for homes in the private rented sector and all social housing.

EPC methodology remains ripe for change, as we previously highlighted in our 2024 insight.  There is currently an ongoing consultation about improving EPCs to consider updates to EPC metrics and how to improve the quality and accessibility of EPC data.  Investors and occupiers will want to monitor developments in this area which will be key to future strategic decisions affecting property portfolios.

Energy and sustainability remain a priority in the real estate sector and we expect that trends such as the expansion of EV charging infrastructure, the focus on commercial retrofitting and increased focus on green lease clauses will continue into 2025. 

Business Rates

Will this be the year that we see some meaningful reform of business rates?  They are forecast to raise £26 billion in 2024-25 and make up a quarter of Local Authority core spending power.   However, this tax presents a huge challenge for the retail, hospitality and leisure sector and current levels are no longer sustainable. 

The government has already introduced a Bill which will allow it to introduce permanently lower multipliers for retail, hospitality and leisure properties (with a rateable value under £500,000) from April 2026-27.  This will be funded by “the top one percent of high-value properties, such as large warehouses used by online giants”.

However, businesses may be disappointed given Labour’s manifesto commitment to “replace business rates” as these changes are really only a sticking plaster.   Wider reforms are discussed in the policy paper, Transforming Business Rates, but the timescales indicate that the wholesale replacement of the current business rates system will likely take longer than one Labour term.  The government is conducting engagement on this policy paper through to March 2025 and we encourage you to take this opportunity to submit representations here.

Artificial Intelligence

The impact of AI on real estate will be increasingly significant in future years as the sector seeks solutions to boost efficiency and productivity. We anticipate an increasing use of data driven investment platforms using AI and machine learning, virtual property tours, enhanced due diligence solutions, property management tools to increase tenant engagement and smart building tech to collate ESG data. Developments in this area present huge opportunities but are not without risk. At Clyde & Co, we are at the forefront of this transformation, offering our clients expert guidance and pragmatic advice on AI (see our Guide to AI Regulation here).

We will continue to monitor and report on these and other legal developments throughout the year on our UK Real Estate Hub. To receive insights direct to your inbox, you can subscribe here.