CAP Code Update

The Advertising Standards Authority (ASA) has updated the Committee of Advertising Practice (CAP) and the Broadcast Committee of Advertising Practice (BCAP) codes to align with the Unfair Commercial Practices (UCP) provisions of the Digital Markets, Competition and Consumers Act (DMCC). The UCP provisions of the DMCC came into force on 6 April 2025 and the CAP and BCAP code changes came into force immediately.

The DMCC revokes and restates (with slight amendments) the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs) - the primary legislation with which the CAP and BCAP codes derive their rules in relation to misleading advertising. The main principles of misleading advertising in the codes remains the same under the UCP, with the main differences being changes to definitions and structural amendments, along with several new categories of prohibited practices, the most notable being fake consumer reviews and drip-pricing.

How could it impact your business?

The UCP provisions and subsequent amendments to the codes will particularly impact the marketing practices of businesses which invite consumers to purchase, and which publish their customer reviews, with greater restrictions and ramifications for noncompliance. Therefore, companies should pay particular attention in reviewing their current policies and processes on dealing with fake customer reviews and drip pricing.

Fake reviews

The CMA has confirmed that for the first three months from 6 April, the ASA will be focusing on supporting businesses with their compliance to the new rules in relation to fake reviews, rather than enforcement. Businesses which publish their consumer reviews through publication formats such as websites, social media, search services and online marketplaces, should have procedures in place to prevent, identify and remove fake reviews. In turn, businesses should have a published policy that clearly prohibits fake reviews, along with stating the approach to incentivised reviews and consumer review information. Regular risk assessments should also take place.

Businesses are encouraged to take these preventative measures along with seeking external compliance advice in determining that the procedures in place are effective in ensure that these reviews are compliant. This is a significant change to the current position regarding reviews, and simply relying on the due diligence of third party organisations, such as google reviews and Trustpilot, will not be sufficient to meet compliance obligations.

Drip pricing

The ASA has confirmed that it will continue to take enforcement action against drip pricing issues and adverts that breach the rules. However, with the CMA as primary regulator, we are yet to see how this will work in practice. This will be the case particularly for drip pricing rules already well understood by the ASA, such as the ban on adding unexpected and unflagged charges at the end of the purchasing journey. Compliance and advertising teams should ensure that all material information (for example, the total price which includes all non-optional charges such as any fees, taxes or additional charges etc) is included within all invitations to customers to purchase. Marketing and compliance teams should therefore take action now and review the updates to ‘material information’ provided by the CMA guidance to ensure that current advertisements do not omit information on the prescribed list.

What steps should you take?

With the new provisions for unfair commercial practices under the DMCC comes the CMA powers to directly enforce the new provisions, including the power to issue fines for breaches of up to £300,000 or 10% of the business’s global turnover, whichever is higher.

In terms of action to take with regards to preventing fake reviews and drip pricing, businesses should ensure that they have drafted and updated their consumer reviews and pricing policies, whilst conducting regular risk assessments to identify any necessary changes required for websites or marketing materials.

In turn, compliance teams should take adequate training on the consumer provisions of the DMCC to ensure they are familiar with the changes and roll out the same to marketing teams within the business.

Where further guidance is required, businesses are encouraged to seek external advice where necessary, particular in the first three months following the 6 of April.

The Companies House voluntary period for identity verification is now live

The Companies House voluntary identity verification process is now available for the 6 million or so individuals who will eventually need to verify their identity.

At the same point that the service went live, Companies House published further guidance on identity verification by individuals and Authorised Corporate Service Providers (ACSPs). An ACSP is an organisation that is registered with a UK Anti-Money Laundering supervisory body, for example a solicitor or accountant.

The guidance for individuals lists:

• the identification documents that can be used to complete the online verification, such as a biometric passport from any country, UK photo driving licence, UK biometric residence permit/card or UK frontier worker permit (it also notes that individuals will need their current address and year they moved in).

• ways to verify identity, which includes: online at Companies House; using an ACSP; or in person at either 1) a Post Office, or 2) with bank or building society details (in which case a national insurance number will be required).

The guidance for ACSPs states:

• An ACSP must be registered as a Companies House authorised agent before being able to verify someone's identity.

• The information that an ACSP must provide about an individual, which includes 1) the individual's name, 2) date of birth, 3) home address, 4) an email address which Companies House will send the person's 11-character personal code to (Personal Code), 5) confirmation of which identity document was checked, including its key details and 6) if the document was checked by a person or by using identity validation technology. ACSPs are not required to submit copies of the documents used for verification.

• Copies of all identity checks, including copy documents, should be kept by ASCPs for seven years from the date of the check. They must also print or save a copy of the identity verification details submitted to and shown by Companies House. An ACSP may be suspended or prevented from acting if they cannot provide records of identity checks when asked, or if they have not met the identity verification standard.

On receipt of a submission, Companies House will email the Personal Code to the individual which connects their verified identity to Companies House records. Once connected, the public register will show the identity verification statement.

How could it impact your business?

After initially postponing the service, Companies House are pushing on with their plans and there now appears to be clear guidance for both individuals and ASCPs.

ACSPs, directors and persons with significant control (those who own more than 25% of shares or voting rights in a company) will need their Personal Code by autumn 2025 in order to make various filings at Companies House. For example:

• If you’re currently a director, from autumn 2025 you’ll need to provide your Personal Code as part of your company’s next confirmation statement filing.

• If you become a director after autumn 2025, you’ll need to provide your Personal Code as part of your appointment filing or when you incorporate a company.

• From autumn 2025, you will also need to provide your Personal Code to Companies House if you become a PSC.

Previously, Companies House had confirmed that, in autumn 2025, the identity verification will become mandatory for all directors and PSCs on new incorporations. However, Companies House latest guidance suggests that this is being extended to new filings as well. There will be a 12-month transition period for existing directors and PSCs.

No specific date in autumn 2025 has been given yet. However, it is important to note that verification will not become a legal requirement at this point, but it will impact what you can and cannot do at Companies House as outlined above.

What steps should you take?

Voluntary verification is now live so make sure you verify ahead of time, keep an eye on updates and be mindful of the inconspicuous autumn 2025 date.

If you are unsure what the requirements are for your identity verification, or when you should be verifying, follow the guidance at the Companies House website or speak with an ACSP who will be able to assist.

UK Government publishes Cyber Governance Code of Practice

On 8 April, the Department for Science, Innovation and Technology (DSIT) published a new Code of Practice, aimed at supporting directors in governing cyber risks by highlighting the most critical actions for which they will be held responsible.

Speaking at a Cyber Security conference in Exeter on 25 April, Minister Chris Martin explained the intention behind the Code as being “to help boards prepare for cyber incidents and therefore recover [from any such incident] more effectively”. Mr Martin described having an incident response plan as being “as critical to [an organisation’s] infrastructure as a fire escape is to its premises”.

How could it impact your business?

The Code is aimed at the directors of medium-large public and private sector organisations (note that it is not intended for cyber security specialists, or those managing cyber security). It forms part of the Government’s wider support package for directors on cyber governance.

The Code should be the first point of reference for boards and reviewed in conjunction with other package resources, namely:

• Cyber Governance Training aimed at helping directors understand how to govern cyber security risks ("Training");

• Cyber Security Toolkit for Boards aimed at supporting boards in implementing the actions set out in the Code ("Toolkit"); and

• Cyber Essentials (the Government-backed certification scheme that helps organisations implement fundamental cyber security controls).

Together, these resources set out what the Government considers to be “the minimum standard that organisations should have in place to manage their cyber risk”.

What steps should you take?

The Government considers cyber risk to be material for almost all organisations and states that governing such risk requires strong engagement and action at leadership level. Chris Martin described the Code as “formalising the landscape and clarifying Government expectations of directors”. Accordingly, the Government is likely to take a dim view of disregard and non-compliance by boards.

Directors of medium to large organisations must therefore:

1. Familiarise themselves with the Code and the related Training and Toolkit, to ensure they understand and are meeting their responsibilities; and

2. To the extent not already done, ensure their organisation is certified to Cyber Essentials standards, to demonstrate it has adequate risk controls.

Additionally, and despite the Code not being created for, or directed at them:

1. Cyber security, legal and risk teams can use the Code to highlight board responsibilities; and

2. Small organisations are expected to “seek to implement the Code’s principles”. (SMEs are also referred to the NCSC website for tailored guidance.)

For Women Scotland Ltd v The Scottish Ministers – gender reassignment and sex discrimination

The Supreme Court has delivered a seismic decision on the interpretation of the Equality Act 2010 (EqA 2010) in relation to gender reassignment and sex discrimination. A campaign group called “For Women Scotland” challenged the Scottish Ministers’ approach under the Gender Representation on Public Boards (Scotland) Act 2018, which states that trans women with gender recognition certificates should be treated as women for the purposes of monitoring gender representation on public boards.

A key aspect of the case turned on interpreting what the main UK Equalities Legislation (i.e. EqA 2010) meant when referring to ‘sex’, ‘man’, ‘woman’, ‘male’, ‘female’. Specifically, how those terms should be interpreted with reference to the Gender Recognition Act 2004, which allows a person to change their legally recognised sex through a Gender Recognition Certificate. The specific question was whether, on obtaining the Gender Recognition Certificate, the person becomes their acquired gender, or if they remain identifiable based on their biological sex.

The Supreme Court found a clear distinction between biological sex and certificated sex under the EqA. It considered that conflating the two definitions would create challenges in interpreting other areas of law, particularly around pregnancy and maternity discrimination, and single-sex services (such as women only wards in hospitals and in social care settings, communal accommodation and sport). It was therefore decided that a reference to “sex,” “man,” and “woman” in the EA 2010 refers to biological sex.

How could it impact your business?

The Supreme Court decision has provided clear delineation on how public bodies should interpret the word ‘sex’ in the EqA 2010 and how they should apply its protections. Public authorities and businesses should therefore carefully consider the distinct needs of biological men and women separately from trans people to ensure that equality agendas are applied consistently and clearly.

However, whilst the ruling is clear, further guidance is needed on the implications. On Friday 25 April, the Equality and Human Rights Commission (EHRC) issued an interim update to address some of the immediate questions that have been raised. One of the key messages is that businesses are required to provide adequate single-sex facilities, including toilets and shower/changing facilities (where needed). It states that “trans women (biological men) should not be permitted to use the women’s facilities and trans men (biological women) should not be permitted to use the men’s facilities, as this will mean that they are no longer single-sex facilities and must be open to all users of the opposite sex.” That being said, the update also reminds businesses that trans colleagues “should not be put in a position where there are no facilities for them to use.”

It is important to note that the interim EHRC update was issued quickly to address the Supreme Court decision and is intended to highlight some of the consequences of the ruling. The EHRC is expected to hold consultations on the implications in May, with full updated guidance expected in due course.

What steps should you take?

In the first instance, businesses should review their handbooks and any positive action policies in light of the decision and ensure they are applied based on biological sex as opposed to certificated sex.

Businesses should, however, be reminded that trans individuals remain protected from discrimination based on gender reassignment as it is a protected characteristic and therefore, they can still bring claims for direct and indirect discrimination, harassment, and victimisation.

Our team will monitor updates from the EHRC and will provide further information on this case as more guidance on its interpretation and impact is released.

Government issues guidance on neonatal care leave

The Government have this month issued guidance following the introduction of the Neonatal Care (Leave and Pay) Act which came into force from April 6 2025.

Neonatal Care Leave

This is a day one right and employees are entitled to up to 12 weeks’ leave, in addition to other leave entitlements, if:

• their baby was born on or after 6 April 2025;

• their baby spends 7 or more consecutive days in neonatal care;

• they are the parent of the baby, or partner to the baby’s mother and have caring responsibilities; and

• they are taking leave to care for the baby.

Additionally, the person must be classed as an employee, must be currently employed in England, Scotland or Wales, and must give their employer notice of their intention to take leave. Please note, this is for leave entitlement only and does not cover pay during such leave.

Neonatal Care Pay

To be entitled to Neonatal Care Pay, the employee must be continuously employed for at least 26 weeks prior to the ‘qualifying week’ and be earning an average of £125 per week over an 8-week period. The ‘qualifying week’ is:

• the 15th week before the baby is due (if they receive maternity or paternity pay);

• the week they were told they had been matched with a baby for adoption (if they receive statutory adoption pay); or

• the week immediately before the baby enters neonatal care (if earlier than the above dates).

How could it impact your business?

The leave itself is designed to be a “day one” right for employees. There will, however, be a qualifying service period of 26 weeks for employees to claim neonatal pay and the lower earnings limit must be met (similar to other parental leave). Any payments should be paid via the usual payroll process.

What steps should you take?

Employees who are in the position to qualify for this leave are likely to be going through a very worrying and difficult period. It is important to be considerate and make the process as easy as possible. This could include creating a separate policy, or adding this to your current parental leave policy, and raising awareness of this leave with HR staff and managers.

Harassment – what is “in the course of employment”?

In a discrimination claim, an employer will not be held liable for the discriminatory acts of their employees if they have taken “all reasonable steps” to prevent them. You will often see this shortened to the ‘reasonable steps’ defence.

The recent case of Campbell v Sheffield Teaching North Hospitals NHS Foundation Trust (2025) provides a useful example of an employer successfully arguing this defence. The Employment Appeal Tribunal (EAT) decided that the NHS Trust was not liable for the racist comments that one of its employees made to another employee because “all reasonable steps” had been taken to prevent it.

Background to the case

Mr Hammond was an employee of the NHS Trust and member of public services trade union, UNISON. He decided to terminate his membership of Unison but the subscription fee continued to be deducted from his salary. Mr Hammond approached Mr Campbell, another employee of the NHS Trust and Secretary for UNISON, to ask for a refund, which was refused.

Mr Hammond, who is white, then made a racist comment directed at Mr Campbell, who is black.

When are an employee’s actions “in the course of employment”?

Section 109(1) Equality Act (EqA 2010) states that anything done by person A “in the course of employment” is treated as also being done by the employer.

In this case, the EAT accepted and understood that the racist comment was made by an employee of the Trust. It noted that the comment was made onsite during work hours and that Mr Hammond’s actions related to a trade union recognised by the Trust. However, they took a holistic view of all the facts and decided that the Trust should not be held responsible for the rogue actions of Mr Hammond. It was held that the conversation between Mr Hammond and Mr Campbell related solely to their trade union activities and was a personal dispute.

The EAT found, amongst other things, that the “reasonable steps” to prevent harassment included providing recent equality and diversity training, applying clear standards and values, and undertaking annual performance assessments, which was important when considering whether Mr Hammond acted in accordance with those values.

How could it impact your business?

This case confirms the steps which a Tribunal would consider to be reasonable and these are key and necessary to avoid liability. This includes up-to-date training, policies and regular performance assessments which are underpinned by clear criteria and company values regarding acceptable and inclusive behaviour and standards.

If these steps are followed, this case demonstrates that Tribunals are willing to take a realistic approach to whether an employer is liable for unexpected acts by one employee to another, which are often most relevant in cases of harassment.

What steps should you take?

Companies should ensure that policies regarding employee behaviour are clear, well-presented and, importantly, all employees are made aware and regularly reminded of them. This means they should make explicit reference to behaviour, including what is and isn’t acceptable, in their handbook.

It is important to ensure that training is repeated regularly, and companies may want to consider having visual reminders such as posters throughout their site which clarify company values. It will be important to record the training, so they are able to clearly evidence how the business is taking ‘all reasonable steps’.

Companies should continue to monitor employees with reference to a clear policy and, should employees fail to meet that criteria they need to offer support, guidance and additional training where required.

They may also wish to refresh their memory on the specific (and separate) proactive duty to prevent Sexual Harassment in the workplace under section 40A.

Can Job Applicants benefit from whistleblower protection?

The Court of Appeal (COA) in the case Sullivan v Isle of Wight Council (2025) provided welcome clarity on who can benefit from whistleblowing protection. This is an important case for employees and employers when dealing with protected disclosures.

Background to the case

Ms Sullivan applied for two roles in the Isle of Wight Council and was unsuccessful. She later complained about the conduct of the interviewer and alleged that there were financial irregularities at a particular charity, of which one of the interviewers acts as a trustee. An investigation was conducted, and both allegations were found to be unsubstantiated. The Council refused to offer Ms Sullivan the opportunity to appeal her complaint which was contrary to the Council’s complaints policy. Ms Sullivan issued proceedings in the Employment Tribunal, alleging that their refusal was detrimental to her because she made a protected disclosure when raising her complaint.

The case confirmed that only existing workers or employees can benefit from whistleblowing protection. The legislation is drafted in such a way that only workers in certain circumstances could benefit, but it is explicitly clear this did not extend to job applicants (with a narrow exception for those applying for NHS positions).

The court examined a four-part test which was originally established in Gilham v Ministry of Justice (2019) when considering if domestic whistleblowing legislation should (to meet the requirements of the European Convention on Human Rights) be interpreted to include applicants. UK provisions on whistleblowing are UK-specific, however, and the court decided that Parliament had carefully carved out applicants, with some limited exceptions, from relevant protections.

The Court also reasoned (amongst other findings) that the complaint about financial irregularities was brought by Ms Sullivan as a member of the public, and not in her position as an applicant. Therefore, any alleged detriment was not experienced in connection with potential employment and she could not benefit from protection.

How could it impact your business?

Employers should read this case with caution - whilst the legal protection only applies to existing workers and employees, there are exceptions in specific settings, such as the NHS.

Whistleblowing protection is far reaching in other aspects where a protected disclosure is made. Companies should ensure that they have a clear policy in place and that managers are trained on whistleblowing and the obligations they have when dealing with a potential protected disclosure.

Injury to feelings awards – Vento bands have been increased

From 6 April 2025, the President of the Employment Tribunals in England and Wales have issued the eighth addendum to the Presidential Guidance on awards for injury to feelings, known as the Vento bands, named after the case of Vento v Chief Constable of West Yorkshire Police (2003).

How could it impact your business?

The bands have been adjusted in line with RPI meaning:

1. Lower band for less serious cases = £1,200 to £12,100

2. Middle band for cases which are more serious but don’t merit the upper band = £12,100 to £36,400

3. Upper band for the most serious cases = £36,400 to £60,700

It is important to note, however, that awards can exceed £60,700 in the most exceptional cases.

What steps should you take?

This is simply advisory, and companies don’t need to take any action. However, they should be aware of the financial risks which can be associated with claims for injury to feelings, especially given the number of other cost increases which have come into effect from April 2025.

For further information on these costs, see under the Employment section in our March horizon scanning update.

Changes to how the Home Office determine a sponsor’s size

The Home Office categorise the size of sponsor licence holders as being either ‘small’ or ‘large’.

When a sponsor’s size is being assessed, one consideration is whether they are a classified as a small company under the Companies Act 2006. However, on 6 April 2025, the thresholds used to determine the size of a company under the 2006 Act changed, resulting in the knock-on effect of changing how the size of a sponsor licence holder is determined.

Following the changes, a sponsor will now generally be considered small if it satisfies two of the following criteria:

• An annual turnover of £15 million or less (changed from £10.2 million)

• A balance sheet total of £7.5 million or less (changed from £5.1 million)

• 50 employees or fewer (unchanged)

How could it impact your business?

The size of a sponsor is important because small sponsors typically pay lower sponsorship fees than large sponsors. For example, when applying for a sponsorship licence under one of the worker routes, a large sponsor must pay an application fee of £1,579 whereas a small sponsor must only pay a fee of £574.

Similarly, when assigning a Certificate of Sponsorship, a sponsor may be liable to pay an Immigration Skills Charge. For a large sponsor this would be £1,000 for each year of the sponsored worker’s visa. However, a small sponsor would only need to pay £364 per year of the visa.

Organisations who were previously considered a large sponsor before the changes, but were on the threshold of being considered small, may now qualify as a small sponsor resulting in much lower sponsorship costs.

In addition to the potential cost savings, sponsors also have a duty to notify the Home Office of any change to their organisation size. As such, where a sponsor was previously categorised as a large sponsor but, following the change, is now considered a small sponsor, this needs to be reported to the Home Office.

What steps should you take?

For organisations who are already sponsors, they should check whether this change in definition affects their sponsorship size classification. If so, they will need to notify the Home Office within 20 working days via a report on their Sponsorship Management System.

Failure to report the change is considered a breach of sponsorship duties, which may result in compliance action from the Home Office.

Intellectual Property Office Transformation Programme – Second Consultation Update

On 10 April 2025, the UK Government published its second consultation response on transforming the Intellectual Property Office (IPO). This consultation focused primarily on trade mark, design and tribunal services.

Key updates include:

1. A continued push towards a fully digital, streamlined service across all registrable IP rights.

2. The IPO will introduce more user-friendly systems and a new online disputes service for private litigants.

3. Designs will be published faster and trade mark confidentiality requests can be made at any time.

4. Notably, the IPO will discontinue the ability to register series trade marks.

Legislative changes will follow to enable these upgrades over the next two years.

How could it impact your business?

• Digital service: The move to digital services aims to streamline IP management, making it faster and more efficient. However, businesses relying on paper-based processes will need to adapt.

• Online disputes service: The new online disputes service could expedite private conflict resolution but may require quicker response times.

• Design publication / trade mark confidentiality requests: Faster publication of designs and changes to trade mark confidentiality rules mean businesses risk losing control over sensitive product launches or brand reveals, so early planning and faster filing strategies will be key to protecting commercial secrets.

• Series trade marks: The discontinuation of series trade marks means that businesses will no longer be able to register multiple variations of a mark under a single application. This could lead to increased costs and administrative efforts, as separate applications will be needed for each variation.

What steps should you take?

Businesses should consider:

• Acting sooner rather than later if they are considering filing a series trade mark as once the service ends, separate applications will be needed.

• Starting to review internally how they manage filings and deadlines to move towards digital-first processes.

• Reviewing filing strategies in line with faster design publication and new trade mark confidentiality rules to protect sensitive launches.

• Keeping an eye on IPO announcements for new system rollouts as early engagement could reduce costs and minimise risks. Businesses that delay adapting may face higher fees, slower protection, and missed deadlines under the new system.

Proactive adaptation will help ensure a smooth transition and maintain competitive edge in IP management.

New guidance on UK1 Pipeline Notices

On 11 April 2025, the Government Commercial Function published a guide on UK1: the new Pipeline Notice. The guide provides information on UK1 Pipeline Notices introduced under the Procurement Act 2023, including guidance for buyers and details on how suppliers can search for pipeline notices.

The UK1 Pipeline Notice is a type of notice under which contracting authorities must publish information about planned procurements for public contracts with an estimated value of more than £2 million, where the contracting authority envisages spending more than £100 million on "relevant contracts" in the coming financial year.

The UK Government aims to 'embed transparency throughout UK Public Procurement’ and notices form a key element of this. The Procurement Act 2023 therefore requires publication of notices from pre-procurement and award stages, through to implementation.

A Pipeline Notice focuses on the pre-procurement stage, giving suppliers an early view of potential opportunities to supply goods or services to contracting authorities. These notices are published on the UK Government’s ‘Find a Tender’ platform and may also be available on e-procurement portals.

How could it impact your business?

The UK1 Pipeline Notice gives increased transparency and advance notice of the types of contracts that will be available, the timelines, and the requirements. This can be particularly helpful for businesses, enabling them to tailor their offerings to meet the needs of contracting authorities, thereby opening up more opportunities for businesses of all sizes.

The central digital ‘Find a Tender’ service makes it easier to access information about upcoming procurements and, for those already used to working with contracting authorities, advance notice of upcoming public contracts will allow for the bids to be prepared with less time pressure and the ability to allocate resources that will be required. However, the advance notice may also increase competition. The guide should answer any questions of those businesses who wish to use the Find a Tender service.

What steps should you take?

Organisations interested in supplying public contracts should register as a supplier on the ‘Find a Tender’ service, allowing them to find and bid on contracts.

Suppliers should regularly check the platform for new pipeline notices, however, the platform also allows users to set up alerts or notifications in respect of relevant opportunities to reduce the risk of missed opportunities.

The guidance gives information on how the ‘Find a Tender’ platform can be used by suppliers and is available on the Gov.uk site.

New trade sanctions introduced

From 24 April 2025, new trade sanctions on Russia entered into force as a result of amendments to the Russia (Sanctions) (EU Exit) Regulations 2019.

How could it impact your business?

The new measures:

1. Prohibit the export, supply and delivery, and making available to, or for use in Russia of newly sanctioned items, as well as the provision of related ancillary services. This includes chemicals, electronics, machinery, plastics and metals.

2. Prohibit the transfer, and making available of, ancillary services related to certain technology and software. This includes energy related, advanced and industrial manufacturing technology, and business enterprise, industrial design, and oil and gas related software and technology.

3. Introduce import bans on synthetic diamonds processed in third countries and helium.

What steps should you take?

Businesses should act without delay to consider and update their existing sanctions policies and processes to comply with the updated Regulations.

Keep in mind the recent guidance from the Office of Financial Sanctions Implementation (OFSI) about the adequacy of due diligence and sanctions screening, and the fact that businesses should take sufficient time and care to properly assess the applicability of sanctions to the specific legal entities they are dealing with. This involves fully considering the ownership and control of entities, beyond whether they are directly subject to sanctions. The OFSI has been clear that it views failure to properly consider and identify clear ownership more poorly than an incorrect but good faith assessment of control.

Government of White Paper on Commonhold tenure - A Coming Revolution?

On 3 March 2025, the Government published a White Paper designed to give a new lease of life to commonhold tenure. The ambition is for new leasehold flats to be banned and for commonhold to become the required tenure for flats in new developments. Whilst the White Paper is only the first step in a very ambitious project (which is likely to take years to come to fruition), it is important that developers and investors prepare themselves for the changes coming down the track. For now, this needs to be monitored closely. In due course, engagement with solicitors is recommended as there will need to be a wholesale re-formulation of template documents that developers have grown accustomed to working with.

A new legal framework for commonhold tenure is intended for inclusion in the Leasehold and Commonhold Reform Bill in the latter half of 2025. The Bill is also expected to contain detail on proposals for conversion of existing leasehold structures into commonholds, although at the present time, that is a more ambitious proposal with a lot of detail still to be worked through.

Commonhold tenure is not new. It has been with us since 2004 but the take up has been extremely poor. That said, variations of it (notably the “US condominium model”) are commonplace elsewhere in the English-speaking world (note the obvious attraction to a purchaser of acquiring a “quasi-freehold dwelling” with no diminishing lease term or ground rent burden).

Under a commonhold structure, the flat owners collectively share in/control management of the common facilities through a “commonhold association” (a limited company) in which each dwelling owner would be a member and some (if not all) would become directors. There would be no third-party landlord as such. The commonhold association may, however, appoint a managing agent. A separate Commonhold Community Statement then imposes the necessary binding obligations related to the insurance and upkeep of the building and communal areas and obligations related to the payment of service charges. The Statement is set out in a prescribed form and so is not available for manipulation by developers or for negotiation.

Why Commonhold has not been a success to date and how the Bill proposes to address these issues

There are several reasons for this (and a number were identified in a Law Commission Report published in 2020), in particular:

1. The obvious commercial advantage to landlords/ developers in retaining a freehold interest and a ground rent income – which by itself has been treated as a tradeable asset (subject to certain statutory limitations). This may become a thing of the past except (possibly) in the case of existing leasehold developments.

2. The inability to apply the ultimate action of “forfeiture of lease” for a defaulting lessee. Although the Courts have historically been very reluctant to allow a long residential lease to be terminated early, the power of forfeiture remains a useful ultimate sanction to threaten in the very worst cases. In those cases, where the default is a failure to pay a service charge, the reforms intend to permit the commonhold association to seek an order for sale of the dwelling where the debt has reached a prescribed level. In such a case, a lender will also have to be given notice of the debt. The lender will then be able to exercise a power of sale or foreclosure. It will also be able to pay off the debt and add it to the borrower’s mortgage account.

3. The difficulties of making commonhold tenure work for larger or mixed-use developments. The new reforms therefore propose to divide a new build development into sections so that, for example, a ground floor shop unit does not need to contribute toward the upkeep of facilities that only benefit the residential occupiers (and so that the residents don’t have to pay towards facilities used exclusively by the shop). Similarly covenants that should be applicable only to residential units would not apply to the shop (and vice versa).

4. The need for developers to retain sufficient rights to construct the remainder of a development after say the dwellings in the first block have been sold. The reforms are intended to reserve temporary rights to developers to complete the remainder of the wider development. A developer will not be able to retain control of the management arrangements/commonhold association until the development is completed and fully disposed of. The developer would have one vote per dwelling and the number of votes would decline as the dwellings are sold off. What is currently unclear is whether the developer would be able to bring on board an external managing agent in the early stages of the development that the commonhold association is then stuck with, at least in the initial years.

5. In a commonhold structure, leases cannot be granted for more than 7 years, or at a premium. This precludes the grant of shared ownership leases (and therefore in many cases compliance with section 106 affordable housing obligations). This is to be addressed in the new reforms although we await the detail.

6. How to resolve the position if the commonhold association becomes insolvent in the future. This has been a concern to lenders as there is currently no obvious way out of such a situation. Without a viable commonhold association, the management and insurance of a building may lapse. A complex raft of changes is proposed to give lenders comfort on this issue albeit the details are beyond the scope of this update. But note that these will include powers for a Court to appoint a successor association where the original association has become insolvent: an important fallback.

7. Related to the above point, the Bill is intended to help a commonhold association to manage its finances by borrowing against the common parts and future income (though this will need unanimous approval from the unit holders or 80% approval plus the sanction of the Leasehold Valuation Tribunal). Naturally, one would question whether any such assets are likely in most cases to have any meaningful financial value as security. And, practically speaking, would any such move towards secured borrowing (and the potential loss of the mortgaged assets) be properly dealt with in the Commonhold Community Statement?

Some further changes set out in the White Paper include:

• requiring a service charge budget to be set and voted on every year – failing which the previous year's service charge would apply;

• imposing an obligation on the commonhold association to take out buildings insurance and public liability insurance (and to consider directors’ liabilities insurance);

• increasing the threshold for changing local rules (which supplement the Commonhold Community Statement) from 50% to 75% of unit holders;

• allowing local rules to permit minor repairs/alterations;

• provisions for alternative and out-of-court methods for dispute resolution; and

• automatically making the commonhold association the principal accountable person (PAP) for Building Safety Act purposes in respect of ‘higher risk’ buildings. This may prove to be burdensome and quite a controversial move, not least because commonhold associations would need detailed professional advice on the related duties and liabilities.

What steps should you take?

The Government states that now is the time for the house building industry and lenders to start preparing for these changes, so it will be important to consider the comments made above.

Once the Bill is underway, the Government will start to engage with consumers directly so that they understand the new model. But, as always, the devil will be in the detail and, in this instance, it will be critical to get the detail right – lest this should jeopardise the government’s commitment to the delivery of 1.5 million new homes in the current parliament.