Navigating Legal Challenges in Data Centre Operations

Data centres are crucial to the digital world we live in. They support everything from storing our photos and files in the cloud to making sure we can send emails across the globe in seconds. But running a data centre isn’t simple, especially when you consider the maze of laws and regulations that come with it. This is where having a great lawyer that understands the data centre industry can make a big difference for data centre owners and operators. We look in further detail at the role our lawyers play in advising datacentres.

Understanding the Legal Terrain for Data Centres

The legal world surrounding data centres is complicated. It covers a lot of ground, from the specifics of property and building laws to the details of data privacy and cybersecurity rules. Add to this the mix of local, European, and international regulations, and it’s clear why expert legal advice is critical.

For example, data privacy laws, especially with the EU’s GDPR, have set strict rules on how personal data should be handled. This doesn’t just affect companies in the EU; it also impacts any company dealing with EU citizens’ data. Knowing these laws inside out is crucial for avoiding legal issues and fines.

Focus on Sustainability and Energy

Data centres use a vast amount of energy, which puts sustainability and energy efficiency in the spotlight. Navigating the legal landscape here is essential for tapping into renewable energy incentives and meeting sustainability goals, such as those outlined in the European Green Deal and the UK’s net-zero emissions target by 2050. For more information on the latest regulations impacting Datacentres see here.

More Than Just Compliance

Commercially minded lawyers do more than ensure you’re following the law. They’re also strategic advisors, helping with growth and managing deals. This includes everything from buying properties, negotiating leases and construction deals, to getting the necessary permits for expanding your data centre. With the growing interest in investing in data centres, having the right legal advice is crucial for making deals, negotiating contracts, and doing due diligence to protect your interests.

Tackling Data Sovereignty and Emerging Tech Challenges

Laws around data sovereignty, which govern where data can be stored and processed, add another layer of complexity, especially for data centres operating across borders. Plus, new technologies like 5G and the Internet of Things are creating fresh legal challenges, from telecoms licensing to questions around artificial intelligence and data ethics.

Leveraging Legal Expertise

Having a great lawyer who understands data centres isn’t just about solving legal problems. It’s about combining knowledge in technology, law, and strategy to help your business stay ahead. It’s about seeing legal expertise not just as a necessity but as a strategic advantage, making sure your operation is ready for the future.

At Conexus Law, we aim to provide comprehensive legal advice that covers every aspect of running a data centre. From planning and site acquisition to construction, leasing, and finance, we have the expertise and industry connections to help you move quickly and efficiently through negotiations and to focus on what really matters. We’re enthusiastic about data centres, their global significance, and staying on top of sector innovations, ensuring our clients are well-equipped to thrive in the digital age.

Sustainable Data Centres: Navigating Regulations and Innovations for a Greener Future

In the ever-evolving landscape of technology, the drive towards sustainability has become not just a goal but a necessity. This is especially true for data centres, which are often described as “the backbone” of our current digital landscape. These facilities, critical for storing, processing, and disseminating vast amounts of data, consume a significant amount of energy ( with sources reporting that they account for around 4% of Global Energy Consumption)* making them prime candidates for green measures. Recent regulatory changes have emphasised the urgent need for these measures and the importance of adopting sustainable practices within data centres globally. As we delve into the complexities and challenges that data centre operators face today, it’s crucial to recognise the innovations and strides taken toward a more sustainable future.

Recent Regulatory Changes: A Catalyst for Action

EU Regulations
In the face of climate change, governments and regulatory bodies worldwide are tightening the reins on emissions and energy consumption. The EU, for example, has been at the forefront with its ambitious Green Deal, aiming to make Europe the world’s first climate-neutral continent by 2050. This broad legislative framework directly impacts data centres alongside other sectors, mandating significant reductions in carbon footprints, increased reporting and disclosure under the Corporate Sustainability Reporting Directive (CSRD) and increased renewable energy targets under the recast Renewable Energy Directive (RED III).
In addition, the EU very firmly has the data centre sector more specifically in its sights with the EU Commission adopting on 15 March 2024 a new an EU-wide scheme to rate the sustainability of EU data centres as foreseen under the recast Energy Efficiency Directive (EED). Under the scheme data centres will be required to publish information on their energy performance and sustainability and this information, along with KPIs, will form part of an EU database. The delegated regulation, which defines the initial sustainability indicators that will be used for the rating of data centres, requires data centre operators to report the key performance indicators to the European database by 15 September 2024 and then by 15 May in 2025 and subsequent years.
The new scheme is part of ‘promoting climate-neutrality actions for the IT sector’ foreseen in the EU Commission’s Action Plan for the Digitalisation of the Energy Sector, issued in October 2022. It is intended to increase transparency and potentially to promote new designs and efficiency developments in data centres that can not only reduce energy and water consumption, but also promote the use of renewable energy, increased grid efficiency, or the reuse of waste heat in nearby facilities and heat networks.
The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) was also adopted by the EU Council on 15 March 2024 paving the way for it to be passed into law in a European Parliament vote currently scheduled for April.
After significant last minute setbacks and negotiations between member states it now requires EU-based companies with global turnover of at least €450m and 1000 employees to identify, mitigate and prevent negative impacts on human rights and the environment in their upstream and downstream supply chains, or risk being fined up to 5% of net turnover.

Regulations and updates in the UK
Whilst in the UK there are fewer regulations currently specifically targeting sustainability in the sector there are plenty of general regulations which already impact data centre operators including the Building Regulations in England and the Minimum Energy Efficiency Standards (MEES) both of which were tightened in 2023. The Energy Act 2023 provided powers for government to implement heat network zoning in England through regulations which will impact the sector amongst others and there are the existing voluntary schemes such as the Climate Change Agreement for Data Centres which sets out specific targets for energy efficiency, encouraging operators to adopt greener practices or face stringent penalties.
Large UK companies are already required to report publicly on their UK energy use and carbon emissions within their Directors’ Report under the Streamlined Energy & Carbon Reporting (SECR) framework implemented by the Department for Business, Energy and Industrial Strategy (BEIS) but as most operators in the sector operate internationally it is already more likely than not that operators in the UK will be looking to comply with the various more prescriptive EU regulations from the start.

US Initiatives
Across the pond, the United States is also stepping up its game building on previous voluntary initiatives such as the Energy Star certification for data centres, a voluntary labelling programme providing certification for qualifying data centres, and the Department of Energy’s Better Buildings Challenge designed to encourage facilities to improve their energy efficiency and reduce their environmental impact.

On 6 March 2024, the US Securities and Exchange Commission (the SEC), approved final rules requiring companies to disclose certain climate-related information in registration statements and annual reports. Whilst on March 15, 2024, the US Court of Appeals for the Fifth Circuit granted an administrative stay of the final rules in response to a request for review and therefore there is still some uncertainty regarding the implementation of the rules (both in terms of timing and the exact details of the rules) the direction of travel is still pretty clear and will define a new standard for data centre regulation in America.

All these regulatory changes in different parts of the world, though challenging, serve as a necessary push towards innovation and sustainability in the global data centre industry.
Compliance is now a watchword for the sector in the EU in 2024 and beyond not just for the purposes of regulatory compliance but also because customers, investors and the most talented employees are increasingly focused on the sustainability practices and ambitions of data centres. There are huge opportunities for data centre operators to turn compliance into a competitive advantage.

Embracing Green Measures: Where Theory Meets Practice

Acknowledging the necessity is one thing; implementing practical solutions is another. The journey towards sustainability requires a multifaceted approach, combining advanced technology, innovative design, and strategic planning. Let’s explore how some data centres are leading by example, not just in adopting green measures but in setting new standards for the industry.

The EcoDataCentre in Falun, Sweden, stands as a paragon of sustainability. It’s the world’s first climate-positive data centre, leveraging 100% renewable energy sources and a highly efficient cooling system that uses the cold Nordic air. What sets it apart is its integration with the local community’s energy system, where excess heat generated by the data centre is repurposed to warm surrounding buildings, highlighting a symbiotic relationship between technology and the environment.

Elsewhere in Europe, the Amsterdam Data Tower embodies efficiency and green technology. It also boasts an advanced cooling system that uses outside air and recycles waste heat, supplying it to nearby greenhouses. Furthermore, it’s powered by renewable energy, making sustainable operation possible without compromising on performance. The Google data centre in Hamina, Finland, is another notable example – utilising sea water from the Gulf of Finland for its cooling needs, significantly reducing its energy consumption.

Meanwhile, in the United States, data centres are also embracing the green revolution. Facebook’s data centre in Fort Worth, Texas, for example is supported by 100% renewable energy and aims to be water positive by 2030 – restoring more water than it consumes.

The Path Forward: Sustainability as a Competitive Advantage

The transition to greener data centres is not just an ethical or regulatory imperative but a strategic business move. In an era where consumers are increasingly conscious of their environmental impact, companies that demonstrate a genuine commitment to sustainability stand to gain a competitive edge. Investors are increasingly attracted by sustainable business practices and commitments for future innovation. This shift is already evident, with a growing preference for green cloud services and sustainable data storage solutions among both individuals and corporations.

Moreover, sustainable practices can lead to significant cost savings over time, particularly in terms of energy consumption and operational efficiencies. By investing in advanced cooling technologies, renewable energy sources, and energy-efficient infrastructure, data centres can reduce their overheads while simultaneously enhancing their corporate reputation.

Sustainability : A challenge and an opportunity

The increasing need for sustainability measures in data centres is both a challenge and an opportunity. As we’ve seen, recent regulatory changes across the globe are pushing the industry towards a greener future. Examples from the UK, Europe, and the US highlight the innovative approaches being taken to minimise environmental impact while maintaining, if not improving, operational efficiency.

For data centre operators the message is clear: sustainability is no longer an optional extra but a crucial component of strategic planning and operations. By embracing green measures, investing in sustainable technologies, and fostering a culture of innovation, data centres can not only comply with regulatory demands but also lead the way in the global shift towards a more sustainable and environmentally responsible technology sector.

As we look to the future, it’s evident that the data centres that thrive will be those that view sustainability not as a burden but as an opportunity to innovate, differentiate, and contribute to a more sustainable world.

*Source: Engie Global Energy Report

Exploring the latest developments in sporting venues

As the world of sports evolves, so does the need for state-of-the-art stadiums and arenas. From design and materials to technology and sustainability, the construction industry is constantly innovating to deliver venues that meet the demands of athletes, fans, and the environment. In this article, we will explore the latest developments in sports stadium and arena construction in the UK, Europe and around the world.

Design and Materials

Gone are the days of plain, utilitarian sports venues. Today’s stadiums and arenas are architectural marvels that blend function with form. In the UK, Tottenham Hotspur’s new stadium is a shining example of design innovation. The 62,000-seat stadium boasts a retractable pitch that allows for the installation of a synthetic NFL playing surface for games played in London. The venue also features a glass-walled tunnel that leads from the locker room to the field, giving fans a unique view of the players.

Another trend in stadium design is the use of sustainable materials. Many stadiums are now incorporating recycled materials into their construction, as well as using locally-sourced materials to reduce transportation emissions. The recently opened Allianz Field in Minnesota, USA, is the first stadium in the world built entirely from sustainably-sourced timber.

Technology

Technology has had a significant impact on the construction of sports venues. From augmented reality and 3D printing to drones and robots, innovative technologies are streamlining the construction process and enabling the creation of complex designs that were previously impossible.

One example of this is the new Las Vegas Raiders Stadium in the USA. The stadium features an advanced security system that uses facial recognition technology to monitor fans entering the venue. The system uses cameras that can scan thousands of faces per second and can detect anyone who is on a banned list. This technology not only enhances security but also speeds up entry times for fans. This technology has also been deployed at selected locations near to “high risk” fixtures in the UK for the same purpose but as yet does feature permanently in UK arenas.

Sustainability

Sustainability has become a critical consideration in sports stadium and arena construction. Venues are now designed with energy-efficient lighting, heating, and cooling systems to reduce energy consumption. Many stadiums are also using renewable energy sources such as solar power to reduce their carbon footprint.

In Europe, the Allianz Arena in Munich, Germany, is a prime example of a sustainable stadium. The venue features an outer shell made up of over 2,800 air-filled ETFE cushions that regulate the temperature inside the stadium. The roof of the stadium is also fitted with solar panels, which generate renewable energy that can power the stadium and nearby buildings. The Nef stadium in Istanbul, Turkey recently broke the Guinness World Record for the most solar power output from a sports facility, generating enough renewable electricity to power 2,000 homes.

As sports continue to captivate audiences around the world, the demand for innovative stadiums and arenas is set to grow. Construction professionals are rising to the challenge, using the latest materials, designs, and technologies to deliver venues that are sustainable, secure, and stunning.

UK AI Policy: Exploring the Policy and Its Implications

In an era dominated by technological advancements, the integration of Artificial Intelligence (AI) into various aspects of our lives is rapidly gaining momentum. The United Kingdom, recognising the significance of this transformative technology, is embarking on a comprehensive journey to revamp its digital landscape. As a follow-up to our article in May, ‘Navigating the Legal Landscape of Artificial Intelligence in the UK’, this article delves further into the UK’s current AI policy and its broader implications within the ongoing digital transformation.

The UK’s new regulatory framework for AI is more than just a standalone initiative. It is intricately woven into broader digital reforms that span online safety, content moderation, and data protection rules. The aim is to establish a “proportionate… and adaptable” approach to AI, as recently stated by AI Minister Jonathan Berry. This approach reflects the UK government’s commitment to fostering AI innovation while ensuring the well-being of its citizens in this evolving technological landscape.

In a recent debate in the House of Lords, Berry shed light on the alignment between the UK’s light-touch proposals and the legislative process. The AI white paper, ‘A pro-innovation approach to AI regulation’, published in late March this year, forms the foundation of these proposals. This holistic approach seeks to create a symbiotic relationship between the evolving legislation and the dynamic AI landscape.

However, the discussions within the parliamentary corridors reflect the evolving nature of this policy. Lawmakers, acknowledging the need for AI-specific legislation, are exerting pressure to introduce critical safeguards and safety measures. Berry acknowledged this pressure and emphasised the government’s readiness to adapt its approach to ensure responsible AI innovation. He stated, “We are unafraid to take further steps if needed to ensure safe and responsible AI innovation.”

The dynamism of the AI policy is further highlighted by an upcoming review scheduled for this autumn. As the government’s last legislative program of the 2022-23 parliamentary session is set to be unveiled in November 2023, there is a growing push to include legislation to regulate AI. Prime Minister Rishi Sunak’s stance, however, suggests focusing on existing regulatory channels for early AI development, underlining the nuanced considerations that underpin this policy.

Notably, the government has faced critique for what some perceive as a relaxed approach to AI regulation. Timothy Clement-Jones, the Co-Chair of the All Party Parliamentary Group on Artificial Intelligence, criticised the “toothless exhortation” by sectorial regulators to adhere to ethical principles, calling for a more comprehensive and cross-sectorial approach to regulation.

This sentiment aligns with the perspective of Tina Stowell, Chair of the Communications and Digital Committee. Stowell, leading an inquiry into large language models, urged lawmakers to view AI regulation through a balanced lens that avoids being swayed by either overly optimistic or excessively pessimistic narratives. She emphasised the need to harness AI’s benefits while addressing its risks.

Central to this evolving landscape is the role of key regulators such as Ofcom and the Information Commissioner’s Office (ICO). The review process includes scrutinising their structure, capacity, and ability to navigate the intricacies of AI regulation. As the digital landscape transforms, the regulators’ readiness to adapt and evolve becomes paramount.

It is evident the UK’s AI policy is still evolving. Other jurisdictions such as the EU, US and China are adopting differing approaches to AI regulation. In particular, the EU’s preferred approach is much more prescriptive, instead opting to regulate the use and development of AI through the adoption of a ‘risk-based’, top-down legislative (via an ‘AI Act’) approach, with a centralised regulatory approach. Notably, the EU’s planned approach has received significant criticism and opposition from the AI community on the basis that such a prescriptive approach is not suitable for a technology such as AI which can advance rapidly in a short period of time.

Currently, in contrast, the UK’s AI policy is intricately interwoven with a broader digital revamp. Its decentralised, adaptive approach seeks to balance innovation with safeguards, drawing attention to both the transformative potential and potential risks of AI. Whilst there is clearly disagreement within parliament as to whether this is the best approach, it is arguable that this more flexible approach will allow the AI industry to help shape a more suitable type of AI regulation in the UK over time.

If you would like to discuss any of the issues mentioned in this article, please get in touch.

Regulation of Social Media in the UK

The regulation of social media is a complex and challenging issue. In this article, we consider some of the challenges of regulating social media and where the UK is currently at on its journey to introduce targeted legislation.

Three key challenges of regulating social media

There are a number of challenges which need to be addressed when seeking to regulate social media. These include:

  • Defining harmful content. What constitutes harmful content is a complex and subjective issue. There is no clear consensus on what content should be regulated, and what should be allowed to remain on social media platforms.
  • Enforcing regulations. Even if it is possible to define harmful content, it can be difficult to enforce regulations against social media platforms. These platforms are often located in countries with different legal systems and it can be difficult to get cooperation from foreign governments.
  • Balancing free speech. Any attempt to regulate social media must balance the need to protect users from harmful content with the need to protect free speech. This is a delicate balance and it is one that is likely to be debated for many years to come.
Regulation of social media in the UK

The UK government has been considering the regulation of social media in the UK for some time. In 2018, the government published a white paper on online harms, which proposed a number of measures to regulate social media platforms. These measures included:

  • Requiring social media platforms to remove harmful content more quickly.
  • Giving users more control over their data and privacy.
  • Requiring social media platforms to do more to protect children from harmful content.

The government’s proposals were met with mixed reactions. Some people welcomed the government’s intervention, arguing that social media platforms have not done enough to remove harmful content from their platforms. Others expressed concerns that the government’s proposals could restrict free speech.

The planned Online Safety Bill

Following the government’s consultation to its white paper, in April 2022, the government introduced the Online Safety Bill, which is a proposed law that would regulate social media platforms in the UK. The bill is still passing through Parliament (at the time of writing the bill is at the third reading stage in the House of Lords).

If passed, the bill will likely require social media platforms to take a number of steps to protect users from harmful content, including:

  • Swiftly removing illegal content from their platforms.
  • Providing users with more control over their data and privacy.
  • Doing more to protect children from harmful content.

The bill is also likely to give Ofcom, the UK’s communications regulator, the power to fine social media platforms up to £18 million or 10% of their global annual turnover, whichever is higher, if they fail to comply with the regulations.

Whilst the bill is a significant step forward in the UK’s efforts to regulate social media, it is not without its controversy. In particular, recent proposed amendments by the House of Lords, which require social media platforms to monitor content for illicit material, could potentially undermine end-to-end encryption in instant messages such as WhatsApp and have caused some big social media companies to claim the bill could: (1) create a significant vulnerability that will be exploited by hackers, hostile nation states and those wishing to do harm; and (2) damage the UK’s ability to attract and retain tech development companies.

In response, the government has insisted that the bill does not threaten encryption, that systems are in place to prevent government intrusion and that the bill will not be used to encroach on private messages.

Only time will tell whether Parliament will listen to the concerns raised by some social media companies. Whatever final form the bill takes, it is unlikely to become law in the UK before next summer.

OpenAI and Microsoft sued in US for $3 billion over alleged ChatGPT privacy violations

OpenAI and Microsoft are being sued in a class action lawsuit alleging that they violated the privacy of hundreds of millions of internet users by secretly scraping vast amounts of personal data to train their ChatGPT artificial intelligence chatbot.

The lawsuit, which was filed on 28 June in federal court in San Francisco, California, claims that:

  • OpenAI and Microsoft collected personal information from users of websites and social media platforms without their knowledge or consent.
  • The information includes names, addresses, phone numbers, email addresses and financial data.
  • OpenAI and Microsoft used this personal information to train ChatGPT, in violation of the US Electronic Privacy Communications Act which prohibits the interception of electronic communications without a warrant.

The lawsuit is seeking class-action certification and damages of $3 billion and comes at a time when there is growing concern about the privacy implications of artificial intelligence. Whilst in recent years there have been a number of high-profile cases in which AI companies have been accused of collecting and using personal information without users’ consent, this is one of the first major cases to challenge the privacy practices of an AI company. The outcome of the case could therefore have a significant impact on the development and use of AI in the future, including the laws which govern the collection and use of personal data by AI companies, and set a precedent for other legal cases against AI companies.

This case is a timely reminder that AI companies need to be transparent about their data collection practices and ensure they have a valid legal basis, such as consent, before collecting personal data. It is also a reminder that users need to be aware of the privacy implications of using AI-powered products and services.

Conexus Law launches Conexus GC to unlock innovation in UK small and medium sized businesses

Conexus Law has officially launched Conexus GC, its virtual general counsel (i.e. the main in-house lawyer who gives legal advice to a business) service, to meet growing demand from the UK’s small and medium sized businesses operating in its specialist sectors. Since launching the rapidly growing boutique law firm in 2020 with a mission to unlock innovation in the built environment and digital world, managing partner Ed Cooke and the Conexus Law team have been informally providing a general counsel service for some clients who are not yet of a size or stage to hire their own in-house lawyer.

Ed Cooke, “With so much demand we decided to make this a service in its own right. In effect we’ve been market testing for three years so know exactly what legal services our smaller clients need, and how to deliver them, to accelerate their success.”

Conexus Law is a rapidly growing boutique law firm working exclusively for clients operating at the intersection of the built environment, technology and people.

Ed Cooke, “Applying the law to unlock innovation is our stated mission. We have a growth mindset, for ourselves and our clients, and we recognise that many small and medium sized businesses struggle to deal with the many legal demands that face them, especially when they are not big enough to have their own in-house legal team. This can be a real stumbling block to growth. Plus, it’s challenging for busy CEOs and COOs to find the right people who truly understand their markets and sectors. We totally ‘get’ the built environment and technology sectors, because it’s all we do. We remove the blocks and facilitate growth.”

A key benefit to Conexus GC clients is that they can choose from three, tiered subscription packages – bronze, silver and gold – and this allows them to predict their legal costs for six+ months. Clients with slightly different needs are offered custom arrangements. On signing up to the service, all new clients are given a named point of contact, a complimentary overview of their existing contract management with flagging of key dates, plus an initial horizon scanning service to highlight issues that could impact on their business, with advice on how to offset them.

“Our lawyers are all highly experienced in their specialist areas and many have worked as in-house lawyers too, so they totally understand the demands and pressure of supporting a growing business. The subscription model means Conexus GC clients can have all the multi-disciplined legal advice they need, at an affordable and predictable price.”

Conexus GC’s advice includes key areas such as commercial contracts, employment and intellectual property. Conexus Law’s sustainable business service is also available on the Conexus GC platform. For small to medium sized businesses needing emergency advice, whether a new or existing Conexus GC client, the team also offers an immediate crisis response team.

Although currently available for UK based companies only, the Conexus GC team can still work on international affairs, including global contracts and cross-border legal strategies, through its global network of best-friend firms.

Ed Cooke, “Every business that made a difference started out small. We’re looking forward to working with more businesses and speeding up their journey to success.”

Conexus GC is available from today on www.conexusgc.com.

Navigating the Legal Landscape of Artificial Intelligence in the UK

In this article, we explore the legal landscape of AI in the UK and provides tips for businesses on how to navigate this complex area of law.

Artificial intelligence (AI) is one of the hottest topics right now in our client conversations, and with good reason. Across industries, from healthcare to finance, AI is undoubtedly transforming the way in which businesses operate. However, whilst there are many great things that AI may be put to use for, the news stories that are becoming increasingly more common about AI are those that centre around the concerns of this intelligence – the rapid development of AI and the potential consciousness of AI as systems become more advanced.

The use of AI therefore raises a range of legal and ethical challenges that businesses much carefully navigate.

Overview of AI and the law

AI by definition refers to the use of algorithms and machine learning to automate decision-making processes. Whilst it can offer significant benefits to businesses, it also raises a range of legal and ethical issues such as data protection, discrimination and liability.

Currently in the UK, there is no specific legislation governing the use of AI. However, that’s unlikely to stay the case for long. In late March, the UK government published its long-awaited paper, setting out the government’s proposals to govern and regulate AI.

The paper, which was headed ‘A pro-innovation approach to AI regulation’, details how the government intends to support innovation while providing a framework to ensure risks are identified and addressed. Rather than target specific technologies, it focuses on the context in which AI is deployed. This, claims the government, will enable regulators to take a balanced approach to weighing up the benefits versus the potential risks.

Other recent government decisions very much support this pro-innovation approach. For example, a task force will receive initial start-up funding of £100m to help accelerate research and development efforts in the field of AI. This has been introduced with the view to ensuring that the UK remains at the forefront of AI innovation by 2030, while giving priority to responsible and ethical AI technology development.

Unsurprisingly, the UK is not alone in seeking to regulate AI. After a universal hiatus on AI regulation, the EU, the US, and China are also on the road to implementing their own regulatory regimes. It will be very interesting to see how each of these regimes pans out, as this will likely influence where AI companies focus both their resources and efforts.

Until any AI bill emerges and becomes law, when using AI, businesses must comply with existing laws and regulations, such as the UK and EU versions of the General Data Protection Regulation (GDPR) and the UK Equality Act.

Legal and ethical challenges of AI

1. Data Protection: AI relies on large amounts of data to function effectively. However, this data must be collected, processed and stored in compliance with data protection laws, such as the GDPR. Businesses must ensure that they have obtained the necessary consents and are transparent about how the data is being used.
2. Discrimination: AI can potentially perpetuate or even exacerbate discrimination. For example, if the data used to train an AI system is biased, this bias may be reflected in the decisions made by the AI system itself. Businesses must ensure that their AI systems do not discriminate against individuals based on protected characteristics, such as race, gender, or disability.
3. Liability: One of the most significant legal challenges of AI is determining who is responsible if something goes wrong. If an AI system makes a decision that causes harm, it can be challenging to determine whether the responsibility lies with the business that developed the AI system, the individual who trained it, or the AI system itself.

Tips for navigating the legal landscape of AI

1. Conduct a Data Protection Impact Assessment (DPIA): this will allow your organisation to identify the potential privacy risks associated with your AI system and put measures in place that can mitigate these risks.
2. Audit your data: an audit allows you to verify that your data is unbiased and does not perpetuate discrimination. Consider using a diverse range of data sources to ensure that your AI system is trained on a representative dataset.
3. Document your decision-making processes: if a legal challenge arises, it will be important to be able to demonstrate how decisions are made by your AI system. Documenting these processes is an essential part of that proof.
4. Review your contracts: your contracts should reflect the legal and ethical considerations of AI. Consider including provisions that allocate liability and responsibility for any harm caused by the AI system.

There is no doubt that the relationship between AI and businesses has the potential to yield unprecedented growth and innovation. However, this comes with its own set of concerns. It presents numerous legal and ethical challenges to organisations of all sizes.

In order for businesses to ensure that they are complying with existing laws and regulations, there are first steps that they need to take. Some of these steps include conducting a DPIA, auditing data, documenting decision-making processes and reviewing contracts.

If you would like to discuss any of the issues mentioned in this article around AI compliance, or the recommended actions to keep the AI system operations of your organisation within the law, please get in touch.

Improve your EPC rating ahead of the 1 April MEES deadline.

A timely read for landlords from our Real Estate Lead, Emma Cordiner. Because of the updated energy efficiency calculator, you might be able to improve your EPC rating ahead of the 1 April MEES deadline.

Recently, I learned that the way EPC ratings are actually calculated was adjusted in mid 2022. As a result, properties heated using electricity may have an improved EPC rating if re-assessed now. Read on for more on this, and the upcoming MEES changes.

The real estate sector is aware of the 1 April 2023 deadline for compliance with changes to the Minimum Energy Efficiency Standards (MEES). In short, subject to certain exemptions, it will be prohibited to let or continue to let a sub-standard commercial property (those with a rating below “E”) beyond 1 April 2023, with penalties including fines of up to £150,000, and the naming and shaming of non-compliant landlords.

Landlords will likely be aware of any improvements they need to make to any sub-standard properties prior to the deadline. But for any landlords who haven’t quite got around to implementing these, there is one thing that may be worth doing: if the property in question is heated using electricity, consider getting a new EPC.

In June 2022, “SBEM” (essentially the energy efficiency calculator for commercial property) was updated to version 6.1. Of note, were changes to the “calculator” which saw the very significant reduction of the carbon emissions factor associated with properties’ electricity usage. The rationale? Because a sizeable proportion of the UK’s electricity is now sourced from renewable or low carbon sources. The result has been that when assessed using the new version of SBEM, many properties have better EPC ratings than they had when they were assessed using the 2013 version of the calculator.

Whilst the focus is currently on April 2023 and achieving ratings of E and above, government proposals look set to require submission of a valid EPC to a new online database for every let commercial property by 1 April in both 2025 and 2028. It’s then likely every such property will need to have a C or above rating by 1 April 2027, and then a B or above rating by 1 April 2030, or, by either such date, have achieved the highest rating achievable using a “cost-effective package of measures”.

All “some way off”, but improvement works take time to plan, cost, schedule, and to obtain consents for – from tenants, superior landlords, lenders, possibly the planning authorities. If the sale, financing or refinancing of a property is on the agenda, prospective buyers and lenders will be looking keenly at EPC ratings and at proposals for improvement – these will go to property value, and lending decisions, well ahead of any actual deadlines. Then there is the matter of being able to continue to let, and re-let investment property – from a regulatory perspective, but existing and would-be tenants will also have a sharp eye on all things energy efficiency, sustainability, and social responsibility – plus their own and by association, their landlords’ reputations. For landlords, any shortcomings will feed into marketability and the rent achievable.

Economic Crime (Transparency and Enforcement) Act 2022: Key Points to Note in January 2023

Emma Cordiner provides a timely reminder that the transitional period on the Economic Crime (Transparency and Enforcement) Act 2023 is about to expire. With just days until the deadline, Emma recaps on what the legislation requires.

Economic Crime (Transparency and Enforcement) Act 2022: Key Points to Note in January 2023

As part of the government’s bid to make UK property ownership more transparent, the Economic Crime (Transparency and Enforcement) Act 2022, or “ECTEA”, was enacted in March 2022 and largely came into effect on 1 August 2022, with practical application to real estate transactions with effect from 5 September 2022.
At this point in time, late January 2023, the transitional period applicable to many key provisions of ECTEA is just about to expire. Here, we will briefly recap the requirements for overseas entities owning UK property as at 31 January 2023, and take a look at some key points that any entity owning, or seeking to own property in the UK (note, this overview deals with application in England and Wales), now needs to be mindful of – whether they are an overseas entity or a party looking to transact with an overseas entity.

What did ECTEA do?

ECTEA introduced a new register of overseas entities at Companies House on 1 August 2022. The impact of this is significant, and also retrospective.

ECTEA’s definition of overseas entity is broad and as it stands, no regulations have been made so as to identify any exempt overseas entities (although there is scope for this). For now, it should be assumed that ECTEA applies to any overseas law-governed corporate body, partnership, or other entity which is not a “natural person” (and so we have not further referenced the concept of exempt overseas for the purposes of this note).

Any overseas entity acquiring a freehold interest in property or a lease for a term of more than seven years (a “qualifying estate”), must have registered the details of its beneficial ownership on the new register at Companies House. If it has not, it will not be able to apply to register its interest at the Land Registry – this means it will not ultimately be able to acquire legal title to the property.

ECTEA is retrospective too in that it requires any overseas entity which acquired a qualifying estate on or after 1 January 1999 to 31 July 2022 to register details of its beneficial ownership on the Companies House register during ECTEA’s transitional period – this period expires on 31 January 2023. Failure to comply means that the entity won’t be able to transfer the property, or grant a legal charge over it, or a lease of it for more than seven years. Moreover, the entity and its officers will have committed a criminal offence.

Registration of beneficial ownership details is not the end of the matter: details must be up to date – ECTEA imposes annual updating obligations on overseas entities, although updating periods can be shortened (which may prove useful if seeking to contractually oblige a party to a transaction to update its beneficial ownership details ahead of a key transaction dates such as exchange or completion). Failure to comply with updating duties is a criminal offence.

Property transactions: the questions to ask and expect going forward

When their prospective buyers and tenants of qualifying estates are overseas entities, sellers and landlords need to know that these entities are registered on the Companies House register, have an ID number and that they have complied with their updating duties so as to be satisfied that they will be able to become the registered proprietor of property. This is important for sellers looking to dispose of property and the liabilities that come with property ownership, and important for landlords who need to be certain that their tenants are “tenants at law” and capable, for example, of receiving certain notices which may be served under a lease: break notices, 1954 Act notices and the like. Buyers and tenants will likewise want to make the same checks in respect of overseas entity seller and landlords to make sure that they can actually dispose of property being purchased. Lenders taking legal charges over property owned, or to be acquired by overseas entities will need to make such checks of their overseas entity borrowers. All of these checks will become standardised within due diligence processes as ECTEA embeds.

Parties dealing with overseas entities should look for contractual protection in transfer and lease documentation: indemnity-backed obligations on overseas entities to be and to remain appropriately registered and otherwise ECTEA-compliant, and to properly submit (where relevant) all requisite information as part of any Land Registry applications flowing from property transactions. Lenders will need to impose, and borrowers should expect to have to satisfy and comply with, appropriate conditions-precedent and loan covenants, dealing with borrowers’ overseas entity register registration, and the updating of beneficial ownership details.

How ECTEA is imposed in practice

What will make ECTEA bite in practical transactional terms? The Land Registry will place a restriction on the title of every qualifying estate where it is satisfied that an overseas entity is the registered proprietor, and that it became so pursuant to an application made (to the Land Registry) on or after 1 January 1999 and before 1 August 2022. The restriction will have the effect of prohibiting the future registration of transfers, leases for a term of more than seven years, and the grant of legal charges, unless at the time of the disposition, the overseas entity:

  • is registered and has complied with its updating obligations; or
  • is exempt (albeit as above, there are not yet any exempt overseas entities identified); or
  • a statutory exemption applies to the disposition. The statutory exemptions are dispositions:
    • made by operation of law or, pursuant to a court order or a statutory obligations;
    • made pursuant to a contract pre-dating the entry of the restriction on to the register;
    • made pursuant to the exercise of a registered chargee’s power of sale or a receiver appointed by such chargee;
    • to which the Secretary of State consents – note, this power is narrow, dealing with disponees that could not have known about the prohibition on a disposition, and further regulations may yet be made; or
    • made by a “specified insolvency practitioner” – this definition has not yet been legislate for.

The restriction entered on to the register will take effect on expiry of ECTEA’s transition period i.e. 31 January 2023.

For overseas entities seeking now to become the registered proprietor of qualifying estates, they won’t be able to apply to the Land Registry to register their property interest, without having complied with ECTEA and having provided the relevant information within their application to the Land Registry. As above with existing qualifying estates, a restriction (taking immediate effect) will be placed on the title to the property prohibiting the registration of transfers, leases of more than seven years, and the grant of legal charges.

ECTEA makes it a criminal offence for an overseas entity (and every officer in default) to make a registerable disposition which cannot be registered, whether because the restriction on title cannot be complied with, or because the overseas entity has not complied with the applicable overseas entity registration rules.

Final thoughts

Given that the thrust of ECTEA is transparency of property ownership, even if as at 31 January 2023 a particular overseas entity is no longer the registered proprietor of a qualifying estate, it may still need to provide information to Companies House in respect of relevant dispositions of property between 28 February 2022 and 31 January 2023 and its beneficial ownership at that time. Again, there are criminal sanctions for non-compliance.

On a practical level, ECTEA raises additional due diligence points as above for parties to property transactions and those advising them. There will also be extra considerations around the mechanics of certain transactions – overseas entity sellers, landlords and mortgagors/borrowers need to be registered/compliant at the time of a disposition. Buyers, tenants and mortgagees need to be registered/compliant at the time of application to register the disposition at the Land Registry. In some cases a party will wear more than one hat – one simple example is the overseas entity mortgage-funded buyer – it’s not until it makes its Land Registry application to register its newly-acquired property that it needs to be on the overseas registered for ECTEA purposes – but it can’t buy the property without the mortgage and it can’t grant the necessary legal charge over the property unless it is registered/compliant with ECTEA at the point in time where it grants the legal charge. The transfer and registration mechanics of multi-party transactions will also warrant additional attention for example, a sub-sale of property where the intermediate party is an overseas entity.

Note, where property is being transferred by way of share sale, whilst Land Registry mechanics will not come into play, questions around an overseas entity target’s registration status will be just as pertinent from a legal compliance perspective, as they will be if a legal charge is being granted as part of the wider transaction.

Where there are overseas entities as parties to transactions, heads of terms might now usefully make reference to evidence of overseas entity registration to get this point in hand early on at a commercial level, as well as appropriate broader reference to contractual provisions to deal with the point.

ECTEA has the potential to be hugely consequential for non-compliant overseas entities and their officers, with the threat of both criminal sanctions the scope to prevent dealings with, or raising capital against property. Therefore, where businesses are transacting UK property using overseas entities, or where such entities are otherwise a party to such transactions, ECTEA requires careful attention to be paid to any overseas entity’s registration status, and in turn its ability to dispose of or register its interest in property, as the case may be.