Brexit: Impact on real estate

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Following the UK's vote to leave the European Union, we consider the potential implications for Real Estate, including Construction, Planning and Land Use.

Real estate law is specific to each jurisdiction within Europe, and even differs significantly and increasingly between the component parts of the United Kingdom.  However, many of the laws applicable in the United Kingdom derive from EU law and regulation and what will happen to these laws following the UK's exit from the EU will depend upon the terms which are negotiated between the UK government and the European Commission. 

Potential impact 

  • To continue to benefit from the passporting system created under the Alternative Investment Fund Managers Directive (which, broadly speaking, allows funds managed by EU managers in one EU jurisdiction to be marketed to professional investors throughout the EU) following an exit from the EU, the UK would need to reach an alternative agreement with the EU (and vice versa).   
  • Clarity will be required as to whether the requirements under the Environmental Impacts Assessment Directive and the Habitats Directive (to assess the possible impacts of developments on the environment and ecology)  will be continued or amended to a UK environmental standard.  
  • Once it withdraws from the EU, the UK will be free to amend energy efficiency laws implemented in the UK as a result of the Energy Performance of Buildings Directive (which is aimed at improving the energy performance of all buildings, and sets target dates for nearly zero-energy buildings) , although significant departure from existing energy efficiency policy seems unlikely at present.
  •  VAT - VAT was introduced by the EU. Once the UK has left the EU, it would, in principle, be free to alter the VAT regime, for example, by introducing new reduced VAT rates or zero-rating for certain sectors, which could have an impact on the real estate market.
  • There may be an impact on state aid and procurement rules after the UK withdraws from the EU.

Further considerations 

Potential impacts on construction projects will depend largely on whether the UK wishes to retain access to the single market. The construction industry already has a skills crisis, which will increase without access to EU workers. The All Parliamentary Party Group for Built Excellence has published the findings of a review which makes suggestions aimed at addressing the problem. Laws which could be substantially altered or withdrawn by a future UK government would be those affecting public procurement, sustainability and environmental issues, although the extent to which the UK may retain these may depend on the agreed form of access to the single market.

Actions  

  • It is too early to determine the likely consequences of Brexit on UK real estate laws. However, in the short-term, nothing will change legally until legislation is passed and that is likely to take several years.
  • Where a UK party is contracting with an EU or European Free Trade Association (EFTA) entity, it will need to think about how it will enforce the contract against that entity. For example, where a landlord has an EU based tenant or guarantor, it may prefer to demand a rent deposit as a method of recourse for breaches of covenant, which could help to avoid the need for legal proceedings. Alternatively, it could decide to opt for arbitration over litigation in dispute resolution provisions in order to ensure that enforcement of any award can proceed under the New York convention, which will be unaffected by Brexit. If litigation is chosen, care will need to be taken when drafting the jurisdiction provisions, because EU/EFTA enforcement rules may cease to apply to English court judgments on Brexit, and other international rules will not assist in every case.
For a more detailed analysis of the issues, please contact the authors or your usual DLA Piper contact.