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 and 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 

  • 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) - to continue to benefit from this passporting system following an exit from the EU, the UK would need to reach an alternative agreement with the EU (and vice versa).
  • Requirements to assess the possible impacts of developments on the environment and ecology under the Environmental Impacts Assessment Directive and the Habitats Directive - clarity will be required as to whether these controls are to be continued or amended to a UK environmental standard. 
  • The Energy Performance of Buildings Directive, aimed at improving the energy performance of all buildings, set target dates for nearly zero-energy buildings of December 2018 (new buildings occupied by public authorities) and December 2020 (other new buildings) - these targets will no longer have to be met once the UK withdraws from the EU. 

Further considerations 

Other potential impacts on construction projects will depend largely on whether the UK retains access to the single market. For example VAT, which is charged on building materials and services, was introduced by the EU, and would undoubtedly have to be retained if the UK were to retain access to the single market. Laws which could be substantially altered or withdrawn by a future UK Government would be those affecting public procurement and sustainability and environmental issues, although again the extent to which the UK may retain these may depend on what form of access to the single market is negotiated. 

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.
  • There will be no immediate changes to the way that construction projects are procured and the regulations that apply to them. However, once the process of leaving the EU is triggered, parties will need to think about how they allocate risk for change of law during the contract period. Where a UK party is contracting with an EU entity, it may be prudent to opt for arbitration over litigation in contract dispute resolution provisions, in order to ensure that enforcement of any award can proceed under the New York convention, as the Lugano and Brussels conventions will not necessarily continue to apply (although arbitration is not appropriate in every case). See Brexit: Impact on Disputes for more information. 
For a more detailed analysis of the issues, please contact the authors or your usual DLA Piper contact.