Brexit by topic | Real Estate | 01 Jan 2019

Brexit: Changes in Real Estate Law

Overview

UK real estate is still largely governed by UK statute and common law, and so is unlikely to see major disruption following Brexit.

The main areas of EU law where an impact may be felt, are in respect of environmental matters and in respect of health and safety. Two key areas where these changes could have implications are in the development of new buildings (particularly relating to planning and construction), and in the management of existing ones (especially in relation to energy efficiency).

However, the UK is likely to retain the main legal principles at least in the short term as all current EU law is likely to be wholesale incorporated into UK law as a result of the Great Repeal Bill.

Which laws might be repealed?

Environmental laws

The UK has been a proponent of stronger EU environmental policies and has implemented into UK law requirements from the Energy Performance of Buildings Directive, which outlines minimum energy standards and certificates for buildings. It seems unlikely, at least in the short term, that there will be any significant reduction in the requirements that property owners need to adhere to, and in any event, international protocols like the Kyoto protocol on carbon emission reductions will remain in effect.

Competition law

If current competition law principles were to be relaxed, restrictive covenants controlling (for example) the tenant mix in retail centres could be held enforceable where currently there is doubt over their effect. However, a significant relaxation of competition law is in our view unlikely (The Brexit by Topic article Brexit: Competition Law goes into more detail.)

Public procurement

It is possible that public procurement rules will be lessened post-Brexit. This could make development in the UK more attractive as the cost and complexity of the tendering process is likely to be reduced. However, the UK's freedom of manoeuvre may well be constrained by the terms of any agreement with the EU and the WTO Treaty obligations (The Brexit by Topic article Brexit: State Aid and Public Procurement looks at this further).

Enforcement

Currently landlords are able to enforce against EU tenants relatively easily under the European Enforcement Order Regulation. If this was removed, it is possible that enforcement would become less straightforward (depending upon what was negotiated in its place) and so taking on EU tenants might become less attractive.

Real Estate as an Investment

The main effect on the UK property market, aside from the impact on laws, is likely to be in respect of demand from investors.

Although there has been an initial slow-down in investment and some reduction in pricing, in the medium term the weaker pound could actually benefit corporate real estate investments, particularly in low risk prime areas like London. The weaker pound has also proved profitable for the hotel and leisure sector, with an increase in UK tourism expected to provide a boost in 2017 and potentially increasing the attractiveness of real estate investments in this class.

Will businesses relocate?

If EU ‘passporting’ and freedom of movement are removed or significantly reduced, businesses may, in the longer term, reassess whether they want to be located in the UK.

At a legal level, we might expect to see businesses requiring more flexibility in the leases they take out – e.g. requesting break rights or shorter leases with options to renew. On a practical level, we might see businesses holding off carrying out significant works to their premises while they decide where they should be located long term. Even businesses that are keen to stay in the UK might find that the costs of building a new HQ or office could increase or projects could be delayed due to a shortage of available skilled labour.