Following the UK's referendum vote in favour of leaving the EU and the appointment of Theresa May as prime minister, this briefing considers the key legal implications for the commercial real estate sector.
Brexit does not represent the same disaster as the post-Lehman shock where capital and bank debt dried up and deal flow ground to a halt. Commentators are not expecting that to happen and there are clearly cash rich investors in the market looking for bargains should they become available. That said, activity levels in the commercial property sector had already declined before the referendum and the expectation is that this will continue over the next couple of months. Beyond that, the position is unclear and there is speculation as to what will happen to tenant demand, values, fund activity and bank appetite for deals.
Impact on real estate law
Most law affecting commercial real estate in the UK is not driven by EU legislation and will not be affected by Brexit. The legal systems for real estate in England/Wales, Scotland and Northern Ireland are different to each other and independent, although they have many features in common. There is no reason to expect fundamental change.
There are some laws which have been required or influenced by membership of the EU. This includes, for example, some environmental and health and safety legislation. These laws will not automatically end on Brexit but we may see the Government using Brexit as an opportunity to change some of them.
There are other laws which may affect the way that the real estate sector operates, including financial services regulation and employment law, which will be more directly affected.
Legally, has anything changed yet?
Despite the vote to leave, the UK's membership of the EU continues until it has formally withdrawn. Negotiation of a "Withdrawal Treaty" or "WT" is likely to take some time – probably several years. It follows that businesses will have time to prepare for the impact of Brexit, including the legal ramifications. EU Treaties will cease to apply to the UK on the expiry of a period of 2 years (or longer if agreed with the remaining EU countries "EU") from the date the UK formally notifies the EU of its decision to leave (or the date on which a WT is concluded, if earlier).
What needs to be agreed with the EU?
Amongst the many issues that the UK will need to broker with EU:
- ideally a free trade agreement, including provision for the export of services (a large proportion of the UK's exports to the EU);
- wide-ranging implications for UK-based financial services firms, on which we have prepared a separate briefing;
- the status of UK citizens living in other EU member states;
- the status of EU workers in the UK, on which our employment team have prepared a further briefing; and
- whether certain pieces of EU legislation should continue to apply to the UK postexit (e.g. recent EU legislation abolishing mobile phone roaming charges).
Negotiations on some of these issues are likely to be complex and may make it difficult to conclude a genuinely comprehensive UK-EU settlement by 2020, as envisaged by Vote Leave.
How would national law be changed?
In our view, it is unlikely to be possible to review all affected legislation by 2020, as this will be a very time-consuming and onerous task. It is probable that some EU-derived legislation will have to be retained as part of UK law beyond that date – and the process of reviewing it is likely to continue for some years after Brexit.