The immediate and direct legal impact of Brexit for real estate will be limited, as property law is for EU member states rather than the EU as a whole. But other consequences may be felt.
The law governing real estate transactions has always been a matter for EU member states to determine, not the community at Union level. But Brexit may still affect real estate activities. The impact, such as it may be, is likely to be felt partly as a matter of confidence in the strange world of both Covid-19 and Brexit, and partly in relation to possible interruptions in supplies of goods or services.
2020 will not be a year that most businesses will recall with any satisfaction. But aside from the immediate impact of periodic closures and restrictions due to Covid–19, businesses will be trying to assess the longer term impact of home working, online retail buying and reduced business travel, to highlight just some changes of habit that may affect real estate, the demand for it, and its use and value. Disentangling business uncertainty about post-Covid planning from that due to post-Brexit life will not be easy.
Just how far UK GDP contracted last year as a result of the virus may be a matter for debate due to the cautious approach in the way the UK calculates GDP – not an approach generally replicated elsewhere - but it certainly did severely contract. However, current projections suggest very strong UK GDP growth in 2021. Confidence due to general economic growth prospects may dent anxiety about post-Brexit business, though some impediments may remain, notwithstanding the UK-EU deal. That deal says little concrete about services - financial, professional or otherwise: we wait to see what arrangements may be struck and when, and to what extent EU service providers may continue to carry on activities in the UK, and vice versa.
So a combination of caution, and potential cross-border trading obstacles or procedures, may lead to a variety of consequences, such as:
- a dent in business confidence, and consequently transactional fluidity and some property valuese attractive terms for tenants and buyers in some sectors/geographical areas (such as retail and offices - though demand for logistics facilities may continue to rise)
- leisure spending may see material increases with pent up demand starting to be released as people become more familiar with the post Brexit world, and as (we must all hope) new more relaxed approaches emerge if/when the benefit of the vaccination programmes start to bite
- an adverse effect on current funding arrangements (e.g. where required loan to value ratios are breached as a result of falling values)
- changes to the availability or terms of finance for acquisitions and developments of certain properties
- impediments to the cross border flow of EU-derived equipment, goods or services
What are the other points to note?
Although several areas of law relevant to real estate derive from EU law to varying degrees, it seems presently unlikely that there will be material changes in the short term. For example:
- environmental controls and energy efficiency of buildings
- public procurement
- some health and safety controls
- human rights (e.g. ownership/renting of a person’s home)
What actions can be taken?
- Parties with current funding arrangements should review their terms e.g. loan to value ratios; term dates
- Anyone acquiring, or leasing, a property should (as always) consider how easy (or not) it may be to dispose of it in the future (however unintended that may currently be)
- Maximising flexibility, so far as practical, in real estate contracts, developments and funding is prudent
- Developers, or those planning a fit out project, should review any intended use of EU-derived goods or services.