Brexit’s effect on Real Estate legislation
Whether you voted to leave or remain, there will be changes to key legislation affecting the commercial property sector in the UK.
In this article, we look at where possible changes in legislation could affect real estate transactions:
- Competition Act 1998. Article 101 of the Treaty of the Functioning of the European Union (“TFEU”) prevents agreements that effect the restriction, prevention or control of competition within the EU and which then has an effect on EU member states. The Competition Act 1998 enshrines this within UK law. If and when the UK withdraw from the TFEU then Article 101 would cease to apply in the UK. However, in the event that the UK agrees a deal with the EU allowing the UK access to the single market following Brexit, this Article would remain in place as part of the conditions of any deal. It is therefore unlikely that the UK will repeal the Competition Act 1998.
- Energy Act 2011 and Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 relating to Minimum Energy Efficiency Standards (“MEES”). The UK government has introduced a number of measures, including MEES, to improve the energy efficiency of a property in an effort to cut carbon emissions. The MEES Regulations affect both commercial and domestic properties and are affected by both UK and EU laws. Whilst the UK government are committed to reduce carbon emissions, it is not thought that these measures will be repealed, although they could be reviewed as a whole following Brexit to ensure that there are no conflicting provisions between UK legislation and the EU directives.
- Energy Performance of Buildings (England and Wales) Regulations 2012 relating to Energy Performance Certificates (“EPC”). For many years, it has been a requirement for a seller to produce an EPC to the buyer showing the energy efficiency of the property being sold/leased/disposed of. Again, as the UK government is committed to reduce carbon emissions, a complete repeal of this Act is not envisaged but the government may well review the legislation as a whole to ensure there are no conflicting provisions between the EU directives and the UK legislation.
- Immigration Act 2014. This Act prevents landlords allowing certain people based on their immigration status, from occupying private residential properties and requires that landlords must check the status of all tenants to ensure they have the right to be in the UK. Although the Act is UK based with no EU directives having been made, depending on the final Brexit deal, the UK government may decide to amend the provisions which could remove the unlimited right of EEA nationals and the time-limited rights granted by certain EU rights.
- Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”). This legislation is both UK and EU based and provides that on a transfer of a business or undertaking or a service provision change then the employees of the “selling” company will automatically transfer to the “buying” company and the “buying” company will take over from the “selling” company and inherit their liabilities. It is unlikely that the UK government will seek to repeal TUPE where it relates to a transfer of a business, but they may look to repeal other aspects of TUPE where the provisions are considered to be onerous and not commercially sustainable.
- Town and Country Planning (Environmental Impact Assessment) Regulations 2011 relating to Environmental Impact Assessments (“EIA”). As it currently stands the EIA requires developers, as part of the planning process, to provide information relating to the environmental effects of their proposed development. The EU have recently implemented an EIA Directive 2014 to amend the earlier 2011 Directive, which all member states need to implement. The UK has yet to implement this new directive and the UK government may wish to repeal the EIA Regulations once they have reviewed them, although this will be subject to any obligations or agreement made by the UK in any trade deal with the EU as part of the Brexit negotiations.
- Value Added Tax 1994. Due to the nature of the UK’s VAT system, it is heavily influenced by EU law. Although UK legislation will not automatically change following Brexit, it is thought that if the UK government wish to repeal a supply tax then it would need to replace it with something similar. It is therefore important for solicitors to check that any definition of VAT in property contracts refer to the UK law definition instead of the EU one.
Although it is still uncertain how the UK will deal with the aftermath of Brexit, it is safe to say that all sectors in real estate will be affected by changes in current legislation. Until the terms of any agreement reached between the UK and the EU become clear, there will be continued uncertainty as to when and how any changes will be made. It is therefore prudent to ensure that definitions in any agreements cover any potential legislative changes prior to completion of a transaction.
If you have any questions then please do not hesitate to contact the Real Estate team.