1. Will there be (new) legal obstacles to acquire and sell property in England for EU investors after Brexit has become valid? Property law in England remains essentially national and has not been much affected by EU law. So Brexit will not, of itself, change the legal formalities relating to property ownership, land registration, leasing and taking security over land. Following Brexit, the law would have to change in order to impose obstacles to the buying and selling of property by EU nationals in England.
2. What will be the impact on longer term contracts and relationships (e.g. leases and joint ventures) between EU property holders and UK parties? Contracts with EU nationals and completed property transactions with them should not be affected by Brexit. These should remain in force subject to specific termination rights. However some areas of EU law affect property transactions and may be subject to change once Brexit has happened. Examples are: • Environmental law – the Energy Performance of Buildings Directive sets minimum energy performance requirements for new and existing buildings and requires energy performance certificates to be provided on sale or letting. Also the Energy Efficiency Directive as implemented imposes duties on landlords of multi let buildings who supply heat hot water and cooling through a communal system in relation to billing and installation of meters or similar equipment. • Planning - The Environmental Impact Assessment Directive makes requirements for environmental impact assessments on certain development projects and developers have also have to comply with the Habitats and Wild Birds Directives. • Competition law - property transactions are now subject to competition law which is based upon Article 101 of the Treaty on the Functioning of the European Union. Covenants which restrict the type of commercial activity which can be carried on, exclusivity obligations and transactions designed to secure control over the use of sites within an area can be prohibited under this legislation. • Consumer protection – the Consumer Rights Directive imposes protection for consumers against unfair treatment in land transactions. The future status of the relevant laws is uncertain and will depend on the result of the negotiations for Brexit. It is probable that the UK will want to retain much of the legislation which has derived from EU law but this cannot be predicted at present.
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3. Will it be necessary to negotiate “Brexit� clauses in future contracts and how should they look like ( e.g. applicable law)? Before the referendum some property contracts were expressed to be terminable if the vote was to leave and apparently termination has occurred under such provisions. It is difficult to say what Brexit related conditions should be imposed now as the political landscape is so uncertain. Nevertheless the choice of English law for English property transactions should be unaffected by Brexit and the same is broadly true in relation to jurisdiction clauses and the enforceability of English judgments, although specific advice should be obtained. 4. Will it still possible to found a branch office in the UK for EU companies?
One of the options for companies wishing to trade in the UK is to register a UK Establishment. This means that the overseas company must comply with the Overseas Companies Regulations 2009, which includes a requirement to register any establishment the company has in the UK and it also imposes certain accounting requirements and requirements to deliver returns. The Regulations and Companies Act 2006 derives at least in part from, and run in parallel with, EU legislation, but, unless there is a political will to "deregulate" certain aspects, they are unlikely to change significantly. A UK Establishment is defined for the purposes of the Overseas Companies Regulations 2009 (SI 2009/1801) as a branch within the meaning of the Eleventh Company Law Directive (89/666/EEC), or any place of business that is not such a branch, that is located within the UK. The Eleventh Company Law Directive does not define the term "branch". A place of business would be anywhere that a company regularly conducts business or premises that indicate that a company may be contacted there. This option is only one alternative and an overseas company may wish to consider other more suitable to its particular needs, including: Appointing an agent. A company that chooses to appoint an agent will avoid the regulatory burden of having to register a UK establishment or incorporating a company. However, an agent may not meet the requirements of the company if it wants to establish a greater presence. Incorporating a subsidiary. An overseas company can choose to set up a UK subsidiary, however, this may increase the regulatory burden. If the company has no other subsidiaries it may trigger the requirement to produce group accounts. The company also has to go through the process of incorporation. If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. Š Howard Kennedy LLP 2016
Appointing a distributor or franchisee. Entering into a partnership agreement. However, a partnership is not a separate legal entity; any contracts must be entered into or assets must be owned by the partners on behalf of the partnership. Looking outward, many financial firms authorised in the UK (both UK firms and non-EEA firms who use London as their springboard into Europe) are able to carry on business in other EEA countries with minor formalities using the EU Treaty "passport". Unless the UK re-joins the EEA via EFTA, this will no longer be available on exit, so firms will need to apply for full authorisation for a local branch or for a subsidiary in an EEA state, which is an expensive process. 5. What will be the impact on the application of VAT to real estate transactions? This will depend very much on what the UK does about VAT, which is a European tax that replaced the previous UK purchase tax. The easiest way forward would be for the UK simply to turn "EU VAT" into "UK VAT", with very little change (the EU directives have been implemented in UK law in any event). This approach may well be appealing to the government – there is going to be enough instability in legislation without creating more disturbance unnecessarily. In relation to UK property transactions, this could result in very little change in the short term because almost all UK land based transactions are already subject to UK VAT (unlike many other supplies of services, which are treated as taking place where the customer belongs, supplies of services in relation to land take place where the land is located). In the medium term, VAT accounts for around 13% of UK tax revenues and so is unlikely to be dropped without a replacement. There may be some changes around the edges – the UK has been prevented from applying reduced rates of VAT to some property transactions and it could use the ability to set its own rules to "play with rates" to encourage certain sectors in the market. There has been talk that the overall rates of VAT may need to increase to fill the tax gap that has been predicted in the event of exiting the EU; however, apart from in certain limited, albeit important, sectors such as financial services, most businesses paying VAT on property will recover it against their sales and so the cost is transparent. End consumers will suffer the pain of any increase in VAT rate but that will be based on the price they pay for the goods and services they buy, rather than VAT on property used by their suppliers.
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In the very long term, the government could choose to drop VAT altogether and replace it with another form of sales tax but I think that a lot of the other dust over the exit from the EU would have had to have settled before this happens. 6. Will it still possible to enforce judgments in the UK after Brexit has become valid? The answer is almost certainly yes. (i) EU regime At present, judgments of the courts of EU member states are enforceable in the UK under the Recast Brussels Regulation. If EU Regulations are to cease to have effect in the UK, I believe the UK will seek to negotiate a very similar treaty with the EU. (ii) Other international regime outside EU The Hague Convention on Choice of Court Agreements applies as a result of the approval of the convention by the EU. Its objectives are to give effect to choice of court agreements which designate the courts of a contracting state, and to require contracting states to recognise and enforce and resulting judgments. At present, only the EU and Mexico are bound by it and the above EU regime takes precedence. As a result, it is little used. If EU Regulations are to cease to have effect in the UK, the UK could approve this convention independently (were the existing approval through the EU to fall away) and it could have far greater use, as between the UK and EU member states. (iii) Fall-back The fall-back position is the common law regime, which presently applies to countries not falling under any of the above. This includes the USA. At common law, a foreign judgment creates an obligation which can be enforced as a debt in fresh English court proceedings. The creditor will generally be able to obtain summary judgment on the basis that there is no defence to the claim. The judgment may then be enforced in the UK.
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Contact us:
Anthony Hunt Head of Mergers & Acquisitions T: +44 (0) 20 3755 5521 E: anthony.hunt@howardkennedy.com
Julian Hindmarsh Chairman of Real Estate Department T: +44 (0) 20 3755 5507 E: julian.hindmarsh@howardkennedy.com
If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. Š Howard Kennedy LLP 2016