Following the UK’s exit from the EU, the UK and the EU have concluded a Trade and Cooperation Agreement (the “TCA”) to set the basis for their future trading relationship. Having seen off the prospect of a no-deal Brexit, the fundamentals of the UK real estate market should continue to make it an attractive investment destination. Transactional volumes in the logistics and residential sectors are helping the UK market weather the storm of the pandemic and commentators continue to highlight potentially attractive pricing differentials in other sub-sectors. The UK also has the potential to build on its reputation as an innovation and talent hub particularly in the Life Sciences sector.
Because much of the legislation relating to pure real estate, planning and construction is domestic in its nature, Brexit has had little immediate impact on the fundamentals of UK land law. Relevant EU law in force at the end of 2020 was imported into UK law (with necessary amendments) under the European Union (Withdrawal) Act 2018.
More generally, companies have been advised to consider the impact of Brexit on their business, including any specific commercial and market related concerns. Key considerations for the UK real estate sector have tended to focus on the delivery of construction projects.
- Movement of goods: The TCA provides for zero tariff and zero quota trade in goods moving between the EU and UK. This preferential treatment applies to goods that are considered as having a sufficient connection to the UK or EU (or “originating’ status”). Goods that are not considered as “originating” in the UK or EU will be subject to the customs duty that would apply to imports from other third countries, as may some goods that are traded between the UK and the EU more than once.
Customs declarations will need to be made when moving goods between the UK and the EU. However, UK HMRC permits deferral of declarations on certain imported goods which should help to reduce the risk of administrative delays at ports. Businesses may consider other measures to mitigate logistical risks such as early ordering, management of supply chain importers or substitution of goods with available UK alternatives.
Northern Ireland remains in the EU Single Market, so these rules are applied also to goods passing from Great Britain (England, Wales and Scotland) to Northern Ireland.
- Standards and regulations applying to goods: With the UK having left the EU, there is a loss of mutual recognition of standards applying to construction products between the UK and the EU. Products placed on the EU market still need to carry the CE quality mark, but those for the UK market will need to carry the new UKCA (UK Conformity Assessment) mark and those for the Northern Ireland market may need to carry both the CE and new UKNI quality marks. To lessen the immediate impact, the requirement for some goods to carry the UKCA mark will not come into effect in the UK until 2022.
Purchasers should verify that technical requirements are brought up to date and suppliers are positioned for the change. Manufacturers for the UK and EU markets will need to demonstrate conformity with more than one set of standards.
For further analysis, see accompanying section: Trade: The new relationships.
- Movement of labour: The UK construction industry has regularly employed EU nationals working temporarily in the UK. EU workers resident in the UK before the end of the transition period may apply for settled or pre-settled status to remain and work in the UK. Other EU workers coming to the UK are likely to require visas or work permits under a new points-based immigration system, which also applies to other countries. These rules do not apply between the UK and Ireland as they have preserved the common travel area which was in force before the UK and Ireland became Member States of the EU. Businesses sending UK personnel to work in the EU may also need to arrange visas or work permits.
With a loss of mutual recognition of professional qualifications between the UK and the EU, there may be implications for employing professional consultants such as architects who do not have local qualifications.
Clients and suppliers will have a watchful eye on the potential for restrictions on free movement to impact on availability, productivity and cost of labour, particularly for specialist trades, and overall project delivery and affordability. Where it is not practicable to avoid these impacts through mitigation measures (such as timely applications for visas or utilising domestic resources), businesses may consider fluctuations provisions or additional programme relief.
For further analysis, see accompanying section: Migration.
- Exchange rate risks: Whilst the door has been closed on a no-deal Brexit, the cost of supplying goods or services between the UK and EU and non-EU countries may yet be affected by currency fluctuations resulting from economic uncertainty around the transition to TCA terms. Businesses may consider continuing/renewing currency hedging arrangements, denomination of prices in multiple currencies or, where practicable, the supply and purchase of goods or services when exchange rates appear advantageous.
- Construction projects procured by public authorities: The UK and the EU are both parties to the WTO’s Government Procurement Agreement (GPA), which requires its members to ensure that contracting authorities in their territory award public contracts using transparent, non-discriminatory tender procedures. The TCA follows along the lines of the GPA and so limits the extent to which rules favouring domestic suppliers can be introduced. As a matter of procedure, construction procurements commenced by UK contracting authorities after the transition period will need to be published on the new Find a Tender Service (FTS) rather than in the Official Journal of the. Procurements commenced by UK contracting authorities before the end of transition, or within the EU, will still be completed in the Official Journal of the EU. Although currently government and utility procurement rules are otherwise very much the same as when the UK was subject to EU law, the UK Government has been carrying out a consultation on possible changes, which will have to comply with the UK’s obligations under the TCA.
For further analysis, see accompanying section: Public procurement.
- Subsidies and State aid: The EU State aid rules continue to apply to aid given by the UK Government (national, regional and local and certain other public bodies) before the end of 2020. The validity of the aid and the risk of clawback depend on whether it was approved specifically under those rules or benefitted from one of the EU block exemptions in relation to State aid. Aid (now called “subsidy” in line with WTO terminology) granted to UK projects after 2020 is subject to a set of principles set out in the TCA. The UK also has an obligation under the TCA to set up an independent regulator to monitor and enforce compliance with the principles and a system for the recovery of subsidies that should not have been paid. The UK Government is currently consulting on the detail of the new scheme, which will require legislation to be put in place in a clearly legally binding form. In the EU, the EU State aid rules will continue to bind Member States, while the EU has agreed to be bound by the principles in relation to the aid it itself gives from EU funds.
For further analysis, see accompanying section: State aid.