Brexit isn’t frustrating…at least for leases

Landlords can (for now at least) breathe a sigh of relief as the High Court has ruled that a tenant cannot bring its obligations under a lease to an end by invoking the doctrine of frustration simply because it will have no option but to relocate if/when the UK leaves the EU.

In Canary Wharf (B4) T1 Ltd and others v European Medicines Agency [2019] EWHC 335 (Ch), the Court held that even though the European Medicines Agency (“EMA“) would be forced under EU law to relocate outside the UK after Brexit the nature of the bargain between the parties was not made radically different by Brexit and the lease is therefore not frustrated.  On the contrary, the inclusion of carefully negotiated alienation provisions in the lease indicated that the parties had contemplated that the EMA might at some point wish to dispose of its interest.  The EMA will therefore remain fully liable under the lease for the remainder of the term, unless of course it successfully appeals this ruling.

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Real Estate EP4: Brexit and the UK real estate market

In this podcast, Herbert Smith Freehills’ Matthew Bonye and Tom Leech QC discuss the important Canary Wharf Group v European Medicines Agency court case.  This case is highly relevant to real estate development. The tenant, the European Medicines Agency (EMA), argues that Brexit is a frustrating event for its lease and that it can assert that the lease is thereby terminated. If EMA wins, then it can only be on the basis that the law of frustration is considerably wider than it is currently thought to be: until now, there is no English case where a lease has ended due to frustration. If a lease can come to an end due to frustration, then how will this affect investment values and therefore development appraisals, particularly for longer-term commercial leases such as those for anchor tenants or whole building lets to major banks and other institutions, often a key element of a development scheme? Matthew Bonye and Tom Leech QC discuss how the law of frustration has developed and whether this may open the floodgates for other claims by tenants where the parties have not legislated in their lease for an unexpected turn of events in the future.

Our Brexit Hub has further in-depth, sector-by-sector Brexit analysis.

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Observations from MIPIM: logistics and prop tech

In this post, Paul Chases, a partner in the HSF London Real Estate team comments on his experience of the Shedmasters event at the MIPIM real estate conference, and on the direction of travel of parts of the real estate industry.

  1. Continued Growth
  2. Future of the Shed
  3. Impact of Brexit

1. Continued Growth

The popularity of this year’s Shedmasters event at MIPIM (sponsored by Savills, Gazeley and Prologis, amongst others) is testament to the ongoing strength of the logistics sector, which, in 2017, saw record highs for investment in the industrial and distribution sector. The general view seems to be that this trend is likely to continue for 2018 and beyond with returns for the industrial and logistics sectors predicted to outperform those for office and retail (for example) over the next five years. Already this year, HSF has acted on a number of logistics deals. With such positive forecasts, the expectation is that new investor entrants will look to enter the market and there will be further consolidation by those already involved in the sector.

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The new EIA Regulations: what has actually changed?

The Town and Country Planning (Environmental Impact Assessment) Regulations 2017 came into force on 16 May 2017, implementing the 2014 EU Directive. Similar regulations have also come into force under the infrastructure planning regime. Largely, the new regulations are a fairly extensive and, in places, trivial set of amendments. The question is, will they have a tangible impact on established EIA practice?

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Air quality update

Authors: Julie Vaughan, Senior Associate, Environment and Helena Thompson, Associate, Planning and Environment, London

This blog gives an overview of the current position on air quality following the recent ClientEarth (No.2) court decision regarding DEFRA's air quality plan. In this blog we will consider:

  1. the ClientEarth (No.2) decision
  2. Sadiq Khan's approach
  3. new domestic legislation?
  4. impact on Heathrow expansion
  5. impact on development
  6. Brexit

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The Great Repeal Bill: What will this mean for environmental legislation?

Authors: Julie Vaughan, Senior Associate, Environment and Helena Thompson, Associate, Planning and Environment, London

On 2 October 2016, Prime Minister Theresa May announced at the Conservative Party's annual conference that all existing EU law – and therefore, environmental law – will be kept when the UK leaves the EU.  A "Great Repeal Bill" will be announced in the next Queen's Speech, to repeal the European Communities Act 1972 ("ECA") with effect from our exit of the EU. The ECA gives effect to EU law within the UK, provides for its supremacy over UK law where the two conflict, and provides the enabling powers to make secondary legislation to implement EU Directives. May has stated that when the ECA is repealed, all EU law will no longer have effect in the UK, and the existing EU law will be converted into domestic law ("Converted EU Legislation").

It wasn't clear from May's speech exactly how EU law will be converted. Directly applicable EU law (i.e. EU Regulations) could be deemed, rewritten, or copied into, primary legislation; and UK secondary legalisation implementing EU Directives will be saved by various means.  However, the intent is that all EU environmental law will in some manner continue to have effect in the UK. May stated that Parliament will be able to amend, repeal or improve the Converted EU Legislation, and David Davis added that the Great Repeal Bill would include powers for ministers to make some changes by secondary legislation, causing alarm in some quarters that substantive changes could be made without full Parliamentary scrutiny. However, the power to make environmental legislation is devolved to the regions – Scotland, Wales and Northern Ireland – and it is unclear how the Great Repeal Bill will deal with the devolved powers.

Important questions remain unanswered (discussed below in this post):

1. How will we interpret Converted EU Legislation?

2. How will references to EU legislation, guidance or bodies be dealt with in the Converted EU Legislation?

3. Are we stuck with EU legislation at the point of Brexit?

 

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Development Joint Ventures: fundamental aspects, minority rights and the European dimension

Author: Paul Chases, Senior Associate and Head of Corporate Real Estate, London 

In the UK property market one investment or development project can vary considerably from another.  However, the prevailing feature that many such projects share is the corporate real estate joint venture (the "JV").  The JV has become central to investment and development activity undertaken by the likes of property companies, private equity funds, institutional/overseas investors, pension funds, sovereign wealth funds and individuals.  Parties are increasingly looking to share financial risk and reward (by way of JV), but never more so than during periods of economic uncertainty and market volatility as riskier (but more competitively priced) opportunities come to the market. 

In a series of articles published in the Estates Gazette on 2 July, 9 July and 15 July 2016, Paul Chases of the Herbert Smith Freehills corporate real estate team takes a closer look at:

(i)      the six fundamental areas that should be at the forefront of each party’s mind when contemplating a new JV (deal structuring, future bankability, funding, applicable law and exit);

(ii)    JV minority rights (picking up contractual and statutory protections); and

(iii)   the European dimension as it applies to a JV (and how Brexit might interplay).

Please click on the links below to read the articles.

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Brexit: some indirect implications for development and planning

Author: Matthew White, Partner and Head of Planning, Real Estate, London

There are many briefings on what Brexit means for real estate and I don't intend to repeat them in this blog entry. There are only so many ways of saying that the outlook remains uncertain and some transactions are likely to be put on hold until the situation becomes clearer.

Instead, I want to consider some of the indirect implications of last Thursday's vote. I have spent the last week talking to clients and contacts about their concerns, many of which are less obvious than the headlines would suggest. It would be unfair to identify whom I have spoken to, but equally I cannot claim all the credit for these thoughts either.

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Q1 Healthcheck / Q2 Predictions: Brexit, Mayor, PRS, Housing and Planning Bill, airport expansion

Author: Matthew White, Partner and Head of Planning, Real Estate, London

In the week before Christmas, the daffodils were blooming, the birds were chirping and it was warm enough to cycle to work in shorts. In the week before Easter … well, nothing much has changed. And that pretty much sums up the ‎development market in Q1. Transactions held over from December were duly completed, but the dealflow since then has been been falteringly slow.

MIPIM, always a good barometer of market sentiment, was summed up by the weather too – it was not nearly as ‎balmy as expected and left you feeling let down and a bit foolish that you'd brought your sunglasses.

Much of this is being driven by Brexit. Whilst I don't think the vote will make a big difference to development in the UK ‎either way, it is the uncertainty of whether we will end up in or out that is causing stasis. Like Schrodinger's cat being alive and dead at the same time until the box is opened and the quantum waveforms collapse, investment decisions ‎are quite reasonably being held back until the outcome of the referendum is known.

In London, we also have a Mayoral election to contend with. Ken Livingstone and Boris Johnson may have been at opposite ends of the political spectrum, but both were firmly pro-development. Looking at Sadiq Khan and Zac Goldsmith on the hustings, I am not convinced that the next four years ‎will be quite so developer-friendly.

Development has always been a Q2/Q4 business of course, so a slow winter is not that unusual. This feels like a pause for reflection rather than a sign of deeper retrenchment. To lift a metaphor off the back of England's Grand Slam victory, we're just waiting for the referee to call "set" before the front row engages again.

So, here are my predictions for Q2:

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Brexit stage left

Julie Vaughan, senior associate in the Environment team at Herbert Smith Freehills, co-authored an article for Estates Gazette on the legal impact of a Brexit. To read the article on EGi, please click here.

Please also visit our Herbert Smith Freehills Brexit hub page, with sector by sector analysis of the implications of a Brexit. 

Julie Vaughan
Julie Vaughan
Senior Associate, Environment, London
+44 20 7466 2745