Property law after the referendum

Caroline Taylor, partner in the commercial property team at Michelmores, considers the implications of the recent EU referendum for the property sector.

How will the referendum result affect the property sector?

At this very early stage it remains extremely difficult to predict how the separation from the EU will impact on the property sector. All we can say is that the markets have reacted predictably with uncertainty at first although they seem to be slowly recovering. Perhaps the real impact will be felt when the actual terms of our exit are fleshed out. In the real estate world, house builders’ share prices have tumbled and they are quite rightly worried about the impact that Brexit is going to have on transactional activity.

Will there be a fall in demand for new housing? Will deals be put on hold?

Certainly we have heard of quite a few deals being put on hold following Brexit and it seems a natural conclusion to draw that demand may fall but on the positive side the Council of Mortgage Lenders does not see any immediate prospect of falls in house prices due to sound market fundamentals which underpin prices and, of course, our severe housing shortage. Should there be falls, some will see such falls as a good buying opportunity and, with a weakening sterling, the overseas buyer may be tempted. Everything is very much supposition and while there may be a slowdown in property transactions it is doubtful that there will be a dramatic fall in prices.

Will there be any impact on property law in the UK?

Interestingly, from a legal perspective, real estate is relatively insulated from the impact of the EU and it continues to remain essentially national in nature. For this reason, legal concerns are less relevant to the sector than market conditions, inward investment and supply and demand. The UK’s membership of Europe actually impacted very little on land law in this country (unlike the contrast with environmental, climate change and energy laws which have been very EU driven). It is doubtful that any exit from the EU will mean that land law within the UK will change. Ownership rules, registration at the Land Registry and all the other implications of legally owning property in this country seem set to remain the same and unchanged.

Which areas of property law will be most affected?

As land law in the UK has remained unaffected during our membership of the EU, any divorce from the EU (no matter what form it takes) will have little impact. It will, however, have an enormous impact on environmental, climate change and energy laws where the EU has driven policy. How the UK deals with the raft of laws and legislation remains to be seen.

The UK has been very active in relation to climate change legislation and merely leaving the EU does not ensure that such laws will be removed. A key area where property will be affected is in regard to the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, which from 1 April 2018 imposes restrictions on letting property if it does not have an energy efficiency rating (shown in the Energy Performance Certificate) of at least band E. The regulations have been a great worry to landlords of older properties, many of which are not energy efficient. What will the effect of our departure from the EU have on these? Will they be kicked into the long grass? There will inevitably be a period of uncertainty while terms of the exit are discussed. It remains to be seen if the threat of multinationals deserting London will lead to increased office space or whether the UK’s property market will continue to be the safe haven that overseas investors are attracted to.

What advice would you offer to real estate lawyers and their clients?

Like every commentator on the subject of Brexit—we have to wait and see. Not only wait to see the terms of the exit, but wait to see when and where the market volatility will settle. In the long term will it be down/up or largely unchanged? Many commentators believe that the fundamentals for the property market are still good. There are still a lot of investors who are looking for opportunities to buy good quality income at a reasonable yield. These opportunities are increasingly hard to find and if sterling does weaken house prices may yet be supported by overseas buyers who see the weakness in sterling as providing greater value. At the time of writing this it is estimated that UK Real Estate is now about 15% cheaper for foreign buyers.

Interviewed by Julian Sayarer.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.