Brexit - Real Estate law

Since real estate law in general is typically governed by the law of the domestic jurisdiction (or in Belgium regional authorities), it is not greatly influenced by European law. As a result, legal formalities remain largely untouched by Brexit, both in the United Kingdom (UK) as in European Union (EU) Member States. 

However, with the Trade and Cooperation Agreement now concluded between the EU and the UK, the following implications will arise: 

• The Alternative Investment Fund Managers Directive, allowing for passporting of managers of real estate funds into the EU, will no longer be applicable. Funds managed by a manager in the UK will therefore no longer benefit from this passporting system into one of the EU states and vice versa. This might be an incentive for affected companies to move to other cities within the EU (see below).
• A hard Brexit might also have an impact on real estate-related agreements such as real estate loan agreements. Depending on their specific wording, a hard Brexit could for example trigger material adverse change clauses or increased costs clauses as lead down in these loan agreements. However, in the Canary Wharf v. European Medicine Agency (EMA) case of 2019, the UK’s High Court ruled that the notable EMA lease in London could not be brought to an early end by Brexit and the subsequent relocation to Amsterdam by the EMA, creating a precedent that Brexit could not (easily) be used by letters to early terminate their lease. 

As a consequence of Brexit, companies vested in the UK may also decide to move jobs out of the UK, which might in turn lead to an increased occupier demand for offices in Belgium, since the correlation between jobs and real estate is direct.

• Legal entities vested in the UK will for example no longer be granted tax benefits, such as reduced taxation when a non-profit organisation is granted a long lease or building rights (art. 83 W.Reg.).
• Also, UK-based real estate agents will no longer automatically benefit from a reduced registration duty when purchasing real estate located in Flanders (art. 2.9.4.2.4 Vlaamse Codex Fiscaliteit).

From a commercial point of view, we note that the 2016 referendum had an impact on the UK property market, but overall the market continued to perform well. Concerns about Brexit have now largely been subsumed by the impact of covid-19. We note that Brexit has now been priced into the market and focus has shifted towards the impact of covid-19. 

• When entering into a real estate agreement with a UK party, be aware of the possible impact of Brexit on contracts. 
• While negotiating new contracts, specify whether or not a material adverse change clause applies on Brexit.