Europe

10 things you need to know about Brexit

EU referendum: If there’s one thing we can be sure of about Brexit, it is that the UK’s decision to vote leave at the EU referendum plunged the country into a cloud of uncertainty.

As events unfold, it is crucial for real estate investors to understand what the decision means for the sector. So international law firm Hogan Lovells have compiled a list of 10 things you need to know about Brexit.

Read on to be in the know.

1. Does Brexit happen immediately?

No. The referendum result has no immediate effect. It is only advisory in nature and the UK continues to be a member of the EU. As a matter of EU law, it is still bound by the EU Treaties and subject to the jurisdiction of the Court of Justice of the European Union. As a matter of UK law, the European Communities Act 1972 – which gives domestic legal effect to the UK’s membership of the EU, including giving EU law precedence over UK law in the UK courts – remains in force.

2. How does the UK withdraw from the EU?

The only legal mechanism for withdrawal is that set out in Article 50 of the Treaty on European Union. This requires the UK to issue a formal notice to the European Council (the Heads of State and Governments of the EU Member States).

In practice, it is likely that the UK’s exit will be a matter of political negotiation. The timing for triggering the formal Article 50 procedure is currently under debate.

3. When does the UK have to notify the EU of its decision to leave?

The UK has no legal deadline to meet for commencing the Brexit process. It is up to the UK when (if at all) it notifies the European Council of its decision to leave.  There is no timeframe for notification under Article 50.

4. How would the withdrawal negotiations work?

Once notification is given, the UK must negotiate a withdrawal agreement with the EU.

Once the UK gives formal notification of its intention to leave, the countdown to Brexit begins in earnest. The two-year negotiation period can only be extended by a unanimous decision of the European Council.

5. Can the UK change its mind?

Article 50 does not make provision for the UK to retract its notification once given. The ultimate effect of the notification (that is, termination of membership) is automatic. However, if the political will exists, retraction might be possible if other member states agree, up until the withdrawal agreement takes effect.

6. How will the withdrawal negotiations affect the UK’s continuing participation in the EU?

During the negotiation period, the UK’s position and influence within the EU will undoubtedly be affected by its pending departure. While the UK will remain a full member of the EU over the course of the negotiations, its credibility as an active member will be undermined and its ability to affect EU decision making will be lessened. We are already seeing the UK withdrawing from European Council meetings.

7. What about the effect on real estate law?

Real estate law varies widely between EU member states and is not subject to harmonisation. Indeed, there are significant differences within the UK (i.e. Scotland and Northern Ireland have different regimes from England and Wales).

The fundamental laws surrounding ownership of property do not require further legislation in any case as land ownership was always outside the ambit of the Treaty. The direct implications of Brexit for property law and procedure in the UK are therefore limited.

8. Will environmental law be affected?

Environmental policy is a devolved matter within the UK. Following Brexit it will therefore be up to each of England, Scotland, Wales and Northern Ireland to retain as much or as little of the EU-based environmental impact assessment process, habitats and species protection, and air and water quality protections as they wish, subject to any overarching international treaty obligations and/or any provisions or processes that may form part of the UK’s new trading arrangements with the EU.

Note that some of the most stringent aspects of environmental law and regulation in the UK will be unaffected by Brexit as they are “home grown”, e.g. strict liability for cleaning up contaminated land, the requirements for specific environmental permits and the potential for liability for harm caused by pollution under common law concepts such as nuisance and negligence.

9. Does Brexit mean we can forget about MEES?

UK legislation relating to minimum energy efficiency standards (MEES), energy performance of buildings (including EPCs) and part L of the Building Regulations could be subject to review, although a complete repeal without some replacement regime seems unlikely given the UK’s statutory commitment to reduce greenhouse gas emissions.

10. What other areas of law may impact on real estate?

The extent to which the government will want to unravel existing legislation remains to be seen. Although the direct implications of Brexit for real estate law and procedure in the UK are limited, we have identified the following considerations.

The UK’s VAT system is underpinned by EU law – VAT directives have been implemented in the UK through domestic UK legislation. Brexit will not cause this legislation to automatically fall away and VAT will, in principle, continue to apply in the UK.

The Competition Act 1998 mirrors the Treaty which prohibits agreements that have as their object or effect, the restriction, prevention or distortion of competition within the EU and which have an effect on trade between EU member states. Whilst the 1998 act is clearly driven by EU law, it is an act of parliament. Any proposed change to the current regime will need to be implemented through repealing or changing national law.

EU procurement regulations create tensions and potential conflicts between the commercial realities associated with UK transactions and the procurement framework established in Brussels. Brexit might free parties from following the OJEU process at least in the UK, although it may still be required in relation to projects on the continent.

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