The decision of the United Kingdom to exit the European Union was taken in the early hours of June 24, 2016. As no Member State of the European Union has previously withdrawn from EU membership, the so-called "Brexit" is unprecedented and is predicted to have profound consequences not only for the UK and the EU, but for all of Europe.
The overall impact of Brexit on the UK economy remains to be established and is the subject of much debate. However, it is clear that in order to exit the European Union the UK must first implement a series of structural and legislative changes.
It is a certainty that there will be change, and that period of change will require current and future investors into UK real estate to make important and far-reaching decisions. Opportunities will be found, as in any period of change, and inevitably, there will be winners and losers.
The UK legal system
The European Communities Act 1972 provides for the supremacy of EU law over and above UK domestic law. In a position of conflict between the two, UK courts have been required to apply EU law or to interpret UK law to fit in with EU law. To bring Brexit into being and to end the constitutional relationship that exists between EU and UK law, the starting point is likely be the repeal of the 1972 Act. A large number of ancillary and connected legislative changes will need to be made to transition to the post-Brexit era.
The English legal system, however, remains more deeply rooted in common law than in European-style civil codes. For several hundred years the UK has had its own legislation, which has been interpreted, established and applied through English courts using established English law precedent. English law allows parties great freedom to contract by their own terms and conditions, which has always given great flexibility to parties seeking to conclude a commercial transaction, in contrast to European civil systems.
Brexit market reaction: the immediate aftermath
In opening trading on the day of Brexit, the FTSE 100 share index of the top 100 companies listed on the London Stock Exchange has seen sharp falls in the values of listed UK real estate companies (including real estate investment trusts, investment funds and house builders).
An overall fall in the FTSE 100 of approximately 4.2 percent had occured by 1:30 p.m. BST on the day of Brexit. However, the aggregate value fall amongst the top 25 real estate companies over the same span was approximately 13.5 percent, showing considerable sector-specific change and volatility.
During the same period the value of sterling also saw sharp falls of 7.7 percent against the US dollar, 7 percent against the Chinese yuan, 6.5 percent against the Singaporean dollar and 6 percent against the Russian rouble and the Canadian dollar.
Significant volatility and uncertainty in the equity and currency markets is expected to continue for some time. Whether the sharp falls noted on the first day following Brexit will prove to be representative of a more sustained correction and re-pricing of markets remains to be seen. Actual and potential international investors into the UK real estate market will no doubt be closely observing these changes and reassessing their levels of appetite for UK real estate investment in the short and longer term.
How Dentons can help
The United Kingdom is at the heart of our business. Our London office is the largest in the global Firm, with nearly 20 Real Estate partners. All of the key legal services that you would expect to find in an global law firm are to be found in our London office, with our Real Estate practice at the heart of it.
Our lawyers have a deep and wide-ranging understanding of the fundamentals of real estate and of the UK real estate market. We represent a broad spectrum of clients whose primary business is real estate, or whose business relies on a significant real estate base—whether private or privately funded investors, lenders, developers, retailers, hoteliers, contractors, government organizations or joint venture partners.
As the UK enters the Brexit era, we extend to all Dentons clients the opportunity of being introduced to the UK Real Estate team so that we can work with you to establish any legal or commercial issues and opportunities relevant to you. We can provide a single partner point of contact to you, where appropriate, to help coordinate and direct your UK real estate strategy.
With 1,100 real estate lawyers around the globe, Dentons' Real Estate team is uniquely positioned to deliver comprehensive and market-specific perspectives to your business.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
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