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Brexit Notes: What will a No-Deal Brexit Mean for the Property and Real Estate Sector?

In answering this question, this post – the latest in our series of ‘no-deal’ Brexit Notes – will consider the impact of a no-deal departure from the EU on the legislative framework governing property ownership and transactions, as well as taking a brief look at the commercial impact on the property market.

Impact on the Legislative Framework

There has been minimal intervention from the European Union on the laws which govern how property is held in England and Wales. In short, leaving the EU will have little impact upon the legislation governing property ownership and transactions in England and Wales.

Some EU law does impact upon the way in which property is held in England and Wales, most notably the Energy Performance of Buildings Directive 2010 and the Energy Performance of Buildings (England and Wales) Regulations 2012 (EPB regulations), which implemented the EU Directive on the energy performance of buildings.

There will be a review of legislation which implements EU directives following our departure from the EU. It is unclear to what extent the UK government will depart from the EPB regulations and it is arguable whether indeed any change will be made to these regulations after Brexit. If any change is made it is unlikely to be made for some time whilst the UK Government addresses other more complex issues following Brexit.

Feeling Frustrated?

One other aspect that sellers or landlords need to be aware of, is whether Brexit is a ground upon which a buyer or tenant can argue frustration of a contract. If a contract is frustrated, it is incapable of being performed due to unforeseen events and consequently becomes void. A party to that contract would have to argue that at the time the lease or contract was signed, they had no idea that the UK would leave the EU and that the whole basis of their business and the contract was based upon the UK being an EU Member State.

There may be several reasons why a contract and/or lease cannot be performed as a result of Brexit.  This could be for regulatory, staffing, and/or financial reasons.

Individuals may also seek to get out of assured shorthold tenancies (ASTs) on the grounds of Brexit if, for example, their jobs cease to exist.

Commercial Impact on the Property Market

It is hard to predict what the impact will be on the real estate market due to the ongoing uncertainty of what Brexit will look like and the terms of our departure, which are to be agreed with Europe. There is likely to be some volatility. There is also a risk that a potential relocation of businesses from the UK to other countries is likely to affect supply and demand, which will impact upon pricing, and the property market will surely be affected by how the wider economy fares following our departure from the EU.

In summary, until there is some certainty as to the what the terms of Brexit will actually be, the impact upon the property market remains to be seen. There will be little impact upon the legislation governing property ownership and transactions in England and Wales, save for any regulations implementing EU directives, such as the EPB Regulations. What, if any, changes will be made to these regulations remains to be seen.

Are you a landlord or estate agent? Perhaps you are concerned about the potential impact of a no-deal Brexit on your commercial property? How are you preparing for Brexit? Your comments are, as ever, welcome!

Brexit Notes: No-Deal & Company Law

The UK is scheduled to leave the European Union on 29 March 2019 by virtue of having served a formal notice under Article 50 of the Treaty on European Union to terminate its membership of the EU.

At the time of writing, it is still not clear whether this departure will be delayed, accompanied by a ‘deal’ smoothing the exit through a transition period or whether the UK will leave the EU in a ‘no-deal’ scenario.

This note focuses on the potential company law impact to UK private limited companies of exiting the EU in a no-deal scenario. It is important to remember that this is a fluid situation with events changing rapidly; however, the good news for UK incorporated private limited companies is that whilst many other legal areas may be subject to quite significant change, UK company law is not expected to be immediately affected even in the event of a no-deal exit.

The Companies Act 2006

The key legislation governing and regulating English and Welsh companies is the Companies Act 2006. This includes the types of companies that can be incorporated, their liability, the role of Companies House, directors’ duties, and the rules on accounts and audit. Whilst some parts of the Companies Act 2006 are derived from EU Directives such as shareholder rights, the majority of English company law is not derived from EU legislation. The Companies Act 2006 will, therefore, continue in force as at present and no-deal will not of itself change the legal status of UK incorporated companies. However, the company law form of a European Company (‘Societas Europaea’) will no longer be available in the UK.

Third Country Companies

Notwithstanding the expected limited effect on private limited companies, it is worth noting that following Brexit, UK incorporated companies will become ‘third country’ entities as far as European law is concerned. The significance of this is that Member States will not be obliged to recognise the legal personality and limited liability of companies which are incorporated in the UK but have their central administration or principal place of business in another EU Member State. There may be recognition by individual Member State’s national laws or under international law, but this is a point of uncertainty.

UK companies being considered third country entities will also affect a UK company’s ability to undertake a cross-border merger within the EU and rely on group company account exemptions if it has an EU parent. Similarly, UK incorporated companies with branches in other EU Member States will no longer benefit from favourable rules applicable to branches of third country companies. These are, however, issues that will most likely affect large companies or listed PLCs, rather than SMEs operating solely within the UK.

Trading and Commercial Impact

As the legal impact (at least initially) is expected to be limited, probably the biggest issue that UK private limited companies face is the commercial uncertainty that Brexit and particularly a no-deal Brexit may bring.

As yet, no one knows the trading terms that will take effect post-Brexit, and this could lead to both broader economic uncertainty within the UK as well as specifically impacting certain companies whose business model and strategy is more vulnerable to certain goods and exchange rate fluctuations. This is of course not something that anyone can yet predict with any certainty.

UK companies can therefore only adopt a ‘wait and see’ approach whilst trying to be aware of the vulnerabilities that their companies may face in the light of a potential no-deal Brexit.

Brexit Notes: No-Deal & Consumer Rights

As 2019 dawned, there was hope in some quarters that a renewed commitment to common sense might have dawned with it and that our intrepid politicians might return to work determined to agree upon a way forward for Brexit. It is quite clear, not least in light of the House of Commons’ rejection of the Government’s Brexit deal on 15 January, that this is not to be.

Talk of ‘no-deal’ is far from new; however, for a long time, it has been reasonably easy to dismiss a no-deal scenario as unrealistic. Now, however, with less than three months before the UK leaves the EU, a no-deal Brexit is starting to look like a realistic possibility after all.

Opinions on a no-deal Brexit are wide-ranging and, of course, it is still entirely possible that the scenario will play out in some other way. Nevertheless, the Government has been making preparations for a no-deal Brexit, including the publication of a range of Technical Notices and an even broader range of draft secondary legislation.

In this post, we look at the impact of a no-deal Brexit on consumer rights in the UK and offer some comments on what this will mean for consumers and businesses in real terms.

No-Deal Brexit: The Basics

Before we get into the detail, it is as well to briefly outline exactly what ‘no-deal’ means. The UK is scheduled to leave the EU at 11 pm local time on 29 March 2019. If there is no deal in place at this point, EU law ceases to apply in the UK unless the UK has expressly adopted it. Unlike the alternative ‘deal’ scenario, there is no transition period within which EU law and the ‘four freedoms’ would continue to apply.

No-Deal Preparations for Consumer Rights

The Government has published a Technical Notice entitled ‘Consumer rights if there’s no Brexit deal’ and two draft statutory instruments: the Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2018, and the Consumer Protection (Amendment etc.) (EU Exit) Regulations 2018.

In addition to the general changes outlined in this post, the Technical Notice also sets out some specific changes relating to package travel, timeshares, textile labelling, and footwear labelling.

The first set of regulations deal with cross-border enforcement while the second would implement the following changes:

  • • Limit the applicability of responsibilities set out in the Consumer Rights Act 2015 (currently applying to importers into the EEA) to importers into the UK;
  • • Put choice of law clauses referring to the laws of an EEA state on the same footing as those referring to non-EEA countries;
  • • Limit consumers’ rights to redress from importers engaging in practices prohibited by the Consumer Protection from Unfair Trading Regulations 2008 to importers into the UK (as opposed to importers into the EEA);
  • • Put users of EEA-based payment service providers on the same (less-protected) footing as users of payment service providers based in non-EEA countries; and
  • • Remove the current obligations on UK ADR providers to deal with disputes involving consumers resident in EU Member States. This would also end the operation in the UK of the European Commission’s Online Dispute Resolution Regulation for consumer Alternative Dispute Resolution.

Current UK consumer law is derived from EU law and, in the form of the Consumer Rights Act 2015, in fact provides better standards of protection than the ‘basic’ EU provisions. At least initially, therefore, UK consumer law and EU consumer law will be essentially the same. Cross-border enforcement would become more difficult in the event of a no-deal Brexit, however.

Put more simply, life for UK consumers would continue largely as normal, at least where their consumer rights within the UK are concerned. What would change is the ease of enforcing those rights if a trader is not based in the UK.

Cross-Border Enforcement and Dispute Resolution

At present, as an EU Member State, the UK’s consumer protection regime is supported by a reciprocal cross-border enforcement framework. A no-deal Brexit would mean the UK’s immediate departure from that framework.

Moreover, UK consumers would no longer be able to use the UK courts to take action against traders based in the EU effectively. Even if a UK court were to rule in a consumer’s favour in such a case, enforcing that ruling would be more difficult. By the same token, consumers based in the EU buying from UK-based traders could find enforcing their rights similarly difficult if we leave without a deal.

Access to alternative dispute resolution (‘ADR’) stands to be reduced. The European Commission provides an Online Dispute Resolution Platform for use in disputes between traders and consumers; however, a no-deal Brexit would mean UK-based traders and consumers no longer having access to it. Nevertheless, within the UK, the Government has said that it is taking steps to ensure that consumers and traders will still be able to use ADR for UK disputes. ADR obligations for businesses will not change; however, if your website makes any reference to the EU Online Dispute Resolution Platform, such references should be removed in the event of no-deal.

Final Thoughts

It goes without saying that regardless of how our departure from the EU proceeds, consumer rights will be affected in some way, but the impact of a no-deal Brexit could be more significant and would, of course, happen much sooner.

That being said, UK-based consumers and UK-based traders doing business within the UK should not need to be overly concerned and should expect the same rules that apply now to apply even if there is a no-deal Brexit. Those engaged in cross-border trading, however, should expect things to become less straightforward and prepare accordingly.

For consumers with questions about cross-border transactions in the event of no-deal, the UK’s European Consumer Centre will be available to help, and the Government has committed to funding the Centre for at least one year from April 2019.

From a business perspective, those selling only within the UK should not expect a great deal (no pun intended) to change. Those selling to consumers in EU Member States, however, must remember that, once the UK has left the EU (especially in a no-deal scenario), changes to EU consumer law will no longer necessarily be reflected in UK consumer law in the same way that they are now. In such cases, it will be important to keep up-to-date with EU law and the laws of any Member States sold into.

Do you trade with consumers in other EU Member States? If so, how are you preparing for Brexit, no-deal or otherwise? Are you expecting business to become more difficult or have you got it covered? As always, your comments are welcome!

 

[This post was edited on 16 January to reflect the outcome of the Meaningful Vote in the House of Commons on 15 January]

What Will Brexit Mean for SMEs?

Brexit Notes

A new study led by Dr Ross Brown and Professor John Wilson at the Centre for Responsible Banking and Finance at the University of St Andrews suggests that, through a reduction in capital investment, less access to external finance, reduced growth, lower levels of product development, and reduced business internationalisation, SMEs could be set to suffer more than larger businesses under Brexit.

In particular, the study’s authors suggest that reduced investment will hamper SME growth, in essence, preventing many small, innovative startups from getting off the ground. Indeed, it is such businesses that expressed the greatest concerns when approached by the researchers.

Will the Impact Be the Same for Everyone?

Amidst the uncertainty, it is interesting to note that not all types of SMEs had the same level of concern. Dr Ross Brown, one of the lead researchers of the study, observed that: “The results of our analysis suggest that Brexit-related concerns could result in a range of negative consequences for UK SMEs, especially the impact on reduced capital investment, which critically weakens and undermines their ability to grow and prosper”. The research also notes, however, that such concerns are not shared by all in the SME community, suggesting that high-tech, service-oriented, and export-oriented businesses are likely to experience a more significant negative impact.

As well as the differentiation between sectors, the study also suggests that SMEs based in Scotland and Northern Ireland take a dimmer view on Brexit than their English and Welsh counterparts (a view which, it is also noted, mirrors voting patterns in the 2016 referendum to an extent).

More information, as well as the full paper, is available here.

What Does Brexit Mean to You?

For better or for worse, Brexit appears to be continuing apace. Much speculative talk of a second referendum has appeared in Brexit news of late; but, at least for the moment, support for the idea appears to be flexible at best. What is also clear is that impacts are already being felt in the business world due to rising uncertainty over what shape Brexit and related economic and legal arrangements will finally take.

As ever, then, we want to hear from you about your experiences. How has your business changed since the referendum result? Have you encountered any negative effects attributable to Brexit in your business and do you have plans in place to counter those effects? On the other hand, perhaps your business has improved as a result of Brexit and is looking forward to further improvements in the future. Again, we are eager to learn more about your experiences!

The Great Repeal Bill

“The

Last week the Department for Exiting the European Union took the wraps off an historic White Paper entitled Legislating for the United Kingdom’s withdrawal from the European Union. Over the course of its thirty-nine pages, the Department, headed by the Brexit Secretary, David Davis MP, lays out its plans for The Great Repeal Bill, a piece of legislation that will transfer all EU legislation to which the UK is currently subject, onto the UK statute books.

So what does all this mean? The proposed title of the Bill has an almost Victorian grandiosity to it, for sure, but will it do exactly what it says on the tin?

First of all, the Great Repeal Bill will not exactly “repeal” EU legislation in the sense that we will no longer be subject to it; quite the opposite in fact. This may be bad news for those eager to be free of excessive red tape (more on that below), but the alternative would be chaos as nobody would know what they were supposed to be doing and two years is not even close to being long enough to draw up replacement legislation (which would likely end up looking quite similar anyway). The main purpose of the Bill will in fact be to essentially copy and paste existing EU law into UK law. Whatever EU laws we are subject to at 11:59pm on our last day as EU members, we will still be subject to (albeit with some technical alterations to make it function properly in the UK as a standalone nation) at the stroke of midnight.

Sounds simple enough, right? Well, no, because simply running EU legislation through the proverbial photocopier wouldn’t work. Numerous pieces of EU legislation, for example, refer to the involvement of particular EU institutions and others work on the basis of the UK being a member of, or having access to, certain EU systems. This is where one of the proposed Bill’s more controversial aspects comes into play. Using secondary legislation, the Government will be able to make alterations to the law where necessary, using a much quicker and less-scrutinised procedure than that used for ordinary primary legislation.

It is the special powers over the use of secondary legislation that so far seem to have a lot of people hot under the collar. Many see it as a subversive move by the Government to scrap aspects of EU legislation that it simply doesn’t like or that lobby groups would rather see consigned to the waste paper basket. Indeed among the more hysterical of social media posts are those calling out the Government for wanting to use the special powers to eliminate human rights protection and to scrap the NHS. Perhaps there’s another version of the White Paper out there that enunciates these despotic plans, but here at Simply-Docs the version we’ve read hints at nothing of the sort. The stated aim of the Great Repeal Bill is to ensure that the Government has the necessary power “to correct or remove the laws that would otherwise not function properly once we have left the EU”. For anything that goes beyond transposing EU law into UK law, normal primary legislation will be required and, as per the White Paper, “the power will not be available where Government wishes to make a policy change which is not designed to deal with deficiencies in preserved EU-derived law arising out of our exit from the EU”. Furthermore, the White Paper makes it clear that the special powers will be time-limited and will not exist beyond the period needed to ensure the clear and certain legal transition. The proof of the pudding, of course, is yet to be seen and it is to be hoped that the drafting of the Bill will be carefully scrutinised in Parliament to ensure that the powers are tightly controlled in line with the intent stated in the White Paper.

As for the courts, the buck currently stops with the Court of Justice of the European Union when it comes to EU law. To simply remove and forget this status after the date of our departure from the EU would again stand to create a great deal of uncertainty. Judgments of the Court of Justice handed down prior to our departure, therefore, will continue to be referred to in post-Brexit cases and will be given the same status as a judgment from the UK’s Supreme Court. This doesn’t mean that they will be set in stone for all time, but it does mean that any interpretation of an EU-derived law will remain consistent after Brexit and that those decisions may – like any other Supreme Court decision – be departed from in the future by the Supreme Court “when it appears right to do so”.

What Does This Mean for Business?

It is fair to say that the EU has long been seen as a mixed blessing in the business world. Some see a large, attractive, and accessible market, not only in terms of potential customers, but also in terms of access to a broad and diverse labour market. For others, complaints about the regulatory burden and excessive red tape are commonplace. Even notable Remainer Nick Clegg has previously spoken of the need to reduce bureaucracy in the EU and to “end any unnecessarily meddling” where small businesses are concerned (see his 2014 comment in The Guardian here).

Excessive red tape or not, however, from a legislative point of view, it is clear that any predictions (or hopes) that such burdens would be reduced by Brexit are not to be. On reflection, such expectations were arguably highly unlikely to come to fruition in any case; any UK business wanting to trade within the EU would surely need to abide by broadly the same standards and rules as its EU counterparts, and now the Government has confirmed precisely that with its White Paper and its plans for The Great Repeal Bill.

The Great Repeal Bill White Paper is an important step in giving us a clearer picture of what post-Brexit life will look like, but until negotiations with the EU begin in earnest, at best this only represents one piece of a much larger puzzle. As ever, then, we want to hear from you. How do you feel that EU regulation has impacted your business, for better or for worse? Were you hoping to see a reduction in regulatory burdens as a result of Brexit and, if so, how do you feel now about The Great Repeal Bill? Was this the outcome you had hoped for, or would you have preferred to start from square one with new laws written from the ground up?

For now, there remain an almost infinite number of unanswered questions; but now that the Article 50 process has begun and we have a better idea of what will happen with our laws, perhaps the mists will begin to clear. As always, Simply-Docs will be keeping a close eye on developments to ensure that our templates and guidance are kept up-to-date, as well as providing news, views, hints, and tips right here on our blog!

Made in Britain: Will You Be Using the Label After Brexit?

Made in Britain: Will You Be Using the Label After Brexit?

The CBI has expressed concerns that manufacturers may run into problems using the “Made in Britain” label after the UK’s departure from the EU is complete and has called on the government to ensure that exporters will be able to continue taking advantage of the status.

The problem stems from the so-called rules of origin which determine where products are made.  For products consisting of only one component, or only of components manufactured in the same country, the answer will be straightforward of course; but for those consisting of multiple components made in different places, problems may arise.  While Britain remains a part of the EU, it does not affect a product’s “Made in Britain” status if different parts are imported into Britain for final assembly.  After Brexit, however, the devil will be in the detail and precisely how much of a product is made here will have an important impact on its status.

What’s the big deal, then? Why does it matter whether your goods are made in Britain? Particularly in a post-Brexit economy, a “Made in Britain” label may be seen not only as a source of pride or a perceived seal of quality, but also of confidence: a reassurance that Britain is standing on its own two feet in the world, that our manufacturing industries are succeeding, and that jobs, skills, and ethics are safe.

What’s more, from a trading and exporting perspective, the importance of the label goes far beyond symbolism.  A key part of the Brexit negotiations will, of course, be some kind of free trade agreement.  In order for goods to be shipped under (and thus to benefit from) a free trade agreement, a certain amount of its value must have been created in the exporting country; in this case, Britain.  This stands to affect not only goods whose Britishness is an important part of their identity, but also those goods which form part of international supply chains.

As reported recently in The Times, the CBI and law firm Clifford Chance have jointly released a paper stressing the importance of the issue, effectively holding the government to its stated goal of securing a “bold and ambitious” free trade agreement with the EU.  Britain will need free trade deals with the countries that it currently does as a member of the EU and, ideally, an agreement will be reached with the EU that enables British manufacturers to continue to source components from EU member states in the same way that they do now: that is, with those components still counting towards the all-important “Made in Britain” status (and indeed vice versa).  As The Times article points out, however, there is little precedent for such a scenario and the EU would need to renegotiate its existing free trade agreements in order for it to work.  It certainly goes without saying that this issue will make trade agreement negotiations more complicated.

Britain may well be heading for the exit, but this will not change the fact that a major portion of the UK’s trade is with EU member states, and while it is perhaps arguable that manufacturers of larger items such as cars face the biggest potential impact from this issue, many SMEs also trade across borders and may also find that their supply chains, not to mention their branding, could be facing a shake-up unless Brexit negotiations go as the CBI and Clifford Chance hope.

Time will tell, but in the meantime, we want to hear from you.  Does “Made in Britain” form an important part of your business’ identity? Does your business form a part of, or rely on, an international supply chain? Have you thought about the possible impacts that Brexit will have on your business?  Whether you see Brexit as a positive or a negative, one thing is certain: the business landscape is changing and it will be important for businesses of all shapes and sizes to prepare over the next two years.  Stay tuned to the Simply-Docs Blog for more updates, more Brexit Notes, and, of course, keep an eye out for our Alerts and Newsletters for details of changes to our documents as the muddy waters of post-Brexit rules and regulations begin to clear.

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