The UK can continue to be one of the biggest and most dynamic commercial real estate and real estate finance markets regardless of how the UK’s exit from the European Union unfolds, writes James Walton, partner at leading City of London solicitors, Rosling King (RK).
As the property industry prepares to gather at the annual MIPIM conference in Cannes in mid-March, there are three key signals that indicate the UK can look to a bright post-Brexit future for real estate.
They are:
- Private Fund Limited Partnerships. In April 2017, new legislation will come into force which aims to reduce the administrative and financial burdens on funds set up as limited partnerships.
- The UK Government’s Housing White Paper. This includes the government’s consultation on support for Build to Rent (BTR) developments – an important growth area.
- The primacy of English law. The English legal system is the backbone of many financial transactions across the world and there is no reason for Brexit to change this.
These three factors set within the context of a growing UK economy bode well for the future of real estate and should give the sector confidence as the government navigates its way through Brexit.
Whilst real estate may be one of a number of asset classes competing globally for capital, it continues to hold-up against the usual comparatives, such as corporate bonds. Furthermore, it doesn’t look appear we are at the end of a cycle. The credit exuberance from the last cycle in 2007 isn’t present (although risks do remain) and this is reflected in reports that a minimum of €50 billion (over £45 billion) of capital has been earmarked for real estate investment globally in 2017.
The UK benefits from transparency, time zone, language and law and the prospect of triggering Article 50 has not impeded UK’s pipeline of legal developments, be it in terms of statutory reform or cases in our commercial courts.
As outlined above, these developments include:
Private Fund Limited Partnerships
In April 2017, new legislation amending the Limited Partnerships Act 1907 will introduce a new form of Limited Partnership – Private Fund Limited Partnerships (“PFLP”). This aims to reduce the administrative and financial burdens on funds set up as limited partnerships.
Changes include:
§ removal of the requirement for limited partners to contribute capital to a PFLP;
§ limited partners in a PFLP not being liable for debts or obligations beyond the amount of partnership property made available to the general partners to meet such debts/obligations;
§ limited partners in a PFLP will be exempt from the current duty to render accounts and information between partners and from the restriction on competing with the partnership;
§ introduction of a list of actions which limited partners may take without falling foul of being deemed to be taking part in the management of the PFLP. This reflects a desire for limited partners to take a more pro-active role in the funds.
The move mirrors the steps taken in other jurisdictions where such funds are prevalent e.g. Luxembourg/Channel Islands. The idea is that these changes should make the UK a more attractive domicile for such funds.
The UK Government’s Housing White Paper
In February, the Government issued its long awaited White Paper entitled “Fixing our broken housing market” – as part of Theresa May’s key aim to provide affordable housing for those just about managing to make ends meet. This includes the government’s consultation on support for Build to Rent (BTR) developments. BTR (the Private Rented Sector) has been gaining traction in the last year or so; representing as they do very attractive yield-led propositions for investors and involving a variety of models, some of which are similar to student accommodation investments which have become popular and stable investments in recent times. The Government’s signalling of support and express acknowledgement of this growth area is to be welcomed.
The primacy of English law
The English legal system is the backbone of many financial transactions across the world. Brexit will not change this. Our commercial courts have assisted in crafting a sophisticated body of law that provides certainty and stability to the financial markets.
Case(s) in point, here are a selection of some key finance decisions from the last year alone:
§ Credit Suisse Asset Management LLC -v- Titan Europe 2006-1 PLC and others – The Court of Appeal dismissed Credit Suisse Asset Management LLC’s appeal that Class X Notes issued by Titan Europe 2006-1 PLC, as part of a CMBS, hold an entitlement to the payment of interest calculated by reference to a default interest rate.
§ Tiuta International Ltd v De Villiers Surveyors Ltd – RK is acting for the Claimant in this matter which is currently on appeal to the Supreme Court. The Court of Appeal held that liability for a negligent valuation relied upon by a lender in a refinance transaction of pre-existing loan extends to the entire refinanced facility and not simply any new funds advanced.
§ Irish Bank Resolution Corporation Limited v Camden Market Holdings Corporation – The Court of Appeal upheld the principle that implied terms will only be imported into a contract where it is necessary to do so in order to give business efficacy to the contract.