The potential effect of Brexit on the UK property market
D-Day for the UK leaving the European Union is rapidly approaching. As March 2019 draws closer, more and more predictions are being made about the potential effects Brexit could have on every aspect of the UK economy. One of the major focuses of news outlets has been the potential impact on the UK property market.
Frustration of leases
European companies such as the European Medicines Agency and other companies with European interests plan to leave their London headquarters following Brexit and relocate to European bases such as Amsterdam. Some of these companies are seeking to argue that Brexit will frustrate and therefore terminate their UK leases as it will be impossible for them to continue operating from a non-EU base.
Canary Wharf have already made a pre-emptive application to the High Court for confirmation that Brexit will not frustrate a lease held by a European lessee and if this is unsuccessful countless leases may be terminated on 29th March, having a major effect on the property market.
Although this sounds worrying, the reality is that although the Courts have confirmed that a lease can be frustrated in theory, it has never happened in practice. Even when wartime restrictions prevented a European lessee from occupying a lease of a property in London, it was held that the lease was not frustrated as the lease could be assigned or underlet (London and Northern Estates Company v Schlesinger  1 KB 20). Therefore, it is highly likely that the High Court will rule that Brexit will not frustrate any leases on the same basis.
Fall in House Prices
Every newspaper seems to focus on how house prices will be affected by Brexit and whilst a lot of this seems to be scaremongering, Mark Carney, the Governor of the Bank of England, has been reported as saying that in the three years following a 'hard' no-deal Brexit house prices are likely to fall by up to 35 percent. However, he has reiterated that this is just a possibility rather than a prediction.
Interestingly, a July 2018 survey from the Royal Institution of Chartered Surveyors predicts the house price correction following Brexit to be mild and short lived and house prices to rise over the next five years.
Reduction in development
Following Brexit the UK may fail to meet Government targets on housebuilding due to a reduction of European labour in the building industry. This reduction will stem from the ending of free movement of people which was enjoyed by the UK whilst in the European Union.
However, although this may have an effect in the short term, the industry is likely to adapt post-Brexit and find alternatives to meet this labour shortfall. Also, if a Brexit deal is struck, a potential European workforce may still remain in the UK.
The precise effects of Brexit are still incredibly uncertain and unpredictable. For all of the negative possibilities there are positive possibilities and both seem equally likely when there is such uncertainty about a deal or no-deal Brexit.
Will the property market crumble in Brexit's wake or will it purely experience short term turbulence which will settle leaving the market stronger than ever before?
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.