Understand Your Rights. Solve Your Legal Problems
Brexit continues to generate political dramas and dominate the news agenda in the UK – a phenomenon likely to continue for the next two years and probably beyond. The resignation of the UK’s ambassador to the EU, Sir Ivan Rogers – apparently because of his views on the complexity and likely timescale of negotiating Brexit – is just one example of recent controversy. But amidst all the noise, lawyers are trying to understand the real impacts that Brexit is going to have on the legal landscape, and in particular, what changes it will bring on both domestic and cross-border litigation. Here, Christian Tuddenham and Kelly Hagedorn, both Partner at Jenner & Block London, explain to Lawyer Monthly what those changes may look like.
The one certainty
A substantial body of UK legislation derives from EU law. At present, it is almost entirely unclear what long-term effects Brexit will have on this body of law. Other than the Great Repeal Bill, which will copy across all EU law into domestic UK law for a smooth transition on the day after Brexit, the government has yet to set out its plans regarding any specifics, other than that they intend to "amend, repeal and improve" individual laws as necessary. As with everything Brexit, all that is really certain is that there is uncertainty.
There are all sorts of reasons why uncertainty about Brexit is no good for business, but from a risk management perspective an obvious concern is the impact on businesses’ ability to anticipate, manage and resolve legal issues and disputes efficiently. So for example, there are numerous questions about what Brexit might do to existing contractual relationships: for instance, could agreements relating to the provision of goods or services into or out of the EU be vulnerable to termination on the basis of frustration, or pursuant to force majeure or material adverse change (MAC) clauses? Another area of uncertainty concerns the impact on English jurisdiction clauses, and whether these will operate as intended, post-Brexit. There are also important questions regarding businesses’ abilities to enforce English judgments within the EU after the UK leaves. We look at these questions below.
Contractual relationships
The narrow application of the doctrine of frustration means that there will be limited circumstances in which it might apply post-Brexit to permit the discharge of a contract. It will be necessary to show that the contract has become impossible or illegal to perform, or that the obligations in question have fundamentally altered such that the contract is not only more onerous, but radically different from the original agreement. Increased costs or lower profits attributable to Brexit, for instance, will not constitute frustration.
There may be greater scope to terminate a contract pursuant to force majeure or MAC clauses. Each case will depend on the terms of the clause and the particular facts. Changes in economic circumstances will generally be outside the scope of force majeure, but some clauses do include government or regulatory action as potential force majeure. The ability to rely on a MAC clause in the context of an acquisition will in part depend upon whether the asserted MAC is an “external” event (for example, a change in interest or exchange rates) or an “internal” event specific to the transaction (for example, a change in the target’s credit rating or the loss of its passporting rights). It is generally only the latter types of event that will allow MAC clauses to operate.
English jurisdiction clauses
Regulation (EU) No 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the ‘Recast Regulation’) currently ensures that jurisdiction agreements contained in contracts are respected by all EU Member States. This provides certainty and expediency, which is obviously desirable when considering where and how to resolve commercial disputes.
What will happen post-Brexit? Although it is possible that the UK might contract into some form of treaty arrangement with the remaining EU Member States that mimics the terms of the Recast Regulation, negotiating something of that nature is unlikely to be a priority for either the UK Government or the European Commission.
What are the other options? The UK could seek to accede to the 2007 Lugano Convention, which – like the Recast Regulation – is designed to promote recognition of jurisdiction clauses within (and outside) the EU. Alternatively, the predecessor to the Recast Regulation, the Brussels I Regulation (EC) No 44/2001, might apply. However, both the Lugano Convention and Brussels Regulation differ from the Recast Regulation in the important respect that they do not require EU Member State Courts to stay proceedings that are commenced in apparent breach of a jurisdiction clause. The loss of this protection would therefore allow litigants to delay and complicate legitimate claims via the commencement of parallel proceedings. In this scenario, it will be all the more important for Claimants seeking to rely on an English jurisdiction clause to commence proceedings without delay, and thereby pre-empt any attempt by one’s opponent to obstruct the claim.
A different route would be for the UK to ratify the 2005 Hague Convention on Choice of Law Agreements (which applies to all EU Member States except Denmark), but this Convention only requires recognition of exclusive jurisdiction clauses.
If nothing is done, then the Courts of individual EU Member States will be free to apply their domestic law. Whilst it seems likely that the Courts of many EU Member States would generally continue to recognise English jurisdiction clauses, in the absence of a unifying instrument the approaches taken by different EU Member States would almost inevitably be different and quite probably inconsistent. That said, there is an incentive for the EU Member States to be practical. Any marked change in the approach taken by EU Member State Courts towards appropriate recognition of English jurisdiction is likely to provoke a move away from Europe altogether, towards New York, Singapore or Hong Kong.
Given the uncertainty, there may be some benefit in considering whether providing for an alternative EU Member State to have jurisdiction might be beneficial. This would ensure that the choice of jurisdiction will be respected, and should prevent counterparties attempting to exploit the uncertainty and seek to avoid a jurisdiction clause by launching proceedings in another country.
Enforcement in the EU
Currently, English judgments are enforceable in all EU Member States pursuant to the Recast Regulation. As explained above, there is a range of alternatives to the Recast Regulation post-Brexit. The best outcome would be the maintenance of the status quo via the negotiation of a treaty or instrument of equivalent effect to the Recast Regulation, but this would take time and resources. A more likely scenario is the application of either the Lugano or Hague Conventions. However, enforcement under either Convention would include a requirement to obtain a declaration of enforceability from the enforcing Court; the Recast Regulation abolished the need for this step. A further disadvantage is the Hague Convention’s limited application only to agreements that contain exclusive jurisdiction clauses. The Hague Convention also permits a Court to refuse to enforce a judgment for a broader range of reasons than is the case under the Recast Regulation.
An alternative would be for the UK to enter into bilateral arrangements with EU Member States under the Administration of Justice Act 1920 or the Foreign Judgments (Reciprocal Enforcement) Act 1933. Absent that, the default position will be that enforcement of English judgments will be left to the domestic law of individual EU Member States. Whilst the general expectation is that EU Member States would adopt a pragmatic and sensible approach to enforcement (if only in the interest of maintaining reciprocity), navigation of 27 different domestic laws and procedures would mean uncertainty, greater complexity and increased cost.
Pending clarity on the post-Brexit EU enforcement regime, businesses and their legal advisors should consider arbitration (and the inclusion of arbitration clauses) as an alternative to litigation. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which governs the enforcement of arbitral awards worldwide, has been ratified by all EU Member States and will be unaffected by the UK’s departure from the EU.
Concluding thoughts
The inherent uncertainty makes any attempt at definitive advice on how to manage the implications of Brexit on dispute resolution impossible and unwise. However, the importance of thinking ahead (where the situation allows) cannot be overstated. Is your contract vulnerable to being challenged under a MAC or force majeure clause? Where and with whom might you be doing business (and therefore possibly in dispute) in two years’ time? Where might you need to enforce any judgment? What use does your organisation currently make of arbitration (and indeed other alternative dispute resolution mechanisms)? Those who take the time now to consider these sorts of questions are more likely to be those who experience the best outcomes in these turbulent times.
According to a recent survey of midcap UK companies 65% of professional service firms are moving forward with their Brexit plans now Article 50 has been announced - leaving other industries trailing in their wake with an average of only 53% of firms across other industry sectors now engaged with planning.
The survey, sponsored by The Brexit Tracker, noted professional services were less likely to sit on the fence when it came to assessing the impact of Article 50 on their business with 42% of firms believing Article 50 will be good for business and only 25% of respondents feeling their might be no or little change while in other sectors positivity waned to 35% and ambiguity rose to 40%.
Ben Martin, MD for The Brexit Tracker said: “It’s great to see that so many in professional services have grasped the nettle and are moving forward with Brexit planning and clearly have a good grasp of how it will impact their firm.
“More concerning though is how industries such as retail, construction and engineering who one would think are heavily Brexit-dependent for resource and supply chain are yet to fully engage with the planning process, as it may be these firms that are actually the most exposed to Brexit outcomes.”
The Brexit Tracker analyses 390 economic indicators pertinent to the sector and a firm’s particular circumstance. Stakeholders can view their Brexit dashboard and understand likely implications for their business. They can also compare their views with those of their peers. The tool enables expensive resource to be smartly invested in strategic planning, not squandered in trying to make sense of a myriad of factors that may or may not be relevant to the business.
(Source: The Brexit Tracker)
The number and value of offshore M&A deals fell in 2016 when compared to a record 2015, a theme that played out in nearly every world region, according to a report released by offshore law firm Appleby.
The latest edition of Offshore-i, an Appleby report that provides data and insight on merger and acquisition activity in the major offshore financial centres, focuses on transactions announced over the course of 2016. With the volume and value of deals down on the previous year, the report found 2016 marked a return to business as usual as transactions reset to levels familiar before the 2015 outlier.
“It was clear from the start of 2016 that offshore deal activity was going to struggle to keep up with the phenomenal levels of M&A volume and value that were generated in 2015,” said Cameron Adderley, Partner and Global Head of Corporate at Appleby.
“While the outlook for 2017 remains fraught with uncertainty, many of the key drivers of a healthy dealmaking environment remain. They include companies looking to supplement limited organic growth through M&A, to improve margins by realizing synergies and to take advantage of the low cost of capital by making acquisitions."
Looking forward, the report points to four factors that will determine whether offshore M&A levels improve in 2017: progress between EU and UK officials on establishing a new relationship; changes to the international trade and immigration policy out of the US; China’s ability to manage its economic slowdown; and progress in the Eurozone’s continued economic recovery.
The M&A Environment Across Jurisdictions
In total, there were 2,895 deals targeting offshore companies in 2016, representing a total value of USD234bn, the report found. Each deal in the offshore top 10 was worth more than USD2bn, and the region saw a total of 46 transactions in 2016 each worth at least a billion dollars, double the typical total seen as recently as five years ago.
The largest offshore deal announced in 2016 was the USD6.3bn purchase of Bermuda-based property and casualty insurance services company Endurance Specialty Holding, one of two insurance sector deals in the top 10. Outside of insurance, the real estate sector also featured prominently in the top 10, with the biggest being the USD4.5bn sale of CITIC Real Estate Co & Tuxiana Corporation, incorporated in the British Virgin Islands and China, to China Overseas Land & Investment.
The Cayman Islands held on as the busiest jurisdiction for offshore transactions in 2016, recording nearly one-third of all deals and total deal value. The British Virgin Islands and Hong Kong were the standouts of the year as the only two offshore jurisdictions to see an increase in activity over 2015.
Acquirer Deals Involving Offshore Buyers Continues to Rise
Though the primary focus of Offshore-i is on transactions in which offshore targets are purchased by investors, the report also examines deals in which the acquirer is based offshore. For the last five years, the volume of acquirer deals involving offshore-incorporated buyers has increased steadily and is now at the point where more transactions are flowing out of offshore jurisdictions than are flowing in.
The year 2016 recorded 3,127 such deals worth a cumulative USD339bn. In the largest outbound deal of the year, Jersey-incorporated Shire acquired a Baxalta, a US-based manufacturer of pharmaceutical preparations for USD32bn.
“As with inbound deals, we see a healthy spread of sectors represented in the top 10 deals of the year involving an offshore acquirer, including energy, transport, data processing and software publishing,” said Adderley. “Dealmakers are establishing holding companies offshore to take advantage of the many technical, legal and regulatory advantages of these jurisdictions, and then using those companies to make acquisitions, sometimes back in their home country.”
Key Findings of 2016:
(Source: Offshore-i, Appleby)
The Bar Council has responded to the Justice Select Committee Brexit report published last week. The report reflects many of the issues raised by the Bar Council both in evidence to the Committee and in The Brexit Papers: Second Edition.
A spokespersons said: “The Justice Committee have reached some sensible conclusions in their report. Effective cross-border arrangements to ensure continued co-operation with the EU on criminal justice need to be maintained. Likewise in civil justice, choice of jurisdiction together with mutual recognition and enforcement of judgments (as well as equivalent arrangements in family law) are in the UK’s interest as well as in the EU’s interest post-Brexit. They are recommendations for which the Bar Council, the Family Law Bar Association, and the Criminal Bar Association have been arguing.
“The Justice Committee recognise that the annual contribution of the UK legal services sector of £25.7 billion to UK GDP is valuable and is valued by small businesses and large corporations as well as by individuals. The importance of the City of London as a leading global centre of international dispute resolution is also key to the continued success of the financial and many other service sectors. The contribution of legal services to the UK’s future prosperity needs to recognised and protected during the coming negotiations with the EU.
“The report recognises that the inevitable period of uncertainty during the Brexit negotiations could damage the UK legal services sector, especially in the commercial field. The Bar Council welcomes the Committee’s call on the Government to provide more information to reduce the level of uncertainty in the sector without compromising the UK’s negotiating position.
“We also support Justice Committee’s conclusion that the Government should ensure, as a matter of priority, that transitional arrangements are agreed for criminal, civil and family law co-operation with the EU, to come into effect when Brexit occurs.
“We look forward to the Government’s response to the Justice Committee’s report.”
(Source: Bar Council)
The House of Lords EU Committee recently published its report on Brexit and the Crown Dependencies, calling on the UK Government to ensure that the Isle of Man, and the Bailiwicks of Jersey and Guernsey, are fully involved and engaged in the UK’s Brexit negotiations with the EU.
The report highlights that while the Crown Dependencies are not part of the EU or the UK, and their residents did not have a vote in the referendum, Brexit will have a significant impact on them and their relationship with both the UK and the EU.
The Crown Dependencies’ number one priority is to maintain the strength of their close relationship with the UK. Yet the Committee highlight the potential tensions between this priority, and the desire to maintain as much as possible of the benefits of their existing relationship with the EU.
The Committee identify areas where there these priorities could come into conflict, including:
The Committee urge the Government to ensure the Crown Dependencies are given the opportunity to participate in future trade arrangements that the UK makes with countries outside of the EU, and support Guernsey and Jersey in their efforts to ensure the UK’s World Trade Organization membership is extended to them, as is already the case for the Isle of Man.
Commenting on the report, Lord Boswell, Chairman of the House of Lords EU Committee, said: “The Bailiwicks of Jersey and Guernsey, and the Isle of Man, are not part of the UK or the EU, but they will still be significantly affected by Brexit. We are therefore calling on the UK Government to make sure their voice is heard. The UK has a constitutional responsibility to represent the Crown Dependencies in matters of international relations, so it has a duty to represent their interests in the Brexit negotiations.
“The Crown Dependencies rely on a good relationship both with the UK and the EU and in the Brexit negotiations they may face potentially conflicting priorities in seeking to keep these priorities in balance. That makes it even more important that they are fully engaged and involved by the UK Government at every stage.
“We were pleased to hear that the Chief Ministers of the Crown Dependencies are so far satisfied that the Government has engaged constructively with them on Brexit. The real test will come when negotiations begin in earnest and we call on the Government to ensure the Crown Dependencies remain fully engaged with the process.”
(Source: House of Lords)
UK PM Theresa May says the bill is a means of "taking back control,” as it would give the government and parliament powers to decide which EU laws it should remain enforced in Britain, and which ones to amend or chuck in the trash altogether. Lawyer Monthly here benefits from expert insight from Liam McMonagle, Technology lawyer and partner at Thorntons.
Introduction
The Great Repeal Bill will be one of the most important pieces of legislation in decades. The somewhat declaratory, if not aspirational, title refers to its key purpose: repeal of the European Communities Act 1972 and the legal implementation of Brexit. Actually, its most significant effect will be the opposite: it will update UK law to incorporate the body of existing European law - the acquis communautaire - as at the point we leave the EU.
The Government has presented the law reform required to implement Brexit as a two-stage process. Firstly, the acquis will be transposed into UK law so as to apply continuously from cessation of the UK’s EU membership. Secondly, and on an ongoing basis, the UK executive and legislative branches can review whether or not individual pieces of legislation should be retained, amended or repealed in accordance, we must assume, with the policy objectives of the Government of the day.
To date, the Government has been keen to talk up the “great” nature of the repealing provisions to be featured in the Bill. The transposition of EU law into the UK, by contrast, is often set out as a technical matter of legal detail.
While the Bill gives rise to a number of public law issues, the process it begins is not particularly surprising. Prior to the referendum, it had always been assumed that some kind of ‘grandfathering’ of EU law would need to take place for practical reasons. While the content and subject of the Bill has been described in a Government White Paper, no draft text has been issued and so much of the commentary on it is speculative in nature.
Existing EU Law
The current body of EU legislation is significant. Presently, this amounts to approximately 20,000 instruments, of which around 5,000 are directly applicable in the UK and all other EU member states while the remainder have bene transposed into UK law via primary or secondary legislation. Of this, the House of Commons Library estimates that approximately 13.2% of UK legislation enacted between 1993 and 2004 was derived from the EU.
EU legislation, in its various forms, makes its way into domestic law through various routes which are principally enabled through the European Communities Act 1972 (ECA). For example, section 2(1) of ECA incorporates the directly effective provisions of the EU treaties and EU regulations into UK law. EU legislation which is not directly applicable, but must be transposed into UK law, is incorporated under section 2(2) of ECA which allows ministers to enact statutory instruments to enact it. So, for example, the Working Time Directive (2003/88/EC) became the Working Time Regulations (1998). With the repeal of ECA, the basis upon which all of this is included in our law will be removed. This will also see the end of other key provisions of ECA which establish that EU law is supreme over UK law and that the Court of Justice of the European Union (CJEU) will be binding on UK courts.
There are several areas of difficulty with the transposition process:
Incorporation of EU law into the UK
There are differing views on how this part of the process is likely to work. It is generally accepted that there will need to be additional primary legislation alongside the Great Repeal Bill and concerns have been raised that Parliament simply does not have the legislative capacity to prepare, review, scrutinise and debate the volume of legislation that will be needed. The Institute for Government estimates that around 15 new major pieces of legislation will be required to enable the Brexit process to be completed. At the moment, Parliament passes around 20 bills per year so this renders it unlikely that there might be legislative capacity for anything else.
Given the practical challenges and limited capacity of Parliament to enact the volumes of legislation which will be needed, there will almost certainly be heavy reliance on secondary legislation. The Government’s White Paper anticipates that new ministerial powers will be needed for this purpose. These powers are likely to allow Ministers to make changes to reflect agreed positions in the Brexit negotiations themselves.
Legislative provisions by which Ministers are enabled to amend Acts of Parliament by secondary legislation are known as “Henry VIII” clauses. Their use is often criticised as it amounts to a transfer of legislative power from Parliament to the Government and could enable legislation to be enacted in politically or administratively sensitive areas with minimal Parliamentary scrutiny.
The Brexit Minister, David Davis, has indicated that this this would not be the Government’s intention but rather ought to be seen as a ‘technical’ exercise. Ministerial powers could be limited in time, scope or purpose as a means of addressing these concerns. The current body of EU law covers large areas of political sensitivity: discrimination law, employment protections, environmental matters and individual rights and obligations. Pressure will be brought to try and limit to extent to which significant changes in the law in any of these areas can be made by Ministers with the substantially reduced degree of Parliamentary scrutiny that is applied to secondary legislation. The House of Lords’ Delegated Powers and Regulatory Reform Committee has already suggested that more extensive Parliamentary procedures could be applied to introduce committee stage scrutiny of certain measures where significant ministerial powers are created.
Impact on Business
To date, the Government has sought to reassure the business community and the wider public that it is getting on with the Brexit process but also that any change will be gradual, rather than drastic, in nature. Over the years, there have been significant policy differences between UK Conservative Governments and the EU – such as the refusal of the Major administration to incorporate the Social Chapter in the 1990s. These arguments appear to have been parked, at least for the time being. The Prime Minister has indicated that there is no appetite to review employment protections as part of the process. However, many of those who favoured a ‘Leave’ vote in last year’s referendum expressed, at least in general terms, dissatisfaction with the tenor and content of some European legislation and it is unlikely that such concerns will lie dormant.
In the short-term, legislative activity in almost all non-Brexit related areas of Government will be limited and politically controversial changes in law may be limited given the all-consuming nature of the Brexit process and perhaps also in the interests of maintaining continuity and certainty at least until it is complete.
It will generally be open to the UK Government, and possibly the devolved administrations, to keep UK and EU law broadly aligned on a voluntary basis if they wish to. Much of the acquis will involve relatively uncontroversial and mundane areas of law where there will be limited scope for material policy differences to emerge. For example, there might be limited appetite to disrupt the broad harmonisation of trade mark law and practice even if the UK acquires the powers to do so.
The result of this process, however, will be to create a structure in which EU law will begin to diverge from UK. This, in a sense, is the whole point of Brexit - “taking back control.” It could well lead to an intense period of law reform (or lobbying to that end) once the process nears completion.
Many UK businesses will, of course continue to trade and deal with businesses and individuals throughout the EU single market and will need to ensure their ongoing compliance with the laws that regulate that market. For example, a food manufacturer wishing to make health claims about features of its products will continue to be subject to EU laws where it is selling its wares in the EU, even if (as has been argued) equivalent UK legislation takes a more permissive approach in future.
However, in the medium to long term, there could be much greater scope for legislative activism. Laws in future could be changed more radically, and more quickly, than we have become used to. This uncertainty may need to be provided for in a wider range of contracts and transactions than are currently affected by “change in law” risk. For those businesses who want to push the case for law reform in specific areas, this could become easier.
Within the UK itself, there could be scope for further divergence if areas of EU competence are transferred to devolved administrations. It will be important, therefore, for businesses to assess how their operations are affected by an increasingly divergent and multi-layered legal framework.
Lastly, it has been suggested that the law reforms brought on by the Brexit process will be “a bonanza for lawyers.” My personal view is that this is most unlikely!
Liz Stewart, Partner, Commercial Property Team at Stronachs LLP considers the latest legal, regulatory and business challenges facing companies and individuals in an ever-evolving property landscape. She touches on the impact of the oil and gas industry and investment opportunities and the commercial property sector in Scotland.
What is the current state of the commercial property market in Scotland?
Despite the political uncertainty posed by Brexit and calls for a second Independence Referendum, the Scottish commercial property market holds firm. Against this backdrop, regional disparities are prevalent. In Aberdeen, after years of under supply, new build Grade A office accommodation far outstrips demand, giving rise to higher rent incentives and a corresponding adjustment to rates per square ft. In contrast, Grade A office space is in short supply in both Glasgow and Edinburgh despite growing demand for good quality city centre space.
Looking ahead, some would suggest Edinburgh’s commercial property market faces something of a perfect storm for 2017 as supply of Grade A office space nears a 10-year low. City centre rents may increase and incentives are likely to be pinned back for smaller units. With limited new build Grade A stock heralded to hit the market until 2018/19, rising city centre costs may force some occupiers to look to the west of Edinburgh or other locations on the city’s periphery.
Figures for Glasgow’s office market looked buoyant for 2016 but some suggest the next few years may be more troublesome with shortages of Grade A office space threatening to cripple the market. An increase in headline rents seems likely due to the lack of stock. Refurbishments may help plug the gap until the next development cycle in 2018-2019.
A lack of speculative funding due to political uncertainty may be a problem. The challenges faced by Aberdeen and the North East, however, are more closely linked to the ongoing challenges faced by the oil and gas industry. Investment levels remained subdued for 2016. Crude prices made some recovery towards the end of the period and there are signs of optimism for the year ahead. Coupled with the recognition that Aberdeen offers good value and strong fundamentals, the city presents an attractive proposition for investors at the turn of a market. Changes and opportunities are abound with the construction of the AWPR and wide-scale development of city centre and out of town business parks, hotel developments and offices.
The City Region Deal will provide further support for the future of the North-East economy through continued, long term investment in transport, digital connectivity, life sciences, tourism, agri-food and biopharmaceuticals. The importance of diversity is recognised and addressed against a backdrop of ensuring the regions’ oil and gas industry evolves to meet the political and economic challenges posed over the next few years. All will act as catalysts in delivering development vital to the attraction of future investment and progression of the region’s economy.
Do you feel that financing and investment is more readily available now?
In a regional context and with the exception of some sectors, financing and investment is perhaps less readily available in the North East due to uncertainties surrounding the performance of the oil industry. The same cannot be said of Edinburgh and Glasgow whose markets are recovering well despite the 2008/09 recession which had less of a direct impact on the market in Aberdeen. Each region faces its own challenges, however, if investment in speculative office developments remains limited, further pressures will be applied to those markets suffering due to the limited supply of newly developed Grade A office space. Political uncertainty may continue to dampen activity although a weakened sterling may fuel demand from overseas investors.
If the oil industry takes a turn for the worse, how will this affect your clients? How will you advise them accordingly?
The recent stabilization of the oil price in the range of US $45 to $52 per barrel and the massive price rebasing in the oilfield services sector has begun to restore confidence in the sector evidenced by increases in deal activity. Where this is yet to unravel, we may see further job losses, liquidations and further pressures on the commercial property market as a whole. Meantime, whilst the oil price remains subdued, clients may seek to diversify into related industries where the same technology and skills base can be applied. The renewables industry is one such example – both in the UK and abroad. Diversification of skills and know-how will be the key to building a sustainable future.
What are the common disputes that arise in the commercial property sector?
Disputes regarding rent reviews, requirements for landlord’s consent to assign or sub-let, exercise of break options, management of lease trigger events and liability for dilapidations at lease expiry are common. Recent case law has resulted in a shift in drafting practice/tactics for negotiation. Landlords’ ability to recover costs of outstanding repairs at lease expiry has been thrown in to sharp focus, especially where the property in question is scheduled for re-development. Rates mitigation measures are also being examined in closer detail – more so now given the up and coming rates re-valuation taking effect 1 April 2017.
What are the challenges facing owners and occupiers of business premises in the North East of Scotland at the moment?
The main challenges are undoubtedly linked to the continued downturn in the oil and gas industry and subdued oil prices. In addition, proposed increases in non-domestic rates with effect from April 2017 (with reference to 2015 rental values), compounded with the withdrawal of empty rates relief, present an economic challenge to businesses already feeling squeezed by the downturn in the local economy. Political uncertainty following Brexit, the Trump election and the spectre of a second Independent Referendum present further challenges although the effects have been less widespread so far.
How do you assist your clients with overcoming these challenges?
We place a great deal of emphasis on keeping up to date with current affairs, regulatory and legal developments, changes in the economy and proposals for investment in the region (of which there are a variety). Our close relationship with the local Chamber of Commerce and other trade bodies, not to mention, intermediaries, banks, fund providers, surveyors operating across all spheres of the region’s economy is, undoubtedly, an advantage in this regard.
What do you anticipate for the Scottish commercial property market in 2017?
On a local level, given the uncertainty surrounding the performance of the oil industry and the up and coming increase in rating liability, 2017 will present a number of challenges. The Chancellor’s announcement regarding a 12.5% cap on rates increases is welcomed, albeit, it may only offer a temporary relief for business owners. Notwithstanding, there is plenty to be positive about. Significant investment in local infrastructure, the AWPR, City Region Deal and evidence of construction projects underway herald an era of opportunity for investors. Predictions that the oil industry will stabilise and show meaningful signs of recovery towards the latter half of the year are bringing these opportunities forward. Elsewhere, the country continues to benefit from post-recession recovery with medium to long term investment fuelling the appetite for growth.
As a thought leader, how are you currently lobbying or working towards the development of new commercial property strategies, in order to effectively assist your clients?
By engaging with trade/business representatives, professionals and intermediaries on a variety of levels, we maintain a valuable insight into the challenges and opportunities facing the economy. Remaining alert of the continuing emergence of a more positive outlook for the region, we support the recognition of opportunities presented by investment in infrastructure and emergence of globally recognised skills in other industries such as bio-tech, life sciences, tourism and food and drink - all of which will encouraging an appetite for growth and investment for the medium to long term.
Successful entrepreneur Jo Fairley has shared her advice for small businesses faced with increased economic uncertainty as the government prepares to trigger Article 50 on Wednesday.
Her advice comes after Xero, the beautiful cloud accounting software company asked small businesses how optimistic they felt about the future of their business in relation to Brexit. Three in four (74%) UK business owners expressed confidence, but despite this optimism, economic instability was named the greatest concern for business owners (34%), followed by cash flow (24%), suggesting that this optimism is mixed with apprehension.
The serial entrepreneur and co-founder of household brand Green and Black’s, which launched during a recession, has stressed the importance of credit, good preparation and a focus on personal health as key elements of survival.
Concentrate on cash flow
The report found that chasing payments for overdue invoices still plagues a fifth of small business owners as their biggest time waster, so putting cash flow and credit in the spotlight was another safeguarding step according to Jo Fairley. “Chasing payments is a huge time-waster for small businesses, and in tough times healthy cash flow is vital in helping you stay afloat. Take steps to ensure you know your numbers, invoice promptly and be sensible about spending to keep your business in the black.”
Fail to prepare, prepare to fail
One in five small businesses (18%) said they believed leaving the EU would be positive, calling out reduced legislation, and red tape as a key benefit. Jo Fairley advised that seeking expert advice and being knowledgeable about upcoming regulation changes was vital to help steady the ship in turbulent times. “Small businesses are forced to adhere to so many policies and regulations, it can be hard to keep up,” says Fairley. “When changes happen, it’s vital to prepare as much as you can by reading up on developments and speaking to advisors. Keeping ahead of the game will make you feel more control and ensure there are no nasty surprises.”
Put your health first
The report found that four out of five (78%) of small business owners believe that physical and emotional wellbeing is directly linked to business performance, prioritising it to aid productivity. Fairley believed that putting health first was a key part of her business’ success. “Regardless of the state of your business, if you don’t look after yourself you will be unable to look after your team,” says Fairley. “Stay healthy and make sure you get enough sleep, and you will be in a much better position to deal with a bumpy road.”
Gary Turner, Xero’s UK co-founder and managing director said: “Our research has revealed a remarkable trait among small businesses to look on the bright side, particularly in the current climate when faced with so much uncertainty. Given the importance of small business health as the government triggers Article 50, it is promising to see that small business owners are feeling so confident about the future. But, as cash flow and healthy finances have never been so vital, owners must keep a sense of realism and listen to external advice and support to ensure that business continues to prosper through the next few years.”
Jo Fairley concluded: “Owning a business is invariably a rollercoaster full of ups and downs and you must learn ways of thinking your way out of difficult situations, so it’s brilliant to see such optimism from small businesses. Having a concrete plan for your business combined with a can-do attitude can help you to win regardless of what you are faced with.
“While optimism is important, consulting with experts and keeping on top of your data can enable you to make the right decisions for your business that will help you not only survive, but thrive.”
(Source: Green & Blacks)
UK's exit from EU may end five-year boom in corporate profit and stock valuations. A new survey shows that firms that are engaged with Brexit are more confident about managing the impact, whereas 64% believe Brexit will reduce their profitability.
A new survey of 210 C-level executives, commissioned by Hogan Lovells, the international law firm, finds that companies that are planning, preparing and are proactively involved in the Brexit process are markedly more confident about the impact Brexit will have on their business outlook.
However, widespread uncertainty and pessimism does exist. Nearly ttwo-thirds (64%) of major global businesses believe that Brexit will reduce their profitability over the next five years, with 14% of these firms expecting the fall to exceed 5%. In the UK, the number of firms concerned that the country's exit from the EU will cut profits rises to 76%.
The findings form part of the first Hogan Lovells Brexometer, which gathered the views about Brexit from executives at companies with an annual turnover of at least $1bn, working across various sectors and based in seven jurisdictions.
"On the eve of the starting gun being fired on Article 50, the survey shows very clear concerns exist among business leaders about Britain’s exit from the EU, but also that business confidence can be built on proper planning and pro-active engagement", said Susan Bright, Regional Managing Partner of Hogan Lovells, UK and Africa.
The survey finds that:
Susan Bright said: “It is fascinating to take the temperature of global businesses as we enter the next crucial phase of the UK's ultimate exit from the EU. While the UK Government has set out a bold vision for a post-Brexit world, it is clear that many businesses do not yet share such an optimistic view of what the UK and its trading relationships may look like in the future.
"However, it is certainly not all doom and gloom", she continued. "Our survey also tells a story of self-help; that business confidence is built on planning and pro-active engagement. The good news is that there is still time for businesses to engage with Government and policymakers and to shape Brexit positively for their own benefit and the benefit of their customers."
Respondents to the Hogan Lovells Brexometer were split evenly across seven countries and regions: Britain, France, Germany, 'Other EU', the US, Japan and China, and represented the following industry sectors: Automotive, Diversified industrials, Energy, Financial Services, Insurance, Life Sciences and Technology, Media, and Telecommunications.
Government Brexit plans are showing a lack of ambition for equality and human rights standards, Equality and Human Rights Commissions Chair, David Isaac, has warned.
Publishing a 5 point plan on how Britain’s status as a world leader on equality and human rights can be maintained and strengthened after we leave the European Union, Mr Isaac has called for the government to set out its vision for a fairer Britain once we leave the EU and demonstrate how it will take a once in a lifetime opportunity to create a shared society and heal the divisions exposed during and since the referendum campaign.
The five point plan covers:
David Isaac said: “We’ve had calls for all kinds of Brexit; A soft Brexit; a hard Brexit; and a red, white and blue Brexit. No one is talking about a fair Brexit; one that will unite the country and lead us to a shared society based on fairness and mutual respect the Prime Minister has talked about.
“At any crossroads there are important decisions to be made. We can either set out the positive requirements to maintain our traditions of respect for equality and human rights and be a country that really does work for everyone; or we can miss this golden opportunity to demonstrate how post-Brexit Britain can create a fairer and more united Britain.”
Setting out what steps the government can take to create a fairer Britain once we leave the EU the action plan published includes:
Mr Isaac continued: “Markets and trade deals are hugely important, but our vision for the future should not be narrowly economic. Both our economy and society will be stronger in a Britain where everyone is treated fairly and can achieve their potential. There is great deal of anxiety about leaving the European Union and the government should go further to unite the country by setting out a positive vision for a post-Brexit Britain. That vision must be founded on pride in our shared values of tolerance and mutual respect.”
“The plan we have launched today will, if implemented, help the government take steps to correct injustices and tackle unfairness to create a country that works for all.”
Ali Harris, Chief Executive Officer of the Equality and Diversity Forum said: “EDF supports the call for a positive vision of an inclusive, outward-looking UK after we leave the EU, and a plan to turn the vision into reality.
“Equality and human rights are essential for a modern society where we can live and work successfully together, and where we can make the best of everyone’s contributions and talents. They are at the heart of the essential freedoms and protections that we all rely on and that are valued by the public.
“The steps proposed by the Equality and Human Rights Commission are important and highlight the key areas we should discuss and debate as part of the Brexit process.”
(Source: EHRC)
