Regulatory Differences for Commercial Real Estate across Europe
COVID-19, BREXIT, and LIBOR discontinuation. Add technology, ageing population, urbanisation, and sustainability to the list and the full picture of forces shaping the European commercial real estate becomes clearer. Here is a brief on how these factors are changing the regulations of the game.
Shifting Sands of Regulation
Numerous factors are generating regulatory inconsistencies in the European real estate sector. First, governments are reacting to the ramifications of the COVID-19 pandemic by granting tailored concessions to tenants and borrowers while also mobilizing liquidity and fiscal stimulus packages.
Second, discontinuation of the London Interbank Offer Rate (LIBOR) has implications for real estate because LIBOR impacts mortgage rates. And then, there is BREXIT. With a regulatory wall under construction to separate Britain from the rest of Europe, banks and financial firms on both sides of the wall will find it tough to deal with each other.
Apart from the economic cycle, which exerts a dominating influence, other long-term factors such as technology, ageing population, urbanisation, and sustainability are also affecting the European commercial real estate.
What is Changing & Where?
Italy: Supreme Court re-interpreted business leases as property leases, eliminating the benefits that the lessee used to get via transfer of trading license. The judgment can impact lessee-shopping-centre contractual relationships throughout the European Union.
Lease rents payable to public sports structures suspended till July 31, 2020. Instalment payment options are available after this date. Tenants can claim up to 50% concession in rent for March-to-July, 2020.
United Kingdom (UK): “Mercury Signatures” are now acceptable for registration documents submitted to the Land Registry – a “Wet-Ink Signature” i.e. physically signed document can be scanned or photographed to produce its acceptable soft copies.
Code of Practice for Commercial Landlords and Tenants promotes the two entities to cooperate via rent reduction, holiday, and deferral to tide through the COVID-19 crisis. All retail, nursery, hospitality, and leisure business under £51,000 rateable value qualify for a 100% retail discount on business rates.
Bill for Corporate Insolvency and Governance offers some respite from action by creditors to insolvent and financially-troubled companies. Unsecured creditors can now claim £80,000 (up from £60,000) as the prescribed part from recovery of floating charge during company insolvency.
Non-UK resident companies operating in the UK will pay corporation tax, not income tax from 6 April, 2020. Non-residents purchasing residential property will pay 2% Stamp Duty Land Tax (SDLT) surcharge for agreements from 1 April, 2021.
Spain: When terminating a mortgage, borrowers need to first prove in court that transparency control measures were infringed when they obtained the mortgage if they want a substitute for the IRPH (Referencia de Prestamos Hipotecarios) index.
Stamp duty exemptions when modifying mortgage agreements will be decided on a case-by-case basis and apply to terms other than interest rates and loan duration. Next, the LRCEA improves legal protection to guarantors or borrowers (both individual) in a credit agreement with financial service providing lenders (organizational or individual).
Czech Republic: Landlords cannot cancel commercial leases unilaterally if tenants have defaulted on service and lease charges between 12 March and end-June for 2020. Tenants have to pay all outstanding rent by 31 December, 2020. The protection does not cover charges other than rent.
Government will pay half the rent for lockdown-affected entrepreneurs, provided they pay 20% and the landlord waive off the balance 30%. Termination of real estate acquisition tax is under discussion.
Luxembourg: From 1 January, 2021, only limited tax will be deductible from interest and royalty transactions between entities in Luxembourg and those classed as “non-cooperative territories” by the EU.
Poland: Multiplicity of authority is an immense regulatory bottleneck for business to navigate through. Poland is a theatre of confusion with two tax systems applicable for those withholding liabilities – Polish tax remitters and those being paid from the country.
Sweden: Government will financially assist those landlords who reduced fixed rent for tenants between start-April and end-June 2020. Relevant tenants are retailers, restaurants, logistics operators, dentists, beauty-hair salons, fair organizers, and physiotherapists. Aid is 50% of the amount reduced subject to maximum 25% of the original rent.
With European logistics operators looking to move inside city limits, commercial retail spaces are poised for major re-purposing. This does open up a whole new dimension in opportunities.
As the COVID-19 and BREXIT plot thickens, we will continue to unravel the mysteries and discover the opportunities that lie within.
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