into europe

Transcription

into europe

ISSUE 5
spring 2009
INTO EUROPE
The quarterly European Real Estate newsletter from DLA Piper
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EVERYTHING MATTERS
The Construction
sector in Europe:
The party is over
As output falls and hopes for a speedy
recovery fade, Engineering and
Construction Group lawyer Gordon
Anderson considers what developers
and contractors should be thinking
about and what funders should be
looking out for …
Last year, after a sharp drop in output in Spain and a
steeper fall in Ireland, the construction sectors in France,
Italy and the UK began to contract. Elsewhere in
Western Europe where growth was lacklustre, Germany
and the Netherlands fared the best. Growth in Eastern
Europe helped to offset the decline in more mature
markets but, overall, European construction output still
shrank by 2.5 percent in real terms in 2008 and looks set
to plummet in 2009 as the recession deepens.
In the UK, as the economy wades deeper into recession,
a number of contractors will face financial difficulties.
Understanding the way in which the industry and its
supporting manufacturing and supply chains work and the
legal framework that surrounds them now becomes
more important than ever.
The purpose of Insolvency law
Insolvency law has three objectives:
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To rescue the company as a going concern
To obtain better results for the creditors as a whole
than liquidation
To realise property for the benefit of secured and
preferential creditors
With so many construction companies feeling the strain
of the downturn, keeping them solvent is key to the
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industry staying afloat. Payment is the contractor’s main
concern as cash is the life blood of any company. A failure
of cash flow is one of the major causes of corporate
insolvencies; as payments dry up, insolvency becomes
inevitable.
Typically, LOIs contain a clause that requires the
employer to repay the contractor’s costs only up to a
specified maximum. The danger is that if a formal
contract (with no cap on costs) is never entered into
following the LOI, then the contractor’s wasted costs will
not be repaid.
Cash flow is king
It will, increasingly, become tempting for contractors to
dive in to any work which they are approached to do
straight away. They, as well as all consultants who start
work in the absence of an executed formal contract,
must ensure that the agreement they are entering into
– even if it is an LOI – is watertight. It may save a lot of
trouble in the long run to proceed only after a formal
agreement has been drawn up which will offer full
protection should anything go wrong. LOIs should not
always be regarded as a pre-cursor to formal contracts.
Increasingly, developers are getting out of projects as
soon as the funds dry up, leaving contractors with the
wasted costs they have already incurred.
In the UK, Part II of the Housing Grants, Construction and
Regeneration Act 1996 (which is referred to, simply, as the
“Construction Act”) is the single most important piece of
legislation affecting the construction industry to have been
enacted. Its origin lies in the doldrums of the last recession
in the UK at the beginning of the 90s. One of its main aims
was to improve payment practices within the industry. The
other aim was to introduce a new construction adjudication
procedure as an alternative means of dispute resolution in
the event that things go wrong.
It is, therefore, of paramount importance that the parties
to construction contracts understand the payment
provisions in the contracts and how they impact on one
another back to back through the supply chain. Parties
will naturally take steps to protect themselves, such as
seeking longer payment periods, but a return to ninety
day payment periods, whilst affording protection to some
businesses, will be unsustainable for others. At least
Governments, with their fiscal stimulus plans, can
reasonably be expected to employ fair payment terms.
Mitigating the effects of insolvency
How can the effects of a possible insolvency be mitigated?
What can we do, and what protection does the law offer,
to assist? Issues to consider include the following:
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Contract is queen
The importance to be attached to negotiating and
concluding formal contracts cannot be overstated. In the
current economic climate, contractors need to think
twice before beginning work on new projects on the
back of an employer’s letter of intent (“LOI”).
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The inclusion of direct payment clauses allowing the
developer to pay a sub-contractor or supplier directly
– but would such a clause violate local insolvency laws?
Provision for the automatic termination of the contract
upon the commencement of formal insolvency of the
contractor or consultant or when the warning signs
appear
Making provision for a vesting clause, which would also
permit the developer to use the contractor’s plant,
equipment and materials in certain circumstances
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The inclusion of retention trusts or retention bonds to
permit better cash flow
The inclusion of Retention of Title (“Romalpa”) clauses
Making provision for performance bonds and parent/
ultimate holding company guarantees to be given.
Directors’ responsibilities
It is also important to understand what duties the law
places on the directors of a company.
For example, in the UK, directors are under a general
duty to act in the best interests of the company. When
the company is in financial difficulty, however, that
general duty begins to extend to the company’s
creditors. Directors should make sure they do not
engage in “wrongful trading” and incur personal liability;
the best way to avoid this is to keep an eye on cash flow
and cease trading at the right time.
Conclusion
In uncertain financial times, it is important to remember
that any supply on credit terms brings with it the risk
that you will not be paid. In good times, this risk is
relatively small and worth taking. In the brave new world
we all now face, even the best-intentioned debtor may
find himself unable to pay.
Gordon Anderson
Associate, London
T +44 (0)20 7796 6011
gordon.anderson@dlapiper.com
If the company cannot avoid insolvency, the directors
cannot simply walk away. Liability can be imposed on a
person who was a director within the 12 months prior to
insolvency. Obtaining proper professional advice is
critical in these circumstances in relation to both legal
and accounting matters.
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Deal Focus
DLA Piper has advised Copernico Real Estate on their purchase of a 20 percent
interest in an office building on King William Street, London.
Copernico acquired a 20 percent stake in 5 King William
Street from Allegra Europe. The property is a prestigious
office building in the heart of the City of London’s financial
district. The current tenant is Daiwa Securities.
Allegra Europa, Copernico and Riofisa (the Spanish
company that owns the remaining 80 percent of the
building) are all Spanish incorporated companies.
Instructions on this matter were initially given to DLA
Piper’s Madrid office who contacted Richard Wilkinson,
a real estate partner in the London office. Richard and
Jeremy Liebster took the UK matters forward.
All parties involved wanted the deal to be concluded as
quickly as possible and this required a great deal of
co-operation between the Madrid and London offices of
DLA Piper. Close relationships between the parties
meant the main commercial issues had to be dealt with
sensitively. Richard and Jeremy produced a report on the
title matters and on the key provisions of the occupational
lease. As Copernico were not familiar with a number of
aspects of UK real estate law, Jeremy answered queries in
relation to issues such as rent reviews, security of tenure
and restrictive covenants to help guide Copernico through
the deal.
A sale agreement, joint venture agreement and trust deed
were entered into between Copernico and Riofisa. Tax
considerations included SDLT, capital allowances and
whether a partnership interest was being acquired.
Richard Woolich, a tax partner in the London office,
assisted by Carmelo Lam, liaised closely with Antonio
Cuellar, a tax expert in the Madrid office, to ensure that
Copernico’s tax exposure was minimised.
Richard Wilkinson commented “This deal demonstrates
how effective our international network is at serving
client’s interests across a number of jurisdictions. We can
make the process simple for them by providing a single
point of contact to project manage matters across a
number of groups and jurisdictions”.
Richard Wilkinson
Partner, London
T +44 (0)20 71796 6384
richard.wilkinson@dlapiper.com
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05
The Real Estate Market
in the Czech Republic
The real estate market in
the Czech Republic has
significantly expanded
over last two decades.
Growth has been seen
across all types of
development especially,
retail, office, hotel and
residential. A large
number of logistics and
distribution facilities as
well as operation centres
for the Central and
Eastern European region,
have opened up here
because of the country’s
strategic location.
In 2008 however this progress was
replaced by stagnation due to the
worldwide economic slow down.
In the period January-September
2008 there was a decline in
investment activities of more than
60 percent. In addition international
investment funds, in particular
investment funds from the USA and
the UK are leaving the Czech
Republic. This is likely to further
impact the market.
The future of the real estate market
as well as the situation of the entire
Czech economy is difficult to
predict. Predictions of economic
growth vary from -0.7 percent to
+1.4 percent for this year. Speculation
is rife as to when trading will improve.
Optimists affirm that this may be
by the middle of 2009, however
pessimists consider prospects for
all of 2009 to be “forlorn”.
This article provides a general
overview of Czech real estate
regulation.
Acquisition of Real
Estate
Acquisition of real estate in the
Czech Republic may be effected in
two different basic ways:
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Direct purchase in the form of
an asset deal or
Indirect purchase in the form of
the purchase of shares in the
company which owns the
property (“a share deal”).
The two types of property transfer
are used in different kinds of
transactions.
Acquisition of real estate in a form
of an asset deal. This is achieved by
means of a written contract (“Kupní
smlouva”) with certified signatures,
which requires subsequent
registration in the Cadastral Register
(“Katastr nemovitostí”). The Cadastral
Register is a register of all real estate
(save for minor and underground
structures) in the Czech Republic.
Investors must take into account
that the principle of “superficies solo
cedit” (‘what is built on the ground
belongs with the ground’) does not
apply in the Czech Republic.
Therefore plots of land are
recognised as being different assets
from the buildings located on them,
and can, and sometimes do, have
different owners. There is currently
a new civil code being prepared and
the intention of legislators is to
reintroduce the “superficies”
principle back into the Czech legal
system. However, even if the new
Civil Code is adopted, it will take a
significant period of time for the
ownership of plots of land and
buildings located on them to
become unified.
Czech law recognizes three types of
so called encumbrances in rem which
all are subject of registration in the
Cadastral Registration:
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Easement
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Pledge
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Right of pre-emption
All these encumbrances can either
be created by a written agreement
with certified signatures of parties
or by resolution of the relevant state
authority (eg courts, notaries of
inheritance proceedings, etc).
Pre-emption rights are subject to
registration only if they were
established as rights in rem. This
must be explicitly stated by parties
in the relevant contract for the
creation of the pre-emption right.
Corporate Vehicles
Real estate can be acquired
indirectly through the purchase of
shares in a company or as part of an
ongoing business. In a share
purchase, the real estate asset is not
transferred and there is a tax
advantage for the parties. Commonly
used corporate vehicles are the
same as in other jurisdictions, a joint
stock company and a limited liability
company.
A joint stock company (“Akciová
společnost” or “a.s.”) must have a
minimum registered capital of CZK
20,000,000 if initially formed
through public subscription for
shares; otherwise the minimum
share requirement is only CZK
2,000,000. Shares may be issued
either in materialized or nonmaterialized form. Additionally, Act.
No. 513/1991 Coll., Comercial Code,
as amended, (“Obchodní zákoník”)
distinguishes between registered and
bearer shares.
A limited liability company (“Společnost
s ručením omezeným” or “s.r.o.” or
“spol. s r.o.”) is the most popular
vehicle for real estate investments.
It can have from one to 50
shareholders. It should be noted that
a sole shareholder limited liability
company cannot be the sole
shareholder of another limited liability
company. The minimum registered
capital requirement for that type of
company is CZK 200,000.
Shareholders in this type of company
are jointly and severally liable for the
company’s obligations but only up to
the unpaid portions of their respective
investment contributions as shown by
entries on the Commercial Register
(“Obchodní rejstřík”).
Real Estate Taxes
Real estate transfer tax is fixed at
three percent of the greater of either
the purchase price or the value of the
real estate as stated in an expert
appraisal. In the Czech Republic,
unlike in many other jurisdictions,
real estate transfer tax is paid by the
seller. The buyer, however, is jointly
liable for the tax, so it is usually the
case that three percent of the
purchase price remains in possession
of an escrow agent until the seller has
discharged this liability. There are
several exceptions when the real
estate transfer tax does not have
to be paid:
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Leases and Sub-leases
Czech law distinguishes between
leases of non-residential premises
(including but not limited to retail,
warehouse and office premises) in a
building, leases of apartments, and
leases of other real estate. Each of
these are governed by a different set
of legal regulations. Czech law does
not differentiate between
commercial and other nonresidential premises.
The lease relationship between a
landlord and a tenant must always be
established by a written agreement
(“Nájemní smlouva”). Any agreements
for lease (other than non-residential
premises) must always include an
accurate determination of the
subject of the lease and the amount
of rent. Agreements for lease of
non-residential premises must also
deal with the purpose of the lease,
the method of payment of rent and
(in case of leases entered into for
definite period of time) the term of
the lease. Lease agreements are not
subject to any formal registration.
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A transfer of real estate as a
contribution to the registered
capital of companies (this
exemption does not apply if the
participation of the contributing
shareholder in a company comes
to an end within five years of the
contribution, unless specific rules
apply)
A transfer of real estate by
merging, demerging or
reconstructed companies
A transfer of newly finished
buildings
Real estate tax is divided between
tax on land and tax on buildings. The
real estate tax is generally paid by
the owner, however exceptionally it
will paid by the user of the property.
The tax rate varies between the
different regions of the country.
Tomas Opletal
Senior Associate, Prague
T +420 222 817 500
Zdenek Tomicek
Junior Associate, Prague
T +420 222 817 811
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BELGIUM
Facts Figures
DLA Piper’s practice in Belgium was founded in
2002 after a merger between two Belgian law firms,
Price & Partners (25 fee earners) and Caestecker &
Partners (70 fee earners) making it the country’s
sixth largest law firm. Christian Van Buggenhout
joined the firm in July 2002 with his associates and
in 2005 30 fee earners joined from Coudert
Brothers België. DLA Piper Belgium had been born.
Today DLA Piper Belgium numbers 108 fee earners
covering all areas necessary to provide a full service to
our Belgian and international clients, public authorities
and private companies. The 15 fee earners in our real
estate department can handle a variety of advisory and
transactional work, ranging from investment and sale of
real estate assets, structuring of real estate projects and
town planning. We act for national and multinational real
estate owners, end users, promoters and investors
(including funds and the Belgian form of REITs). Our
expertise is supported by our colleagues from the tax,
corporate and litigation departments.
The real estate team is led by Dirk Caestecker, François
de Montpellier, Michaël Bollen and Els Empereur. Both
Dirk and Michaël have worked for DLA from the
beginning. François joined in July 2007.
DLA Piper was named Belgian Real Estate and Construction
Law Firm of the Year 2007 and Belgian Law Firm of the Year
2008 by a panel of around 100 legal practitioners in
Brussels. The panel’s decision was motivated by DLA Piper’s
impressive growth in the Belgian market and internationally
both in terms of fee earners and clients.
Apart from obvious qualities such as its excellent Belgian
chocolate, ‘moules et frites’ and local landmarks such as
the Atomium and “Manneken pis” (Dutch for “little peeing
man”), Brussels is the EU’s third-richest city in terms of
per capita income.
Despite the financial crisis that is currently spreading
around Europe, we hope Brussels will be able to weather
any serious problems because of its incredibly diverse
real estate market. Besides being the capital of Belgium
and Flanders, Brussels is also the capital of Europe, hosts
the main institutions of the European Union and the
headquarters of NATO. This most international of cities
therefore not only deals with local public and private
bodies and companies but also attracts large numbers of
international organisations, diplomats, civil servants,
NGOs and the head offices of international companies.
All of these are helping to keep the Brussels real estate
market vibrant in spite of the challenges.
Fran Claes
Advocaat, Brussels
T +32 (0)2 500 6554
fran.claes@dlapiper.com
The Brussels office is located right in the heart of
Brussels and its real estate opportunities. It is very near
to Avenue Louise, the Courts and only 10 minutes away
from the flagship buildings of the European Union.
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DID YOU
KNOW
BUDAPEST
?
Budapest is a lively metropolis in the heart of Europe where old and new,
traditional and modern come together to create a truly Central European
atmosphere.
The capital of Hungary and the largest city in the country,
Budapest is one of the most culturally important places in
Central Europe. Although the first settlement on the
territory of what is known today as Budapest was
established more than two thousand years ago, it was not
until 1873 that Buda, Pest and Óbuda (Old Buda) merged
to form the new metropolis of Budapest making it the
country’s administrative, political, economic, trading and
cultural hub.
Budapest occupies both banks of the River Danube. There
are seven islands in the river within the city boundaries.
The most famous is Margaret Island which is a popular
recreational area for tourists and locals alike. Old-Buda
Island (Óbudai-sziget) is home to the Sziget Festival, one of
the largest music and cultural festivals in Europe and the
world held in August every year.
The Hungarian capital is often referred to as ‘the city of
spas’ due to the prevalence of thermal springs right in the
centre of the city. There are over 100 springs and
boreholes and the city abounds in health and thermal spas.
In addition, Budapest sits over the largest thermal water
cave system in the world.
Rich in history and culture, Budapest is packed with
monuments and historic buildings. Noteworthy sights
include the neo-Gothic Parliament Building (the largest
building in Hungary and the second largest legislative
building in Europe), Saint Stephen’s Basilica, Castle Hill, the
Royal Palace, a host of churches, squares, atmospheric
streets and the Fisherman’s Bastion that offers a
panoramic view of the whole city. There is also Andrássy
Avenue (an iconic boulevard and UNESCO World
Heritage site), the neo-Renaissance Opera House and
Heroes’ Square with its Millennium Memorial, as well as
the largest synagogue in Europe.
For those interested in arts, several museums can be
found in the city. Two of the most well-known are the
Museum of Fine Arts and the Palace of Art, both located
on opposite sides of Heroes’ Square. For a slightly more
surreal experience we would also recommend the Statue
Park – a theme park full of statues of leaders and soldiers
from the Communist era.
With its vibrant social and economic life making Budapest
such an exciting place to be in the twenty first century one
can only imagine how the Soviet leaders of the Iron
Curtain would view the city today.
Attila Remes
Senior Assoicate, Budapest
T +36 1 487 7318
attila.remes@dlapiper.com
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09
The credit crisis has caused a lot of
damage to many and is still causing
much distress. However, a crisis also
offers opportunities.
A case in point is the Netherlands, which recently saw the
launch of a digital market place for real estate funds,
where purchasing distressed property now might have its
advantages, and where tenants now have the chance to
buy their own property.
eBay for Real Estate Funds
The Netherlands has real estate investment funds
specifically designed to take advantage of Dutch tax
benefits. These funds are mainly limited partnerships,
partnerships and other indirect real estate investment
vehicles.
Over the last decade, an estimated 60,000 Dutch
investors, both private and institutional have invested
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a total of €4 billion in non-listed real estate funds. The
total value of the funds’ investment assets is estimated
at €12 billion.
Normally investments in such funds are fixed for three
to 10 years. As a result of a private initiative the Dutch
Participation Exchange (Nederlandsche Participatie Exchange,
NPEX) has been set up to create more transparency in the
real estate market. On 2 February 2009, the Dutch
Secretary of State for Finance opened this digital market
place. The objective of the founders is to turn the NPEX
into the eBay for non-listed real estate investment funds.
The Dutch Central Bank and the Authority for the
Financial Markets have both licenced the NPEX.
There are approximately 150 to 200 providers of nonlisted real estate investment funds. Eighteen of these
providers hold 70 percent of the market, which, as we
said, has an estimated value of €12 billion. Whether the
NPEX will prove successful depends on how fast the
major providers start to participate. At the opening of
this trading venue at least seven of the 18 major providers
were already part of this exchange. As far as these
providers are concerned, their range of investment
Dutch real estate
initiatives in 2009:
This crisis still offers opportunities
products will show how the respective prices develop, as
well as performance and yields. The provider pays
€10,000 to €15,000 for listing on the NPEX, while both
the purchaser and the seller pay a 1.5 percent commission
fee per transaction.
Distressed Property
In these times some owners have been forced to sell real
estate at a price that is well below current market value.
Providers setting up partnerships are now trying to seize
the opportunities, and are looking for small groups of
investors who are able to release capital quickly in order
to complete the sale and transfer in a very short time
frame. Not only is the time frame for preliminary steps
(such as due diligence) shortened significantly but also the
time taken to set up the fund is reduced.
To these purchasers foreclosures also offer great
opportunities to purchase relatively cheap portfolios,
with significant future value growth potential. Currently
it is assumed that the prices achieved in a foreclosure are
37 percent lower than normal sales.
Inverted Sale and Lease Back
In the current circumstances lessees have the opportunity
to pay a relatively low purchase price for property that
they have been leasing and which they know thoroughly.
Whereas in the past property might have been too
expensive an investment for a lessee, that situation has
changed.
Additionally, investors wishing to acquire real estate can
also involve governmental bodies in a joint acquisition of
property. In autumn 2008, DLA Piper supervised a
transaction in which a site situated in a port area was
transferred to the municipality of Amsterdam, while the
investor acquired the premises on leasehold basis, thus
giving the municipality more control over the plot as well
as its designated use.
In short, the market changes and develops and constantly
gives us new opportunities to apply our expertise.
Frederike van der Henst
Senior Associate, Amsterdam
T +31 (0) 20 5419 913
frederike.vanderhenst@dlapiper.com
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11
Interview with
Ákos Becher
Head of Real Estate in our Budapest office
Why did you decide to be a
real estate lawyer?
To be honest, I hadn’t spent my life
wanting to be a real estate lawyer.
Back in 2000, when I joined the firm,
I didn’t have a particular specialism,
but due to the firm’s client portfolio
at that time I ended up gaining
experience in real estate, projects and
finance. With this background and
after a short corporate ‘detour’, in
2007 I was appointed to build up the
real estate practice here in Budapest.
What’s the most exciting
deal/case you have worked
on and why?
My personal view is that the interest
and complexity of a deal often has
nothing to do with its size. On the
contrary, in the bigger transactions
sometimes emotions can run high
and get in the way of the deal. My
personal favourites are complex
transactions where the work is not
simply an adaptation of precedents
but where we do the whole of the
project, from initial structuring to
post-completion issues and also look
at tax elements. Fortunately, we’ve
had quite a few deals like this recently.
What will be the most significant
market in terms of your practice
area over the next 12 months?
We’re going through exceptional
times, and I’m expecting the coming
year to be the hardest so far in my
career. It will be vital to adapt
ourselves to the new market
environment. Hopefully we will be
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able to take advantage of the
opportunities the current market
has to offer. Our primary goal is to
emerge from the crisis even
stronger. Both real estate and the
legal market will undergo a
fundamental transformation and
restructuring. I think we’re going to
have fewer ‘classic’ transactions this
year, and the importance of
restructuring and liquidation-type
work will increase.
What would you do if you
weren’t a real estate lawyer?
As originally I was going to become
an economist, I would probably the
client of a law firm, pestering
lawyers with annoying questions.
Who has been the biggest
influence on your career?
I have been pretty self-motivated in
getting to where I am now but I think
my parents (also lawyers) have certainly
had a positive impact on my career.
What’s the best part of your job?
I enjoy everything about my job
except for administrative tasks.
Interesting, challenging and creative
work accompanied by reasonable
deadlines is what I like best.
Where’s the best place to go if
you want to find out what’s
really going on in the office?
This is a small office where we all
communicate with one another.
Nonetheless, the canteen during
lunchtime is a perfect place to get
information on current issues.
Where do you see yourself in
ten years time?
In ten years time I will have ten
further years of experience and be a
lawyer who has seen booming market
and recession alike, hopefully a lawyer
who can no longer be surprised!
What are you currently
reading?
Vasily Aksyonov’s novel entitled
‘Moskovskaya Saga’. I think it is the
best and most staggering literary
description of the Stalinist era – I’d
definitely recommend this book to
others.
Who’s your hero and why?
Although my bedroom walls in my
room, as a teenager, were never
plastered with posters, I do have my
favourites. One of them is 14-time
world champion darts player Phil
‘The Power’ Taylor. Although not
too well-known outside the world
of darts, he is one of the greatest
sportsmen of our time, capable of
incredible concentration in critical
moments. He reminds me that
everybody should aim to become
the best at what they do.
Ákos Becher
Partner, Budapest
T +36 1 487 7322
akos.becher@dlapiper.com
INVESTING IN A
CHALLENGING
MARKET
Right now investors in commercial
real estate need to be more savvy
than ever. In this article we look at
some of the important issues to
consider and offer advice on how
to ride out the storm.
It is widely acknowledged that the immediate outlook for
the European investment market is fairly grim. Predictions
vary as to when the market will return, but the following
points are worth considering:
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The debt market for new deals is slow. Banks who
lend on property are looking to help refinance their
existing customer base before considering any new
deals.
The opportunity funds will return at some stage soon,
with the UK being targeted by a number of European
funds particularly for prime property assets.
There is enormous pressure on corporate
particularly in the non-food retail sector. The UK has
seen a spate of high profile retail failures in recent
months, with iconic names such as Woolworths and
MFI disappearing. There may be more.
Banks will be more proactive in the management of
their distressed property portfolios by bringing in
experienced assets/development managers.
BE PREPARED
Transacting New Business
The commercial property landscape looks very different
in 2009 to recent years:
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For any new transaction the buyer, lender or tenant is
now perhaps in control.
Special purchase vehicle deals may now require a full
array of appropriate security, ranging from deposits
to parent company guarantees.
Vendors and purchasers both want to ensure that
banks have the finance to complete the transaction,
notwithstanding exchanges of contracts and facility
letters. There is now often a desire to skip exchange
of contracts and go straight to completion, or to
make exchange conditional on funding being available.
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Lawyers are increasingly being asked to look at
disclaimers inserted by valuers in their valuations in
light of a lack of market comparables. Their inclusion
is understandable but the breadth of some of the
wording does need to be considered carefully.
REGULATORY MINEFIELD
2009 is predicted to be a year of unprecedented
enforcement of regulation for European corporates,
particularly in the UK as bodies such as the Financial
Services Authority and Serious Fraud Office seek to
ensure that businesses comply with ever stricter rules
affecting corporate practices.
We are operating in an unprecedented era of financial
pressures and the authorities are more determined than
ever to enforce the regulatory framework. All over the
developed world governments are publicly doubting the
free market model – soft regulation is no longer
considered to be adequate while financial institutions are
no longer the safe houses they once were.
The lack of M&A competition work has freed up the
regulators to look at other areas. The European Arrest
Warrant will make it easier for countries to extradite
and new systems will be in place for faster regulation.
The UK, with a government which has not so far been
slow to regulate, is likely be more affected than other
European countries.
ACTIVE ASSET MANAGEMENT
In today’s uncertain market conditions active and
intelligent asset management is more important than ever.
Monthly Rental
The UK has recently witnessed a long running campaign
by some of its best known retailers to scrap quarterly
rent payments to help ease cash flow difficulties during
the recession. Monthly rents for small-scale tenants have
already been agreed by several major landlords and the
14
|
trend seems set to continue. In an economic downturn,
most landlords benefit from close contact with their
tenant base and monthly billing will help highlight genuine
cash flow difficulties more quickly than a quarterly rent
roll.
Sustainability
With economic survival being the order of the day,
environmental issues have moved down the agenda as
energy savings (which can accrue during the life of the
lease) require substantial capital investment in the form of
separate monitoring equipment, updated plant etc.
Despite this, the “green lease” remains an issue of major
importance as some landlords and tenants want the
people they deal with to share their aspirations in terms
of future proofing and reducing energy/resource
consumption. The coming months and years may see a
two tier market developing where large funds may decide
to take a long term view and press ahead with the
sustainability of their properties in the knowledge that
their buildings will be attractive to large corporate
entities with strong Corporate Social Responsibility
policies. Where landlords are chasing a dwindling
occupier base of tenants with significant covenant
strength, they cannot simply afford to ignore this growing
trend by hiding behind the upfront initial cost.
Re-Gearing
Tenants are looking for budgetary certainty to enable
them to run their businesses. Re-gearing the lease
arrangement through the amendment of the rent review
provisions or with an extension of the lease term can help
landlords improve the capital values of their properties
and at the same time give tenants what they require.
While the financial variation will be the primary driver for
such a move, the re-gearing will give both parties an
opportunity to update the lease so that it is more aligned
to the best interests of both parties, for example, by
amending alienation and alteration provisions.
Planning / Zoning Issues
■■
■■
■■
■■
■■
Now is the time to review assets within a portfolio to
see whether capital values can be increased by a
range of planning or zoning consents: local authorities
may be more flexible than before if it means that
development of an area continues.
Where time is running out on a consented scheme,
renewals should be considered sooner rather than
later.
Even though agreement has previously been reached
on contributions to infrastructure costs on the basis
of viability, there may now be the chance to
renegotiate.
Planning/zoning authorities are naturally receiving
fewer applications, meaning that officials have more
time to focus on enforcement. It may now be prudent
to spend some time ensuring that sites are fully
compliant.
Tax Issues
■■
■■
A review of assets and a potential repackaging of
those assets to reduce their tax burden may now be
appropriate so as to be attractive to an ultimate
purchaser.
The current market may mean that sales are taking
place when not anticipated: specific advice should be
obtained as to whether TOGC relief will be available
in such circumstances.
Dealing With Disputes And Debtors Enforcements Of Rights
Although the legal framework for dispute resolution
varies between jurisdictions in the Eurozone, there are
certain practical points that apply throughout:
■■
Landlords and lenders should carefully monitor their
portfolio and development projects and identify
problems at an early stage. Early advice will ensure
you do not unwittingly compromise your position or
limit your legal rights.
■■
Be prepared to meet to discuss the problem. Where
possible, agree to meet up on a without prejudice
basis with or without lawyers so that frank
discussions can take place. If parties wish to preserve
existing business relationships, maintaining good
communications is vital.
Depending on the size of debt involved it may help to
instruct enquiry agents at an early stage to investigate
whether the debtor actually cannot pay or is simply
choosing to apply its funds elsewhere. Once you have
this information you can determine how to pursue
recovery.
REALISATION BY BANKS OF VALUE FROM
DISTRESSED PROPERTY
So far there have been relatively few distressed sellers
entering the market, but this is likely to increase
substantially this year.
At DLA Piper we have been working with banks and
experienced, cash rich asset managers to see the
potential for creating a Pipeline Agreement. This is a
framework document which envisages the sale of
distressed properties by the bank to a purchaser under a
process that will lead to a portfolio of properties being
acquired, managed (with enhancement of value being the
objective) and ultimately sold when the market picks up
so as to generate both an initial return for the bank and
potential inclusion of the bank in the increasing value.
Such agreements will hopefully, in time, provide a
kick-start to the market.
While this article has set out some practical points to
consider in the face of the current downturn, succeeding
where others fail may ultimately come down to making
assets as attractive as possible to potential tenants or
purchasers.
Richard Crossfield
Partner, London
T +44 (0)20 7796 6147
richard.crossfield@dlapiper.com
|
15
www.dlapiperrealworld.com
REalWorld is a free access website created by DLA
Piper’s Real Estate Group. It is a resource for you to
access our European real estate legal knowledge in one
convenient place. REalWorld helps connect you to the
information you need, and the people you need to know,
when making real estate investment decisions.
REalWorld is designed to help you understand the
investment background within your target jurisdictions.
It provides extensive information about local legal and
regulatory conditions in 23 European jurisdictions and
over time will continue to expand its coverage to match
our global footprint.
REalWorld answers critical questions about sale and
purchase matters; commercial leases; real estate taxes
and corporate structures for investments. The question
format is intuitive and allows comparison of those
questions and answers within any two given jurisdictions.
REalWorld is a gateway – a single click will get you
through to the right DLA Piper contact on the ground
and giving you access to one of the largest and most
authoritative real estate teams in the world.
Thank you to everyone who completed our Into Europe survey. Your feedback is very important to us.
The lucky winner of the prize draw is Reza Salahi of Targetfollow.
EDITOR
Paul Jayson
Partner, London
Jeremy Liebster
Solicitor, London
T +44 (0)20 7796 6501
F +44 (0)20 7796 6666
paul.jayson@dlapiper.com
T +44 (0)20 7153 7178
F +44 (0)20 7796 6666
jeremy.liebster@dlapiper.com
DLA Piper’s quarterly newsletter about investing in European real estate provides a fresh and comprehensive guide to
property investment across Europe. As well as focusing on a different European country and a specific sector, each
issue will bring a unique insight into one of our recently completed European deals and introduce one of our top
European real estate lawyers.
www.dlapiper.com
DLA Piper is an international legal practice, the members of which are separate and distinct legal entities. For further information please refer to
www.dlapiper.com/structure. A list of offices can be found at www.dlapiper.com. Copyright © 2009 DLA Piper. All rights reserved. 4060/FEB09/JB

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