The immediate shock waves on that fateful Friday morning of 24 June sent commentators into a spin, as Alastair Stewart wrote in a recent column.
Things began to move very rapidly after that and we witnessed the accelerated establishment of a new government under Theresa May. Emotions have calmed down somewhat since then, although warnings of inflation and recession persist.
While no one can predict what exactly is going to happen over the next few years, it is clear that once Brexit is triggered, we will be in uncharted waters. With this in mind, UK real estate lenders should be assessing whether their legal rights remain sound under existing or new deals.
The core terms of many lending documents, including those based on the Loan Market Association standard terms, should be unaffected by Brexit. This is because a lot of the terms are negotiated commercial provisions that have evolved under English contract law, rather than necessarily being included with reference to EU legislation.
The most pressing consideration for any lender will be what impact Brexit will have not only on their borrowers’ performance but also their collateral. After the run on the REITs, provisions have been made by some funds for corrections of as much as 20%. It would be wise for all lenders to reflect on their legal options in the run-up to a potential default. If financial covenants need to be revisited, standstill agreements can be entered into to enable valuations to be undertaken and new tests agreed while preserving lender rights.
In short, the markets will be volatile for a number of years while the dust settles on Brexit and lenders will naturally be focused on values and gearing. To protect their interests, lenders should always return to the legal fundamentals to ensure that they are in the best position to take action and weather the uncertainty to come.
Alex Pelopidas, partner at Rosling King