24th April 2018
Brexit transition extended
A 21-month Brexit transition period has recently been agreed, covering the period between the UK’s departure point from the EU in March 2019 to 31st December 2020. During the transition period, the UK will be able to negotiate, sign and ratify its own trade deals. This extended transition period has generally been welcomed by businesses. Though whatever the final agreement is, it is increasingly clear that product shift on entry and exit to the UK is likely to be slower once we leave the EU.
Product storage hubs
A delay in product transmission at port entry points implies demand for more industrial warehouse storage facilities. This strain is encouraging product suppliers in the industrial market to search for storage space, making potential choke points more apparent. Well-advised corporate supply chains are not waiting for a final Brexit decision but are looking now for transport and storage hubs to store their product in preparation for slower entry to and exit from the UK in the post-Brexit world.
Industrial land update and growth
Recent industrial land take-up figures in the UK indicate that rents in this sector have risen by around 15% since 2013. The industrial market outperformed residential and office space in 2017, with a 20% return reported. There are also pressures on the industrial warehouse sector arising from the collateral growth in e-commerce. The industrial market is increasingly challenging as numerous suppliers compete for sites to protect their access to market and distribution rights. M&G Estates has recently said that it is developing industrial distribution schemes speculatively. There is a lead in time in acquiring and developing such storage facilities, but the aim is to bring them on stream at a time when property investors are looking for more income and capital appreciation in an evolving UK commercial property market.
Port health checks on agricultural perishable goods
Currently, there is no requirement for port health checks of perishable goods moving within the single market, irrespective of their origin – that is dealt with at point of entry to the EU. That position is expected to change for the UK after Brexit. Perishable products (generally agricultural food products) will have to go through a review process with Port Health. As a result, it is very likely that existing Port Health facilities will be expanded and new systems implemented to facilitate these changes. As a result, there could be new areas of commercial property growth and more demand for bonded warehouses (warehouses storing goods pending customs clearance) with related specialist customs expertise concerning foodstuff and agricultural produce. These opportunities are likely to stimulate commercial growth and demand in industrial parks in locations around ports and along the Kent Corridor (Dover to London), in the northern powerhouse (Liverpool and Hull) and in the South West and Wales (Bristol, Holyhead and Southampton). Specialist advice will be required for the acquisition, sales and letting of such transport hubspots, as we explain further in this article.
Agricultural land use change to industrial warehousing
The wider practical question, of course, is how gaps in the existing property supply chain can be filled to facilitate growth in the commercial sector in these regions? One obvious solution is to consider change of use opportunities of derelict or disused agricultural or farm buildings in immediate proximity to such ports. There is no shortage of land supply in the areas surrounding ports, particularly in the South West and Wales. The advantage to farmers is that the conversion of farm buildings to industrial use is a potential means of keeping property within family ownership whilst generating income. This revenue would be on the basis that buildings could be leased out on commercial (unsecured leases) to third party occupiers at viable commercial rents. It would also be possible to consider using the additional income stream raised to facilitate investment and development in alternative EU-free agricultural practices post Brexit.
The key issue in this growing sector will be location. Proximity to transport ports, motorways and freight hubs will be important.
There are a number of practical and timing issues for farmers and landowners before proceeding with such proposals, including:
The existing permitted development procedure enables change of use of agricultural buildings to a variety of uses including B1 Business and B8 Storage and Distribution. There are floor area restrictions that apply, and a prior approval from the local authority must be granted before changing the use. Building or development works would require a separate planning application. These procedures can take up to three months to complete and may require refining, so it is important to get professional advice on applications from the outset to avoid unnecessary delays in the process.
Advice on capital allowances arising in converting existing farm buildings to industrial use should be obtained before these types of projects. It is necessary to consider the impact on estate planning and inheritance tax as a result of change of use of existing agricultural land to industrial use, including any impact on estate planning already in place.
It is necessary to consider whether particular trade storage licences or permits would be required to store or dispose of certain products. In particular, what, if any, customs clearance procedural compliance would apply to bonded warehouse storage of customs products. Where warehouses are being leased to third parties, these obligations can be included as an obligation of the tenant to the landlord in the lease. Specialist provisions providing an indemnity in favour of the landlord would be carefully negotiated. These provisions could include outlining occupier breaches, prohibition against storage of dangerous or harmful products, and procedures for dealing with customs clearance.
Finally, existing insurance policies for the farm business use would have to be reviewed on a change of use. A landowner could enter into a full repairing and insuring lease with an arms-length commercial tenant, who would be required to take complete insurance liability on whole warehouse leases including all public and third-party liability. The principal farm insurance policy would then need to be updated to take account of any separate warehouse use to avoid double insurance issues arising. Any tenant would be required to note the landowner’s interest.
Whilst much of the press coverage has focused on the political aspects of Brexit, it is important to take into account the practical consequences and the commercial opportunities that this event presents for local businesses and farmers. Consideration of these outcomes would help to facilitate the streamlining and continuity of trade between the UK and its neighbours post- Brexit.
The Brexit clock is ticking but the extended transition period is a gift to business and local landowners. It enables a more considered commercial and legal review of their post-Brexit land use requirements, including dealing with planning approvals, change of use and third party strategic land transactions. The opportunities that these more complex industrial land use requirements may present could allow for some existing agricultural assets to bring bigger returns for landowners.
Fionnuala Nolan is a specialist commercial property practitioner in Industrial and Strategic Land Acquisitions and Disposals and in Landlord and Tenant law. Kate Westbrook is a specialist on all aspects of Corporate law and Brexit and its impact both on local and international business supply chains. Thrings is made up of a team of specialist advisers in all aspects of Agricultural Law and Estate Planning. We have a dedicated and recognised national team lead by Duncan Sigourney. If you require advice on any of the issues raised in this article, please do not hesitate to contact:
Fionnuala Nolan – Commercial and Industrial Property
Kate Westbrook – Corporate and Brexit
Duncan Sigourney – Agriculture
Rosalyn Trotman - Planning
Mark Charter – Estate Planning
Natalie Ward - Employment