Election worries spark ‘Corbyn clauses’

With days to go until a new UK government is chosen, property dealmakers have grown increasingly concerned about what a win for Jeremy Corbyn’s Labour party would mean for their investments – and some are even seeking to factor it into legally binding agreements. “We have seen instances of deals being negotiated and get-out clauses or termination clauses being agreed in the event of a Labour government win,” said Jane Edwarde, real estate partner at law firm Slaughter and May. “It’s a generally a buyers’ market and a cautious market; they are therefore able to demand these types of clauses in this context and because of the ongoing uncertainty around Brexit.” Since the election date was set over a month ago, some clients have requested “Corbyn clauses” in heads of terms at negotiation stage, said Edwarde. “Heads of terms are being negotiated on the understanding that the deal might not happen if the result of the election is unsatisfactory for the buyer.” Although no set definition for such a clause exists, the gist is that it would allow a buyer to walk away from an agreed deal in the event of Corbyn coming to power. “Overseas capital is very sensitive to this,” said a senior dealmaker, whose client wanted to be able to pull a deal if Labour wins a majority or Corbyn leads a coalition government. “They believe that a Corbyn-led government would be bad for the UK and bad for business.” Several other lawyers have been approached by real estate clients seeking Corbyn clauses. Suzanne Gill, real estate partner at Wedlake Bell, wrote on Twitter: “One of my clients has had an offer from a buyer who wants a Corbyn clause: a right to rescind the contract if there’s a Labour-led government.” Manish Chande, senior partner at real estate fund management firm Clearbell Capital, said: “We’ve heard that such clauses have been occurring for some time and they are similar to the Brexit clauses we saw prior to the referendum in 2016.” A senior UK executive at a global agency said such requests were seen “everywhere” recently, including from overseas and domestic buyers, and spanning both asset acquisitions and purchases of development sites. The property sector is concerned about a Labour-led government for a number of reasons. On a sector-wide level, it is worried about a rise in corporation tax and additional tax on foreign companies and trusts buying property in the UK. Some are also perturbed by more general policies such as Labour’s proposal to give workers a stake of 10% in large companies. Jonathan Chenery, partner at London property investor Beltane Asset Management, said: “A Labour-led government would pose challenges to business and to a lot of the individuals who run businesses and probably to all taxpayers in the UK. Tax burdens would increase. That’s not something we would like but we are believers in UK resilience.” An industry on edge Looking more closely at the Labour manifesto, it is the residential sector that has the most specific grievances. Labour’s pledge to bring in tougher rent controls, ban leasehold ownership and its “use it or lose it” taxes on stalled housing developments have all triggered nervousness. Edwarde said: “The one that has raised some eyebrows on the Labour side is its approach to long leaseholds. Some clients are concerned Labour could make some material changes on the leasehold front.” Clifford Chance real estate partner Alis Pay said: “Investors are concerned about rent controls being introduced just as the PRS sector is starting to see a lot of investment. They are coming up to the point in the cycle when they need to refinance so it would be a particular concern.” Despite these worries, many are quietly confident there will be a Conservative majority next week that could lead to a bounce in transactions. One executive chairman at a London-based property investor said: “I think there’s no doubt if Tories get in there will be a rebound in sentiment activity levels and there might be a rebound in deal volumes. Most people are not even signing a piece of paper at the moment. But I think people are anticipating there might be a value uptick prior to Christmas.” But given sentiment is currently at such a low point, with investors already plagued by Brexit fatigue, the market might need more of a boost than Boris Johnson winning the election. Edwarde said: “This year, we have seen that most sales have been taking longer, they are more difficult, some deals are falling over and purchasers are asking more pre-contract enquiries as they feel entitled to take as long as they like to understand assets properly. “The amount of time that Brexit has taken has been difficult for the market and for confidence in the certainty of the British economy.” To send feedback, e-mail anna.ward@egi.co.uk or tweet @annaroxelana or @estatesgazette