Brexit - The rhetoric and the reality impact on property investment

Chris Hunt: A very good morning to everybody and a very warm welcome to this IPF Seminar entitled "Brexit - the Rhetoric and the Reality Impact on Property Investment", a subject close to all our hearts, of course. My name is Chris, I am a Real Estate Partner at Gowling WLG and I lead the firm's Commercial Development and Investment Team and the Real Estate Sector Team.

For those of you who do not know us, Gowling WLG, we are an international law firm with over 1,400 lawyers worldwide. Real Estate is at the core of our firm. We act for developers, investors, funders, occupiers across all asset classes from living and logistics to retail, life sciences and offices and everything in between.

And I am delighted to say that on this subject we have two of our biggest brains, two of the firm's biggest brains speaking today. Bernardine Adkins is our Head of EU Trade and Competition with over 25 years' experience advising clients on strategic trade and competition issues, so she will be ideally placed to speak on the subject of Brexit and, I know, will provide some really useful insight today. And, talking of useful insight, Lee Nuttall is our Head of UK Tax, also with 25 years' experience advising clients on UK direct and indirect tax, as well as tax from an international perspective.

Now before I hand over to Bernardine I should point out, and this perhaps goes without saying, but how Brexit will affect property investment is a substantial and complex subject to cover in a mere 45 minutes. So we will cover some of the headlines today and areas we think are of particular interest, but if you would like to follow up with us afterwards please do, it is a massive subject.

And from a purely housekeeping point of view, if you have any questions along the way, please do post those using the Q&A button on your screens. We will answer as many of those as we can today in the time allotted, but we will certainly follow up with you direct afterwards if you would like us to, if we do not get to them today. So I think that is probably enough from me. Bernardine, I am going to hand over to you and I think you are then going to hand over to Lee for a while and then come back to you and then we will deal with questions. So, Bernardine over to you.

Bernardine Adkins: Fantastic. Thank you very much Chris. So good morning everybody. So we really need to take a food analogy here, what Lee and I are really trying to do today is to give you a distillation, au jus or a bone broth of the specific areas that we think are pertinent to property investors in terms of understanding the emerging regulatory and trading environment that will affect you and land values.

So what we are going to do is a brief overview of Brexit, free‑trade, over to Lee to examine freeports, briefly on freedom provide services; and then some good news, the new subsidy control regime; and then the bad news, foreign direct investments,… so by then… and obviously on to questions.

So very briefly, the point I want to make here is not a geeky lawyer's point because what we are now seeing… we have come away from the EU law regime and that is going to mean actually a fundamental realignment that citizens and businesses have with the State in terms of challenging the State. Whereas before you could always write into the Commission and say "why are the beaches in Liverpool full of pollution?" and something could happen. That possibility has now gone.

So from a property perspective, in terms of planning applications, environment… that actually, depending on your perspective, could be a good thing or a bad thing. So, so much more power is given to the State and there is far less of a possibility to actually challenge the use of that State power. So that is an overlying possibility that we are going to see. It is really like a stick of rock, fundamental to how we are going to see this new emerging trading environment and regulatory environment.

The other point to make is one made by Fintan O'Toole, who I think writes the most sense in this area as to what is happening, is that there is no underlying philosophy or thinking under Brexit. So contrast, for example, monetaries and where you could actually largely predict the way the State was going to go, the way regulation was going to emerge – we do not have a plan underlying it all. So in terms of predicting what is going to happen next (laughs), it is actually rather difficult to do so. So I think people need to stay nimble and light and expect the unexpected, frankly.

So the other thing that people, are you know surprised to find out, my goodness where is the deregulation, is that… I am afraid we are not going to see deregulation, we are seeing the opposite. What is happening now has never happened before. We have got two integrated sets of economies, the EU and the UK who are highly integrated, complex to us and supply chains, pulling themselves apart. One of whom is setting themselves out to say we want to actually develop in a very very different regulatory fashion. So it is very very different indeed to what we have ever done in the past.

So where did we end up? We ended up with the trading co‑operation agreement. As you know, it all came out on Christmas Eve. It had no surprises quite frankly, for people who were watching this area and it was very much where we would necessarily have landed up given the redlines that Theresa May set out in her speech and then also given the fact that the EU said "no, it's fundamental that we protect the Single Market", that if you are not willing to have your rules the same as the EU rules we will not recognise your rules. So therefore you are not going to get the same level of access as you would expect to have if you were signing up to the Customs Union and also the Single Market." So very much focussed on goods, very little on trade and services.

We were expecting to have recognition of equivalence, for example in financial services. That was meant to happen back in June, the EU has not done that and I suspect the UK is going to say in respect of financial services "we're sick of waiting, we're going to go our own way and we will manage fine". We are seeing our border checks as well, big surprise to everybody. The previous protocol on Northern Ireland has been maintained, we have a border in the North Sea and also we have… over time there will be control back to what you call "aquatic real estate" UK fishing waters as well. And we no longer have the hegemony of the European Court of Justice. So that had no surprise.

So what does that look like in terms of possibilities? We are here in the middle… a free trade agreement under Canada, Japan… there it is. So, yes there are some bits on the edges, around security, but on the whole, we have a sort of free trade agreement such as the EU has with Japan and the EU has with Canada, and it probably is tighter. Quite frankly there is less available, simply because we are so close to the EU, they were willing to give us less than they, for example, gave to Canada or to Japan.

We have moved from… this is important in terms of land values, property etc. etc… we have moved from a deep and integrated union with the EU and that necessarily is going to produce its effects and dislocations. I am mentioning briefly Northern Ireland, simply because people always forget about Northern Ireland but that is something that is going to matter, for example, with respect to state aid.

Because the EU state aid will still apply to Northern Ireland and so those of you who are in happy receipt of large state funds as we "build back better". Keep a watching eye out for the Northern Ireland question, because the EU is saying actually it is going to be very very easy for the EU state aid rules to be triggered. Whereas the UK is saying "no, no, no, it is going to be much more difficult". So that is a possible area of conflict where you need to be very very careful. But for some reason Northern Ireland is a blind spot, I am afraid, with the British, which is why we have ended up with the backstop becoming the front stop. It is there as a permanent border until such time as the Irish decide otherwise.

So what have we got? We have now got a border and we have securities and safety checks at the border, especially with respect to food, animals and plants – what we call fighter sanitary checks. We also have VAT excise etc. etc. So what really matters in the respect of, and I will come on to this, is the question of origin from a property investment perspective and I will come on to that briefly. But what I do want to say is that "we have not seen nothing yet". Despite people gnashing of teeth and saying this is awful, this is Brexit, actually at the moment we haven't yet really experienced Brexit because one we are all locked up in our back bedrooms, but two, the UK has not really put in place the rules that the phytosanitary checks that you get at the border. It was due to start imposing them in April, especially with respect of food. They realised goodness we are going to be letting people out that are going to be sitting in the pubs and there is going to be no food because if this is not ready. It's not got adequate vets quite frankly to sign off on the health and safety check so they have commuted out to October when the UK is going to, customs authorities are going to be checking food coming in. It has been pushed out to October. So those of you thinking of getting an extra freezer I would say get it now while you can. They have also commuted out until January when people are going to be required to put in full customs declaration. So putting it cruelly the best is yet to come. We have not really properly experienced Brexit. So yes exports, they are experiencing the full Brexit because the EU straightaway said "we are going to put those full controls" that's why people are having difficulty exporting but in terms of importing quite frankly the UK is waving things through at the moment.

So moving on next to this issue of free trade is a misnomer, so, I think the first thing is to see all of this in perspective around tariffs. This is something no one ever says. The WTO has actually been largely very very successful in bringing tariffs right down. It is only in certain sensitive areas that countries impose tariffs and it tends to be agriculture, clothes, cars, a few aberrations such as medical devices but other factors of trade tend to be very very low indeed. So you need to see this in perspective, but in respect of certain areas there are high tariffs because states want to, for example, they want to have their own indigenous food production so a whole business about a free trade agreement around goods is to be bring those tariffs down however you only get zero tariffs where you can prove, you can demonstrate that the good in question meets the rules of origin, in other words, this originates from the country from which I am exporting . So this good has been produced in the EU, the goods in question, the components were made in the EU or it's got a certain element, you know, up to 60%25, depending on the good in question whereby you can get zero tariffs. That is a lot of work, people have to be quite clear as to what the supply chain is. Now our problem here is we've got highly integrated supply routes. So what we are seeing is that, so for example a cheese will be manufactured in Holland, hypothetically speaking the Netherlands, it will be imported to the UK, it will be grated there and then they would send it off to supermarkets in Ireland, Scandinavia, back to France perhaps. However the good has become stateless. The cheese is stateless. So it loses the possibility when it goes out into Ireland or Scandinavia. It will then have tariffs put back onto it because it can't benefit from UK origin because not enough of a transformation happened to it, it was only grated. If it had perhaps been put on top of a pizza you would have had a complete transformation whereby you would get zero tariffs. So what we are going to see, and this is important from a property investment perspective, these supply chains, these routes, these hubs, these warehouses are going to change because certainly at the coal face here we are seeing those chains being broken up and where the UK would have been a distribution hub, that is now going to stop. So that is very important to appreciate from that perspective. And then lastly but by no means least before I hand over to Lee is the question of trade agreements and again I just want to disinform you here, most the trade agreements we've seen so far are what the Swiss call "stop the gap agreement", in other words they are rollovers of the statuesque. Everybody wanted trade to continue so the statuesque is in place. What we are seeing now for example with Australia, these are the new next generation agreements. Most trade agreements, quite frankly people do not put agriculture on the table. So for example, the US and the EU have never been able to get a sufficient agreement because the EU have always said we will not put agriculture on the table. So what we are seeing is very likely, and remember where you heard it first, that the UK is going to put agriculture on the table, otherwise how on earth are we going to get access to the economies of the service economies which is where we make our money of these third countries. So as far as we expect to have a trade agreement with the US or India or China and indeed the CPTPP as it's called, we will necessarily put agriculture on the table. So yes I know everybody is talking about will not have beef etc etc but you can expect there are going to be some radical changes in my view to how we exploit land farming in the UK and that obviously will affect land values and how land is exploited because if we do not put agriculture on the table quite frankly we have got nothing to trade. There is a lot of noise spoken about the CPTPP it is only 9%25 of our external trade, it is all of the countries around the Pacific, so it is things like Australia, New Zealand. It is a platform agreement, we are about to recede to it but we are also going to have separate parallel bilateral trade deals with these individual countries and it is for business to decide which trade agreement they want to trade under. So again this is going to be quite difficult, quite complex. A lot to pick our way through but I think it is important to bear in mind and see this in context. This CPTPP no matter what you hear about it, it is very much about tariffs and it is a question of focussing on what sectors are engaged with tariffs and if it is by no means all of them and it is at the moment very much limited to goods. In the long term it may be about digital, long term it might be about services, so when you hear all this that we have done this, isn't it marvellous, quite frankly see it in context. Now with that I am going to hand you over to Lee.

Lee Nuttall: Bernardine thank you. Good morning everyone. My subject today is freeports. Are they just a clever marketing gimmick by government or could they actually be a really good thing? As mentioned by others this morning this presentation has been compressed and so I am going to apologise in advance for the fact that this is on the top of the waves and indeed has a pretty heavy focus on tax rather than exciting other topics within freeports like planning.

So let's kick off.

What is a freeport? A freeport is a secure customs zone, it is located at a port or an airport where business can be carried out inside the UK's geographical land border but outside the UK's customs border so you can bring your goods into the UK without triggering duties. I know how much property people like plans so I've got my coloured pencils out and tried to illustrate that on the slide, conceptually you just, you stretch, the customs border around the freeport.

How are freeports created? The power to designate them is in the current finance bill which is not quite a finance act. We expect freeports to begin operations from late 2021. There are eight primary customs sites or freeports that have so far been stable designation in England. Another group in Wales, Scotland and Northern Ireland and the names of those are set out on the screen. I don't think I need to go through them.

So what are the duty and customs benefits of a freeport? There is duty suspension. This means there are no tariffs, no import VAT, no excise duty is to be paid on goods brought into the freeport from overseas until those goods enter the UK domestic market. So those tariffs, VAT and excise duties are suspended and this then facilitates some further benefits. We have duty inversion. If duty on a finished good is lower than duty on its component parts, then a business could benefit from importing components duty free, manufacturing the final product within the freeport itself and then when released into the UK domestic market pay duty at the rate of the finished product. So taking advantage of the delta or arbitraging in rates of duty, that seems to me to be a good thing but more on that later. There will also be duty exemption for re-exports. So a business based in the freeport could import components into the freeport without duty at all, it takes advantage of duty suspension. It could then manufacture the final product in the freeport and pay no UK tariffs on the components when the final product is re-exported. And the final benefit of freeport is the promise of simplified procedures to give effect to the benefits that I have just talked about. So these are the basic cross border and tax advantages of a freeport.

Let's look at some of the specific UK tax advantages that are going to be introduced to further incentivise activities within freeports. And those advantages are facilitated through the creation within a freeport of a freeport tax site. So within each freeport there is going to be a freeport tax a single continuous area within which freeport tax reliefs, which I will come and talk about in a minute, will apply. In property terms the freeport tax site has to be within the red line boundary of the primary customs site, but it could be the whole of that site or it could be part of the site. The idea is for really large freeports that the benefit of the freeport tax relief is concentrated within the freeport site on those areas within it that are currently undeveloped so the focus will be on undeveloped parts of the freeport and that of course is to encourage regeneration and new additional productive activity within the freeport. The many tax benefits is going to draw, or does draw upon, the experiences of the UK enterprise zone and most of those benefits will be familiar to those of us with long enough memories to remember those things. These are benefits that will be relevant to investors and landlords, to owners and occupiers and to tenants who carry out activities within the freeport tax site.

So what are the tax benefits? These are still a little fluid, the details of the reliefs continue to be fluid as they go through the parliamentary process but at the moment this is the position. On business rates a relief will be offered to businesses within the freeport tax site of up to 100%25 for new and certain existing buildings. Clearly a benefit for occupiers. It is going to be available from 1 October 2021 and applies for the first five years from when the occupier first receives a writ bill or rates relief. Writs benefit is in respect of capital allowances and there is going to be an acceleration of the benefit of capital allowances so for plant and machinery there will be a 100%25 enhanced capital allowance and that will be available from 1 October 2021. A clear benefit for owners and investors and tenants if they are expending capital. Be aware of the small print though, there is going to be a reversal of the acceleration of the capital allowance where the plant and machinery actually leaves the freeport within five years. Then there is going to be a second form of capital allowance that is enhanced, that is the structures and buildings allowance and this is going to be a freeports specific enhancement. The current typical rate or the normal rate of SVA's is 3%25, well in the freeport it will 10%25 for expenditure on construction, renovation or conversion of commercial structures of buildings.

Turning to stamp duty land tax there will be full relief from commercial SDLT on the acquisition of commercial land and any other property transactions related to commercial property within freeport tax sites. Again look out for the small print, there is a clawback if the property is not used in the way it was intended to be used for a period of three years. That is a clear benefit to buyers and investors including pension funds and to occupiers paying rent.

The final benefit is employer national insurance contribution relief. This is going to be available to businesses located at a freeport tax site from April 2022 for eligible employees who are actually based at that site, so a benefit for employers to relocate to that site. It is going to be available until 2026 and there may be possible extensions until April 2031. At one point there was going to be a further enhancement of research on benefit tax credits but as a matter of policy the government has decided not to proceed with that particular advantage within the site. So I do think it is absolutely fair to say that these reliefs will be a valuable incentive to a business to locate itself or to relocate to a freeport and let's not forget there are going to be other benefits outside the tax regime including a streamline planning process.

So is this just clever marketing or is a freeport a really good thing? The first point to mention is economic displacement. Much academic work concluded that enterprise zones resulted in no material increase in economic growth and few new jobs overall and their impact was merely to move economic activity to divert it into the enterprise zone from other areas. If that is what happens with freeports that sounds a bit like a levelling up agenda, but the problem might be that if it has moved only from the surrounding areas rather than from other parts of the UK. That might not be such a good thing in terms of regeneration of activity and benefitting the economy of those areas where the freeports are being placed. The political response yes there will be diversion of economic activity and displacement but the hope is that that will be from overseas to the UK rather than within the UK. We will see.

Duty and tariff inversion I spoke about earlier. They are a few examples of inversion for example in respect of animal food stuff but where inversion is identified economic research again evidences the benefits seem to be small and not to have a material impact on the UK economy. There are also risks associated with illegal activity and smuggling around freeports counterfeiting, infringing intellectual property rights, VAT fraud, corruption, money laundering, and the political response to this is that there are going to be robust control measures in place with HMRC, the border force and so on and so forth and I am sure that will be right.

Tax payers subsidy displacement of investment for tax foregone in order to subsidise the levelling up agenda is generous. Economic analysis of the enterprise zone experience suggests a large cost to the Treasury for each new job actually created and tax foregone has to be found from elsewhere. Historically the Treasury's estimates of new job creation has been a bit over optimistic but there are opportunities for occupiers, clearly at the moment mostly manufacturers of goods with a broad subsidy to move to these places if it is relevant to their business. Lots of opportunities it seems to me for investors, demand for new buildings in these freeports, reconstruction and renovation within freeports and there are tax benefits to help enhance returns. So is it clever marketing? We've got straplines such as freeports are national hunts for global trade. They are going to promote regeneration and job creation and create hot bits for innovation. All sounds a bit frothy but in using freeports to encourage growth in the UK trade and manufacturing to level up growth opportunities nationally, I do think freeports could be on balance a really good thing and something that the property industry should take note of and take note of seriously. That's all I have Bernardine, back over to you. Thank you.

Bernardine: Thank you very much Lee. This slide I just really want to briefly mention it so it is on your radar simply because so much of this people have to have a fundamental difference in mind set because we are so used to being able to grab our passport and go across to France or wherever. That possibility has now gone. It is now quite complex because on the whole the issue of being provided services because this area hasn't by large been harmonised under EU law. It is very much down to the individual member states so you have yes some limited possibility for travel abroad and under the TCA again limited possibilities, many, many reservations and so I would just say to you be careful if you are in a situation where you are sending people abroad a lot just be careful and be aware of why you are going, what you are going to do that you do not end up being turned away at the border. I just want to get that across people's radar just because it seems to be a blind spot with people as to just how limited the possibility to provide services is and the number of reservations that individual member states have made under the TCA.

I am going to go onto some good news, these are the state aids, so under EU law it is called the state aid rules, under the TCA now for some reason the breach we have insisted on scrubbing out any of the terminology that was existing under EU law. It is now called subsidy control, but frankly they are very much the same concepts because the EU state overrules by deriving the WTO rules and so to these new rules subsidy control rules are derived from the WTO. So the same sort of thinking applies and putting it crudely, as I always say state aid is where subsidies are where the government gives an entity a bung something for free be it taking tax from them so that they get a tax computation that is specific to them or giving them a grant of funds so there are all sorts of possibilities in the way that a subsidy can be given to an entity. As I said earlier bear in mind the EU state aid rule still apply to Northern Ireland or where it is a general grant that applies to the whole of the UK and the EU says well we think this actually could affect trade between Northern Ireland and the EU so that could affect large grants.

I would say where you are getting legal advice on this issue, be careful to make sure you get legal advice from somebody who is EUEEA qualified. That way you get legal privilege vis a vis by the European Commission. Which is why a lot of EU lawyers such as myself would ensure that we are dual qualified both UK and Belgium by in large because what people are tending to do to make sure you preserve that legal professional privilege.

The other thing to say also is something we are seeing is people still have this mind set of we must apply EU law EU thinking. I can't say this enough, we have left EU law state aid rules no longer apply. Yes the UK is bound under the treaty to respect the subsidy control rules but there is no actual implementing legislation in the UK concerning the subsidy controls. So quite frankly if there is somebody out there, a public body who is willing to give you funds, grab it and run, putting it crudely because there is no possibility for enforcement in the domestic courts or by statute enforcement of state aid rules. As things evolve, as the UK does put in a national regime into place, I anticipate we are going to see more litigation, more judicial challenge because the UK under the TCA is required to have transparency when funds are granted, is required to have the possibility for judicial challenge. So I see very much it will become a much more contentious, more difficult area.

The other point to make that we are seeing is people still have the mind set of we must by analogy apply EU law so we will try and get it within the De Minimis block exemption or this particular block exemption. Don't, don't let anybody do that to you. If you are in receipt of state funds don't allow people to cram you into the old EU style thinking. The regime has gone currently putting it crudely it is the Wild West which from a perspective of being in receipt of those funds is a good thing. So a very much a spot to watch is to what the domestic rules look like. At the moment under the TCA the UK is only bound to comply with state subsidy controls insofar as trade is effected between the UK and the EU which is actually arguably a relatively high standard. Query whether the UK is going to say "we are actually going to have our own domestic regime whereby if there is a distortion of trade ie. Wales or Scotland for example will have our own domestic regime", so that is very much a spot to watch.

Right last but by no means least coming on to foreign direct investment. Actually we cannot blame Brexit for this, this is something that is popping up like mushrooms across the globe as we are seeing the whole geopolitical environment changing, people are viewed as more hostile actors out there. The EU has passed its only regulations so we are seeing the 27 member states to the extent to which they don't already have foreign direct investment screening regimes we are seeing them coming through and they are very quite similar across the board. So please in terms of if you are involved in that area abroad be aware you must also look to, even small countries, Denmark for example, they are implementing their own regime and they are all very very similar. So the UK, it's got the act, this was passed and put before parliament back in November, it's now been adopted. Three types of review mechanism, one mandatory notification, which is very unused to mandatory notifications in the UK. Voluntary notification and a retrospective call in right by the Secretary of State currently which applies from November of last year. So he has got six months to call in a deal he doesn't like the look of because it might affect national security. No definition of national security so that will obviously change and evolve over time, so provided he was aware of it you have a clock running of six months in which you can call it in and if he is not aware of it you've got a five years long stop.

What are the outcomes of such a screening assessment? One approval, two approval subject to conditions and I think this is a worrying area, I think listening to what he says in workshops etc etc, I think that is where most of the action is going to be around. The imposition of firewalls and conditions whereby so called hostile actors can't really control or do anything with the asset or the entity that they just acquired or worst case of all a prohibition.

So what are these trigger events? When can this screening apply? Mandatory filing. It will apply in respect to the acquisition of certain shareholding, certain trigger points, be at 25%25, 50%25, 75%25 or where you effectively someone acquires a shareholding or right, certain voting rights, whereby you are able to rock a corporate resolution. So that's for the mandatory filing. For the voluntary regime, where the transaction could give rise to national security concerns, out with the particular mandatory notification sectors. You have a lower threshold, it is basically, I'm afraid it is a little bit like the old not the 9 o'clock news, it is looking at me in a funny way, it is where there is acquisition of material. In the UK of course you know merger control competition we are used to dealing with this concept but a lot of people certainly non-UK entities are not familiar with this concept of material influence. They are obviously going to be having a look in regard to the body of decisional practice that we've got in the UK as to what material influence means. I am afraid to say it is very very fact specific.

A worrying concern for people involved in land acquisition is the fact that a voluntary filing possibility includes land, so what does that mean? So essentially from what we understand from Beige is where you may be buying some land. A parcel of land, that is next door to something which is sensitive from a national security perspective. So it is a concern that that land may be in the hands of a hostile actor or perhaps very near to an airport, something of that nature.

Importantly by contrast for example to merger a control there are no safe harbours so it could be really really small, the entity in question could just be involved with just a small amount of ball bearings which were used in ballistic missiles but a small amount, nonetheless, will come within the mandatory filing regime. So these are the sectors, very very broad indeed and speaking for example to my life sciences colleagues, I said "look here is synthetic biology, here is the expanded version of what that means, what do you think?" and they are scratching their heads saying "well that is a very very broad definition indeed". So military and dual use that is relatively simple frankly because if it is dual use you know you have to get an export filing and other areas, artificial intelligence, incredibly broad, so there is as you can imagine a lot of consternation in the investment community as to what this means. The government of course say "please don't worry, we only think it will be about 1800 filings a year". It is other people saying "no, no, think that and then tenfold". So we expect the people of going to be doing fail safe notifications because they don't want the Secretary of State to come in after the event and investigate it and create uncertainty and one of the reasons why particularly with respect to mandatory filing is the sanctions for failure to notify. It is a criminal offence if you don't notify and that is obviously going to focus people's minds wonderfully. It's called an offence for obviously the corporate body but also the directors of up to five years on indictment. I mean talk about a lot like a proportionality, but that as you can imagine the consternation that has caused which means that people are going to do fail safe filings and fines obviously as well. From your perspective in terms of being on the underlying land is that the completed acquisition will be void, not invalid, void, which means that any other transactions, property transfers etc, underlying that tainted void sale agreement for example will be meaningless. So people are going to really really have to focus on this because of the consequences of getting it wrong. So you can anticipate that people are going to be very concerned to make sure they do actually comply with these rules. The only good bit about this is if people "forget" is that they can get the Secretary of State retrospectively to validate the transaction but please hope people don't forget.

So we have got the act in place, we have got mandatory filing requirement. But guess what, the mandatory aspect isn't yet enforced because we are still waiting for the government to issue the implementing regulations. So in the meantime what we have is, the Secretary of State can call things in, so what is happening people are basically doing fail safe filings to make sure that the Secretary of State is informed about these deals and beige have very kindly given us an email address to do that. So if you have something where that it is of national security and also for example, involving Chinese investors, reach out to Beige, make sure that is within, they are aware of it, get that reassurance and whereby you can be sure that Secretary of State will not come out after the event saying "actually I want to call this in and have a look at it". So I am sorry to end with such bad news and I think that ends our slides and over to Chris.

Chris: That's superb. Thank you very much for those. Lots covered there in a very short period of time but it feels like we have just scratched the surface I'm sure. So no questions in the Q&A box at the moment but we do have some via other means. One for you to start with Lee. The SDLT exemption in freeports, can that be for a standing asset or does there need to be some development involved?

Lee: Anything would otherwise trigger an SDLT charge will be exempt. There are some conditions attached to it, you have to be carrying on qualifying activities but basically those things are anything commercial within the freeport tax site.

Chris: Right. The tax regime around freeports you would think would be hugely attractive to developers and investors wouldn't you, it is pretty blanket isn't it?

Lee: Yes even pension funds are paying SDLT if they don't pay anything else and there are going to be exemptions if they invest and let out their buildings to tenants who carry out their freeport type activities.

Chris: Yes. Bernardine I think this might be one for you, the EU public procurement rules, will they apply to the UK public sector, public authorities, if there is no effect on Northern Ireland or the EU?

Bernardine: No they don't basically but the UK has got its own UK procurement regime so it doesn't mean we are free of the procurement rules. We will still have procurement rules but they will be of UK origin.

Chris: Yes and by the way I did like your slightly aged now cultural references of the 9 o'clock news. I think that might have gone over the heads of quite a few of our attendees, but there we are and also that state aid is now going to become the wild west which is a good thing apparently.

Bernardine: It's not going to last so make the most of it.

Chris: And those subject to conditions following a notification, you gave one condition, have you got any others because that strikes me as being quite material once it has been called in which is conceivable on some real estate deals?

Bernardine: Yes absolutely because what they are saying at the moment is we are going to make it really simple. We are going to have IT and there will be an e-filing system and one of the questions I have raised is that how on earth are you going to know, you are going to have the experts to know when a piece of AI for example, is of interest. They have said well actually what we are going to do we will impose conditions. What worries me is they are not actually going to enquire substantively as to whether is this really an issue. They are going to be very British about this, we don't need to know that sort of stuff, we are just going to start imposing conditions we don't like the look of you so we are going to say yes you can have that 25%25 shareholding but you can't exercise your voting rights. Things like Chinese firewalls, you can't export data. You can't inform the investor as to what is happening, they can't make decisions, they can't see the business plan. There are all sorts of conditions that could be imposed and obviously it is going to be an evolving landscape as to what these conditions are going to look like and then also you have got the question of how on earth are they going to monitor those.

Chris: And subject to all the other criteria being met I am assuming that the act will cover joint ventures with overseas investors?

Bernardine: Yes that's right. This really does, as with other jurisdictions, have very very wide extraterritorial effect. The hook is that the entity in question needs to be carrying on activities in that sensitive centre in the UK. It can be really really small, as I said it can be a couple of ball bearings and so if the entity is registered abroad, the sensitive entity, it does need to be providing activities in the UK or supplying goods and services in the UK. So what the government can't do is say "ah we see your plans are to do this, you are not yet here but we want to stop you doing it". It has actually to be happening so if the external investors aren't already active in that area in the UK the act won't apply for now.

Chris: No. The act would also apply to a big asset class that a number of people on the call might be involved in which is data centres, and also the acquisition group of structure. The 17 or so assets classes as you might define them have described them being caught are actually quite broad aren't they as you've alluded to?

Bernardine: Very much and also at the moment they are changing their shifting so the government is sub-consulting. So people need to keep an eye on what are these classes and they may shift and evolve as well but also we may have an idea from this particular government of what they regard as national security. But who would have thought a couple of years ago vaccines would have been important so what we mean by national security will evolve.

Chris: Of course and I like your literation so fail safe filings might be the take away of the session actually to get your filings in. I think you might have alluded to it, is the process typically convoluted or is it relatively straightforward?

Bernardine: We don't know yet but they are saying we are going to make it straightforward so let's see and who knows if the IT is going to work as well. So we will see.

Chris: Okay. I think we are rapidly close to 11:15, so I think all remains for me to do is to wrap up. Thank you very much indeed to Bernardine and Lee. It really does feel like we have scratched the surface on all these topics. Wide ranging from the National Security Investment Act through to the tax regime on freeports but lots and lots of good stuff. If you do have any questions please do follow up with us and there will be an online survey sent to those who attended the call, so please do complete that, it is always helpful to get feedback, good or bad or indifferent, so please do complete that. We look forward to seeing you again next time and perhaps one day, perhaps in person, which would be very nice indeed. Goodbye to everyone and thank you very much for attending.