Commercial agreements - do you need a "Brexit Clause"?

Napthens - October 3rd 2018

One of the words most commonly associated with the impact of Brexit on the economy, business, immigration and life in general is ‘uncertainty’; nobody really knows yet what the precise  impact of the UK’s exit from the European Union across multiple sectors will be.

However, if you are negotiating an agreement that is likely to be in force after Brexit occurs (or could be affected by events in the lead up to it, such as currency fluctuation), then for a little increased certainty, you should consider whether to address the potential impact of Brexit in your agreement.

A “Brexit clause” would aim to change a party’s (or both parties’) rights and obligations under the agreement if triggered.  Since we do not know what terms are likely to be agreed as regards the UK’s exit, the provisions cannot be too specific.  Instead, the agreement would need to provide in more broad terms:

  1. what triggers the Brexit clause
  2. what happens as a result

As a very basic example:

  1. upon the imposition of tariffs:
  2. the affected party (i.e. the importer) may request renegotiation of the contract. If the parties cannot agree an amendment, the affected party may be entitled to terminate

Whether or not to include a Brexit clause must be looked at carefully and a number of matters will need to be considered before drafting begins, such as:

  • are Brexit-related events (such as the imposition of tariffs or customs controls) likely to adversely affect your ability to perform the contract or increase your costs?
  • does the agreement already provide safeguards (for example, the ability to terminate on short notice without penalty in any event)?
  • could the inclusion of a Brexit clause be unnecessarily risky (for example, give the other party the opportunity to renegotiate or terminate early without penalty)?

It is important to assess these factors (amongst others) before committing to a long term contract since you could be obliged to continue to perform your obligations in full, even if, as a result of Brexit-related events, doing so has become commercially unviable.

If you’d like any further advice in relation to Brexit clauses in your commercial contracts or a review of your commercial contracts generally, we’d be happy to assist you - just get in touch.

As we get closer to Brexit, we have a dedicated section of the website with the latest information for businesses.