Do you need a Brexit clause?

Now we have triggered Article 50 and the government has called a general election in which the type of Brexit we will pursue will be a key issue, I thought it would be a good time to remind businesses of some of the practical implications they face as we get closer to our withdrawal from the EU and, seemingly, the end of our membership of the single market.

It is easy to forget that we have only started the process of leaving the EU!  There are at least two years of negotiations before we will know the true effect of Brexit, but it will probably take even longer for all the implications to become clear.

At this stage we still have little concrete detail of what relationship we will have with the 27 other EU member states after we leave.  This leaves businesses in the difficult position of having to plan for a range of potential effects of Brexit, including:

• trade tariffs both on the import or export of goods (whether they are raw materials, components or finished products;
• new restrictions of providing services to EU member states (or indeed other countries) may be imposed;
• EU wide approval schemes for certain types of business may not be available to UK businesses post- Brexit;
• the UK may take steps to reduce the freedom of EU citizens to work in the UK;
• the UK government may repeal or amend EU laws that are currently in fore in the UK; 
• the exchange rate may change; and
• inflation could increase or the cost of borrowing could increase.

All of the effects above could increase the costs of doing business or in the worst case scenario stop you from performing a contract at all!

If you are considering long term supply contracts, investing in a business or, as the date on which we leave the UK nears, looking to complete a deal to buy or sell a business, you will need to consider whether you need a “Brexit clause”.

A Brexit clause may:

• trigger a specified consequence if a specific event linked to Brexit happens, for instance an adjustment of the price by a set amount; or
• trigger a renegotiation of the contract if a specific event linked to Brexit happens, with either party given the right to end the contract if they cannot agree revised terms.

Needless to say, businesses should consider whether they need a Brexit clause, or other contractual mechanisms, to cover the risks associated with Brexit.

Fortunately, our experts are on hand to advise you on whether you need a Brexit clause, and if you do, what type of Brexit clause you need (be it a hard Brexit clause, soft Brexit clause or clean Brexit clause …).  If you want more information, give me a call or drop me an email.