Brexit Clauses Feature in UK Property Contracts ahead of EU Referendum

Brexit Clauses Feature in UK Property Contracts ahead of EU Referendum

The spectre of a ‘Brexit’ at the June 23 EU referendum continues to haunt the UK’s property market with some investors in large (read expensive) commercial property projects and prime residential London property deals are working to protect their wealth. How? By having a “Brexit clause” included in their contracts.

The way it works is that the purchaser doesn’t want the value of their new investment to plummet overnight – which it might do if the UK votes to leave the EU and the value of the pound sinks as is being predicted by the IMF, the UK Treasury and the Bank of England. So, by way of protecting their funds, a number of investors, developers and purchasers have a clause in the contract that allows them to either pull-out of the deal and receive their deposit back in full if the UK votes to leave the EU or to renegotiate terms based on a new financial and possibly, regulatory landscape.

For one residential developer, Oakmayne, who recently launched 42 luxury apartments in the Elephant and Castle area of London – which is undergoing investment and re-gentrification – they will allow potential investors to withdraw from a purchase and recoup their £2,000 deposit if the buyer “isn’t happy with the vote result” so even if the UK votes to remain in the EU, if an investor doesn’t like that they can leave the deal without incurring any losses.

Speaking to the Guardian newspaper, Oakmayne managing director David Humbles said: “Buyers will not be required to exchange contracts until after the vote. If they don’t like the result, whichever way it goes, they will have the right to withdraw and have their reservation fee refunded in full.”

Overseas investors from the Middle East have also becoming increasingly jittery, according to global estate agency Chesterton’s, and while there are still ongoing discussions about purchasing London property, but nothing is being finalised.

“At the moment it seems clear people are little bit more sceptical on making an investment today because of Brexit,” said Amit Seth, the Middle East and North Africa head of international developments at estate agency Chesterton’s, referring to private Gulf investors in residential real estate.

With so much money potentially at stake, it’s understandable that people are keen to protect their wealth and not willing to gamble on an asset that could lose value in a matter of mere hours.

And it really could happen. Global law firm Norton Rose Fulbright advise, in an online guide, that without a specific clause, it would be difficult to change the terms of existing contracts that have been agreed and signed. In answer to the Frequently Asked Question: Could a Brexit provide grounds for terminating an existing contract? The law firm states: For existing contracts, parties might try to rely on material adverse change or force majeure clauses as grounds for termination. However, there is no guarantee that such clauses, provisions or principles will allow for termination.

Put yourself in their shoes. If a house you were planning on buying might drop suddenly in value and you were aware that this could happen, wouldn’t you do something to protect your money too?

 

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