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Commercial contracts and Brexit: Are you prepared?

PUBLISHED: 13:25 14 November 2017 | UPDATED: 13:25 14 November 2017

Theresa Grech, Willans

Theresa Grech, Willans

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Are you entering into new contracts or re-negotiating existing ones? Now is the time to consider the potential implications of Brexit, explains Theresa Grech, corporate & commercial partner at Willans LLP solicitors

If a company is entering into contracts now which will run on after Britain leaves the EU, or which might be affected by a Brexit-related event, then directors should consider at this stage whether the contract should expressly deal with Brexit. Failure to do so may mean that a company is tied into a contract which, post-Brexit, it is no longer able to perform or which is no longer of any commercial benefit to the company.

The risk associated with not including a Brexit provision in any new contract, or re-negotiating such a clause in any existing contract, is that, without it, a company will still have to continue to perform the contract in full. This will be the case even if, as a result of a Brexit-related event, doing so is no longer commercially attractive or it can no longer fulfil the contract. The company could find itself in breach of contract or facing termination for default and an action for damages.

So how can companies protect themselves when entering new, and re-negotiating existing, contracts? A “Brexit clause” could trigger some change in the parties’ rights and obligations as a result of a defined event. The problem is that the actual impact of Brexit is still uncertain, meaning that it is unlikely that the contract could be drafted to cover every eventuality.

But there are two types of clause that could be used to help protect you from adverse consequences. For example, a ‘specific event/specific consequence clause’ could be included so that if a specific Brexit-related event occurs (e.g. currency exchange rates fluctuate), a specified consequence will follow (e.g. the price of products is adjusted).

A ‘trigger/renegotiation/termination clause’ could be included so that if a trigger occurs (e.g. the imposition of tariffs) then the affected party can request a renegotiation and if no deal is reached the affected party can terminate.

There are likely to be some standard provisions already included in a commercial contract which could help if a Brexit-related event affects the contract adversely, but this will depend on how the contract is drafted.

Of course, in certain circumstances a Brexit clause may be unnecessary. These include, for example, short term contracts where parties can revise the terms to address the impact of Brexit once it happens, or contracts which include a right to terminate on short notice without penalty.

If you are in the dark about how to prepare your commercial contracts for the potential impact of Brexit or need specific advice, then Willans’ high-calibre and respected team of commercial lawyers can help. Email Theresa at theresa.grech@willans.co.uk.

Visit the Willans website here.

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