The Brexit clause
Should companies be looking to include a “Brexit clause” in their contracts? What if the effect of Brexit is that the underlying landscape changes to such an extent that the contract terms are no longer commercially viable?
The contract may of course already include a right to terminate without cause – and that would provide a safety net. It would not be wise though to rely on a force majeure clause as the source of relief because the circumstances here are unlikely to fall within the ambit of force majeure.
A Brexit clause would be a provision that triggers a right to terminate the contract or an obligation to renegotiate its terms on the happening of a certain event. Defining that trigger will be tricky: should it be the UK ceasing to be subject to all EU Treaties (the so-called hard Brexit) or should it include, for example, leaving the EU but remaining part of the EEA?
It won’t be a case of one size fits all – the position will need to be assessed on a contract by contract basis. Some of the key areas where Brexit is likely to be felt are restrictions on the movement of workers, trade tariffs, cross-border services and licences which rely on reciprocal arrangements or EU-wide approval.
It is clearly important when entering into a long-term contract to consider the likely impact of the changes that Brexit will bring. And to provide in the contract what should happen if the impact is a material adverse change to your position under it.Back to Our Thinking →