How Will Brexit Affect Commercial Contracts?

There is great uncertainty and speculation with Brexit as well as a Brexit overload. The uncertainty and speculation does not appear to be subsiding any time soon and it is likely to increase in the period leading to the UK’s scheduled exit from the EU on 29 March 2019. One of the areas affected by Brexit is legal contracts and how businesses can future-proof them to minimise disruption and financial losses.

How Can Brexit Affect Commercial Contracts?

Brexit could affect contracts directly or indirectly. Listed below are some of the ways that Brexit could potentially affect contracts.

1. Financial factors

There could be fluctuations in exchange rates, inflation and/or tariffs which could affect the value of any fees changing hands in a contract.

2. Changes in law

If and when the UK fully exits from the EU, EU regulations will no longer have direct effect and the UK will be free to repeal or amend UK laws which implement EU directives.

3. Licences and consents

UK businesses may no longer benefit from EU approval schemes or 2-way arrangements between the EU and non-EU countries.

4. Freedom of services

New restrictions may apply to the provision of services to EU and/or non-EU countries and compliance costs may be incurred in complying with these restrictions.

Some Things to Consider If You Are Worried That Brexit Could Affect Your Contracts

Do I need to do anything?

A party will be obliged to continue to perform the contract fully, even though Brexit may have led to the contract becoming commercially unviable, unless the contract already provides for Brexit related consequences.

What type of clause should I include in my contracts?

You could include what is called a “Brexit clause”. A “Brexit clause” is typically a clause that causes a change to happen in the rights and obligations of parties if a specific Brexit-related event happens.

A “Brexit Clause”?

Before including a “Brexit clause” in your contracts, consider the following:

(a) Does the contract already cater for Brexit?

(b) Will Brexit really have an effect on a contract? For example, the rights and obligations of the parties as well as the costs and fees in performing a contract etc.

(c) If you think that Brexit may have an effect on a contract, which party would bear greater costs and shoulder more obligations etc?

(d) Could force majeure, price review and adjustments and/or variation clauses be used to change a contract for Brexit?

(e) Are there any specific events that you feel are necessary to cater for in the contract as a result of Brexit?

Summary

Brexit is obviously going to affect many commercial contracts. Thinking about this as soon as possible will allow parties to consider what changes are required to their commercial contracts in anticipation of Brexit.