Brexit Briefing: Commercial contracts
In the wake of Parliament approving the Article 50 bill, Suzi Sendama takes a look at the impact of Brexit on commercial contracts and related practical considerations for your business.
If Britain triggers Article 50 at the end of next month, then the UK is scheduled to leave the EU by March 2019. From a legal standpoint, it is ‘business as usual’ until that date, however businesses can and should take steps now to best protect their position post-Brexit. One of those steps will be to look carefully at any existing commercial contracts for Brexit-related risks. For businesses with a large number of commercial agreements, it would be sensible at the very least to look at your most valuable contracts, identify any pressure points and work out how you are going to deal with them.
Whilst the exact terms of Brexit are not yet clear, it is possible that Brexit could make certain contracts commercially unviable for at least one party, for example:
- the post-Brexit position regarding free movement of persons is not yet known;
- there may be changes in tax regimes which will need to be taken into account;
- costs may have risen due to exchange rate fluctuations.
Contracts with territorial application may be affected by Brexit, i.e. those which refer to a particular territory to which the contract applies. If the territory is stated to be the European Union and the UK is no longer a part of the EU, the contract may no longer serve its purpose.
It is advisable to revisit the terms of existing contracts now and, where necessary, vary these by agreement to provide certainty to all contracting parties.
When entering into any new agreements, Brexit should also be borne in mind:
- it may be worth considering a shorter term or building in termination provisions whilst there is still uncertainty surrounding life post-Brexit;
- it would be sensible to conduct heightened due diligence on your contracting counterparty in terms of how Brexit may impact their business;
- where necessary, explain how territorial restrictions will be impacted by Brexit going forward;
- mitigate currency fluctuation risk by building in an ability to re-price, change the currency in the contract or even terminate if necessary in order to protect your business from excessive shifts in Forex rates;
- bear in mind the potential increased cost of trading in Europe.