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Brexit implications on commercial agreements

What are the latest developments? 

It has become apparent that it could take years to conclude the Brexit process and finalise the terms of departure from the rest of the EU. 

Although Brexit is unlikely to have a significant impact on existing contracts which are due to end within the next couple of years, contracts that extend beyond the Brexit negotiation period may well be affected, depending on their wording.

What should you do to prepare? 

It would be advisable to perform an audit to determine the effect Brexit will have on your existing contracts and also to consider whether any Brexit specific clauses should be added to new contracts.

Existing contracts

The extent to which Brexit will impact on a specific contract will obviously depend on its wording. Relevant provisions include:

  • Force majeure clauses may be relevant if they include acts of government or regulatory bodies. If triggered, are the parties obliged to work around the event or can they terminate?
  • Does the contract provide scope for variation in the event of an increase in costs for one of the parties?
  • Does the contract contain any material adverse change provisions which could be invoked as a result of Brexit?
  • Do currency and exchange rate fluctuations affect provisions such as financial covenants, material adverse change clauses and termination clauses?

New contracts

For new contracts that are likely to extend beyond the Brexit negotiation period, it would be advisable to consider adding the following Brexit specific clauses:

  • Force majeure clauses which specifically include government acts, political changes etc.
  • Clauses to re-price or switch currency if the applicable currency reaches certain thresholds.
  • Hardship clauses allowing variation or termination if the agreement becomes unprofitable or unsuitable following Brexit.

Businesses will obviously want to maintain a watching brief on the negotiations to assess whether any further changes could be required to their contracts in the longer term.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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