Property investors demand Brexit clauses ahead of EU vote

A growing number of property investors are adding clauses into contracts giving buyers the right to walk away from commercial property deals in Britain if the country votes to leave the European Union later this month.

With the Bank of England reporting that transactions in commercial property in the UK fell by 40% in the first quarter of the year, Reuters report that the move is designed to ‘unfreeze a sector’ stalled by uncertainty over Brexit, as many buyers and sellers adopt a wait and see policy until the outcome of the referendum on 23 June, as fears grow that property prices will fall in the event of an exit from the EU.

In one example from a commercial transaction seen by Reuters, a clause sets a deadline after the vote when the buyer would be permitted to terminate the contract if the referendum results in a decision to leave.

‘Sellers too are taking legal precautions, seeking language in contracts to ensure that Brexit will not be considered a "material adverse change" that would annul a deal,’ the report states.

Brexit clauses have been more common in larger commercial property deals with values ranging from £10m to £80m in recent weeks, according to Paul Firth, head of real estate at law firm Irwin Mitchell LLP.

“[Investors] fear that the value and return on investment properties may decline and that it may not be as good an investment if Britain withdraws from the EU,” he said.

Brexit clauses are particularly popular in higher value deals for financial office space in the capital, “which are more sensitive to a Brexit type situation”, said Andrew Friend director of a UK property fund at Henderson, one of Europe's largest investment managers.