10 June 2016 by

The EU referendum and the UK commercial property market… the story so far

In the run up to the EU referendum on 23rd June, many property investors are becoming cautious with their investments in the UK commercial property market, which is largely due to the unpredictability of the impact that a vote to leave the EU might have.

One example of this is the prevalence of so-called “Brexit Clauses” in property purchase contracts. A Brexit Clause, which operates like a standard break clause, gives the buyer an express option to terminate a contract, without losing its deposit, during an agreed period after 23rd June, subject to the outcome of the referendum.

Given the uncertainty as to whether parties would be able to use an exit from the EU as grounds for terminating a contract to purchase property, for example by relying on a ‘force majeure’ or ‘material adverse change’ clause, some cautious buyers are seeking express rights to terminate their contracts if the result of the referendum is a decision to leave the EU. Brexit Clauses can also set out the procedure for how the relevant contract should be terminated in the event of a vote to leave.

English property law itself will not be affected very much by a vote to leave the EU, as it has remained almost entirely under national control.  However, to what extent a vote to leave will affect market conditions and foreign investment remains to be seen. Some commentators are predicting that house prices will fall if Britain votes to leave, especially in London, as there will be less competition from foreign investors. If that does happen, there will be knock-on effects for commercial property developers. Conversely, others are predicting that the impact of an exit would be neither long-term nor very significant.

If Britain does vote to leave the EU, what is fairly certain is that subsequent market conditions will be determined by the nature of the post-exit relationship between the UK and the EU. But what that relationship will look like and how it will work, and so the extent of any market impact, is inherently uncertain.

If the vote is to stay, let’s hope that the market settles and we can all return to business as usual!

For further information about this article, or commercial property issues generally, you can contact Richard Pearce on 0207 288 4781 or by email at richardpearce@boltburdon.co.uk

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