Commercial property investors are writing clauses into contracts giving buyers the right to walk away from real estate deals if Britain votes to leave the European Union this month, as a way to unfreeze a sector stalled by uncertainty over Brexit.
Transactions in commercial property fell by 40 percent in the first quarter, according to the Bank of England, with many buyers and sellers waiting to see the outcome of the June 23 referendum in case an exit vote hurts property prices.
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.
Paul Firth, head of real estate at law firm Irwin Mitchell LLP, said a significant percent of the firm’s “bigger investment deals” with values ranging from 10 to 80 million pounds either included Brexit clauses, or purchasers had sought to negotiate that they be included.
He said the use of such clauses had increased in recent weeks as the referendum date draws closer.
“(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.
Since commercial real estate deals are usually confidential, it was not possible to determine precisely how common such clauses are.
Courtesy – ET Realty