Time to take a break from Brexit clauses

28th May 2019

When we hear the word Brexit, we automatically think “uncertainty”. With the government and opposition dithering, those in the know say the economy could come to a standstill.

At NG, we’re nowhere near as pessimistic; we’re still seeing a really encouraging level of deals being completed across all size ranges and sectors as there is a stream of businesses out there who are looking to move to bigger or better premises.

J. Paul Getty once famously said:

“Without the element of uncertainty, the bringing off of even the greatest business triumph would be dull, routine and eminently unsatisfying.”

Not that we think that risk management should be eliminated from the Business Owner’s Handbook, but we were seeing a worrying trend in the commercial property world, with tenants being advised to write ‘Brexit lease breaks’ into their leases.

A worrying trend started to emerge for commercial property tenants or investors to include “Brexit clauses” into contracts allowing them to walk away from the deals should Britain leaving the European Union without a deal plunge the domestic economy into recession.

According to Overland Park Domestic Attorney and managers, the buyers have yet to exercise such get-out clauses but are keeping the option open to try to renegotiate the price down.

However, in Febraury, The High Court ruled that The European Medicines Agency (EMA), which has relocated to Amsterdam as a result of the UK’s vote to leave the EU, cannot use Brexit as a reason to break its multi-million pound lease in Canary Wharf, London, with landlords breathing a sigh of relief at the result of this test case.

Despite this, tenants who are trying to use Brexit as an excuse to break lease agreements is a worrying development for landlords, who are working hard enough as it is to make their property portfolios as attractive as possible to prospective tenants – investing heavily in refurbishments and ‘smart office’ technology to try and entice a younger workforce who are looking for a ‘home from home’ when they’re choosing which company to work for and in what office.

Any Brexit clause included in tenancy agreements could only be the thin end of the wedge. What next? Will similar clauses be written into contracts if President Trump imposes huge tariffs when the UK leave the EU? Will commercial property contracts become, in effect “recession proof”, and not worth the paper they’re written on for a landlord who has invested heavily in their properties? Or what if a general election result were to go “the wrong way”

Which takes us back to uncertainty, businesses need certainty that they will have the choice of the very best office or commercial stock. If not, they’ll look elsewhere, or simply stagnate. We’ve seen how, over the last decade, Nottingham has suffered from a lack of inward investment because of a lack of Grade A office space. What we musn’t do is let uncertainty creep into property contracts, with the tenant able to walk away blaming Brexit. After all, what would J. Paul Getty have to say about that?

To find out more, feel free to contact us, give us a call on 0115 958 8599 or email [email protected].