The UK is still reeling from the vote to leave the EU and no one really knows what will happen next or how our relations with the EU will change. However, businesses should start taking action now to protect themselves from the potential consequences of Brexit. This article provides a high level guide of things to consider in relation to your commercial contracts.

A starting point for contingency planning is an initial high level assessment of trading relationships to identify priorities, for example by focusing on strategic contracts or those relationships where: 

• there is dependence on EU trade or on EU funding or grants;  

• EU authorisation or passporting is assumed;  

• pricing mechanisms assume no tariffs, quotas or other barriers (and those other barriers could be regulatory requirements, legal barriers or transaction costs such as value added tax) or are tailored to take account of particular savings or levels based on EU free movement of goods and people;  

• currency fluctuations will cause significant increased burden;  

• performance assumes compliance with particular EU law that the UK government in the future might repeal as “red tape” or where regulatory divergence is likely in the future, for example, where personal data cannot be sent outside of the EU; or  

• the transaction or any clause is dependent on particular territorial EU wide definitions.

A range of contractual tools

The next stage would be to assess the risks you have identified against the possible contractual mechanisms you can use in mitigation. These include: 

• compliance with law obligations – should they apply to Brexit imposed changes?  

• providing that changes in particular laws or new barriers give rise to rights to renegotiate or price adjust – but with significant changes or those which result in significant adverse consequences allowing for exit or suspension rights;  

• agreeing renegotiation rights or costs allocation if Brexit or any associated market volatility or credit risk results in increased or reduced costs or reduced rate of return;  

• considering transitional arrangements if exit rights are triggered;  

• ensuring territorial restrictions or definitions continue to work in a post Brexit world.

We will be providing further guidance on Brexit and how it may affect your business in the months to come.