Many businesses are understandably concerned about the impact of Brexit on their ability to secure or retain grants. Here are some FAQs on the potential legal implications.
Where do I stand if I already have a grant for EU funds?
A grant agreement is usually a binding contract between the funder and the recipient, under which the funder agrees to provide funding and the recipient agrees to meet certain objectives. Even when the UK leaves the EU, it is unlikely that these existing contractual relationships will cease and therefore parties will simply continue to be bound by the terms of those contracts until they expire.
However, there may be circumstances where funders (or recipients) may seek to terminate contracts by claiming “material adverse change” or “force majeure” and the doctrine of frustration because the contract has become incapable of being performed as a result of Brexit. We don’t think that this will extend very widely, but there may be specific cases where this argument is successful.
The conditions for exit from the EU have not been settled. Therefore the extent of any “pain” cannot be assessed. We expect that compliance with funding conditions could come under increased scrutiny in the run up to Brexit.
HM Treasury has indicated that it will underwrite payment of awards after the UK leaves the EU. At this stage we do not know any detail about how this program of underwriting will work or the conditions that may be attached. We will continue to monitor the Treasury’s position as it develops, so for now we recommend that businesses focus on understanding the contractual position under their funding arrangement and how that will be affected by Brexit.
Where do I stand if I enter into a grant agreement now and we leave the EU?
You should check whether leaving the EU will allow the funder to terminate the agreement. You should also consider whether wider economic changes caused by Brexit will impact on your ability to achieve your agreed targets, or impact on your ability to secure match funding.
Again, HM Treasury’s promise of underwriting funds awarded under the ESIF programs may provide businesses with an invaluable “safety net”. However until more detail is released, it is not possible to say how this scheme will work and organisations looking to enter into grant agreements should make sure they understand the agreements they are entering into and the impact that leaving the EU will have under them.
What should I do if I want to apply for EU grant between now and when we leave?
More than £500 million of European Structural Investment Funding had been earmarked for investment in Cornwall between now and 2020. The extent to which this commitment will now be honoured is unknown, however HM Treasury has encouraged organisations to continue to apply for those funds and, as noted above, has promised to underwrite awards post-Brexit.
If you are in the process of applying for funding, we recommend that you continue with that application and try to lodge it as soon as possible. However, you should also monitor developments about how pre-Brexit awards transition to post-Brexit UK government backed funding, so that you can prepare your business for any changes.
Will state aid rules still apply to UK grant funding post-Brexit?
The UK’s exit from the EU and subsequent entry into a trade deal will require extensive negotiation with the EU, the outcomes of which are difficult to predict. However, the core purpose of state aid rules – ensuring a level playing field throughout the common market – is a key function of the European Union and it seems unlikely that a trade deal could be reached where the UK accesses the common market without complying with EU rules on state aid.
Until we know more, in particular about how the Treasury’s underwriting scheme will work, recipients (or prospective recipients) of public funding should continue to comply with the state aid regime and the terms on which the funding is granted.
Our specialist state aid and public procurement team at Stephens Scown will continue to monitor developments and provide businesses with the confidence to navigate the new environment.
If are unsure on where you stand in connection with grant funding or have any questions, you can contact us on 01872 265 100 or at corporate.cornwall@stephens-scown.co.uk.