The UK left the EU on the 31st January 2020. The UK has now entered a transition period where details for its eventual trade relationship with the European Union are being finalised. The British Government has produced extensive guidance on preparing for Brexit, covering matters as diverse as state aid, guaranteeing EU-funded programmes and reliefs from import duty on goods for specified uses. The guidance is available here.

This article highlights some of the key points that social housing providers should consider in respect of their commercial legal arrangements with suppliers in order to deal with Brexit.

Impact on suppliers and customers

Suppliers will, naturally, be considering how events may impact them and their supply chain. Some of the potential impacts of a ‘hard’ Brexit are, by now, well-rehearsed, but include:

  • Changes to arrangements and freedom to provide services for freedom of movement of workers
  • Trade tariffs on exports or imports
  • Changes in the law
  • Other financial factors, such as changes to borrowing costs
  • Changes to licences and consents
  • Changes to currency exchange rates

These factors may well influence the profitability of commercial agreements for key suppliers, reduce their ability to comply with such agreements, or affect the appetite for suppliers to enter into such arrangements at all, creating operational issues or gaps in service provision for providers of social housing.

Will current contractual arrangements provide any reassurance?

Many social housing providers rely on standard form terms and conditions including clauses which may already offer some comfort. For example, supply agreements (standard form or otherwise) sometimes contain a “force majeure” clause, which states that a party may be excused a breach of contract where the breach is caused by a factor outside their control, which has made performance of its obligations impossible. However, unless force majeure clauses specifically reference Brexit, they may not be particularly helpful to a party looking to absolve themselves of responsibility. This is because an event is only outside the control of a party if the party has taken all reasonable steps to avoid its operation or mitigate its results. If Brexit was a possibility when the contract was entered into, it could be argued that the parties could (and should) have planned for its effects; precision within the drafting is accordingly important to ensure risks are appropriately apportioned.

Such contracts may also have material adverse change clauses, allowing a party to walk away from the contract if they suffer some form of detrimental effect which may offer some comfort.

What changes should businesses be considering?

Social Housing providers will need to consider a range of additional commercial factors when agreeing contractual arrangements. They might determine that there is a need to undertake additional due diligence, obtain further security, and “carve out” particular risks from the scope of force majeure and material adverse change clauses. Providers should also consider the inclusion of a ’Brexit clause’ into standard terms and conditions and bespoke contracts to cater for specific identifiable issues that might arise.

A Brexit clause will commonly work by identifying a trigger event such as a particular change in the law, and then either give the parties the ability to renegotiate some or all of the contract, trigger a dispute resolution procedure, or terminate it in its entirety. Alternatively, it may seek to specifically apportion risk of such a circumstance occurring to a particular party.

The incorporation of a Brexit clause within commercial contracts will not guarantee that an arrangement will be “Brexit proof”.  However, it is a measure that can be adopted to potentially mitigate some of its effects.

This article outlines the position under UK law. The legal position may well be different if contracts are to be interpreted in accordance with the law of other jurisdictions.