UK Property Investment Jitters Rise as 'Brexit Clauses' Feature in Contracts

The direction and level of activity in the UK’s property market is dictated by many things and at the moment, one of the most significant issues affecting it is the June 23 European Union referendum. As the vote date draws closer, there are increasing signs of jitters among potential purchasers, particularly where large deals and overseas investors are involved.

A recent article by Reuters reports that “Brexit clauses” are being used whereby a buyer has the option to pull out of a property deal and receive their entire deposit back if the vote result isn’t the one they want – which for most buyers is for the UK to remain part of the EU.

Of course, it makes sense to have this potential issue addressed in a contract. After all, if the UK votes to leave the EU then the value of the pound is expected to tank which will leave investors owning a chunk of something that’s worth less than they thought. And that’s before any further business is with the land, development or property is even begun. For major commercial property deals – think huge developments worth up to £80 billion – that would work out to be a big difference!

But it’s not just the big commercial contracts that have included clauses to protect the involved parties if things don’t go the way they want. Some residential purchases of new London apartments are also subject to these new contract clauses.

A new 41-storey building in the gentrifying Elephant and Castle area of London, launched by developer Oakmayne Properties is allowing interested purchasers of the apartments – which start at £655,000 for a one-bedroom flat to pull out after the referendum. If potential buyers are unhappy with the EU referendum result, then they will get a full refund on their £2,000 deposit.

Speaking to the Guardian newspaper, Oakmayne managing director David Humbles said: “Buyers will not be required to exchange contracts until after the vote. If they don’t like the result, whichever way it goes, they will have the right to withdraw and have their reservation fee refunded in full.”

Buyers from overseas are also showing concern at the impact the EU vote result could have on their investment in London property. For some, the worries that the value of an expensive asset could shrink overnight is enough to stop them from doing business here - at least until the result is known.

One property deal facilitator based in Dubai told reporters that while London property deals are still being discussed, nothing is being finalised in the run up to the vote.

"At the moment it seems clear people are little bit more sceptical on making an investment today because of Brexit," said Amit Seth, the Middle East and North Africa head of international developments at estate agency Chesterton’s, referring to private Gulf investors in residential real estate.

With so much money at stake, it’s easy to see why potential investors are exercising caution. The topic of a potential ‘Brexit’ is hot news right now. Indeed, some law firms are issuing additional information on what could happen should the UK vote to leave the EU alter this month.

In a short guide, law firm Norton Rose Fulbright advise that without a specific clause, it would be difficult to change the terms of existing contracts that have been agreed and signed. In answer to the Frequently Asked Question: Could a Brexit provide grounds for terminating an existing contract? The law firm states: For existing contracts, parties might try to rely on material adverse change or force majeure clauses as grounds for termination. However, there is no guarantee that such clauses, provisions or principles will allow for termination.