Commercial property vendors are now officially giving buyers the green light to cancel contracts if there is a Brexit, according to documents seen by Reuters.
The Reuters report says that commercial property sellers are trying to keep deals flowing after Bank of England data showed that transactions in the sector cratered by 40% in the first quarter this year.
But the clauses create a ticking timebomb in the sector that could go off if Britain votes to leave the European Union — known as a Brexit — in the referendum on June 23.
Reuters said that the “clause sets a deadline after the vote when the buyer would be permitted to terminate the contract if the referendum results in a decision to leave.”
This is a huge deal because it means that if there is a Brexit, a large number of commercial property deals — thinks like offices and shop space — could be cancelled, signalling a massive drop in demand and more supply to the market. That will cause prices to tumble.
And it isn’t just a one-off. Paul Firth, head of real estate at law firm Irwin Mitchell LLP, also told the news agency that the group’s “bigger investment deals” with values ranging from £10 million to £80 million “either included Brexit clauses, or purchasers had sought to negotiate that they be included.”
The number of deals that could fall through could be massive. Reuters stipulated that “since commercial real estate deals are usually confidential, it was not possible to determine precisely how common such clauses are.” However, it said that 50% of the 24 law firms, brokerages and commercial property firms it spoke to “had used Brexit clauses, brokered a deal with such a clause or had requests to include them in at least one deal.”
At the moment, it looks like there will be a Brexit. Two polls on Monday showed that the “Leave” vote is pulling ahead of “Remain” and the gap is widening.
You can read the full Reuters report here.