Real Estate Tip of the Week - Will Brexit Affect Construction?

Published 18 March 2019

• With Brexit potentially approaching, building contractors carrying out works under existing contracts may experience disruption to their supply chain. They may seek to claim extensions to the completion date for the works and relief from paying liquidated damages.

But are they entitled to this because of Brexit?

It is not possible to give a “one size fits all” answer as contract terms vary and (given the on-going  political machinations) none of us can foresee exactly what might happen between now and Brexit date. However under many contracts it is likely to be difficult for the contractor to claim an extension of time if the works are delayed simply by the occurrence of Brexit.

Possible grounds a contractor might use to seek an extension of time or avoid liquidated damages are:

• Changes in law/exercise of government powers since the contract was entered into – The notice under Article 50 to trigger the withdrawal process was given in March 2017 and no further legislation or exercise of powers is required for Brexit to occur on 29th March 2019. The occurrence of Brexit in March 2019 was clearly foreseeable in respect of any contract entered into since March 2017 so it is difficult to see how a contractor would be able to argue that Brexit amounts to a change in law since then.
• Force majeure provisions - While Brexit is outside of either parties’ control, if it was a foreseeable event at the date of the contract the implications for the programme could have been allowed for. There might be effects which could genuinely not have been foreseen, but supply chain disruption and delays to delivery would generally have been foreseeable.

Termination of the Contract through “Frustration” – This would require the contract to become impossible to fulfil or change the contractor’s obligations to be radically different from those at the date of the contract. Brexit may cause delay to the performance of the contract (or increase the cost of doing so) but it is very unlikely to make performance impossible or significantly different. It is interesting to note that the Court recently refused a claim that a lease had been frustrated by the Brexit process.