LONDON • Commercial property investors are writing clauses into contracts giving buyers the right to walk away from real estate deals if Britain votes to leave the European Union this month as a way to unfreeze a sector stalled by uncertainty over Brexit.

Transactions in commercial property fell by 40 per cent in the first quarter of the year, according to the Bank of England, with many buyers and sellers awaiting the outcome of the June 23 referendum in case an exit vote hurts property prices.

In one example from a commercial transaction seen by Reuters, a 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.

Sellers too are taking legal precautions, seeking language in contracts to ensure that Brexit will not be considered a"material adverse change" that would annul a deal.

Since commercial real estate deals are usually confidential, it was not possible to determine precisely how common such clauses are.

Half of the 24 law firms, brokerages and commercial property firms that Reuters spoke to said they had used Brexit clauses, brokered a deal with such a clause, or had requests to include such clauses in at least one deal. Some of the others said they had seen such clauses.

Prime Minister David Cameron and other politicians supporting the campaign to stay in the EU say a vote to leave would damage the economy and cause property prices to fall. Those campaigning to exit say any such threat is overblown and Britain can prosper outside the EU. But overblown or not, the risk is one that some buyers seem unwilling to take. Guarantees are being offered not only for commercial property, but also for homes.

Brexit clauses are particularly in demand among overseas investors. Two lawyers dealing with property said most enquiries about Brexit clauses were from foreign investors who were concerned that an "Out" vote could weaken the sterling, as well as reduce appetite for leasing commercial space in Britain.

Mr James Crookes, the head of real estate and property at law firm Pinsent Masons LLP, said some clauses, rather than giving the buyer the right to walk away or renegotiate, would automatically reduce the purchase price of a property in the event of a Brexit vote. In one deal, the price would go down by £1 million (about S$2 million). "So they're factoring in a valuation on the assets based on Brexit," said Mr Crookes.

Mr Nick Lloyd, the national head of capital markets at commercial property broker Lambert Smith Hampton, said offering Brexit clauses could also benefit sellers. It could help secure deals while fewer transactions are taking place, in anticipation of a potential flood of properties returning to the market if Britain votes to remain in the EU.

But with less than a month to the referendum, two law firms and one property broker said they were now advising clients to reject demands for a Brexit clause and simply put deals on ice.

REUTERS