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“Exit clauses” are being inserted into commercial property contracts in Scotland to allow buyers to scrap deals or renegotiate prices if voters opt for independence, according to leading advisers to the sector.
As concern grows about the result of next week’s referendum, lenders are pulling deal funding, developers are putting off decision-making and occupiers are postponing lettings.
On Sunday a person close to a major project to double the size of Glasgow’s Buchanan Galleries shopping centre warned that its backers could pull out if the Scots vote for independence next week.
Other UK property companies have told the Financial Times that they are postponing decision-making and are seeing tenants such as large retailers refuse to commit to lettings until after the vote.
Meanwhile, investors are holding back on property lending in Scotland, according to advisers.
After a YouGov poll, released on Sunday, suggested that the Yes campaign was in the lead for the first time, David Davidson, a partner at Cushman & Wakefield, said more deals were likely to be frozen.
“There is a very real risk that any transactions currently in solicitors’ hands will be delayed now, given the polls at the weekend,” he said. “It is undeniable that the market has slowed down in the last six to eight weeks.”
Property advisers CBRE said they were seeing decisions being put on hold and clauses on the result of the referendum being included in contracts.
“Vendors are afraid that the current uncertainty will impact negatively on pricing; purchasers are wary of committing major capital to assets where there is uncertainty about the economic, monetary and political landscape post referendum,” CBRE said in a statement released to the FT.
“Purchasers of some assets are inserting a condition that relates directly to a No vote; they will only complete the deal in the event of a no result. A Yes result will allow them to walk away or renegotiate the terms,” CBRE said.
Mr Davidson said he also knew of a case in which a buyer used a contract clause that would invalidate the deal in the event of a Yes vote. This would enable them to renegotiate the price, as property prices are likely to fall if Scotland becomes independent.
“In the short term there is a concern that there would be a price adjustment, reflecting investors’ perception of risk,” Mr Davidson said.
This could be exacerbated by institutional investors being forced to sell out of an independent Scotland because their mandates often specify that they can only invest within the UK, he added.
A poll conducted by legal firm Nabarro this summer found that 81 per cent of property investors would be less likely to invest in Scotland if it became independent.
Scottish cities were the least popular places in the UK for new investment activity, Nabarro found.
One commercial property lawyer who did not want to be named for client confidentiality reasons said a Scottish deal had recently fallen through after a big lender decided not to commit any more funds to Scotland until after the referendum had taken place.
Mark Robertson, a partner at consultants and surveyors Ryden, said the market had been “adversely affected” by the referendum. “Over the past six months UK institutional and overseas investors have been much less willing to invest money in Scotland due to the uncertainty that the referendum has caused,” he said.
A No vote would kick-start a wave of investment, Mr Robertson predicted, but he warned that a Yes vote “would lead to a continued period of relative inactivity”. Investors selling out of Scotland “has to be a possibility”, he said.
However, the jitters have not deterred all investors. Orion Capital Partners on Monday bought the East Kilbride Shopping Centre from RBS and Delancey for £180m.
Nick Scott, a partner at law firm Brodies, said he had not come across any conditionality clauses being used.
Simon Brown, a partner at property consultants CKD Galbraith, said the market for agricultural land and country houses had been little affected, although there were fewer great estates coming on to the market.
“If someone’s going to buy, then they’ll buy; if they want an excuse not to buy, then the referendum is as good an excuse as any,” Mr Brown said.
The Royal Institution of Chartered Surveyors has warned that the Scottish commercial property market is experiencing “some uncertainty”.
“In the event of a Yes vote there will be an 18-month transition period . . . it is unlikely that any uncertainty will be alleviated during this period,” RICS said in a policy paper published this summer.
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