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Britons living in the eurozone, or with holiday homes or other assets located there, will have watched the continuing saga of the possible collapse of the euro with increasing alarm

Commentators build up the prospect of a country such as Greece exiting the euro, only for headlines the next day to be more positive about the long-term survival of the single currency. The prospect of one of the “Club Med” countries leaving the euro, namely Greece, Portugal, Italy or Spain remains low, but those with assets located in the countries affected are right to have a very real concern for their property and the legal status of contracts which they have entered into, be that employment contracts or rental agreements.

The country which is seen as being the most likely to exit the euro is Greece. The treaties which established the single currency do not contain any mechanism for a country to leave the euro and re-establish its own sovereign currency. As there is no legal basis setting out the procedure for a country to leave the euro, this leaves the door open for speculation as to how an exit would be structured, the consequences for residents in the countries affected and for those owning assets in those countries.

If the Greeks were to re-establish sovereignty over their own currency then it is likely that a conversion day would be set when all euro deposits held with Greek banks and public institutions would be converted to the new drachma, or whatever the new Greek currency is called. This would be done at the official conversion day exchange rate agreed between the Greek government and the European Central Bank. Of course, no one knows what that conversion day exchange rate would be and whether the rate set would reflect the value the international markets are likely to place on the new drachma. Many would speculate that the new drachma is likely to depreciate, at least initially, while the euro itself would rise against the new drachma.

If this pattern of events played out, then it would be beneficial to delay converting euros into new drachmas until after the official conversion day. Those individuals and companies that waited to convert at a later date would potentially receive more drachmas for their money, and would be in charge of their own affairs rather than receiving the agreed official conversion exchange rate. As a result, many Greeks have been moving their money out of Greek banks and depositing their savings in stronger eurozone countries, and indeed to London and offshore banks.

While moving money out of Greece exacerbates the problem and further weakens the Greek banks, it is perfectly rational human behaviour. There is no rule against transferring funds in this way and the governments are powerless to legislate to prevent it; any such rule would contravene EU rules underpinning the single market, which guarantee free movement of capital. So, as a precaution, any euros held with banks in the club med countries should be transferred to stronger euro economies such as Germany, or better still, to euro-designated accounts outside of the EU, for example in Switzerland or the Channel Islands.

If a country exited the euro, there would also likely be major liquidity problems for that country’s banking sector and a run on their banks. If the Greek government was to announce its exit from the euro, there would be uncertainty and widespread panic among the Greek public; they would be desperate to withdraw their euros while they still could. As a result, it could become extremely difficult to access and withdraw funds held by those banks. The failure of the banks affected would become a real possibility. Investors’ protection would be limited to €100,000 for each depositer under the EU financial compensation scheme and the procedure for being repaid under that scheme is lengthy. For all these reasons it is again sensible to move money from banks and countries likely to be affected as soon as possible.

Where property is rented out either on a long-term basis or as short-term holiday lets, the rental agreements could be affected by any change in the currency where the property is located. For example, as part of the exit mechanism, any payments in contracts could be converted to the new drachma at the conversion day exchange rate. It would be advisable for such contracts to contain clauses setting out what is to happen in the event of a break-up of the euro. It should also be possible to provide in contracts that notwithstanding any other legislation or operation of law, the rent is still to be paid in euros.

Where staff are employed or services received in countries likely to be affected, a switch to a new currency could result in savings on the housekeeping or gardening bills for property owners. Any contracts for services should reflect that, following an exit from the euro, payments will be made in the new currency. Alternatively, such contracts could be drafted to terminate on an exit from the euro, with payment clauses being re-negotiated when the new currency details and value were known. Care would need to be taken with employment rights so as not to trigger any claims for dismissal in such circumstances.

While those with assets in the Club Med (Paris: FR0000121568 - news) countries are right to be concerned, the devaluation in asset prices will also bring opportunities. It should become possible to acquire holiday homes or additional land at lower prices. Those already holding assets should consider inheritance planning while asset prices are depressed.

If the headlines change again tomorrow and the euro crisis passes, taking preventative action will have been in vain. But complacency in such situations is rarely rewarded, and given the dramatic changes which would follow a break-up of the euro, taking precautions before it is too late is a pragmatic course of action.

Donald Simpson is a partner at Turcan Connell , lawyers, tax specialists and wealth managers

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