Brexit commentary | 21 Feb 2019

Brexit not sufficient grounds for breaking European Medicines Agency Lease at Canary Wharf

Overview

The High Court has ruled that the European Medicines Agency (EMA) cannot use Brexit as a reason for getting out of its lease at Canary Wharf, a significant victory for the landlord, Canary Wharf Limited.  

The court was not persuaded that it would have been illegal for the EMA to continue with the lease simply because its headquarters are being moved to Amsterdam.  Consequently, it could not be said that the lease was frustrated on grounds of illegality.  Nor could it be said that the "common purpose" of the lease had been frustrated due to Brexit;  on the contrary, the court took the view that EMA had assumed the risk of having to leave the premises in circumstances beyond its control and the terms of the lease reflected this. The EMA will therefore be held to the 25-year lease which has 21 years left to run.

Whilst the judgment reflects the difficulty of successfully claiming that a contract has been frustrated by external events, it does not entirely close the door on such claims in relation to Brexit.  Among other things, the court decided that when the parties entered into the agreement for lease in 2011, Brexit was not "relevantly foreseeable".  This leaves the way open for parties to argue that their agreements may have been frustrated by Brexit because they were based on the assumption that the UK would remain in the EU (although they are very unlikely to succeed where the agreement was entered into after the outcome of the referendum in June 2016 was known).  In this case, the EMA failed with that argument, not because Brexit was foreseeable in 2011 (the judge ruled that it wasn't) but more because the lease contemplated the risk of involuntary departure from the premises (and Brexit happened to be the cause of that). 

The EMA has said it will consider an appeal but meanwhile this decision will be welcome news in an already difficult UK property market.

We will publish more detailed analysis of the significance of this decision for landlords and other contracting parties facing claims for termination of commercial contracts on the grounds of Brexit, shortly. In the meantime, our earlier briefing on the EMA case can be found here.

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