The High Court has ruled that the UK’s exit from the European Union does not have the effect of invalidating a long-term commercial lease.
The European Medicines Agency (EMA) had attempted to end the £500 million office lease on its Canary Wharf headquarters on the basis that it had “no choice” but to leave London because of Brexit. The lease was due to last until 2039 at a cost of around £13 million a year.
The agency’s landlord Canary Wharf Group however disagreed and sought to enforce the contract in court by arguing that the lease and payment obligations would remain binding regardless of Brexit.
Agreeing with the landlord, the High Court held that the UK’s “transition from member state to third country” and “the EMA’s shift of headquarters” to Amsterdam did not constitute a ‘frustrating event’, that is, an unforeseen event that rendered the contract impossible to fulfil.
In his judgment, Mr Justice Smith said the contract had been signed under English law and the EMA could not escape these obligations by reason of being an agency of the European Union. He also noted that the legal effects on the EMA of Brexit could have been “ameliorated” by the EU, but were not, rendering frustration of the lease “self-induced”.
The judge also stated that the option to sublet or assign the premises remained open to the EMA, subject to the landlord’s consent.
The EMA relocated its headquarters to Amsterdam in January 2019 with some staff remain in the Canary Wharf office.
The court’s ruling was expedited to provide a decision prior to 29th March, when the UK us due to leave the European Union.
The EMA has said it “respectfully takes note” of the judgment but also suggested it would seek to have the case referred to the EU courts.
Brexit impact on contracts
The implications of permitting the agency to use Brexit to get out of its contract would have been far-reaching for UK commercial property and beyond.
As such, the case has drawn widespread attention as a landmark legal decision. The ruling has been welcomed within the property sector as bringing certainty on the impact of Brexit on commercial leases and in preventing similar lease cancellations being made from others relocating out of the UK to other EU states by ending contracts and obligations early.