The High Court has this morning ruled that the European Medicines Agency’s (EMA) lease of its London headquarters will not be frustrated by Brexit.
In a much-anticipated judgment, Mr Justice Smith held that “the lease will not be frustrated on the withdrawal of the UK from the EU…the EMA remains obliged to perform its obligations under the lease.”
Background
In August 2017, the EMA, an agency of the EU, wrote to its landlord, Canary Wharf Group (CW), informing them that “if and when Brexit occurs, we will be treating that event as a frustration of the lease”.
Under English law, frustration operates to bring a contract to an end where, without default of either party, a contractual obligation has become incapable of being performed because a supervening event renders performance of the contract a thing radically different from that which was undertaken by the contact.
If the EMA were right that Brexit could frustrate a contract (including a lease), then this would essentially allow them to walk away without any continuing liability.
Concerned by the commercial uncertainty this would create for CW and their lenders, CW sought a declaration that the withdrawal of the UK from the EU and/or the relocation of the EMA (inside or outside of the UK) would not cause the lease to be frustrated and that EMA would remain bound by its obligations in the lease, including its obligation to pay rent for the remainder of the term.
In granting CW the declaration it sought, the judge acknowledged that the withdrawal of the UK from the EU is a “seismic event” and not one that was in the contemplation of the parties at the time the lease was entered into. However, the involuntary departure of the EMA from its headquarters in London to Amsterdam due to circumstances beyond its control was something that – on the face of it – the lease provided for in its alienation provisions i.e. the ability of the EMA to assign or sub-let the premises.
Comment
The judgment is a welcome one for the real estate market and the UK economy generally, however it is possible (perhaps even likely given the amount of money in dispute) that the EMA will appeal the decision and that this is not the final chapter in this story. The EMA has been given until 29 March 2019 to appeal and we anticipate that any appeal will be made directly to the Supreme Court given the importance of the issues.
