Does Brexit give a right to end a lease?
Does the UK’s departure from the EU frustrate a commercial lease?
Earlier this year the High Court ruled that if the UK leaves the EU its departure will not have the effect of frustrating a commercial lease granted by Canary Wharf to the European Medicines Agency (EMA).
In 2014 the EMA signed a 25 year fixed-term lease for premises in Canary Wharf. Following the UK’s formal notice to the EU of its intention to withdraw the EU ordered the EMA to relocate its headquarters to Amsterdam. The EMA wrote to its landlord to say that if and when Brexit occurs they will be treating the event as frustration of their lease. Their landlord applied to the High Court for a declaration that the lease would not be frustrated.
The underlying law on frustration is that a contract may be discharged where something occurs after the contract has been entered into which renders it physically or commercially impossible to fulfil or transforms the obligation to perform into a radically different obligation from that to be undertaken when the contract was entered into. If a contract is frustrated then the parties are no longer required to perform their contractual obligations.
The EMA argued that the requirement to relocate their headquarters to Amsterdam meant it was not legally possible to retain them in the UK and that it lacked legal capacity to assign the lease or sub-let to a non-EU entity and that continuing to pay rent would be “ultra vires” (beyond their legal power or authority).
The High Court held that the lease would not be frustrated by Brexit and that the EMA remained liable to perform their obligations for the rest of the term of the lease.
The EMA has just announced that it has settled its dispute with Canary Wharf and will not be appealing against the High Court’s decision. The EMA have apparently sub-let their premises for the remainder of their lease term.
Nice try EMA!