One sure thing about Brexit; more bad news (if you’re a commercial tenant)
Whilst most issues surrounding Brexit seem to exist in a state of permanent flux, the High Court has injected a little certainty into a murky process via a recent case involving the European Medicines Agency’s (EMA) attempt to walk away from its head office lease at Canary Wharf, using the doctrine of frustration.
Frustration is a legal doctrine that has historically been hard to prove in court, especially in relation to leases. (It’s different from the general feeling of frustration that you might be feeling with the whole Brexit process). In fact, prior to the EMA case there had been no reported cases of a tenant successfully arguing that the doctrine applied to its lease, just some judicial guidance on what might amount to frustration (usually the disappearance of property, either by its destruction or by it falling into the sea). In the EMA case, the court found that even in the event of a tenant effectively being forced to walk away from its premises following a totally unanticipated event that made it impossible to continue to carry on business from those premises, frustration did not apply and the lease continued, with the effect that EMA remained on the hook and liable for rent on premises that it could no longer occupy.
To frustrate a contract, an event must occur after the date of the contract that makes performance of the contract “radically different” from what was contemplated by the parties prior to completion of the contract; Brexit might be thought by many to be a perfect radical difference.
EMA is an EU body, controlled by the EU. EMA’s “radical difference” argument was that following Brexit, it would essentially be illegal for EMA to continue to pay rent on a property in London due to EU regulations governing the EMA. Brexit was not considered likely (or even considered at all) when the lease was signed in 2011, so the lease contained no provisions dealing with what might happen if the UK left the EU. Even with the EMA being obliged by the EU under the EMA’s governing statutes to move its headquarters from London to Amsterdam following the change in the UK’s status from EU member to third party country, the court disagreed with this argument. This was unfortunate for EMA, since had it agreed, that would have enabled the lease to have been frustrated, and for EMA to walk away from its obligations, saving an estimated £500,000,000 in rent.
Given EMA’s unusual obligations effectively to do what it’s told by the EU, it seems that the bar has been set extremely high for other tenants to be able to use Brexit-related unpredictability as a way to walk away from their leases.
Posted on 6 November, 2019 by Ortolan