A recent High Court case* has provided some clarity for parties to commercial leases that are considering their position in relation to Brexit. In this case, the European Medicines Agency (EMA), an agency of the EU, is a tenant of the Canary Wharf Group at Churchill Place in Canary Wharf. In 2014, the EMA entered into the 25-year lease with the Canary Wharf Group. The lease contains no break clause but does contains various clauses allowing the EMA to cease to occupy the premises including via assignment and subletting provisions.
European Medicines Agency failed to find a suitable tenant …
We do not need reminding that the referendum held in 2016 resulted in a 51.9% majority voting to leave the EU. In 2017, the EMA began looking for a tenant to take assignment of the lease in accordance with its terms. The EMA failed to find a suitable tenant.
… and sought discharge of lease by way of frustration
The EMA then sought to have the lease discharged on the basis that the departure of the UK from the EU would discharge the lease by way of frustration. Detailed arguments were put forward to support the EMA’s contention on the following two grounds:
- when entering into the lease, both parties had the common purpose that the leased property would be used as the EMA’s headquarters and that Brexit would obstruct this common purpose; and
- after the UK’s withdrawal from the EU, it would not be lawful for the EMA to have its headquarters in a non-member state for various reasons. Consequently, in paying rent for the property, the EMA would be acting outside its legal authority.
High Court rejected EMA’s argument
The High Court rejected the EMA’s frustration argument on both grounds. The High Court found that the parties held no common purpose outside the terms of the lease. Further, the lease provided various grounds for the EMA to vacate the premises. Consequently, any frustration would be self-induced and self-induced frustration could not be used as a basis for discharging the lease.
In relation to the second ground, the High Court found that, as a matter of EU law, the EMA clearly had the legal authority to deal with the lease regardless of the status of the UK in the EU. The High Court further clarified that even if, on the exit of the UK from the EU, the EMA no longer had the necessary authority, this would be a matter of foreign law and not relevant when determining frustration under English law.
EMA granted permission to appeal
The High Court’s decision has had the welcome effect of providing certainty to parties of commercial leases that were considering their position in relation to Brexit. Further, the High Court’s reasoning when rejecting the frustration argument may be applicable to all commercial contracts. However, the EMA was granted permission to appeal and on 15 April 2019, filed their appeal papers. In granting permission to appeal, the judge held that the appeal had a real prospect of success. The appeal is likely to be heard in March 2020.
*Canary Wharf (BP4) T1 Limited & Ors v European Medicines Agency  EWHC 335 (Ch).
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