Contrary to popular opinion the High Court, in a recent high value case, decided Brexit is not frustrating.
More specifically it is not something that will frustrate the lease of European Medicines Agency at Canary Wharf, which is unfortunate for them because they are having to relocate out of the UK due to Brexit but have an estimated rental liability of £500 million for the rest of the term of their lease of 285,000 square feet in London.
The facts of the case are that in 2011 EMA signed an agreement for lease for premises to be built for them, and in the usual way the lease was granted on completion of the building for a 25 year term. You might find it hard to believe but in 2011 there was no expectation that the UK would leave the EU, and no-one had ever said the word “Brexit”. Therefore the lease did not deal with any potential consequences of leaving the EU, and did not contain a break clause for any other reason.
After the UK served the Article 50 notice to leave on 29 March 2019 the EU ordered the EMA to relocate its headquarters to Amsterdam.
This left EMA with a very expensive lease of premises they did not need. The usual way to limit your liability in this situation is to look for an assignment of the lease, or a sublease, or exercise a break clause (but in this case there wasn’t one). However the EMA’s lawyers came up with a clever argument and wrote to the landlord saying “if and when Brexit occurs, we will be treating that event as a frustration of the lease”.
Now I expect most of you will not have heard of the legal principle of frustration. Frustration is generally concerned with unforeseen events that happen after the contract has been formed. These events make it physically or commercially impossible to fulfil the obligation. The law of Frustration stems from a 19th century case where concerts could not take place as the Music Hall burnt down. It has never been successfully applied to a lease before, but case law has provided opinions when it might apply, for example if premises fell off a cliff due to coastal erosion.
After a long trial the Court decided the lease was not frustrated. Although the legal status of the EMA has changed it can still deal in UK property. The strong political issues at play here were not sufficient to transfer into legal ones. I will not summarise the long judgement here, but it is at Canary Wharf (BP4) T1 Ltd v European Medicines Agency  EWHC 335 (Ch) if you want to read it.
EMA appealed, but unlike Brexit the matter has been settled. EMA has agreed to sublet the whole of their office to WeWork up to the end of the term of their lease. This means the case won’t go back to court and the High Court decision stands. Had EMA been successful it would have had a significant impact on landlords, opening the possibility for Brexit or other external events to impact on the landlord and tenant relationship. It is probably for the best they weren’t successful.
Short Richardson & Forth have experts in all aspects of the landlord and tenant relationship, from negotiating leases, to exercising break clauses, to bringing leases to an end. If you have a landlord and tenant issue get in touch as we can help.
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