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Lawbite: Can Brexit frustrate a lease?

  • United Kingdom
  • Brexit
  • Real estate litigation

20-12-2018

Canary Wharf (BP4) T1 Ltd v European Medicines Agency

 

The impact of Brexit upon property disputes has not been wide ranging thus far.  However, a case which is set for trial in the early part of 2019 may alter that position and potentially have bearing on contracts outside the property sphere.

 

The Defendant tenant, European Medicines Agency (“EMA”), is a medicines regulator responsible for authorising and monitoring medicines in the EU. It is heavily regulated and controlled by EU entities and its staff are EU civil servants.

The EMA is arguing that Britain’s decision to invoke Article 50 operates to frustrate a 25 year lease it entered into in 2014 of 10 floors of office space at 25-30 Churchill Place, London.  If it is correct it allows the lease to be terminated.  The EMA argues that Brexit was an unforeseeable event which, because of the extent to which it is intertwined with EU institutions, frustrates the lease.   It is being moved to Amsterdam after March 2019. 

The claimant landlord, Canary Wharf Group, disagrees and has asked the Court to determine the issue.  It asserts that Brexit was a foreseeable event due to the existence of the Article 50 and that in any event the space could be sub-let which would allow the EMA to relocate.  Further, it claims that the rental income arising out of EMA’s lease (which has a value of approximately £500 million) is crucial for the developer to repay lenders which funded the construction.

Key points

  • A frustrating event is one which is so fundamental that it “strikes to the root of the contract” rendering its performance impossible or so radically different from what the parties had contemplated.  Such an event may discharge a contract altogether.
  • Frustration will not, however, assist a party whose performance simply becomes significantly more onerous or expensive. 
  • Based upon the limited knowledge which is in the public domain, it is easy to see both parties’ arguments for and against Brexit being a frustrating event.

-       There is a general concern that if the EMA is successful in its arguments then the case will open the floodgates for other similar claims.

-       Our view is that it is unlikely that other tenants will be quite so entrenched with EU institutions and as such the event of Brexit would not be such an arguable frustrating event.

-       For now, it’s a case of watch this space!

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