Brexit is having all sorts of unforeseen impacts, but one thing it will not do is enable the European Medicines Agency (EMA) to tear up its 25-year lease on its former London HQ. In a unique decision, the High Court rejected the EMA’s plea that the lease would be frustrated by the UK’s departure from the European Union (EU).
The EMA has since 2014 held an underlease of part of a Canary Wharf tower block. Following the outcome of the EU referendum, it informed its landlords that it would treat the UK’s departure from the EU as a frustrating event. In those circumstances, the landlords launched proceedings, seeking a declaration that the EMA would remain bound by the full terms of the lease after the UK’s withdrawal from the EU.
The EMA, which moved its HQ to Amsterdam after the referendum result, argued that it would be unprecedented and incongruous for an organ of the EU to remain located in the UK following Brexit. The UK abandoning its membership of the EU had simply not been within the contemplation of either side when the lease was executed and continuation of the lease would require the EMA to pay rent on two HQ buildings, one of which it had no legal power to occupy.
In ruling on the matter, the Court noted that the essence of a frustrating event is that it is caused by some unforeseen supervening event over which the parties to the contract have no control and for which they bear no responsibility. The EMA’s position would be materially harmed by Brexit and its unwillingness to maintain its HQ in a non-EU country was understandable. The Court also accepted that the UK’s withdrawal from the EU was not foreseeable when the lease was signed.
However, in granting the declaratory relief sought by the landlords, the Court found that the EMA would retain the legal capacity to perform its obligations under the lease following the UK’s withdrawal. The EU had baldly ordered the EMA to relocate its HQ to Amsterdam and could have done more to ease its exit from London. To that extent, the EMA’s difficulties could be said to be self-induced.
The Court found that the EMA got what it bargained for and that the parties’ common intentions on entering into the lease had not been frustrated. The EMA had chosen not to have a break clause in the lease, which expressly provided for the landlords’ protection in the event of the EMA’s involuntary departure from London. The lease also empowered the EMA to assign or sublet the premises.
The property had been developed with the EMA in mind as a cornerstone tenant and the landlords would suffer considerable commercial damage were the EMA to escape from its long-term obligations. Although the EMA faced having to pay rent on two HQ buildings, that was a consequence of the allocation of risks contained within the lease, which it had freely signed.