EMA’s Brexit lease court battle ‘could trigger deluge’

A pending court battle between Canary Wharf and its tenant, the European Medicines Agency could open the way for leases and other contracts to be broken by Brexit, a lawyer has warned. Canary Wharf is seeking a court declaration that the withdrawal of the UK from the European Union, and the relocation of the EMA, does not “frustrate” the EMA’s lease of premises at Churchill Place, E14. It says the EMA – which last November announced it would relocate from London to Amsterdam following the referendum result – will continue to be bound by all its obligations under its 2014 lease – including payment of rent in full for the whole term. Alison Hardy, partner at Ashurst, warned that, if the court ultimately found in favour of the EMA, it could have huge implications for the real estate sector and the economy as a whole. However, she expressed her view that it is “very unlikely” the court would find EMA’s lease had been “frustrated” by Brexit. She said: “In 2014, the European Medicines Agency entered into a long lease on the Canary Wharf estate with no break option. Following the Brexit referendum, the EMA announced it was going to relocate its nearly 900 staff from London to Amsterdam. “It seems it made that decision without knowing whether it could get out of, assign or sublet the building it occupies at Churchill Place. Seven months after the EMA announced its decision, Canary Wharf has applied to the High Court for a declaration that the EMA cannot terminate its lease on the basis of frustration. “Frustration is a rarely used argument in property cases, and for good reason. In essence, the courts can order that a contract (or in this case a lease) is ‘frustrated’ when something happens after completion, which makes it either physically or commercially impossible to fulfil the contract, or the party’s obligation is radically transformed. This ancient doctrine dates back to 1863 and the courts have been reluctant to discharge contracts on the basis of frustration, because they don’t want to allow parties to escape from a bad bargain. “This case is therefore unusual on two fronts: first, rather than the EMA applying for an order that its lease is terminated, its landlord is applying for an order that it is not. Secondly, the court is being asked to decide whether Brexit is the type of event that makes the contract impossible to perform, or has radically transformed the parties’ obligations under the lease. “If the court were to order that this lease is discharged by frustration, purely on the back of Brexit, it could open the floodgates for all tenants to argue that their leases are terminated, and indeed, it could result in other types of contract being terminated. The stakes could hardly be higher – if the court ordered in the EMA’s favour, it could cause widespread uncertainty not only in the real estate sector, but in the economy as a whole.” However, she added: “My view is that the courts are very unlikely to declare that the EMA’s lease is determined by frustration. The courts have repeatedly said that this remedy must be kept within very narrow limits and not extended. While changes in the law are a well-recognised category in which the court has ordered frustration, I anticipate that the courts will be keen to avoid allowing EMA to get out of their lease on the basis of frustration, both to limit the scope of frustration, and on public policy grounds.” A date has yet to be scheduled for the hearing of the dispute. To send feedback, e-mail jess.harrold@egi.co.uk or tweet @jessharrold or @estatesgazette