Court upholds EU agency’s London lease

The European Medicines Agency (EMA) has lost a legal argument to get out of a £500m office lease for its London headquarters, after a High Court judge ruled that the agreement was not invalidated by Brexit.

The EU agency is moving its headquarters to Holland, following a decision made by the remaining 27 EU countries in order to remain operating within an EU member state after Britain leaves the bloc. However, the regulator is still committed for over 21 years to the lease for its current headquarters in Canary Wharf in east London, which costs the agency around £13m a year.

Canary Wharf Group, the landlord, brought the case to the High Court to ascertain that the lease and payment obligations would remain binding regardless of Brexit, after the EMA argued that Britain’s withdrawal from the EU frustrated the agreement.

Ruling in favour of the landlord, Mr Justice Smith stated:

“I conclude that the lease will not be frustrated on the withdrawal of the UK from the EU . . . The EU remains obliged to perform its obligations under the lease.”

The case has been watched closely as a landmark legal decision ahead of Brexit, with implications not just for the commercial property industry but for businesses across other sectors. Legal and property experts alike had expressed doubt that the agency would be permitted to use Brexit to get out of its contract early.

EU regulator hints at CJEU appeal

Sir George Iacobescu, chairman and chief executive of Canary Wharf Group, welcomed the decision, stating:

“We have always firmly believed that Brexit did not amount to a frustration of EMA’s lease. If EMA had been successful it could have undermined fundamental principles of English law and set an unfortunate precedent.”

In English contract law, the doctrine of frustration allows parties to get out of contractual obligations in rare circumstances if they can show that an unforeseeable event has made their duties impossible to fulfil, or drastically altered the original purpose of the agreement.

The High Court however held that the UK’s “transition from member state to third country” and “the EMA’s shift of headquarters” did not constitute a frustrating event.

The court’s ruling on the case was expedited to ensure a decision before March 29th, when the UK is due to officially leave the European Union. Decisions regarding the agency’s permission to appeal however have been delayed until a later hearing.

The EMA has said it “respectfully takes note” of the judgement, but also suggested it would seek to have the case referred to the EU courts, stating:

“In the agency’s view, a preliminary reference to the Court of Justice of the European Union in order to receive an authoritative interpretation on those issues would have been, and still is, the most appropriate way forward.”

Leases unlikely to be affected by Brexit

The High Court ruling to uphold the EU agency’s agreement represents a welcome legal reassurance for the property market and provides contractual certainty for businesses, as future relations between the EU and Britain remain unclear. The UK and the European Union have still yet to agree a trade deal with a matter of weeks to go before Britain leaves the EU.

Commercial landlords however will be reassured that businesses seeking to get out of tenancies early will likely be unable to do so on the grounds of Brexit, whether arguing the withdrawal amounts to a supervening illegality or frustrated the contract’s common purpose.

From the tenant’s perspective, the medicine regulator made the case that refusing to find the contract to be frustrated would force the agency to pay “double rent” on headquarters for the next two decades. However, the EMA and other businesses which find themselves bound to renting commercial spaces in London by long-term leases, but are determined to move their offices after Brexit, will likely be able to simply sublet their properties until their agreements expire.

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