Whilst many are finding the Brexit process more than a little frustrating, the High Court has found that Brexit does not operate to frustrate the terms of a lease in the recent ruling of Canary Wharf v European Medicines Agency.
In October 2014, the European Medicines Agency (“EMA”), the EU body which evaluates medicines for human and veterinary use within the EU, took out a 25year lease of premises in Canary Wharf. Following Brexit, the EMA will need to relocate its headquarters to a location within the European Union (Amsterdam) following a change in the regulations governing its status.
In August 2017, the EMA advised the landlord of the premises in Canary Wharf that, if and when Brexit occurred, they would be treating the lease as having been frustrated, as they would not have the ability to use or comply with the terms of the lease.
The doctrine of frustration acts as a device to set aside contracts where an unforeseen event renders contractual obligations impossible or radically changes the party’s principal purpose for entering into the contract.
The landlord sought an early determination from the court that the lease would remain in force following Brexit.
Firstly, the EMA argued that Brexit would frustrate the lease because of supervening illegality, as the EMA would no longer have the legal power or capacity to perform its obligations under the lease.
Secondly, the EMA argued that by entering into the lease the landlord and the EMA had the common purpose that the premises should be the EMA’s headquarters for the proceeding 25 years, and Brexit had obstructed this common purpose.
In relation to the argument of supervening illegality, the court held that this was not recognised by English law as an event that would frustrate the terms of a lease and that the EMA would be able to observe the terms of the lease even in the event that they were unable to occupy the premises.
Furthermore, the court held that even if the EMA faced constraints on its capacity to perform its obligations under the lease, such constraints had been self-imposed. The court held that it was not Brexit itself that had introduced these potential constraints, but the EU’s response to Brexit in changing the EU laws which determine where the headquarters of the EMA had to be.
Secondly, the court rejected the argument of the frustration of common purpose on the basis that the alienation provisions within the lease, which permit assignment and underletting, were inconsistent with the notion that the common purpose was for the EMA to occupy the premises for the next 25 years.
The implications, had the court held that the lease could be frustrated, would have had serious implications for the UK property market.
This decision helps to provide commercial certainty for contracting parties in the impeding run-up to Brexit and will discourage other parties seeking to use Brexit as a method of terminating their lease arrangements or other contractual obligations.