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Brexit not an event to frustrate EU agency office lease, High Court holds

21 February 2019

An EU agency relocating from London to Amsterdam due to Brexit has failed to win a ruling that it was entitled to treat the lease of its London HQ as at an end due to the doctrine of frustration.

Mr Justice Marcus Smith in the High Court in London upheld a claim by the landlords and management company of Canary Wharf for a declaration that the UK's withdrawal from the EU would not cause a lease with the European Medicines Agency to be frustrated and the EMA continued to be bound by its obligations under the lease.

In what was seen as a case with significant implications for other leases, the EMA had sought to avoid having to pay around £500m over the remainder of the term of its 25 year lease until 2039, the agreement for which was entered into in 2011. It contended that it would be "unprecedented and incongruous" for an EU body such as itself to be located in the UK and continue to pursue its mission in London after the UK has left the EU. "Such circumstances were simply not contemplatable at the time of entering into the lease."

The EMA presented as grounds for frustration that it would lose certain privileges and immunities necessary to its proper operation if it remained in the UK after Brexit; that it could not as an EU agency lawfully use the premises after Brexit, or (separately) to exercise the rights conferred on it by the lease; further grounds relating to vires and impairment of its efficient loperation depended on success with one of the foregoing.

The judge accepted that the legal protections applying to the EMA would be diminished if it remained in the UK following Brexit, but concluded that while there were good policy reasons why it should be located within the EU, there was no rule of EU or international law that required that to be the case. It followed that it would not be ultra vires the EMA for it to pay rent pursuant to the lease after the withdrawal of the UK from the EU.

Even if the EMA did lack the capacity to continue performance by reason of supervening illegality under EU law, this was not a matter that the English law of frustration would have regard to.

If the foregoing points were wrong, this was a case where the legal effects on the EMA of Brexit could have been, but were not, ameliorated by the EU. This failure to do so rendered the frustration of the lease self-induced.

On the question of frustration of a common purpose he added: "I do not consider the present situation to come close to a case of frustration of common purpose... the fact is that hindsight has shown that the EMA has paid too high a price for the premises it acquired, in that it failed to build into the lease the flexibility as to term that events have shown would have been in its commercial interests. But the fact is that such flexibility as to term would have been entirely inimical to [Canary Wharf’s] interests.

"In short, the supervening event, I find, is in reality the EMA’s involuntary departure from the premises, due to circumstances beyond its control. I find that this involuntary departure was, in fact, not merely envisaged but expressly provided for in the lease, and that there was no common purpose different to that contained in the lease. The EMA cannot say this is not what it bargained for."

In conclusion, "This is neither a case of frustration by supervening illegality nor one of frustration of common purpose. The lease will not be discharged by frustration on the United Kingdom’s transition from member state of the European Union to third country, nor does the EMA’s shift of headquarters from London to Amsterdam constitute a frustrating event. The EMA remains obliged to perform its obligations under the lease."

Ben Hatton of Clifford Chance, which acted for Canary Wharf, said the result would be "welcome news in the property and legal market, bringing greater certainty as to the impact of Brexit on contracts".

The EMA said it would study the decision, but remained of the view that it had no choice but to leave London and that a preliminary reference to the Court of Justice of the European Union, refused by the judge, was still the most appropriate way forward.

Click here to view the judgment.

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