STOP THE PRESS: Can Brexit frustrate a lease?

Canary Wharf v European Medicines Agency [hearing ongoing]

In an interesting and potentially far reaching case concerning Brexit, the owner of the Canary Wharf estate has brought a claim in the High Court to determine whether Brexit is capable of rendering a lease contract terminated, through the legal doctrine of frustration.

The European Medicines Agency (EMA) has decided to relocate from London to Amsterdam in the wake of the uncertainty caused by the ongoing Brexit negotiations. It is therefore trying to bring an end to its office lease in Canary Wharf, where the annual rent is £13 million and there are 17 years left to run. If the EMA is successful, both parties to the lease would be released from their obligations and it is possible that the precedent set could have an enormous impact.

In summary, under the doctrine of frustration a Court can hold that a contract is terminated in the event that an unforeseen event:

• renders the obligations under the contract no longer possible to fulfil, or
• radically changes the nature of the obligations to be fulfilled from those contemplated by the parties when the contract was entered into.

One of the key issues between the parties is therefore whether Brexit was foreseeable when the lease was entered into in 2011. Also in issue is why the EMA should be treated differently to any other tenant reacting to ongoing geopolitical events.

From our perspective, the chances that the Court will find in favour of the EMA seem slim.

• The doctrine of frustration is notoriously difficult to apply to leases, particularly in cases where it is undeniably the case that the tenant still has the benefit of the space, should it wish to make use of it.
• Frustration exists to alleviate potential injustice in rare circumstances – it is not available simply to enable parties to escape from a bad deal.
• There is an obvious policy decision to be made and if the EMA succeed, the precedent is unlikely to be restricted to commercial leases. It is perhaps no exaggeration to say that the commercial certainty provided by contracts underpinning the whole of the economy could be put into jeopardy.

That said, like politics, nothing is certain in litigation, so we will all eagerly await the result of this case.