Brexit and its implications for commercial property contracts

Brexit may be maddening for business, communities and even the politicians in the thick of it, but in all the uncertainty, one thing seems certain, the UK’s exit from the European Union is no easy argument for ending a contract.

The ruling by the High Court follows an attempt by the European Medicines Agency (EMA) to pull out of a £500m lease for its London-based headquarters, arguing that the lease had been frustrated by the country’s imminent departure from the EU.

Frustration is a legal doctrine under English contract law by which an unforeseen event fundamentally changes the basis on which the contract was signed, making it physically or commercially impossible to fulfil, or transforming the obligation into something radically different.

The drugs agency had agreed the lease in 2011, with an end date of 2039, but as they are required to maintain headquarters in an EU Member state, a relocation would be required when the UK ceased to hold EU membership. As a result, the EMA advised their landlord that they considered Brexit was an event that frustrated the agreement and therefore gave grounds to terminate the lease. Canary Wharf Group refused to accept the argument, issuing proceedings which saw the case heard in the High Court.

In passing judgement in Canary Wharf v European Medicines Agency the High Court found in favour of Canary Wharf, ruling that whilst Brexit would materially affect the EMA’s ability to operate in the UK, it would not be impossible for the EMA to continue to have premises in London.

Explained commercial property expert Roderick Campbell of solicitors Hart Brown in Guildford:

“There was widespread concern among commercial landlords in the run up to this judgement, as a ruling in favour of the EMA could have had a serious knock-on effect across the property market, and the economy as a whole, but this outcome should provide some reassurance.”

Roderick added:

“The doctrine of frustration applies to all contracts and although this judgment concerned the effects of Brexit on a commercial lease, the ruling suggests anyone trying to get out of their contractual obligations as a result of the UK leaving the EU would face an uphill battle.”

“Timing of the contract would be important, as Brexit could have been foreseen well before the referendum was called, and any claim of frustration would need to demonstrate that the benefit of a contract would be lost, not just that the performance of the contract is harder to deliver.”

Kindly shared by Hart Brown Solicitors