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Brexit – impact on commercial contracts and leases

16 Jan 2019

If you're frustrated by Brexit you’re not the only one – the European Medicines Agency have started to argue that Brexit means they can walk away from their Canary Wharf lease twenty years early.

Their argument? As a European agency they have to be headquartered in the EU, the lease was entered into on the grounds that the UK would remain in the EU, Brexit was an unforeseeable event, and because they have to move to the EU they cannot fulfil the terms of the lease.

Naturally, the landlord disagrees. It has twenty years of rent, service charge and business rates at stake. The landlord has forced the issue, turning to the courts to obtain a declaration that the EMA’s lease obligations are unaffected by Brexit.

The EMA’s argument is one of ‘frustration’ – that an event (Brexit), which was unforeseeable at the time of the lease, has rendered the contract physically or commercially impossible to fulfil. Brexit means they have to move to the EU and as such they cannot fulfil their lease obligations. A frustration argument, if successful, will mean that the lease comes to an end automatically.

Part of the argument will therefore turn on whether the UK leaving the EU was foreseeable at the time the lease was entered into. Their arguments will also focus on whether the lease was entered into on the basis that the UK would remain in the EU.

This case is important to both the landlord and tenant, but also has much wider implications. If the court declares the EMA’s lease is frustrated, will we see a deluge of parties arguing their lease (or their commercial contract) has been frustrated by Brexit?

We await the result with interest.

Click here to read a further update including the Court's decision on this case.

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