Landmark judgement regarding planned Canary Wharf departure post-Brexit
The EMA contended that the withdrawal of the UK from the EU would “frustrate” the terms of the lease. It argued that as the EMA is an agency of the EU it would no longer be able to operate under the terms of the lease post-Brexit. The judge disagreed with the EMA and confirmed:
“…the lease will not be frustrated on the withdrawal of the United Kingdom from the European Union….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.”
James Fownes, real estate litigation specialist, and Associate Partner at Shakespeare Martineau, comments as follows:
“This is welcome news for landlords albeit, as a matter of law, this was the result to be expected. It is difficult to see how, in practice, the EMA would be unable to comply with its lease covenants, such as paying the rent, simply as a result of Brexit. Nonetheless this really is an important decision as it will, in policy terms, prevent potentially large swathes of tenants seeking to come out of unfavourable leases due to the effect of Brexit.
It could of course be applicable to other types of contracts beyond those of leases and so this will be of interest to the commercial world up and down the supply chain.
We will of course have to see whether the EMA decides to appeal the decision, and it may well do given the large sums involved. Given the wider public importance of the case the EMA may well seek permission to appeal direct to the Supreme Court, however, that is a matter for the EMA. Of course, it is now likely to be difficult to obtain permission to appeal and to obtain the opinion of the Higher Courts before 29 March 2019. This case will continue to be closely monitored by the property world and legal practitioners alike.
The EMA may well have to look for other options to divest itself of the premises. No doubt it will be speaking with its legal advisors regarding the possibility of making an application to the European Court of Justice or potentially more practical solutions such as assigning the lease to a third party, or sub-letting the space, or alternatively seeking to broker a deal with the landlord for the surrender of the premises on terms.”