Brexit and the potential impact on commercial leases
It appears that our series of legal updates have, until now, avoided any mention of Brexit. However, the time has come to change that and, what better way to start than to pick up on ongoing litigation which could have a significant impact on the commercial property market. Specifically, it concerns the effect (if any) of Brexit on a lease of commercial premises.
The European Medicines Agency (EMA) holds a 25 year lease of its headquarters in Canary Wharf. The lease commenced in 2014 and is understood to comfortably exceed £10 million per annum.
The EMA is moving its HQ from London to Amsterdam in March 2019 as a result of the UK’s withdrawal from the EU. The EMA does not have the option of exercising a break clause at some point down the line and the prospects of assigning or subletting are thought to be low (because of the rent and terms of the lease).
The EMA has another potential option. That is to rely on what lawyers refer to as the ‘doctrine of frustration’. Essentially, a contract can come to an end if something occurs which means that it is physically or commercially impossible to fulfil the contract. The EMA asserts that its HQ has to be within an EU member state and, assuming Brexit happens in March 2019 (or some other date), this will not be the case.
In the circumstances, the EMA’s landlord has brought proceedings in which it seeks a declaration from the court that Brexit does not frustrate the lease and, therefore, the EMA must continue to pay rent and comply with the terms of the lease for the remainder of the term.
The landlord will, plainly, want to succeed. On a wider level, property investors will be mindful that this could set a precedent for tenants who are in a similar position and are looking to exit their leases.
We will keep you posted as this important case progresses.
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