Following the vote to leave the EU on 23 June 2016 many people have wondered what impact it will have on commercial contracts and after the recent case of Canary Wharf v European Medicines Agency  EWHC 335 (Ch) (EMA) we have some clarity on the matter…..for now!
In 2014 EMA entered into a 25 year lease for a newly constructed building in Canary Wharf at a rent of £12m a year with no break clause. Following the result of the referendum EMA decided to relocate its offices to Amsterdam and informed its landlord, the Canary Wharf Group (CWG), that it would be seeking to treat the lease as having been frustrated following Brexit. CWG brought court proceedings to determine the issue before the planned Brexit date of 29 March 2019.
A contract (in this case a lease) can be frustrated where an unforeseeable event (at the time of entering into the contract) happens after completion which makes it impossible:
- to fulfil the contract; or
- for the party to perform its obligations, as they have been radically changed.
EMA argued that Brexit would have the effect of frustrating the lease because:
- of “supervening illegality”, as EMA would no longer have the legal capacity or power to perform its obligations under the lease; and
- the “common purpose” that the premises should be the EMA’s headquarters which EMA and CWG shared when entering into the lease had been thwarted.
The High Court ruled that EMA’s lease would not be frustrated as:
- EMA would continue to have the power to observe the terms of the lease even if it could not occupy and use the premises;
- pursuant to the terms of the lease, EMA had the ability to assign or sub-let the premises; and
- any frustration would have been self-induced by EMA.
Whilst landlords will be breathing a huge sigh of relief this may be short lived – EMA have been granted permission to appeal against this decision to the Court of Appeal, on the basis that an appeal has a real prospect of success. So just like the UK’s withdrawal from the EU, the case rumbles on.