Can Brexit get you out of your lease?

Friday 15th March 2019

In simple terms, this was the question asked in the case of Canary Wharf (BP4) T1 Ltd v European Medicines Agency (EMA) [2019] which was heard in the High Court in the past few months.

In this case the High Court decided that if the UK departs from the EU, its departure will not have the effect of ‘frustrating’ a commercial lease. The Tenant therefore remains obliged to perform its obligations under the Lease for the rest of the lease term.

What does ‘frustration’ mean legally? A contract may be invalidated on the basis that it has been ‘frustrated’ when something occurs after the contract is made which makes it physically or commercially impossible to fulfil the contract, or radically transforms the contract obligations  from those agreed when the contract was made.

The contract will automatically become invalid if a ‘frustrating’ event occurs. This means the parties are no longer legally obliged to perform the obligations under the contract. ‘Frustration’  of a contract usually only occurs when the new circumstances could not have been reasonably foreseen.

The Court decided neither the UK’s transition out of the EU nor the Tenant’s shift of headquarters away from London constituted a ‘frustrating’ event.

The Tenant argued that it would no longer be lawful for the Tenant to have to pay the rent if the UK leaves the EU because this would be beyond the Tenant’s legal power/authority. The court decided that while the protections conferred on the Tenant by EU regulations would be reduced after Brexit, the Tenant would still have capacity to deal with immovable property in a non-EU country and, therefore, have capacity to continue performing its obligations under the lease, including the payment of rent.

The court did acknowledge that the Tenant was obliged to move its headquarters to Amsterdam, and that there were strong political reasons for an EU institution like this particular Tenant not to remain in the UK if it becomes a non EU member state after Brexit. However, there were no legal reasons for the Tenant not to remain in the UK in such circumstances.

Watch this space…the Tenant has been given permission to appeal this decision so we will wait to see if the decision still stands if the Tenant appeals it.

Sarah Bradford, Solicitor & Associate Director

and Natalie Nolan, Trainee Solicitor