The Brexit break-clause?

What’s going on here?

The European Medicines Agency (EMA) has lost in its court battle to cancel a lease on its London office due to Brexit.

What does this mean?

EMA entered into a £500 million, long-term lease of its offices in London’s Canary Wharf. Ever since Brexit, the organisation has been trying to get out of its lease, to move to Amsterdam instead. It argued that Brexit should be considered a “frustrating event” (where an unforeseen event makes contract performance impossible, or radically changes its purpose).

But EMA’s landlord, Canary Wharf Group, refused to accept this and the dispute went all the way to the High Court. There, Justice Smith concluded that Brexit did not constitute a “frustrating event” in the contract. Therefore, EMA still remains bound by the original contract which it made with Canary Wharf Group. 

What’s the big picture effect?

“Brexit” and “uncertainty” are two terms that go hand-in-hand, and this is the first case to discuss the legal implications of the EU (Withdrawal) Act 2018. While no one knows the exact outcome of the UK leaving the EU, companies are still looking to mitigate any damage that they might suffer. In this case, while it was EMA who brought the challenge, there are many companies in the same position who are also weary of how Brexit might affect their business. Similarly to EMA, they may be considering whether relocating their offices to Europe could be a possible solution.

Therefore, it’s no surprise that experts are calling the result in the case a landmark ruling. The judgment will inevitably discourage other lease tenants from putting forward the same arguments in an attempt to get out of costly, long-term leases in a jurisdiction that’s rife with uncertainty. In other words, had EMA been successful, it would have opened the floodgates, paving the way for many similar claims of legal frustration resulting from the impact of Brexit in all types of contract.

Owen Davies, a partner Fieldfisher, said the ruling was “no surprise”. “Brexit [was not] going to give [tenants] lawful grounds to avoid [their lease] obligations” he said.

Ben Hatton, the lawyer at Clifford Chance who represented Canary Wharf Group, said that “this result will be welcome news in the property and legal market, bringing greater certainty as to the impact of Brexit on contracts”.

Whether or not you agree with the judgement, what’s clear is that it provides some much-needed clarity in the lead up to Brexit both for businesses and the UK's property market.

Report written by Idin S.

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