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EMA Can't Escape Lease Due to Brexit Frustration

on Tuesday, 12 March 2019.

There are plenty of people who are now getting frustrated by Brexit. But now a legal case has taken this to a whole new level.

Following the decision of the UK to leave the European Union, the EU's medicines regulator, the European Medicines Agency (EMA), decided to leave its Canary Wharf home. It has been relocating to Amsterdam.

But what of the EMA's 25 year lease in its Canary Wharf building? Is the EMA still bound to continue with it and pay rent on it?

In the case of Canary Wharf (BP4) T1 Ltd v European Medicines Agency, the EMA was in the English High Court arguing that the lease was "frustrated". Frustration is a legal concept that enables a contract to be ended when something happens after the contract has been formed rendering it physically or commercially impossible, or alternatively turns the obligation to perform into a radically different obligation from what was undertaken when the contract was entered into.

The EMA's main argument was that Brexit would make its continued occupation of the property illegal. It claimed it would no longer be lawful.

The High Court rejected this argument. The EMA could still deal with immovable property in a non-EU country and so had capacity to continue to perform the obligations under the lease. There was therefore no frustration by supervening illegality. The court did acknowledge that the EMA was required by a 2018 EU regulation to move its headquarters to Amsterdam, and that there were strong political reasons for the EMA not to remain in the UK after Brexit. However, that did not stop it from remaining.

Comment

The result of this case is not that surprising. Frustration is a legal concept that is hard to rely on. Courts like to enforce contracts that were entered into, in order to give certainty. The rules where frustration occur are very narrow.

Parties often look to expand the situations in which contracts can be discharged with a force majeure clause. These clauses also need to be well-drafted. Should they cover the Brexit situation or not? Many do not. It is worth looking at your contracts carefully if you do want to have the possibility of terminating due to a fundamental change, such as of a Brexit situation.


If you would like help with a force majeure clause in an existing or new contract, please contact Paul Gershlick in our Commercial Law team on 01923 919 320.

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