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Is Brexit Frustrating?

on Wednesday, 02 October 2019.

Whatever your view point on Brexit, there's an obvious answer to this question.

However, this article is not about Brexit itself but about the legal doctrine of 'frustration' and how it could apply to contracts affected by Brexit.

What Is the Doctrine of Frustration?

This little known concept relates to contracts that cannot be fulfilled. A contract may be discharged on the ground of frustration when something makes it physically or commercially impossible to fulfil, or radically transforms the parties'  obligations.

An Example: Canary Wharf vs EMA

The European Medicines Agency (EMA) leased a large office block in Canary Wharf. Following the 2016 referendum, the EU moved the EMA headquarters to Amsterdam on the basis that the EMA would not be able to operate from London after Brexit.

The EMA wanted to get out of their lease and stop the liability to pay a very high rent for another 20 years. As they were no longer able to operate in London, they argued that their lease had been "frustrated" and was therefore no longer enforceable.

Canary Wharf argued that the lease had not been frustrated and that the EMA had to continue paying the rent, which could amount to £500m.

The High Court agreed with Canary Wharf. The doctrine of frustration does not take account of any foreign law that might affect the parties' obligations under the contract. Under English law there was nothing to stop EMA operating from London and so they could not avoid paying the rent.

The EMA have withdrawn their initial appeal, as they have managed to sub-let the building to WeWork for the remainder of the term of the lease.

The moral of the story is that before entering a lease, you should always consider how your business might change in years to come and whether the lease will still be appropriate many years later.  Generally, the longer the lease the more considerations need to be taken into account.

For more information on leasing commercial property and the legal doctrine of 'frustration,' get in touch with David Marsden on 01923 919 303, or complete the form below.

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