Frustrated by Brexit?

Whilst many would agree that the Brexit process has been a protracted and frustrating one, it would appear that in the context of a lease entered into prior to the referendum, Brexit cannot be considered a frustrating event.

In the recent case of Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), the European Medicines Agency (“EMA”) served notice on the Defendant that as and when the UK leaves the European Union, it would treat its 25 year lease, entered into in 2014, of its London headquarters as frustrated.

The doctrine of frustration is well described by Lord Radcliffe in Davis Contractors Ltd v Fareham UDC to state “Frustration occurs wherever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract”. The question before the court was whether Brexit had this effect on the EMA’s lease.

The High Court took a dim view of the challenge of the EMA. The EMA retained its power as conferred upon it by the EU to acquire and dispose of property whether within or outside of the EU, and the EMA had the right under the terms of its lease to assign or sub-let the premises. Furthermore, it was a decision taken by the EU itself to relocate the premises of the EMA from London to Amsterdam, which was considered by the court to amount to ‘self-induced frustration’. There was nothing to prevent an EU institution from maintaining headquarters in a country outside of its member states.

The case serves as a demonstration that Brexit will not be classed as a supervening event of sufficient gravity to frustrate a contract, unless it is specifically provided for within the said contract. The fact that a party is left with a bad bargain or that performance of their obligations has become more difficult is not sufficient to frustrate the contract. The importance of having a well drafted break clause within a lease is also highlighted by the case.

Leave was granted by Marcus Smith J to appeal and the result is eagerly awaited.

If you have questions in relation to leases and how they may be affected after Brexit, please contact our Commercial Property team on 01604 828282 / 01908 660966.