Brexit, Brexit, Brexit. It’s all we have been talking about for the past three years. However, the majority of media coverage has overlooked this interesting and important case that has had legal buffs on the edge of their seat all year. Canary Wharf v EMA could have widespread repercussions for the UK commercial property market (most of them negative). If the EMA have their way lessees will be armoured with legal justification to cancel their leases, creating the potential for a mass-exodus of commercial premises across the UK.
Cast your mind back to 2014, a more peaceful time. Apple have announced its new Apple Watch, Germany have just won the World Cup and the European Medicines Agency (the agency of the EU in charge of the evaluation and supervision of medicinal products) has just signed a 25-year lease worth £500million for a cushy property in Canary Wharf. Afterall, it makes perfect sense to base your HQ at the economic heart of a prosperous Member State!
Naturally, I don’t need to explain what happened next. Needless to say that the EMA had to move their headquarters and so they did in January, to Amsterdam.
The EMA have found themselves with a £500million problem that they need to get out of, so their lawyers have rather creatively leant upon the principle of English contract law known as frustration. The principle can be summarised as follows: if, as a result of an unforeseen event, it is impossible or illegal to adhere to the terms of a contract, that contract is null and void.
The EMA argue that the UK’s departure from the European Union is the necessary unforeseen event and as a result it is not legally possible for them to continue with its HQ in London as it does not have legal capacity to hold or deal with property outside of a Member State.
Mr Justice Marcus Smith in the High Court has ruled that Brexit will not frustrate the EMA’s lease. But why:
- The EMA’s departure from the building does not mean, in principle, that they could not perform the terms the lease. There is no requirement for them to actually occupy the premises.
- Following Brexit, the EMA would still have capacity to deal with property in the UK even if the UK no longer remained an EU member state. Whilst there would be obvious political and economic complications, it is still legally possible.
- The lease also contained a clause that allowed the EMA to assign or sub-let their lease to somebody else. The Judge held that this implicitly foresees a possibility where the EMA do not occupy the property for the entire 25-year period.
- Although the EMA argued that it had “no choice” but to leave the UK as a result of Brexit, the legal effects on the EMA could have been, but were not, ameliorated by the EU. The “frustration” of the lease was, therefore, self-induced.
I’m sure you can hear the immense sigh of relief from the UK property market.
The Judgment is not entirely surprising, given that the circumstances in which the doctrine of frustration may be relied upon are narrow in any case, but further, there has been historic uncertainty as to whether a lease can actually be frustrated.
In any event, this judgement is likely to deter others from issuing similar claims to get out of costly contracts and does provide some clarity in these uncertain times. More significantly, the case is a potent reminder of how important it is for all tenants to plan ahead when entering into a lease and prepare for even the most unlikely of events. Thankfully there are property experts in the world, like Hillary Cooper Law’s Joy Akah-Douglas to do the heavy lifting for you.
But! This case is not over just yet. The Judge has left the decision open for appeal (to take place by March 2020) and it is unlikely that this hearing is the final word on the matter.
The property market awaits…