Brexit impact on commercial lease

Whether Brexit will frustrate a lease granted to a European agency

The background

Canary Wharf (BP4) T1 Ltd and ors v European Medicines Agency [2019] concerned a 25-year lease of premises in Canary Wharf granted to the EMA, used as the leaseholder’s headquarters. The EMA is an agency of the European Union, and the lease is due to expire on 30 June 2039.

In August 2017, the leaseholder advised the claimant landlord that, if and when the UK withdrew from the EU, the leaseholder would consider this to have frustrated the lease on various grounds including that:

1. As a result of Brexit, the EMA could not, as an EU body, lawfully be located in the premises; and
2. If the EMA was required to take a lease of alternative premises within the EU, it would be paying ‘double rent’ which would seriously adversely affect its capacity, effectiveness and independence.

The landlords brought a claim to determine whether Brexit and any associated relocation by the EMA would frustrate the lease, and to determine whether the leaseholder remained bound by the lease for the duration of its term.

The decision

The High Court found in favour of the landlord, holding that the lease would not be frustrated if and when Brexit occurred.

The EMA remains bound by the terms of the lease, save for any assignment, underletting or other negotiation of a surrender with the landlord.

Advice and action for landlords

Highly topical and an important decision for landlords of commercial properties, particularly those with leaseholders who may be part of larger European organisations, Canary Wharf sets a welcome precedent.

Leaseholders are unable to frustrate leases purely on the grounds of Brexit, helping landlords to avoid facing increased vacancy, voids and rates liabilities. Leaseholders who do wish to terminate contractual obligations under a lease before the end of its term will need to do so via means of assignment, subletting or surrender.