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Frustrated by Brexit?

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By Shanice Golder

Though perhaps not reflecting the views of millions of people up and down the country, in the property world at least, the High Court has held that Brexit is not a frustrating event.

In Canary Wharf (BP4) 1 Limited and Others v European Medicines Agency [2019] EWHC 335 (Ch), the European Medicines Agency (“EMA”) sought a declaration from the court that Brexit would frustrate its 25 year lease of its headquarters in Canary Wharf. If successful, the EMA would relieve itself of an estimated £500 million of rental liabilities and open the floodgates to parties up-and-down the country in claiming that Brexit frustrated their own commercial contracts.

Frustration is a doctrine of English law which discharges contractual obligations where something occurs which renders it physically or commercially impossible to fulfil the contractual obligations or where the obligation to perform becomes radically different from that undertaken at the commencement of the contract. Examples include the frustration of a licence to use a room to view King Edward VII’s coronation procession which was then cancelled or where a contract to export machinery to Poland was frustrated by the outbreak of World War II.

In this case, the EMA argued that its lease was frustrated on two grounds: (1) frustration by “supervening illegality”; and, (2) frustration of the common purpose.

On both points the court rejected EMA’s arguments. On the first, the court held that although the EMA were obliged under a 2018 EU Directive to relocate its headquarters to Amsterdam post-Brexit and so were unable to remain located in Canary Wharf, the EMA retained legal capacity to contract in a third country post-Brexit Britain and no principle of international law required an international agency to be located within a state party to the relevant treaty. On the second point, the court held that although Brexit was not reasonably foreseeable when the agreement for lease was entered into in 2011 and that, notwithstanding the negative effects of Brexit on the EMA (e.g. in losing its diplomatic protections and triggering its relocation to Amsterdam), the common purpose of the parties remained the same: the EMA required bespoke premises with flexible terms (including the ability to assign and underlet) and the landlord required a longterm tenant at the highest possible rent. That purpose would remain post-Brexit with the inclusion of alienation provisions in the lease allowing the EMA to assign and underlet the lease strong evidence that the EMA had contemplated leaving the property at some point during the term (albeit not in the volatile world of Brexit).

The decision of Mr Justice Marcus Smith does therefore come as a relief to landlords with the narrow constraints of frustration saving landlords (in this instance) from the risk and cost of Brexit becoming the first event to frustrate a lease in English law. In the wider context, the decision brings increased legal certainty to other areas of law (such as commercial contracts) and highlights the importance of considering the wider commercial environment and its potential impact on a transaction before entering into binding commercial arrangements.

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