European Medicines Agency loses £500m ruling over bid to cancel lease amid Brexit move

The European Medicines Agency (EMA) has lost a court battle to break a £500m London office lease in the wake of its planned move to Amsterdam post-Brexit.

In a landmark case for the commercial property industry ahead of Britain’s departure from the EU, landlord Canary Wharf has won a ruling that means the EMA must comply with the terms of its rental agreement.

The agency, which said in 2017 that it would move its headquarters to Amsterdam, has more than 21 years left on its lease in Canary Wharf, where it pays roughly £13m a year for 10 floors and 900 staff.

After signing a 25-year lease in 2014 in the Canary Wharf district, the agency argued that Brexit amounted to an unforeseen event of "frustration" of the lease.

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However, following Judge Marcus Smith's ruling today, property experts and lawyers have said that the decision sends a clear signal to others in the sector.  

"It was a bold move by the EMA to attempt to use a Brexit ‘frustration’ clause as a reason for early release from its pricey lease. However, the judge’s decision is unsurprising and sends a clear message to the commercial rental market that lease conditions and terms are there to be adhered to," said Julian Joseph, real estate partner at law firm Shakespeare Martineau.

Joseph added: "Even the EMA’s unusually-long 25-year lease and impending move to the Netherlands was not sufficient to successfully invoke a ‘frustration’ clause. Had the organisation been successful, it would have been a milestone moment for UK real estate as until now, there have been no reported decisions in relation to the doctrine of the frustration to leases."

Ben Hatton, director of property litigation at Clifford Chance who leads the team in advising Canary Wharf Group, said: "We are pleased to secure this victory for our client Canary Wharf Group. The Judge has ruled that Brexit does not amount to an event of frustration of the EMA's lease. This will discourage other contracting parties from claiming that Brexit frustrates their contracts. To determine otherwise would have further undermined commercial certainty for contracting parties across England and Wales at a time where uncertainty is rife for businesses. This decision will therefore be welcome news for the UK economy."

Keith Conway, partner at Clyde & Co, said that "property companies and landlords will be breathing a huge sigh of relief".

Conway added: "The ruling demonstrates that Brexit cannot serve as a get out clause for leases and other contracts. The decision is also likely to rule out similar arguments be utilised to allege frustration of contracts beyond the property markets."