“DOES Brexit entitle lease frustration?
This is the high-stakes question asked by many tenants who are looking for ways to terminate their lease.
The property world is currently watching on with interest as a key case is being tried at the High Court. It is considering whether Brexit will have a “knock on” effect on leases being frustrated and terminated outside their usual terms.
European Medicines Agency entered into a lease as tenants of a commercial property in 2014, with Canary Wharf Group as landlord, for a term of 25 years at an annual rent of £13 million.
As a result of Brexit, they will be relocating from London to Amsterdam and their landlord is pursuing them for the rent payable on the remaining length of the term.
If the court action is lost, it has been widely quoted that Canary Wharf Group could stand to lose around £500 million.
Contracts may be discharged when an event occurs rendering the provisions in the contract physically or commercially impossible to fulfil – or drastically changes the obligations agreed at the time of entering into the contract.
This is known as “frustration.”
Frustration can affect all types of contracts, including leases.
European Medicines Agency are arguing that the lease has been frustrated by the impact that Brexit will have on the tenant, their commercial needs, and ability to perform obligations under their lease.
They claim that the decision to withdraw from the EU fundamentally and radically changes the performance of the contract – and they should be released from their obligations.
The landlord is seeking a declaration from the Courts that the decision to leave the EU will not frustrate the lease, and the tenant will still be liable for the rental payments due.
There is no break clause within the lease and the tenants will be obligated to remain until 2039 if not successful in the case.
The legal doctrine of frustration dates back to 1863 and is very rarely used.
In the past the Courts have been reluctant to discharge contracts by way of frustration as ultimately it could become a “get out” clause used in instances where this would be otherwise unfair.
The implications of the Court finding in favour of the tenants in this case are enormous, and will have a real impact on the real estate sector.
If you need assistance either as landlord or tenant with lease breaks, termination or any other lease issues, or have any other property-related question, please do not hesitate to contact this article’s author, solicitor Elizabeth Shaduwa, or her colleagues the Commercial Property team here at Milners on 0113 245 0852 or email us at hello@milnerslaw.