The EMA has lost its legal battle against the landlord of its London headquarters, the Canary Wharf Group, with regards to an early lease termination on the grounds that Brexit has frustrated the contract. Thus the EMA must comply with the terms of their 25-year lease, which is due to terminate in 2039 and is worth around £500 million.
The EMA wish to extract themselves from the lease agreement because Brexit necessitates their relocation to a country within the European Union, thus in January 2019 they began to relocate to their new headquarters in Amsterdam.
The EMA argued that Brexit had caused their UK lease agreement to become ‘frustrated’, which means that an unforeseen event had rendered the contract impossible to fulfil or substantially different from that which had been originally contemplated, and has the effect of dissolving the contract.
The EMA argued that the contract had become illegal for them to fulfil because their governing regulations mandate their location within the EU, however the High Court rejected this argument on the basis that the lease allowed assignment and underletting, thus the EMA did not have to personally occupy the building in order to fulfil the contract.
The EMA also argued that the contract no longer achieved the common purpose of providing a permanent headquarters for the next 25 years, however the High Court rejected this argument upon the determination that the contract represented the outcome of rival negotiations rather than a common purpose.
Furthermore, the High Court held that the doctrine of frustration did not apply because the situation was self-induced, with Justice Smith explaining that:
“This is a case where the legal effects on the EMA of the United Kingdom’s withdrawal from the European Union could have been, but were not, ameliorated by the European Union.
“This failure to do so is relevant to the question of frustration and, in my judgment, renders the frustration of the lease self-induced.”
The EMA has until 29th March 2019 to lodge an appeal, however, as frustration is a narrowly defined concept, the outcome is not expected to change.
For further information, read the full judgment here.