What does Brexit frustration mean for your lease?

Earlier this month, the European Medicines Agency (EMA) withdrew its appeal against the High Court ruling that its lease was still valid and Brexit did not operate to frustrate it. 

What is frustration?

There is the general frustration with the current Brexit position, and there is the legal doctrine of frustration. If a contract is frustrated it is brought to an end. However, it is of very limited application and will only apply when something occurs, after the contract has been entered into, which renders it impossible to fulfil, or transforms it into something so radically different that it should be brought to an end.

What did the EMA argue?

Following the vote by the United Kingdom in 2016 to leave the EU, the EMA decided to move its Headquarters to Amsterdam on the basis that, after Brexit, it would not be able to operate from the UK.

It, therefore, argued that Brexit was a frustrating event and it should be released from its £500 million 25 year lease. Its view was that Brexit was an unforeseen event that fundamentally changed the performance of the contract.

The landlord disputed this position, pointing out that the EMA could easily assign or sub-let the lease. The High Court agreed with the landlord.

How can tenants rid themselves of premises in circumstances like this?

The position remains that if you no longer need premises, you can either sub-let or assign them, depending on the extent of the alienation provisions in your lease. If neither sub-letting nor assigning is an option, you may need to try to negotiate a surrender (at a price).

Appealing the decision gave the EMA a bargaining position and has resulted in a deal being reached. It will be using one of the methods generally used by tenants to vacate premises that they no longer need by sub-letting its UK office to WeWork.

Will we see more attempts to use the doctrine of frustration?

If the EMA had been successful, we may have seen similar claims following. However, it is not surprising that the High Court rejected the claim. Frustration has rarely been successful over last century or so. That said, the failure of the argument in this case does not preclude someone trying elsewhere: but it remains very much a long shot.

As the risk of a no-deal Brexit increases, we could see companies under financial pressure looking to escape their lease obligations. This may be by way of speculative contractual disputes, or insolvency mechanisms, such as administration or Company Voluntary Arrangements. However, sub-letting, assignment and surrender are likely to remain the most common methods for tenants to divest themselves of unwanted premises.

A version of this article was first published by Property Week

Date published

25 July 2019


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