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Is Brexit a ground for frustration?

View profile for Bejul Lakhani-Lever
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In the recent case of Canary Wharf (BP4) T1 Limited (Landlord) and European Medicines Agency (Tenant); the Tenant is seeking to rely on the doctrine of Frustration to vacate its premises at Canary Wharf, London.

Frustration is a doctrine that acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or substantially changes the party’s principal purpose for entering into the contract.

The facts of the case are:

The Tenant entered into a lease with the Landlord of a property at Canary Wharf.

Following the decision of the UK to leave the EU, the Tenant decided it would relocate its offices to Amsterdam.

The lease between the Landlord and the Tenant does not contain a break clause although the Tenant does have the option to assign and underlet. There are 20 years left to run on the lease.

To avoid uncertainty, the Landlord commenced proceedings seeking a declaration from the court that the lease with the Tenant is not frustrated by the U.K’s withdrawal from the EU.

The Tenant has argued that Brexit should be treated as a frustrating event, on the basis that at the time the tenancy was entered into in 2014, Brexit was not foreseeable and thus its effect on the Tenant’s obligations are significant.

Lawyers for the Landlord have warned that a ruling in favour of the Tenant could open the floodgates for further claims, posing a wider threat to the British Property industry.

A ruling in favour of the Tenant has the potential to set a dangerous precedent for landlords. Allowing Tenants to walk away from their obligations contained in their leases in circumstances where they cannot normally vacate early, unless for example they assign or underlet the premises, will leave landlords with not only empty premises but financial obligations to manage such as property rates and taxes.

The initial hearing took place on 26 September 2018 with the trial listed in January 2019.

If you would like advice please contact our Commercial Property team.