Medicines Regulator Seeks to Exit Canary Wharf Lease

The European Medicines Agency (EMA) is preparing to fight a legal case against its landlord in a bid to be released early from a £500m office lease.

The agency, which serves as the medicines regulator for the European Union, is set to be relocated to Amsterdam after Britain leaves the EU. However, the institution is still bound by contract to a further 21-year lease at its current offices in Canary Wharf in east London.

The EMA signed a 25-year agreement with Canary Wharf Group to lease ten floors of office space in 2014. In a bid to free itself from decades of remaining rent obligations under its lease, the agency is arguing that the unforeseen nature of Brexit – as an event which undermines the lease’s purpose – frustrates the agreement and renders it terminable by law.

If the EMA is successful, the case could set precedent for tenants across the UK to terminate lease agreements without any control on the part of their landlords, on the grounds of Brexit.

Ruling could leave thousands of landlords legally vulnerable

A ruling in favour of the EMA would pose a significant threat to the British commercial property industry.

Lawyers for the Canary Wharf Group have however maintained that this outcome would unacceptably undermine the certainty of the law, and counter that the EMA’s grounds to terminate the lease are weak. Indeed, the property group first brought legal action itself, in the hope of having the validity of the contract quickly confirmed by the court and thus avoiding any commercial uncertainty for shareholders and creditors.

Sir George Iacobescu, chief executive and chairman of Canary Wharf Group, has expressed confidence that the contract will be upheld due to the unacceptable uncertainty in lease agreements that a ruling in favour of EMA would create.

A witness statement submitted for the case by Iacobescu reads:

“It seems …that if the lease were to be frustrated . . . it would be open to any tenant to argue that its lease has been determined because it needs to relocate, whether for personal or business reasons.”

The Canary Wharf Group owns the entirety of the 97-acre Canary Wharf area of the London docklands, and leases properties on the estate to over 150 major tenants.

Landlord argues Brexit foreseen by Article 50

Beyond the practical objections to finding in favour of the EMA, the body of case law suggests that it may be difficult for the agency to successfully argue that Britain’s withdrawal from the EU is fundamentally relevant to its lease.

Under the doctrine of frustration in English law, parties may be able to get out of a contract once it has been signed if subsequent events render the legal agreement impossible or radically different to uphold.

This may entail an unforeseen event such as an intervention of the state, the unavailability of a person or item fundamental to the contract, or a change in the law which makes the agreement illegal to uphold. As the EMA is an EU agency, it argues that the withdrawal of its rented headquarters from the European Union is pertinent enough to the lease’s intentions to defeat the agreement, and thus allows it to be terminated.

In practice, arguing that an ‘unforeseen event’ is sufficient to defeat the purpose of a contract can be incredibly difficult, and depends largely on the judge’s discretion.

The Canary Wharf property group’s counter-argument will have a strong basis for maintaining that, because withdrawal from the European Union is provided for in EU legislation under Article 50 of the TEU, it is not unforeseeable, and to the contrary, has clearly been accounted for in law as a foreseeable possibility.

Contact our experienced commercial property solicitors today

How to Choose the Right Commercial Property from IBB Solicitors

Whether you are acquiring, disposing of, developing, managing or funding commercial property, we can help. Call us now for expert, impartial and professional advice on 03456 381381, or email us at CRE@ibblaw.co.uk