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.
In this context, frustration is a legal concept that applies when something occurs after a contract has been entered into, which renders that contract impossible to fulfil or transforms it into something so radically different that the contract should be brought to an end.
Following the UK’s 2016 vote 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.
The EMA argued that Brexit was a frustrating event and that therefore it should be released from its £500m, 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 sublet the lease. The High Court agreed with the landlord.
So how can tenants rid themselves of premises in circumstances such as this?
The position remains that if a tenant no longer needs premises, it can either sublet or assign them, depending on the extent of the alienation provisions in its lease. If neither subletting nor assigning is an option, the tenant may need to try to negotiate a surrender (at a price).
Appealing against the High Court decision gave the EMA a bargaining position and has resulted in a deal being reached. It will be employing one of the methods generally used by tenants to vacate premises they no longer need by subletting its UK office to WeWork.
If the EMA had been successful, similar claims of frustration of contract may have followed. However, it is not surprising that the High Court rejected the claim. Frustration has rarely been a successful legal argument over the past century or so.
That said, the failure of the argument in this case does not preclude someone trying to use it 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. They may seek to do this by way of speculative contractual disputes or insolvency mechanisms such as administration or company voluntary arrangements.
However, subletting, assignment and surrender are likely to remain the most common methods for tenants to divest themselves of unwanted premises.
Jason Juden is a partner at TLT
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