09 Jul 2019

The European Medicines Agency (EMA) has announced that it is withdrawing its appeal against the High Court ruling that its £13 million a year lease of premises at Canary Wharf will not be frustrated by Brexit. The appeal is being withdrawn because the EMA has successfully negotiated a sub-letting of the premises to WeWork for the remainder of the term of its lease.

The High Court decided in February that neither Brexit nor the EMA's shift of headquarters from London to Amsterdam would constitute a "frustrating event" and that the EMA would remain liable to perform its obligations. If frustration had been held to apply, this would have resulted in the lease coming to an end and the EMA being able to walk away from its liabilities. The EMA's decision to appeal was therefore no surprise, particularly as the lease term runs until 2039 and there was around €400 million at stake in terms of future rent and other liabilities.

Withdrawal of the appeal is effectively a win-win situation for the landlord, Canary Wharf, as it can now rely on the existing ruling and will not have to incur further costs in connection with the appeal. While the EMA will be pleased to have negotiated a sub-lease and to have avoided further costs in the appeal, it is still exposed as it will remain liable under its lease covenants until the lease ends in 2039. Even supposing the sub-lease is on equivalent terms (which is not clear as no further details have been disclosed), the EMA could face a shortfall in the event of any failure by WeWork or a subsequent assignee of the sub-lease to pay the rent and perform the other sub-lease obligations.

On a general note, if the appeal had proceeded and been successful this might have encouraged other claimants to argue that their contracts had been frustrated by Brexit. Withdrawal of the appeal means the High Court decision will stand, which brings welcome certainty. So the announcement is good news for landlords and the UK economy as a whole.

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