Brexit Doesn't Mean EU Agency Can Break Canary Wharf Lease
(Bloomberg) -- A London judge gave landlords a bit of good news in a difficult environment, ruling that the European Medicines Agency couldn’t use Brexit as an excuse to break its 500 million-pound ($651 million) lease in Canary Wharf.
Judge Marcus Smith ruled in favor of the Canary Wharf Group, the EMA’s landlord, on Wednesday, saying that the European Union agency remains obligated to honor the lease even though it’s relocating to Amsterdam. The case is one of the first in the U.K. to grapple with the commercial ramifications of Britain’s departure from the bloc.
The ruling “will be welcome news in the property and legal market, bringing greater certainty as to the impact of Brexit on contracts,” Ben Hatton, a lawyer at Clifford Chance who represented Canary Wharf, said in a statement Wednesday.
The EMA said after the ruling that it will consider an appeal that could ultimately lead to the EU’s Court of Justice in Luxembourg.
The EMA “has no choice but to leave London,” a spokeswoman said. The agency, which may sublet the office space with the landlord’s consent, still hopes for a “mutually satisfactory solution,” she said.
The EMA had argued that Brexit “frustrated” its 25-year lease, which has 21 years left to run. The agency pays 13 million pounds per year to occupy more than 10 floors in the east London financial district.
“We have always firmly believed that Brexit did not amount to a frustration of EMA’s lease,” George Iacobescu, Canary Wharf Group’s chief executive officer, said in a statement. A victory for EMA could’ve “set an unfortunate precedent.”
Had the EMA won its case, it would have been able to cease paying rent on the office space. Such a ruling would potentially have opened the door to other organizations using Brexit to attempt to end their leases on office space in the U.K.
Canary Wharf Group currently collects more than 40 percent of its rent from banks, most of which are on long term leases. It would have been particularly vulnerable to a decision in the EMA’s favor given the likelihood that many financial services companies that are already shifting resources to the EU might have sought to use the same argument to trim their space in the area.
Despite the uncertainty caused by Brexit, demand for office space in London has remained robust. About 14.6 million square feet of central London office space was leased in 2018, the most in four years, according to broker Knight Frank.
“For the moment, it appears that the barrage of court cases that would have been caused by the EMA’s victory have been stemmed,” said Julian Joseph, a real estate lawyer at Shakespeare Martineau, who isn’t involved with the case.
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