Will a Chaotic Brexit Frustrate your Commercial Contracts and Leases?

The European Medicines Agency (EMA) is attempting to exit its 25 year office lease in Canary Wharf, worth a reported £500 million, because of Brexit. If the EMA wins this case on the grounds that Brexit has frustrated its contract with the landlord, this case will have far reaching ramifications for all sorts of contracts in the UK, given the reach and application of EU law across sectors and industries.

The doctrine of frustration in contract law has given us many interesting cases. Taylor v Caldwell (1863) was the case that established the doctrine of frustration, where it was held that a music hall operator could be released from a contract to let out the space to performers because it had burned down. Krell v Henry (1903) was the one where a contract to rent a flat from which to watch Edward VII’s coronation was deemed frustrated because the coronation has to be postponed because the future King was ill.

That these cases have memorable stories demonstrate the importance of facts in cases of frustration. The key ingredient for a frustration claim is the occurrence of an event that (a) strikes at the root of the contract and (b) beyond the parties’ contemplation, which then makes it impossible to perform what is promised in the contract. Whether or not a claim of frustration succeeds depends not on a definitive test, but on the facts of the case, details in the contract, and whether there are express stipulations that excuse performance of the contract.

This modern broader approach to frustration means that Brexit could well amount to a sufficient reason for the frustration of a range of commercial contracts made before the 2016 referendum. In the EMA’s case, once the UK exits the European Union, it would be difficult to see how a EU medicines regulator controlled by EU entities and staffed by EU civil servants should be forced to continue a lease contracted in 2014, two years before the referendum result. At any rate, the EMA is relocating to Amsterdam. On the other hand, the landlord argues that the very existence of Article 50 means that the prospect of Brexit is foreseeable and therefore not beyond the parties’ contemplation.

Given the uncertainties that Brexit has, and will continue to generate, it is vital that contracts entered into give due consideration to Brexit implications. Having proper analyses of the political fall out, making contractual provisions for the repercussions, and including express provisions to excuse performance would help to mitigate against potential Brexit losses.

Contact our lawyers in Carter Lemon Camerons Solicitors for advice on commercial contracts. The specialist team at Carter Lemon Camerons Solicitors can assist you with all litigation  matters including commercial contracts disputes. Our years of expertise in these areas mean that we can provide tailored solutions for you making sure that you are in the best possible position. For more details, please call us on +44 (0) 20 7406 1000.