Brexit and Commercial Property Leases

Further to the referendum concerning Brexit on 23 June 2016, it no doubt caused uncertainty amongst commercial property landlords and the effect it may have upon tenancy agreements.

Last year many commercial landlords will have no doubt been actively following the high court case of Canary Wharf (BP4) T1 Limited (‘Canary Wharf’) v European Medicines Agency (‘EMA’), with much apprehension. Within this case the Court had to decide whether or not the EMA could cite Brexit as the reason for termination of their 25 year commercial lease with Canary Wharf, stating that the event caused frustration of their lease. They argued that Brexit was an unforeseen event when they first entered into their lease and they should therefore be allowed to discharge of their obligations within the lease.

In February 2019 the Court ruled in favour of Canary Wharf and stated that the UK’s departure from the EU did not frustrate the contractual provisions of a commercial lease and therefore could not allow a tenant to walk away from their obligations. EMA had the option, as is common in the majority of commercial premises, to assign or sublet the property, which provides comfort to landlords concerning payment of rent.

The ruling in this case should provide a level of comfort and confidence to commercial landlords, as the Courts will not allow Brexit to be used as a reason to terminate a commercial lease and avoid performance of contractual obligations. Although, the impact of Brexit may prove difficult for commercial tenants it will not be reason enough to walk away. It has also provided the property industry with comfort that the market should remain stable, with the ever increasing uncertainty surrounding Brexit.

In any event, the case provides a valuable lesson for prospective commercial landlords and tenants alike of the importance of negotiating suitable terms within a commercial lease and the costly consequences of not doing so. Further, although the Court held that when EMA entered into their lease Brexit was not a foreseeable event, it begs the question as to whether tenants could possibly use this as a reason going forward?

If you are a commercial landlord and have any concerns about Brexit please do feel free to get in touch and a member of the highly experienced commercial property team would be more than willing to assist. Or if you would simply like to ensure that you have the correct tenancy agreements in place, in order to protect your commercial property interests, then this is also something we can advise on.