Could the impact of Brexit allow a party to exit their Lease?
By Vashti Williamson
In the midst of all the recent chaos surrounding Brexit, you may not think that the validity of your Lease could be affected. However, there may actually be an argument that the UK’s departure from the EU is sufficient to satisfy the doctrine of frustration in order to bring your Lease to an end.
Frustration is difficult to prove. You must be able to demonstrate the following:
- An event has occurred after the formation of the Lease or Contract;
- The event is not due to the fault of either party;
- The event is so fundamental that it goes to the root of the Lease or Contract;
- The event was entirely beyond what was contemplated by the parties at the time that they entered into the Lease or Contract; and
- The event renders performance of the Lease or Contract impossible or illegal.
In the context of Brexit, recent case law has highlighted the potential for this ground to come into play when a contract has been entered into at a time before Brexit was reasonably foreseeable.
In the recent case of Canary Wharf (BP4) T1 Ltd v European Medicines Agency , Brexit was not found as a sufficient event to cause the contract to be frustrated. The European Medicines Agency could still fulfil their obligations under their Lease whether the UK left the EU or not. As a result, performance of the Lease was still possible albeit within a different jurisdiction.
However, the judge did find that Brexit was not a reasonably foreseeable event when the agreement for lease was signed (in August 2011). As such, this case does not prevent parties from claiming that Brexit is a frustrating event in future in relation to other contracts concluded before Brexit became “relevantly foreseeable”.
The main sticking point appears to be whether the effect of Brexit would be enough to render the parties performance of the contract completely impossible or illegal.
It remains to be seen whether the UK courts will allow an argument for frustration on the basis of a political event such as Brexit. However, it seems increasingly likely that parties will at least try to rely on this argument going forward.
In order to bring some clarity to future agreements, parties may wish to consider the inclusion of expression provisions within Leases to prevent a claim for frustration arising as a result of Brexit. This could provide more certainty in the context of Brexit as well as identifying whether Brexit could be considered as a frustrating event.
However, pre-empting how any Lease may be affected by the UK’s departure from the EU is challenging, especially whilst the UK’s future relationship with the EU remains unknown.