One question that may be asked by EU headquartered businesses with UK operations is whether there will be an impact on commercial leases after Brexit. Can businesses end their leases if they want to rebase their operations in the EU following our departure from the EU on 1 January 2021?
This article is part of a series of articles on how to prepare your business for Brexit. Our legal advisors have also produced a business guide to help you navigate the challenges.
The decision in Canary Wharf (BP4) T1 Ltd and others v European Medicines Agency confirms that Brexit has no material impact on the continuation of existing leases. In that case, it was determined that leaving the EU does not give rise to a frustration of a lease, even if the purpose of the lease is no longer relevant.
The European Medicines Agency (EMA) argued that it had been agreed with the landlord that the purpose of the lease was to provide a permanent headquarters for the EMA for 25 years. They argued that Brexit meant that this purpose could no longer be achieved and that the common purpose of the lease would therefore fail. Therefore, Brexit will have no immediate impact on the continuation of commercial leases with EU tenants.
However, that does not mean that there is no impact:
Impact on commercial leases after Brexit
Here are some of the key points that businesses will need to consider:
- Many leasehold covenants refer to the need to comply with statutory provisions that are based on EU law, such as environmental legislation. As the UK transitions from existing statutory provisions to solely domestic provisions, the effect of statutory compliance covenants can change;
- The ability to pursue a claim against an EU tenant or guarantor will be affected by the final deal. If the procedure that has to be used to bring a claim proves to be difficult or costly, expect landlords to require rent deposits or other forms of security from EU tenants; and
- Many well-drafted leases will have choice of law and jurisdiction clauses, but those will be even more important to avoid doubt about the law and jurisdiction applicable to disputes.
How we can help
This article is for general information purposes only and should not be used as a substitute for legal advice. If you are unsure of your legal obligations in any part of your business management, we can support you through the whole process.
Our expert teams can help you navigate the new rules around immigration, employment contracts, supply chain, data protection, commercial property disputes and any legal matters affecting your business. For more information, our legal advisors have produced a Brexit business guide and series of articles – you can also get in touch if you have any questions.