Brexit and Commercial Property
Whilst Brexit related uncertainty has caused, and will undoubtedly continue to cause, some of the larger developments and projects in the UK to either stall or stop altogether, the UK commercial property sector will not grind to a halt. Where there is uncertainty, so too is there opportunity for those willing to act quickly and decisively in a market where competitors may be biding their time.
We anticipate less speculative development in the lead up to – and post – Brexit, but we are already seeing an increase in more speculative agreements being entered into, in the form of longer-term Option agreements, Pre-Emption Agreements and Planning Promotion Agreements. Buyers and sellers are both keen to enter into binding agreements that provide for action and fulfilment (or termination) once the wider implications of Brexit are understood.
Brexit, in the context of landlord and tenant relations, made its way to the High Court for the eagerly awaited 2019 decision in Canary Wharf v The European Medicines Agency (“EMA”). In 2011 the EMA signed a 25-year lease of office premises in Canary Wharf. The EMA argued that once the UK Government invoked Article 50, the consequences of Brexit would lead to a number of legal changes affecting the capacity of the EMA to fulfil its obligations under the lease. As such, they argued, the lease was frustrated (the legal doctrine which states that if events occur after the date of an agreement which make it physically or commercially impossible to fulfil the contractual obligations in that agreement, or transform those obligations into such a different obligation from that undertaken at the moment they signed the agreement, that the agreement should be capable of being terminated). The High Court rejected their argument and declared that the lease was not frustrated; a decision welcomed by all commercial landlords.
As a result of the EMA decision, landlords and tenants are now considering their positions in respect of their existing, and proposed, leases more carefully. We are seeing a number of proposed leases containing so-called “Brexit clauses”; clauses purporting to address currency fluctuations, increased tariffs and differing post-Brexit regulatory requirements. Careful consideration will be required when proposing, or accepting, such clauses in the context of lease agreements.
Our Commercial Property team can help advise buyers, sellers, landlords and tenants on the possible implications Brexit may have on their commercial property arrangements. To discuss, please contact Partner, Paul Russell at firstname.lastname@example.org