People look out over the Canary Wharf district, where the European Medicines Agency has its current facilities, from Greenwich Park in south London | Ben Stansall/AFP via Getty Images How the EU trapped itself into a no-break lease in Britain European Medicines Agency has a 25-year, €500 million lease in London.

LONDON — The EU had its eyes wide open when it signed a €500 million, 25-year unbreakable lease for the European Medicines Agency back in 2011.

Back then, José Manuel Barroso was president of the European Commission and the word Brexit hadn't been invented. The deal on brand-new, custom facilities in the Canary Wharf business district of London was questioned by some in the EU but ultimately green-lighted.

"I had two problems with the lease: the location and the fact that there was no exit clause," said Monika Hohlmeier, a conservative German MEP in charge of the Parliament's position on the EMA lease back in 2011. "I asked the Commission and Council to include an exit clause in the contract, especially since every other EU agency has one, but both institutions refused to do so," Hohlmeier told POLITICO.

Such a clause would have made the lease more expensive, Hohlmeier said she was told. "The Council told me to mind my own business. As for the location, they said that London had been chosen for political reasons and could not be changed," she said.

The terms of the contract resurfaced soon after the Brexit referendum last summer when Commission staff in the Jean-Claude Juncker era began talking about what the U.K.'s departure will mean for the agency and its fancy home. As negotiations between the EU and Britain start in earnest, the €347.6 million that the EMA would still be liable to pay between now and 2039, when the lease expires, could be one of the tricky issues negotiators stumble on when calculating the U.K.'s exit bill.

Those figures went viral this week after a European Parliament report brought them to light.

EU wants UK to pay Brexit bill

The EU has made it clear that the U.K. will be responsible for picking up the tab for moving the EMA and the much smaller European Banking Authority out of London and into somewhere else in the EU. That seems to include whatever financial liabilities arise from the EMA having to break its lease and move.

"The U.K. will have a duty to facilitate the transfer of the two EU agencies," one press officer for Michel Barnier, the European Commission's Brexit negotiator, said in a statement.

In her June 2011 report for the Parliament's budget committee, Hohlmeier wrote that the €517 million the agency would have to pay for the Canary Wharf building over 25 years was excessive. It complained about its expensive taste, given that "it concerns one of the most expensive areas of the most expensive city of the European Union, which is in contradiction with the policy of savings stipulated by the Council.”

In the future, it asked the Council "to take into account the property prices at the seat of a newly created agency in the host country."

The EMA's 25-year term is considerably longer than most in London, where trends have shifted towards shorter rental contracts, said Thom Wilkinson, property partner at the London law firm Monro Wright & Wasbrough. However, he said, such an arrangement isn’t surprising given the custom-made specifications for the EMA’s space and reflects the normal course of negotiations.

“There are lots of leases that have break clauses in them, but it’s by no means a majority,” Wilkinson said. For a custom-built setup like this, “no developer or landlord is going to go to all that expense unless they’ve got a guarantee of a payback.”

Likewise for the EMA, the stability of a long lease might have seemed more valuable than a break clause during the negotiations, which wrapped in 2011.

“It’s something that a tenant would negotiate if they felt there was a reason to do that,” Wilkinson said. Evidently, “they didn’t see any reason at the time.”

That's exactly what the agency thought. The lease agreement and the EMA move into the building were "well ahead of the inclusion of an in-out referendum on the U.K.’s EU membership in the 2015 Conservative Party manifesto in April 2015," an agency spokeswoman said.

As part of the deal, it got three years' worth of rent free, the Canary Wharf Group, which owns the EMA building, announced at the time of the deal with the EMA.

The agency now sits in the lower half of a large glass and steel skyscraper on the eastern waterfront of Canary Wharf. Not unlike parliamentary or Commission offices, the EMA has modern plush auditoriums fitted with desks and microphones in an oval shape to allow large committee hearings to take place. Widescreen TVs are dotted around the edge of the meeting rooms and a hi-tech IT suite sits behind a glass window to control the media during conferences and provide translation services.

The offices are spacious, light and with numerous meeting rooms enjoying far-reaching views of the City of London and beyond.

Canary Wharf Group also holds the lease of the other EU agency based in London: the European Banking Authority. The EBA’s lease agreement ends on December 8, 2026 but includes a break option after six years, triggering a penalty payment of 16 months’ rent, as shown by a European Parliament report.

While the EMA is responsible for the remainder of the lease, they still have plenty of options for avoiding the €400 million bill, Monro Wright & Wasbrough's Wilkinson said; there’s nothing keeping them from trying to work out a surrender agreement with the landlord, for a payout of a few years’ rent rather than decades. There’s even some profit potential: The EMA could become a high-end London landlord, subleasing its space for more than its present rent.

And one member country diplomat in Brussels didn't seem bothered by the terms of the lease, saying that it's a rental contract that can be broken, even if there's a penalty.

The EMA's own Brexit taskforce is looking into the lease.

Who's breaking the lease?

Britain has signaled that it wants to keep the EMA in London, but earlier this month Chancellor Philip Hammond noted that "the location of the European Union’s agencies is clearly a matter for the European Union. We cannot credibly seek to leave the European Union and at the same time dictate to it where it should locate its agencies."

And the issue of whether there is an exit clause in the deal is irrelevant, since it would only bind the two parties in the contract: the European Medicines Agency and the Canary Wharf Group. It would not protect either side from the intervention of a third party — in this case the U.K. government, said Vincenzo Salvatore, former head of legal services at the EMA.

“Even if you had included an exit clause, if the termination of the contract is imposed by the government, the exit clause would not come into effect because this consideration is for when one of the parties makes an exit on its own decision,” he said.

Salvatore said the real discussion that will develop over the coming weeks will be what position the U.K. takes on the EMA’s location. “It will be for the U.K. government to say, ‘We do not force the EMA to leave; we are creating a new relationship with the EU and we are not forcing the agency to leave.’”

If the consequences of Brexit are that the EMA does have to leave London, then it will ultimately be because of the U.K.’s decision to leave the union and the government’s inability to negotiate a new deal for it to stay, he said.

That, Salvatore said, would deal the U.K. a bad hand in negotiating the costs.

Quentin Ariès, Annabelle Dickson, Laura Greenhalgh, Silvia Sciorilli Borrelli and Sarah Wheaton contributed reporting.