The logo of the European Medicines Agency is seen on the office building in Canary Wharf, east London | Daniel Leal-Olivas/AFP via Getty Images EU drugs agency told it can’t escape pricey London lease Judge rules European Medicines Agency didn’t have to relocate because of Brexit.

The European Medicines Agency was hoping Brexit would be a strong enough reason to exit its no-break £500 million London lease.

Instead, the agency now faces the prospect of paying double rent for the next 20 years following its relocation to Amsterdam.

The U.K. High Court on Wednesday rejected the EMA’s argument that its London lease was “frustrated” by Brexit, and said the agency “remains obliged to perform its obligations.”

That means the EMA must pay in the region of €18 million a year until 2039 in extra rental costs, unless it can find a suitable subletter for the highly specialized premises in Canary Wharf, east London.

The EMA said it is studying its options for appeal, but has been vocal on the impact the liabilities will have on the agency’s ability to meet its duties in protecting public health.

Following the U.K.’s Brexit referendum, the EU institutions were clear that an EU agency could not remain in a non-member country.

“Paying rent for two sets of headquarters despite only need[ing], and occupying, one headquarters, would be highly detrimental to the EMA,” Nerimantas Steikunas, the EMA’s interim head of corporate management and finance, said in testimony during the case.

The EMA will close the doors of its London office on March 1, where it has already held the farewell ceremony; it has begun moving staff to temporary headquarters in Amsterdam and construction is underway on a new headquarters, which it plans to move into in November. The EMA is expecting to pay around €13.6 million a year in rent for that site from 2020.

Steikunas said continuing to service its London lease until 2039 would “necessarily and fundamentally impact upon the EMA’s institutional effectiveness,” and that the costs are in the region of 15 percent of its staff budget — making the charge “akin to requiring the EMA to do without a substantial proportion of its current workforce.” The regulator, which is responsible for evaluating the effectiveness and safety of medicines for sale across the EU, has already been forced to delay or scale back a range of activities during the relocation.

In his ruling, Judge Marcus Smith suggested the EMA should have thought of that before deciding to relocate.

The judge determined that the EMA could have stayed in the U.K. — saying the “move from London to Amsterdam was not required as a matter of law.” Following the U.K.’s Brexit referendum, the EU institutions were clear that an EU agency could not remain in a non-member country, and the European Council initiated a bidding process to determine the new location.

Both the EMA and the EU must have considered the “additional cost” of that relocation and the financial implications of building a new facility, Smith wrote. “If they have not, then they should have done,” he added.

An EMA spokesperson said, “the Agency had no say and was not a party in the political and legislative process leading to the approval of Amsterdam as its new seat.”

Stating that the “EMA has a legal personality distinct from the EU institutions,” the agency said that, under the regulation adopted by the Council and European Parliament “who are not parties to the lease agreement, EMA has no choice but to leave London and move to Amsterdam on or before 30 March 2019.”

The EMA’s own former head of counsel noted shortly after the referendum that there is no law against keeping the drugs agency in the U.K.

A costly mistake

After entering into an agreement to begin construction on the custom London headquarters in 2011, the agency in 2014 began a 25-year £500 million lease that was negotiated without a break clause to make it cheaper.

“The EMA chose to enter into a long-term relationship, with long-term obligations,” Smith observed in his judgment. “It could have opted for different premises, with a shorter lease; it could have negotiated a break and paid a (far) higher price and foregone the inducements it received. It did none of these things,” he said.

Property lawyers in London were also watching the case closely since they said it would set strong precedent for other efforts to break contract leases.

The ruling has implications for the next EU budget, running from 2021 to 2027, which is being negotiated in Brussels. With the U.K.’s departure set to leave a hole of up to €13 billion a year in the budget, countries are highly sensitive to how the money will be allocated.

Property lawyers in London were also watching the case closely since they said it would set strong precedent for other efforts to break contract leases. The EMA’s legal argument hinged on an arcane doctrine in English contract law known as “frustration,” stemming from a 1903 decision (Krell v. Henry) established after a man rented a room to watch King Edward VII’s coronation procession but then saw the procession canceled after the king got appendicitis.

“We fulfill our contracts and expect other parties with whom we enter contracts to respect the law and their own obligations, particularly in the case where a party is created and backed by an international institution,” Sir George Iacobescu, chairman and CEO of the Canary Wharf Group, said of the court’s decision to throw out the EMA’s claim.

“The high bar for frustration claims applies to all contracts, not just leases, and parties looking for an ‘out’ due to Brexit would need to formulate their claims very carefully to have a chance at success,” said Frances Richardson, head of real estate disputes at Linklaters, in a statement.

The EMA now needs to decide whether to appeal or find a subletter, which will be subject to its landlord’s approval. There will be a final hearing in the case before March 29 to determine who will pay the legal costs.

“The Agency continues to trust in the cooperation and goodwill of the Canary Wharf Group to find a mutually satisfactory solution before the end of March 2019,” the EMA spokesperson said.

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