Brexit is proving to be quite a financial burden for the European Medicines Agency (EMA), which risks being saddled with a €450 million, or £370 million, bill for renting a now-empty office in London’s Canary Wharf financial district.
When the UK left the European Union after the June 2016 referendum, London lost the right to host the EMA, which had to move to an EU country. Amsterdam was selected and the agency moved its headquarters there.
The agency was hoping to be able to rescind its 25-year lease contract with the Canary Wharf Group, owners of the office building. It claimed that Brexit had been an unforeseen and indeed unpredictable event which justified an early termination of the lease contract.
However, the High Court rejected the claim, saying that Brexit was not a sufficient reason to cancel the lease or, to use the legal terminology, ‘Brexit does not amount to an event of frustration of the EMA’s lease’. The judge said that the EMA would have to carry on paying rent.
Legal experts at the time believed that, at a time of great uncertainty about the impact of Brexit, the judges had wanted to reassure the real estate market on the validity of lease contracts signed before the referendum.
In order to recoup at least some of the money it had to pay out, in 2019 EMA had sub-let the office building to WeWork, the co-working group. The arrangement worked well for a few years, until the pandemic led to a collapse in demand for co-working spaces and for office space in general.
The working from home trend proved to be fatal for WeWork, which declared bankruptcy in November 2023. From 1 January this year, WeWork has stopped paying rent on the Canary Wharf asset, although the company says it is still paying service charges.
The European Union, that is responsible for any shortfall in the already stretched EMA budget, will have to step in to pay around €30 million a year for rent and bills.
The European Parliament’s Budget Committee has asked EMA if it will be possible to find another tenant for the building, but the Agency pointed out that, with vacancy rates running at over 15% in Canary Wharf, the chances of sub-letting the asset again are slim, at least in the short term.
Unless the market picks up, EMA – which means the EU – will have to pay rent and bills until the contract runs out – in 2039.