The EU faces a potential office space bill of more than €450 million after its drugs regulator quit London because of Brexit, adding pressure to its already overstretched budget.
The European Medicines Agency sublet its former headquarters building in Canary Wharf to WeWork in 2019 but the bankrupt desk-space business had suspended rent payments, according to a document seen by the Financial Times.
The EMA told lawmakers in Brussels that it needed €30 million annually to fund rent and bills until and unless a new occupant is found for the Canary Wharf property. First reported by the Telegraph, the EMA’s lease ends in June 2039, creating a potential liability of more than 15 years totalling €450 million.
It has already asked the EU for more than €3 million to cover rent for the first quarter. Brussels is legally obliged to make up any shortfall in the EMA budget.
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European parliamentarians, who must approve any request, will quiz officials on Thursday in private about the future of the building, vacated when the EMA moved to Amsterdam as the UK left the EU.
In replies to written questions by the European parliament’s budget committee, the EMA said the prospects of recouping much of the money were slim because of the UK’s weakening commercial property market.
Finding a new tenant was likely to take at least two years, since the vacancy rate in Canary Wharf was more than 15 per cent, it said.
Meanwhile, the EU would be liable for rent and service charges, taxes, operating costs and utility bills, totalling about €30mn a year, the EMA said.
In line with UK industry practice, the agency would also have to offer “rent-free periods or equivalent cash payments” of about 15-18 months every five years, in effect a 25 per cent discount, it said.
The building at 30 Churchill Place was designed in 2008 and is categorised as second-hand, renting at £29-£35 per square foot rather than the £50-£57 for newer space.
“The financial and human resource burden of managing and maintaining the former premises diverts EMA’s attention from its critical human and animal health mandate,” the agency added.
WeWork stopped paying rent on January 1st but continues to pay service charges, according to people familiar with the situation. The two sides are in talks.
“Before any decision can be taken we must await the outcome of negotiations with the subtenant that are confidential,” Olivier Chastel, vice-president of the budget committee, told the FT.
WeWork said it was up to date with its lease obligations and its operation remained unaffected. “We continue to work constructively and collaboratively with our landlord partner at this location to craft a solution that mutually benefits both parties for the long term.”
The EMA is urging the European Commission to find a “political resolution”, hinting that British officials could be housed in the building in a deal with Brussels.
But in its answers to MEPs, the commission said the EMA’s relocation was not covered by Brexit agreements and the contract was not its responsibility. “To our knowledge... UK authorities visited the premises but did not eventually express interest [in leasing] them,” it said.
The EMA will soon submit its estimate of the likely financial gap for inclusion in the debate over the EU budget.
The EU is already engaged in tortuous budget talks. The commission has asked for a €100 billion increase, with half earmarked for Ukraine. The plan has met fierce resistance from richer member states, which pay the most and who have haggled the non-Ukraine sum down to €21 billion. However, a deal remains elusive.
“The EMA has a €480 million annual budget. This is €30 million a year,” said an EU diplomat on Tuesday. “They can start looking in their own budget before asking for more from the EU.” - Copyright The Financial Times Limited 2024
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