A forced relocation and the collapse of hotdesking company WeWork could leave the formerly London-based regulator with a €30 million budget hole for 2024.
ADVERTISEMENTBrexit, and the dramatic collapse of hot-desking company WeWork, have conspired to cause a toxic budget problem for EU medicines regulators – and lawmakers want the European Commission to step in, Euronews has been told.
In 2017, the European Medicines Agency (EMA) was forced to relocate from London’s plush Canary Wharf district – and new tenants failing to pay the rent could leave it with an annual €30 million bill for which taxpayers might end up on the hook.
On Thursday (11 January), MEPs from the European Parliament’s Budget Committee quizzed representatives from both the Commission and EMA in a closed-door hearing that majored on the issue.
Lawmakers from across the political divide took the side of the agency and called on the EU executive to figure out a sustainable way for the EMA to operate without being distracted by real estate concerns, multiple sources present at the meeting told Euronews.
Though the hearing was just an information point, not followed by any vote or binding decision, the controversy could drag on for several more weeks, “at least until February,” a parliament source told Euronews.
Relocation
After Brexit, EU members decided to move the EMA from the UK, where it’s been since opening in 1995, to Amsterdam – even though the agency had in 2014 signed a 25-year lease for London offices, with no exit clause.
The competition among EU members to host the agency, with 19 cities bidding, was so tough it had to be decided by drawing lots, according to diplomatic sources.
Though the London lease was initially discussed as part of a Brexit deal between the EU and the UK government, those talks became increasingly fractious, and the lease issue was “suddenly removed” from negotiations, the EMA said in a document sent to lawmakers.
That left the EMA to take the matter into its own hands, including via litigation. After an English court ruled Brexit was not a legitimate reason to cancel the contract, the agency had to find another tenant to avoid having to pay for empty premises – though that solution didn’t last long.
WeCrashed
After one and a half years of searching, the EMA in 2019 sublet its London premises to hot-desking company WeWork – the onetime Wall Street darling that promised to upend office culture, before itself dramatically collapsing in 2023.
Since then, the company has been in contact with its landlords – including the EU agency – to renegotiate its leases, an EMA spokesperson told Euronews.
“WeWork continues to carry on operations from its London premises and is not in breach of its financial obligations,” the spokesperson said, adding that the occupancy rate of the former EMA premises is one of the highest in London.
However, the EMA has agreed to let WeWork UK suspend lease payments for the first three months of 2024, at a cost of €5.3 million, the agency said in a confidential document sent to MEPs and obtained by Euronews.
The EMA’s property consultant expects WeWork to surrender the full premises before the end of March, the document continued, which would leave the agency with a total net exposure for 2024 of €30 million, including rent, legal and property management costs.
In the document, EMA says it will continue to look for other tenants in a bid to reduce the future financial impact. But it’s “unrealistic” to expect that WeWork UK or other potential lessees will continue paying the full amount.
“It appears increasingly likely that the Union budget will need to contribute towards the rent of the 30 Churchill Place premises,” the EMA document added.
Parliament support
The European Commission may now have to step in to cover the EMA’s financial losses for 2024 and ensure that the agency's budget can fulfil legal obligations toward third parties.
That would imply using the EU’s own budget – itself funded by national governments, and hence taxpayers – to cover costs, but some believe that the move still wouldn’t go far enough.
ADVERTISEMENTGetting the Commission to fill in financial gaps while the EMA is busy finding other subletters cannot be a long-term fix, according to the agency.
“Regardless of the tactical solutions that may be proposed” the matter requires “a political resolution at the highest level,” the EMA confidential document said, implying the need for further talks between the Commission and the UK government.
In its own reply to MEPs, also seen by Euronews, the Commission suggested it didn’t want to go that far, saying that it was the EMA’s job “to decide on the best way to minimise the loss under the contract it has entered into.”
Lawmakers don’t agree and are worried the issue will mean the EMA diverting limited financial and human resources from its core mission of evaluating medical treatments, which in recent years has seen it play a key role for Covid vaccines.
“It is awkward that an agency tasked with health matters is now handling real estate issues,” German centre-right MEP Monika Hohlmeier, who was at the meeting, told Euronews, after the EMA revealed it had been spending its time monitoring property markets and developing building occupancy models.
ADVERTISEMENTFor Hohlmeier, it’s proof that all future EU building contracts need a mandatory exit clause.
“No one could predict if long-term contracts last as long as hoped,” she said. “There can always be unforeseen events.”
