COVID-19 Rent Cases: Round-Up

COVID-19 Rent Cases: Round-Up

This article was published on: 11th May 2021

It is now over a year since the Government first imposed a nationwide lock-down in March 2020, causing many businesses to cease operating, at least temporarily.  This coincided with a large increase in commercial rent arrears and, in order to preserve as many businesses as possible, restrictions on certain enforcement action were introduced by the Coronavirus Act 2020.

Those restrictions do not prevent a landlord issuing debt recovery proceedings for unpaid rent. Two recent High Court decisions dealt with many common arguments raised by tenants as a means of avoiding or suspending liability to pay.  We look at the key principles from each decision.

 

 

Commerz Real Investmentgesellschaft mbH v TFS Stores Limited [2021] EWHC 863 (Ch)

The Facts

We explored this case in depth here. The landlord and owner of a Westfield shopping centre issued proceedings for unpaid rent and service charges against one of its retail tenants.

The tenant defended those proceedings and an application for summary judgment was made.

The Decision

The landlord succeeded in its application. The key principles were:

  • The Code of Practice (discussed here) is voluntary; it does not affect the legal relationship between the parties, nor a tenant’s requirement to pay rent
  • The landlord had, in any event, not failed to engage with the tenant – to the contrary, the tenant had failed to engage with the landlord
  • There are no restrictions imposed by the Government on a landlord’s ability to claim Judgment for unpaid sums, only the means of enforcing that Judgment
  • There were no restrictions on the landlord’s right of access to the Court
  • The landlord’s obligation to insure was limited to specified risks – it was a matter for the landlord if it wished to insure against any further risks it considered to be “prudent”
  • The landlord was under no obligation to include notifiable diseases or Government action as an insured risk
  • Even if such risks were insured against, there was nothing requiring the landlord to insure the tenant’s business against loss – the tenant’s obligation to pay the landlord’s insurance was part of the overall rent
  • A rent suspension clause was only triggered where there had been physical damage to premises until they had been reinstated – there was no basis for extending that definition to cover forced closures arising from the pandemic legislation
  • The tenant’s obligation to “keep open” and trade during lockdowns was suspended, but this was distinct to the obligation to pay rent

Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others [2021] EWHC 1013 (QB)

The Facts

Three claims were brought by the landlord for unpaid sums against different tenants, all of which were defended on different grounds.

Those claims were consolidated for the purpose of summary judgment applications brought by the landlord in all three cases.

The Decision

The landlord was again successful in all cases.  The key findings were:

  • There was no need to imply a term to give the leases obviousness and/or business efficacy and the pandemic was not an unforeseeable event – it had been open to the tenant to take out business interruption insurance
  • The rent suspension clause did not operate where there had been no physical damage to property
  • The Code of Practice is voluntary and outside of the litigation process – it does not, by itself, obstruct a claim for summary Judgment being brought successfully; it remains open to parties to negotiate by reference to the Code at any point
  • There is no such thing as a “temporary frustration” of a lease for a specific period of time, nor was there any “full frustration” arising from the pandemic
  • A landlord is concerned with insuring its “bricks and mortar” and the landlord’s loss of rent policy did not operate in the manner the tenant argued – it was for the tenant to insure against what it considered to be important to its own business, such as an inability to pay rent due to specific circumstances

What’s Next?

These cases have given short shrift to a comprehensive bank of arguments employed by many tenants.  There will no doubt be others which will be tested in future cases.

In the meantime, and subject to any ongoing appeals, these decisions will provide landlords with the authority to reject many of those arguments raised in correspondence.

None of these decisions provide an answer to the real issues – how landlords and tenants find a workable economic solution, if any, which enables tenant business occupation to continue profitably for both parties as restrictions begin to ease, and which addresses historic arrears.  The Code of Practice remains a helpful reference point in aiding those discussions but, as these cases amply illustrate, it is not an effective shield to litigation.

Eyes remain on how the Government intends to find a route out of current restrictions on forfeiture and other enforcement methods imposed by the Coronavirus Act.  A consultation ended on 4 May 2021. The outcome could dictate the fate of many tenant businesses which remain in arrears and which cannot negotiate a solution with landlords.

Landlords or tenants seeking advice on the above issues should contact us on 0330 320 1440, by email hello@hagenwolf.co.uk, or fill in our online Contact form.

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