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Landlords win Covid-19 rent arrears in recent High Court decisions

14/05/2021
Commercial building on an industrial estate

The High Court has recently handed down two reported judgments in April 2021 in respect of non-payment of rent by commercial tenants during the Covid-19 pandemic, finding in favour of the landlord in both instances. Laura Ellis, Solicitor in Lodders’ Dispute Resolution team, explains.

In both cases, Commerz Real Investmentgesellschaft mbH v TFS Stores Limited [2021] EWHC 863 (Ch) and Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others [2021] EWHC 1013 (QB), the High Court awarded summary judgment against the tenants requiring the tenants to pay the rent arrears which had fallen due during the Covid-19 pandemic.

Background

The more recent case, Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others heard several tenants’ commercial rent arrears cases together. The tenants included Cine-UK Limited, Mecca Bingo Limited, and SportsDirect.com Retail Limited, who had each been largely unable to trade during the Covid-19 lockdown.

The tenants’ arguments

The tenants presented various detailed arguments against their liability to pay rent during lockdown periods, some of which are summarised below:

  1. The Code of Practice for commercial property relationships during the Covid-19 pandemic

The Government’s Code of Practice (published in June 2020 and then updated in April 2021) with respect to commercial premises and leases was relied upon by the tenants on the basis that the Code encourages landlords and tenants to communicate and negotiate where rent payment difficulties arise, rather than issuing proceedings. However, the Court recognised the existence of the voluntary Code as “outside the litigation process and not applicable to these Tenants who are not said to be unable to pay.”

  1. The rent cesser clauses applied to the pandemic

It was said that the rent cesser clauses in the leases should be interpreted to incorporate the closure of the premises during lockdown periods and subsequent inability to trade within the meaning of “damage or destruction” to the premises, or alternatively, terms to that effect should be implied into the leases.

The Court did not agree, closure of the premises or restricted access needed to be due to ‘physical’ damage or destruction when interpreting the clauses. Further, the test for implying terms could not be satisfied, as the suggested implied term was not considered to be obvious or necessary to give the leases business efficacy. Master Dagnall’s view was such that whilst Covid-19 and the Covid-19 regulations are unprecedented, they were not “truly unforeseeable in the light of such matters as SARS and consequent fears”.

  1. Landlords were insured against loss of rent

The landlords had been insured against loss of rent for the event which occurred. Hence, the tenants argued they should not have to pay the rent. This argument also failed. The landlords had not suffered loss for the purpose of their insurance as the rent cesser clause was not applicable. As such there was nothing to be insured against.

  1. Frustration

The leases were argued to have been temporarily frustrated during the periods of Covid-19 lockdown and therefore should be treated as suspended or terminated. The Court found that there is no such thing as ‘temporary frustration’ in law and did not find that the leases had been frustrated.

Reassurance for commercial landlords

Overall, the application for summary judgment in Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others by the landlords was successful, to include their claims for unpaid rent, VAT and interest. Similarly, in the first reported judgment regarding a commercial rent claim involving Covid-19, Commerz Real Investmentgesellschaft mbH v TFS Stores the High Court decided that the landlord was entitled to summary judgment against its tenant for non-payment of rent and service charges.

Victoria Khandker, Partner in Lodders Property Dispute Resolution team, commented, “The High Court’s decisions will provide an element of reassurance for landlords of commercial premises whose tenants continue to refuse to pay substantial rent arrears, particularly those who have been unwilling to engage in sensible discussions. Many landlords and tenants have been able to reach sensible solutions, but we are seeing a number of instances where tenants simply refuse to engage, considering that the landlords will prioritise having a tenant in situ, rather than recovering arrears. For many landlords, not recovering rent arrears is not an option.”

How we can help

Our Property Dispute Resolution team have considerable experience in advising landlords and tenants, both generally, and in respect of issues arising due to the pandemic. If you wish to find out more, contact Vicky Khandker or Laura Ellis in our Property Dispute Resolution team.

This information provided in this article is for guidance purposes only and does not constitute legal or professional advice.

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If you wish to find out more, contact Vicky Khandker or Laura Ellis in our Property Dispute Resolution team.