Two recent cases in the High Court in England & Wales have decided that commercial rent arrears are due and owing by tenants, despite long periods of closure and statutory restrictions on non-essential businesses during the pandemic.
The first reported case on these issues was Commerz Real Investmentgesellschaft mbH v TFS Stores Limited. Here, the tenant had not paid rent and service charge since April 2020, due under its lease of retail premises. The tenant argued it could not afford to pay the rent, because of lack of footfall during the pandemic. The tenant further argued that the arrears claim was premature, because the landlord had not followed the 'Code of Practice for commercial property relationships during the COVID-19 pandemic' guidance ("Code") and the legislative restrictions on enforcement of lease covenants; and, the landlord was obliged to utilise insurance monies for loss of rent.
The Court disagreed on both points: 1) the Code did not have the effect of varying or suspending contractual terms and the landlord had engaged it in any event and the legislative prohibitions did not alter a landlord's ability to bring a claim for rent and service charge arrears 2) there was no obligation for the landlord to look to its insurance first and, since there was no damage to the premises, any landlord insurance claim would fail in any event.
The court also stated that no implied term would be read into a 'keep open' covenant that rent would not be payable, while the pandemic statutory prohibitions enforcing closure of premises were in place.
In the second reported case of Bank of New York Mellon (International) Limited v Cine-UK Limited tenant arrears were outstanding from March 2020. Like TFS, the various tenants (a number of cases were heard together) had been unable to trade during the pandemic. The tenants raised a number of arguments relating to the Code, implied terms, insurance and that COVID was an event which (temporarily) frustrated the leases. They also tried to argue summary judgment (detailed below) was not suitable, owing to the technical defences and complexity of the issues in dispute.
The High Court unflinchingly rejected all arguments raised by the many tenants, signifying a certain death knell for any future tenant defences based upon non-payment of rents resulting from the pandemic.
Both cases were determined by way of summary judgment. Summary judgment can be awarded in circumstances where the defendant, in essence, has no grounds to defend the claim and so there is no reason why the case should proceed all the way to a full trial. The High Court has affirmed that a contractual obligation to pay rent under a lease, remains a good case in point in dealing with rent arrears by way of summary judgment application.
For further information about making a summary judgment application, please see our previous legal view in Place North West here (note: the restrictions have been further extended to 30 June 2021).
If you have any concerns or questions about your or, your tenant(s), arrears, how it may impact your business and what you can do about it, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.