A recent High Court decision (England & Wales) is the third reported case of the year involving well-known high street names, where the tenant's defence to the landlord's claim for Covid-related rent arrears has failed. However, the case is set to go to the Court of Appeal for determination, following the tenant's successful application on 3 November 2021.
The claim
The tenants, cinema operators, held two leases of premises within the Trocadero Centre, London. As a result of Covid lockdown measures, for significant periods of 2020 and 2021, the cinema was forced to either cease operating or, open at a reduced capacity. Quite unsurprisingly, the measures impacted enormously on the tenant's revenue; as a consequence the tenant fell into rental arrears.
The landlord issued court proceedings and shortly afterwards sought early summary judgment on the arrears in the sum of £2.9 million. For more information about the use of summary judgment in these claims, please see our legal view in Place North West here (note: the restrictions have been further extended to 25 March 2022).
The tenant's defence
The tenant raised two arguments, namely:
1. A term should be implied into the leases to suspend the tenant's obligation to pay rents during the periods the premises could not be lawfully used.
2. There had been a failure of considerationas the leases were entered into on the basis the premises could be used as a cinema. The premises could not be used for the intended purpose for certain periods due to the Covid restrictions and so there should be no obligation to pay the rent during these times.
The first decision
Of the proposed implied term, the court said it was not necessary to provide business efficacy to the leases; and there was no commercial sense in the landlord bearing the arrears. Moreover, the leases provided circumstances in which rent would be suspended so, any implied term would be at odds with those express terms.
The use of the premises as a cinema was not fundamental to the basis on which the parties entered into the leases. Agreeing with the landlord, the court held that that the tenant had, in essence, negotiated for the grant of a term of years which the tenant had received the benefit of.
Permission to appeal granted
The tenant has been granted permission to appeal the High Court's decision. The Court of Appeal has a difficult choice to make. By deciding this case, impliedly it will affirm either 1) the government's view that commercial landlords are to share the financial burden caused by Covid or 2) Covid is not sufficient to interfere with the terms of a commercial contract.
Watch this space.
If you have any concerns or questions about commercial rent arrears or how these decisions may impact you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.
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Senior Solicitor
