Cinemas to keep a close watch on rent!

The recent High Court case of  London Trocadero LLP v Picturehouse Cinemas Limited and Others [2021] EWHC 2591 (Ch) is yet another case where a landlord successfully sued its tenant for commercial rent liabilities which accrued during the COVID-19 pandemic, using the usual court route.

The landlord in this case pursued a summary judgment application for arrears in the sum of £2.9 million. The tenants (or defendants) were Cineworld, Picturehouse Cinemas and Gallery Cinemas.

Their main arguments or defences raised were:

(1) That terms should be implied into the leases to the effect that payment of rent should be suspended during any period for which the use of the premises as a cinema was illegal and/or during which attendances would not be at a level anticipated by the parties at the time the leases were entered into; and

(2) That there had been a partial failure of consideration, on the basis that the payments due under the leases were for the use of the premises as a cinema. As the premises could not be used as a cinema, no payments were due under the leases in respect of those periods.

Unsurprisingly, both arguments were rejected.

In a nutshell, the court held that the suggested implied terms did not meet the  “business efficacy test” necessary to imply terms into a contract.  Further, that the expectation that the premises would be used as a cinema was not enough to oust rent payments.

Full judgment can be found here.

What does this mean?

  • The case maintains the well-known status quo or trend which is that tenants who can pay rent should do so
  • The usual arguments for non-payment (implied terms and failure of consideration) are not likely to succeed, another affirmed trend
  • One of the earlier decisions, Bank of New York Mellon (International) Ltd and v Cine-UK Ltd, which again upheld a landlord-friendly decision is due to be appealed to the Court of Appeal – the tenant (Cine-UK) will be arguing that the interpretation of its lease and, in particular, the rent cesser provision was incorrect. This may change the game but we shall see- although unlikely
  • We can see that courts are trying to come away from the special measures approach which was taken throughout the pandemic. You may recall in previously reported cases, Sports Direct and the Fragrance Shop (tenants), attempted to rely on the Code of Practice for commercial property relationships during the COVID-19 Pandemic, to argue that their landlords were not entitled to recover rent under the leases, notwithstanding the fact that the leases clearly stated that rent was due. It was held in those matters that whilst the Code was important, it is not law. Decisions in favour of the landlords were upheld
  • In respect of remedies, we can see that court proceedings are still a very good way to pursue rent debts notwithstanding the Government introducing a binding arbitration process next year; in the London Trocadero case , the court was asked to adjourn the hearing pending an update on this upcoming legislation but did not
  • The draft legislation following the Government’s policy statement in respect of commercial rent arrears is anticipated in November 2021; tenants will probably increase their calls on the government to implement the new binding arbitration process whilst we will probably see more landlords issue more money claims, and apply for summary judgments in the meantime
  • Insurance policies to cover loss of rent caused by denial of access, lockdowns or notifiable disease are out there but entitlement to cover will very much depend on the wording of the policy. My colleague Alistair Kinley, BLM’s Director of Policy & Government Affairs, discusses business interruption insurance in far greater detail in his blogs here.

Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of BLM. Specialist legal advice should always be sought in any particular case.

Who to contact

Priya
Sejpal

Associate , London

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