Commercial tenants liable for rent during lockdown period
As lockdown restrictions are eased, commercial tenants have been dealt a blow as the courts determine they are liable to pay all rent owed for the period they have been forced to close.
A second judgment relating to a tenant’s liability to pay rent where they have been prevented from trading due to the impact of COVID has now been handed down. The judgment in Bank of New York Mellon (International) Ltd v Cine-UK Ltd and others follows that of Commerz Real Investmentgesellschaft mbH v TFS Stores Ltd. Anmd and has also found in favour of landlords.
The landlord in these matters were applying for summary judgment, so were asking the court to determine that the tenants had no real prospect of successfully defending the claims and there was no need for the matters to proceed to a full trial.
The judge decided to hear a number of cases at the same time with a view to dealing with all possible lines of defence that various tenants had raised where landlords had commenced proceedings to recover rent arrears. The potential defences were:
- That the spirit of the "Code of Practice" for COVID rent arrears should restrict the ability for landlords to bring claims for rent arears accrued the pandemic;
- That the rent cesser provisions in the leases should apply of the lockdown period;
- That terms should be implied into the leases to allow the rent cesser provisions to apply during the lockdown period;
- That tenants should be entitled to rely on loss of rent insurance taken out by landlords; and
- That the lockdowns temporarily frustrated the leases, so as to treat them as suspended or terminated.
The judge found against the tenants on all points and awarded summary judgment for payment the full amount of rent arrears to the landlord. Due to the extensive judgment handed down (being over 100 pages), it seems that all potential lines of arguments that a tenant could raise have been considered and determined against them.
The judge recognised that the lockdown has been unprecedented and that it is impossible not to feel sympathy for tenants who have been denied the right to trade. However, in making reference to the judgment in last year’s case of TKC v Allianz, the judge re-emphasised that in unprecedented times it is for the court to provide a solid practical and predictable foundation for the resolution of disputes, and that contractual rights should be evaluated by applying settled legal principles so that legal certainty remains paramount. The judge concludes that anything else is a matter for Parliament and not for the courts.
The judgment emphasised that landlords are expected to honour any existing agreements that have been negotiated with tenants, but it questions what the purpose of the Code of Practice now serves in view of these decisions, other than as to whether or not a party may have acted unreasonably.
Other than relying upon a landlord’s goodwill in looking to preserve a working relationship as the country moves out of lockdown, it looks as though tenants have reached the end of road as far as challenging their obligation to pay rent for the period that they were unable to trade.
The tenants have until 7 May 2021 to seek permission to appeal.
If you have any questions about this topic or require support for your business, please contact a member of our Property Litigation team.