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Commercial rents payable despite lockdown closures for non-essential retailers

Three High Court applications were heard in relation to commercial rents to be paid, despite COVID-19 retail closures.

The High Court heard three summary judgment applications in Bank Of New York Mellon (International) Limited V Cine-UK Limited and others which concerned unpaid rents as a result of the Government restrictions during the COVID-19 pandemic. Arguments put forward by the tenants in each of the cases (Cine-UK, Mecca Bingo and Sports Direct) were considered but ultimately rejected by the court.

Background

Debt proceedings had been issued by each landlord against their tenant for unpaid rents and service charge that had accrued during the COVID-19 pandemic. The landlords made applications for summary judgment for the debts owing.

The tenants argued that summary judgment was not a suitable process in consideration of the commercial background of the unpaid rent and complex defences raised.

The decision

The three cases were heard together and the tenants put forward various arguments in defence of the unpaid rents. The table below sets out in brief some of those arguments and the court’s reasoning:

Tenants’ arguments Court’s decision
The rent cesser provisions in the lease would have been triggered by the pandemic. The rent cesser provisions would only be triggered when the premises are unable to be used as a result of physical damage or destruction. This had not occurred.
Insurance held by the landlords should benefit the tenants. The landlords had not ‘lost’ rent so as to engage the rent cesser provisions to enable them to claim insurance for the same.

When considering business interruption insurance, the court suggested that the tenants could have taken out their own business interruption insurance and the landlord was under no obligation to hold the same for the benefit of the tenants.
Temporary frustration of the lease. There is no authority for ‘temporary frustration’ – a lease is either terminated permanently by frustration (which is very unlikely to happen in practice) or it is not.
The Government’s Code of Conduct published in 2020. The voluntary Code does not affect the obligations under commercial leases nor does it provide a legal basis for rent to be withheld.
Failure of consideration as a result of being unable to act in accordance with the “Permitted Uses” within the leases. Whilst the argument put forward that the inability to trade for the purpose of the lease was credible, this did not release the tenants from their obligation to pay rent.
Illegality of trading released the tenants from their obligations under the leases. Even if the tenants were unable to trade due to the Government’s restrictions, the obligation under the lease to pay the rents was not suspended.

The court in Bank Of New York Mellon (International) Limited V Cine-UK Limited and others rejected all of the tenants’ arguments and favoured the arguments put forward by the landlords.

The parties have until 7 May 2021 to appeal the decision.

This case comes after the recent decision in Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd which considered the tenant’s obligation to pay rent under the lease in light of the Covid-19 pandemic. In this case similar arguments were put forward by the tenant but the landlord ultimately obtained summary judgment.

These cases provide a step towards clarity for commercial landlords in a time of uncertainty confirming that there is no defence for the non-payment of basic rent within typical commercial leases.

Any landlord who is willing to pay the court issue fee now has a clear route to obtaining a county court judgment (CCJ) for the rent arrears. Such action will however need to be considered in light of the Government’s recent call for evidence regarding the current moratorium on forfeiture, which is due to expire on 30 June 2021.

For guidance on landlord and tenant matters, contact our landlord and tenant solicitors. We also offer a comprehensive suite of retail law services.

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