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A further landlord-friendly decision confirming that Covid-19 rent arrears are recoverable

Property / 29 October 2021

The High Court has recently confirmed a tenant’s liability to pay rent in full during the period when coronavirus regulations were in place and the tenant’s premises, a cinema, were restricted from trading as a result of the pandemic. The case of London Trocadero (2015) LLP v Picturehouse Cinemas Ltd [2021] EWHC 2591 (Ch) marks the third successful case for landlords this year, compelling them to commence court proceedings against tenants for unpaid rent during the coronavirus pandemic.

This case was the result of application for summary judgment (which is an application for the court to consider whether there is a viable defence or any real chance of prospect of success) by the landlord, London Trocadero (2015) LLP, against one of its tenants, Picturehouse Cinemas, for rent arrears in the amount of £2.9 million. The defendants’ case was that they were not liable for rent during the period when the premises could not be used as a cinema.  Their two primary arguments were:

1. Implied terms in the lease – On the basis that a term should be implied in a lease that rent is not payable during periods when the permitted use of the premises under the lease became illegal and/or attendance at the cinema was not at a level anticipated by the parties at the time they entered into the lease; and

2. Failure of consideration – This argument was based on the assumption that as the premises could not be used for the very purposes they were let, the tenant should not be obliged to pay the rent during periods when the cinema was closed.

What did the court decide?
The court rejected the implied term defence on the basis that it was not obvious, and it would not give the lease ‘business efficacy’. The court confirmed that the lease was detailed, complete and nothing was to be implied into the lease.  It made no commercial sense for the loss to be borne by the landlord when neither party had insured against it.

The failure of consideration defence failed because the use of the premises as a cinema was not ‘fundamental to the basis’ on which the parties had entered into the lease.  The tenant was granted the lease for a term of years and therefore had received all or part of that benefit.  The court also relied on the fact that the landlord did not warrant that the premises could be used as a cinema and the lease included a rent suspension clause detailing the circumstances when rent would be suspended.

The Government’s proposals to introduce binding arbitration
These proposals were pleaded by the defendant to adjourn the hearing, on the basis that they would otherwise be prevented from participating in the anticipated arbitration scheme.  The court rejected this argument on the basis that the proposed scheme is expressly applied to ‘money owed’ rather than to whether money was or was not owed by a tenant. Picturehouse Cinemas was effectively arguing that the rent should have been suspended and therefore the government’s proposed scheme did not apply to the dispute.

Comment
This decision clarifies the position that tenants cannot seek to avoid payments of rent by relying on the proposed arbitration scheme, and it provides more guidance as to how the court will consider a tenant’s defence based on the inability to operate during the pandemic.  It is now difficult to imagine any other arguments that are left open to tenants in seeking to deny liability for paying rent during the pandemic.  Depending on what the Government’s binding arbitration scheme will look like it might be more sensible for tenants to abandon arguments that rent is not due and try to come to an agreement with their landlord or go straight to arbitration.

As for landlords, there may be a real advantage in issuing proceedings and applying for summary judgment against those tenants that are in rent arrears and have the means to pay before the Government’s scheme comes into force, particularly as the ability to forfeit as a result of rent arrears is prohibited until March 2022.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: mailinglists@greenwoodsgrm.co.uk

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