Coronavirus Rent Arrears Update for Commercial Landlords
There have been two very recent Judgments in the High Court which should provide some comfort for Landlords of commercial premises facing tenants who have not paid rent for some time and who have sought to hide behind the emergency COVID regulations.
Commerz Real sued its commercial tenant The Fragrance Shop [TFS] in the High Court for rent and service charge arrears of some £160,000 in respect of a retail unit at the Westfield Shopping Centre in London. The Claim was defended on the basis that the Landlord could recover the losses from its own insurers and that the reason for the arrears had been COVID as they had not been able to trade from the premises.
The Landlord made an application for Summary Judgement to strike out the Defence and the High Court agreed that there was no obligation on a landlord to insure for tenant losses to their business and the Code of Conduct that commercial landlord and tenants have been encouraged to adopt during COVID, did not change the legal obligations in the lease to pay rent and service charges.
Claims by Bank of New York Mellon (International) & AEW UK Reit PLC (Landlords) against three commercial tenants Sports Direct; Mecca Bingo Ltd and Cine UK Ltd were heard together by the High Court and in all three cases Summary Judgement was given to the Landlords. The claims were for rent arrears incurred due to forced closures or inability to trade as a consequence of COVID.
The tenants were arguing that:
(i) The clause in the leases (the Rent Cesser clause) that stopped any obligation to pay rent during a period when the premises could not be occupied, impliedly included closures due to the pandemic;
(ii) That the Code of Conduct meant that Court action for the unpaid sums could not be started and that;
(iii) The closures amounted to a temporary frustration of the lease or a temporary failure of consideration on the part of the Landlord and that during those periods no rent was due.
The Court decided that none of the arguments put forward by the tenants had any reasonable chance of succeeding at a final Trial as:
(i) The Rent Cesser clauses required physical damage to the building preventing occupation and here there was none.
(ii) The Code of Conduct was a voluntary process and had no relevance in these cases where the tenants were not saying they were unable to pay.
(iii) None of the lockdown measures triggered any legal frustration or a failure of consideration – temporary or otherwise.
The Courts were sympathetic to the tenants who had not been permitted to trade but were clear that if there were to be special provisions for tenants in those circumstances, that was for Parliament to sort out, not the Courts.
All well and good – but what does that mean in practical terms for Commercial Landlords?
The embargo on evicting or winding up companies who have failed to pay their rent is still in place until end of June 2021. Whether that date gets pushed out again is an unknown quantity.
If your commercial tenant really has no money – you can get a Judgement, but you still need to turn that Judgement into an actual payment and that will require a measure of cooperation between Landlord and Tenant. Is it better to have a tenant in place paying some rent even if not the full rent than having no tenant and no rent at all? These are all commercial decisions that depend very much on the individual circumstances of each case.
However, if your tenant is capable of paying rent, but has relied on the COVID regulations to reduce or stop the payments; these cases are extremely helpful to Landlords.
Tenants who can pay will be less likely to push a Landlord to the point of issuing Court proceedings. If they are big name brands who also have sophisticated on-line sales facilities, they will have public facing reputations to maintain. If they are looking to enhance borrowings or re-finance on cheaper terms, they will not want unpaid Court Judgements to explain away.
Our Dispute Resolution Team will continue to provide updates and can be contacted on DRTeam@herrington-carmichael.com or 01276 686222.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
Frankie Tierney
Partner, Disputes and Claims
Partner, Disputes Resolution
t: 01276 854 917
e: frankie.tierney@herrington-carmichael.com
Sign up
Enter your email address for legal updates on Property & Construction Law.
Substantial Rent Arrears Webinar
1st June
12:30 pm – 1:00 pm
Latest Insights - sign up to our Emailers
Our Emailers will bring you the latest news and insights from our legal teams as we look at the key talking points in life and in law.
Our insights will include articles, podcast discussion and information about our events and services.
You can sign up to as many as you wish and you can opt out at any time.
Sign up to our Emailers
Latest News & Insights
Separating from a partner you live with
The law surrounding cohabitating partners is a minefield and the unfortunate reality is that when...
Derivative claims – a means for minority shareholders to fight back
Are the directors of the company you invested in failing to act in that company’s best interests?...
Barclays Bank UK v Terry and the previously hypothetical “bifurcated process”
A recent High Court decision in favour of Barclays Bank (Barclays Bank UK Plc v Terry [2023] EWHC...
When can a Will be Challenged?
Families are complicated affairs and unfortunately the death of a loved one can expose the cracks...
Residential Landlord Rights/Responsibility Update November 2023
There had been a lot of media speculation in recent months regarding the intention of Parliament...
High-rise buildings – who is responsible for their safety?
The Grenfell Tower tragedy sparked the most important review of building safety legislation in...
Top Legal Insights
Contract Law
Material Breach of Contract
What is a ‘material’ breach of contract by a party to a commercial contract? This is a critical issue regularly considered by the courts. What constitutes a material breach and what are the remedies?
Property Law
Commercial Lease: The Financial impact on Landlord and Tenant
Coronavirus (COVID-19) and the restrictions now in place to control its spread, are having a significant effect on many business sectors.
Divorce and Family Law
Divorce in Lockdown: Can I get some discreet legal advice?
We have spoken to clients who are unfortunately experiencing some family issues, and would like to obtain expert legal advice, yet don’t know how...
Land & Property Dispute
Restrictive Covenants – The Price of Modification
Having identified that your land is burdened by a restrictive covenant and for the purposes of this article the covenant in question will be that only one residential building can be erected on the land. What do you do next?
Award winning legal advice
Herrington Carmichael offers legal advice to UK and International businesses as well as individuals and families. Rated as a ‘Leading Firm 2024’ by the legal directory Legal 500 and listed in The Times ‘Best Law Firms 2023 & 2024’. Herrington Carmichael has offices in London, Farnborough, Reading, and Ascot.
London
60 St Martins Lane, Covent Garden, London WC2N 4JS
Camberley
Building 2 Watchmoor Park, Riverside Way, Camberley, Surrey GU15 3YL
Wokingham (Appointment only)
4 The Courtyard, Denmark Street, Wokingham, Berkshire RG40 2AZ
info@herrington-carmichael.com
© 2020 Herrington Carmichael LLP. Registered in England and Wales company number OC322293.
Herrington Carmichael LLP is authorised and regulated by the Solicitors Regulation Authority.
Privacy | Legal Notices, T&Cs, Complaints Resolution | Cookies | Client Feedback