Commercial Landlords winning in Covid rent arrears cases

We have previously commented on the Coronavirus Act moratorium on forfeiture of commercial leases for arrears of rent (for the most recent update see Raman Dhillon's blog: Band Hatton Button - The Commercial Rents Moratorium Continues). These restrictions will remain in place until 25 March 2022 with the promise of legislation to require binding arbitration for any disputes about arrangements to pay accrued arrears over time.

In the meantime, Landlords are still able to sue for rent arrears as a contractual debt. Tenants have come up with some ingenious defences as to why they are not liable to pay rent whilst trade was restricted due to coronavirus regulations. So far, at those defences have proven unsuccessful.

The most recent High Court judgment in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd & Ors [2021] EWHC 2591 (Ch) (28 September 2021) (bailii.org) concerned the lease of a cinema in Piccadilly, London. Lockdown regulations required the cinema to close for certain periods so that the tenant could not trade at all. The lease provided that the premises could only be used as a cinema and the tenant argued that there was an implied term that the rent did not have to be paid if the sole permitted use became illegal and also that there was a failure of consideration (ie no benefit given to the tenant) whilst the premises could not be used for the agreed purpose.

The court found that there was no such implied term: the risk lies with the tenant and there was no failure of consideration as the landlord had not given any warranty that the premises could be used as a cinema. The permitted use was nothing more than a mere expectation. The High Court has also found that a clause common in commercial leases that rent is suspended if the premises are unusable due to damage caused by insured risks (a cesser clause) does not apply. This issue has been referred to the Court of Appeal however, aside from the question of whether the impact of coronavirus regulations amounted to "damage" to the premises, it is unlikely that a landlord would take out insurance for business interruption which is really the tenant's risk.

Although these cases were decided on their own particular facts, the overriding message so far is that in terms of liability to pay the rent, it is the tenant who takes the coronavirus hit, not the landlord.

For more information, please contact members of our team - Raman Dhillon & Jon Wilby

Band Hatton Button - Advice and Assistance with Landlord and Tenant Disputes

Disclaimer - This article contains information on current legal issues applicable at the time of printing. Please note there may have been changes subsequently which have not been incorporated into the material. This article is intended for information purposes only and its content should not be applied to any particular set of facts or relied upon without legal or other professional advice.