Part one: recent decisions of the high court bring some peace of mind to commercial landlords who are considering commencing legal proceedings against tenants for non-payment of rent throughout the covid-19 pandemic.
Throughout the current pandemic, the government has placed
significant restrictions on landlords' ability to recover
outstanding rent from their tenants.
In particular, a code of practice was introduced on 19 June 2020 for landlords and tenants of commercial property. The drive behind this was to promote transparency and collaboration between parties as well as to encourage both landlords and tenants to act reasonably and responsibly.
In Part One, partner Gail Morris and trainee Sian Walker consider the recent case of Commerz Real Investmentgesellschaft mbH v TFS Stores Ltd , which has provided some clarity in relation to the Code as well as tenants' obligations regarding payment of rent accumulated during mandatory lockdown periods.
Facts of the Case
The Landlord in this case was the leasehold owner of the Westfield Shopping Centre in London and the Tenant operated the Fragrance Shop within the centre, on a 5-year lease.
Due to the pandemic and government regulations, the Tenant had
to close their premises during certain periods from 26 March 2020 -
12 April 2021.
The Tenant had not made any rental payments to the Landlord since April 2020 and a number of monthly service charge fees also remained outstanding.
The Landlord issued a claim and a subsequent summary judgment application against the Tenant for non-payment of rent for the total amount of £166,884.82 (inclusive of VAT) as well as interest accrued.
The Tenant had three main arguments in Defence of the claim and against the summary judgment application. The Tenant claimed that:
- in light of the Code the claim should not have been commenced and the Landlord should have liaised and worked with the Tenant in order to reach a resolution;
- the Landlord should have insured against loss of rent resulting from the forced closures or denial of access due to notifiable disease or government action. The Tenant argued that the Landlord should have claimed under its insurance policy before commencing any proceedings; and
- The rent cessar provisions contained within the lease applied to the pandemic and, therefore, the rent should have been suspended.
Chief Master March granted the Landlord's application for summary judgment on the basis that the Landlord had discharged the burden of establishing the rents were due and that the Tenant had no real prospect of defending the claim.
The Master held that the Code did not affect the legal relationship between a landlord and a tenant and was not a charter for tenants declining to pay any rent! He found that there was no basis to restrict the Landlord's right to access the Court or to curb the Court's powers to summarily determine a claim. In any event, the Master noted that it was, in fact, the Tenant who failed to properly engage in pre-action discussions.
The Court further found that the Landlord was only obligated to insure against the named risks in the Lease. It was therefore under no obligation to insure against loss of rent due to the pandemic. Further, even if it had done so, the Court found that the Landlord would still not have been under any obligation to claim under its policy before pursuing the Tenant.
Finally, it found that the rent cessar provisions only applied where there was physical damage to the premises and there was no basis for construing those provisions so that they applied in the event the premises were closed due to a legal requirement.
This decision will be welcomed by commercial landlords, who were unsure of their rights to sue for rent arrears that have accumulated during the COVID-19 pandemic.
The Master made clear that tenants who have not paid any rent and not engaged meaningfully with their landlord will be given short shrift in court. However, by analogy, we would suggest that the Court might take a different view where a tenant has paid some rent and has properly engaged with its landlord.
Finally, the Decision confirms that the landlord's obligation to insure will be limited to those risks defined in the lease and that it is under no obligation to insure for any other risk. Tenants must take out their own insurance to protect against losses.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.