The Court of Appeal has dismissed an appeal by commercial tenants against the High Court’s summary judgment rulings ordering them to pay rent arrears notwithstanding the COVID-19 pandemic.
Claims were issued by Bank of New York Mellon (International) Ltd and London Trocadero (2015) LLP against their respective tenants, Cine-UK Limited and Picturehouse Cinemas Ltd and others in relation to the tenants’ failures to pay arrears due under leases of the premises that they occupied.
Despite the factual differences, the legal arguments were the same. The tenants argued that the government legislation during the Covid-19 pandemic, which forced various premises to close (including cinemas) rendered those buildings “unusable” and so the tenants were not liable to pay the rent during the lockdown periods.
What did the High Court decide?
The Court decided the tenants had no real prospect of successfully defending the claims against them and granted summary judgment to the landlord. The decision is lengthy, however, in summary the key elements of the decision were:
The requirement for the tenants to keep paying rent in these circumstances did not deprive the leases of business efficacy and there was no reason the losses arising from the pandemic should be borne by the landlord.
There was no failure of consideration as the use of the premises as a cinema was not the fundamental reason why the parties had entered into the leases, it was only an expectation that the property should be used for this purpose which motivated them to do so. The leases also expressly provided for situations where the cinema would not be used as a cinema (for example destruction by any insured risks) and the burden of risk in these instances was passed to the landlord.
The tenants appealed the High Court’s judgments using the following arguments:
The Court was wrong to reject the argument that a term should be implied into the lease to the effect that the rent due under the lease should be suspended for the period during which the premises could not be occupied.
The Court was wrong to conclude that there had been no partial failure of consideration which would mean no rent was due.
What did the Court of Appeal decide?
The appeals were dismissed in full.
The Court of Appeal held that there was no failure of the basis upon which rent was due and in doing so agreed with the landlords that the rent paid was in consideration for the exclusive use of the premises rather than an assumption that the premises could be lawfully used as cinemas.
The Court reaffirmed the High Court confirming that the requirement for the tenant to pay the rent even though the premises could not be used for the permitted use “did not lead to the conclusion that the leases lack commercial or practical coherence.”
This decision provides clarity as to tenants’ contractual obligations under their leases whilst they were forced to close during the pandemic.
The Commercial Rent (Coronavirus) Act 2022 introduced an arbitration scheme for landlords and tenants who were unable to reach an agreement as to the unpaid rent or debts that had accrued during the protected period.
The deadline for applications to this scheme has now expired, therefore, landlords once again have access to their full remedies available.
Should you have any queries regarding this, please contact the Property Litigation Team at Colman Coyle on +44 (0)20 7354 3000 or email@example.com.