Commercial frustrations for commercial landlords and tenants but law of frustration a different matter
Earlier this year, the English High Court ruled in favour of landlords seeking to recover rental arrears that accrued during the COVID-19 pandemic. The Irish High Court has also now dismissed a commercial tenant's claim for relief against the obligation to pay rent for the period that the commercial premises was closed as a result of emergency legislation enacted in Ireland, which mandated the closure of all non-essential retail stores in the early stages of the pandemic.
In Foot Locker Retail Ireland Ltd v Percy Nominees Ltd [2021] IEHC 749, the tenant sought a declaration from the Court that it should be entitled to continue to occupy the premises but without paying rent for the period that it could not trade in the normal way. Such an arrangement would restrict the landlord from terminating the lease and seeking to re-let the premises to an alternative tenant. Although it was initially claimed by the tenant that the lease was frustrated, the argument put forward at trial was one of partial frustration, such that the tenant was not obliged to pay rent during the closure periods.
The judgment delivered by the High Court addresses two questions:
- whether a lease can be partially frustrated
- whether the tenant in this case had established that its lease had been partially frustrated
The tenant accepted that there was no Irish authority for the doctrine of partial frustration and sought to distinguish Irish precedent cases by reference to the User and Keep-Open clauses in the tenant's lease. The tenant argued that the Covid-19 emergency legislation precluded the tenant from trading as mandated by those clauses in its lease and argued that the tenant should accordingly be excused from the obligation under the lease to pay rent to the landlord. However, the Court found that the tenant's obligations under the User and Keep-Open clauses in the lease were expressly subject to the tenant's obligation to comply with regulations and enactments, including the COVID-19 emergency legislation, which required the closure of the premises for a period.
The tenant also sought to rely upon English case law in support of its partial frustration argument but the Court ruled that the tenant's reliance upon that case law was misplaced. The Court referred to National Carriers v. Panalpina Ltd. [1981] A.C. 675, in which it was held that there was no such concept as partial frustration and clarified that 'partial discharge' (as was considered in that National Carriers case), refers to severable obligations. The Court was of the view that there was no partial discharge of servable obligations in the tenant's lease, because the requirement to pay rent is not an obligation capable of being severed but rather is a basic requirement. The Court found that the essence of the doctrine of frustration is that a contract is brought to an end and that the form of frustration claimed by the tenant was at odds with the fundamentals of the doctrine.
Ultimately, the Court held that partial frustration does not exist in Irish law and could only arise if introduced by means of legislation. Having reached this conclusion, the Court did not have to consider the second question as to whether the tenant had established that its lease had been partially frustrated but the Court observed that it would have found in favour of the landlord on that question on the basis of the evidence put before the Court and the facts of the case.
It will be interesting to observe whether the tenant seeks to appeal the High Court's decision to the Court of Appeal, but in the meantime this decision is one which will inform commercial landlords and tenants alike. There are other cases currently pending before the Courts in which tenants are seeking to rely upon rent cessor provisions in leases and in which landlords are seeking to rely upon forfeiture provisions and the outcome of those will also be closely followed as parties seek to deal with the fall-out of the pandemic.
For further information in relation to this topic, please contact Enda Hurley, Partner, Rebecca Martin, Solicitor or any member of ALG's Disputes & Investigations team.
Date published: 20 December 2021