Court decisions on the recovery of rent during the pandemic

Court decisions on the recovery of rent during the pandemic

The English High Court has recently granted summary judgment against several tenants for rent arrears, which accrued during the COVID-19 pandemic, in two cases: Commerz Real Investmentgellschaft mbH v TFS Stores Ltd [2021] EWHC 863 (Ch) (Commerz) and Bank of New York Mellon (International) Ltd v Cine-UK Ltd and Others [2021] EWHC 1013 (QB) (Bank of NY). Notwithstanding the closure of the tenants' units due to COVID restrictions, the landlord in Commerz was entitled to recover £160,000 in unpaid rent and service charges and the landlord in Bank of NY was also entitled to recover rent arrears from a number of its tenants. The tenants put forward various arguments, as set out below.

Insurance

The tenants in both cases raised arguments in relation to the landlords' insurance policies. In Commerz, the tenant submitted that the landlord had an obligation to insure for loss of rent arising from a notifiable disease and / or government action. However, the Court found that this obligation was limited to specifically listed risks only. The Court also held that, in any event, the landlord would not be required to insure the tenant's business against loss. In Bank of NY, the landlord had insurance in respect of loss of rent caused by interruption of the business resulting from any contagious disease. However, the tenants were unable to rely on this policy as the Court held that the rent cesser provision did not operate and that, as a result, the landlord had suffered no loss of rent. The Court further found that the fact that the tenants had paid a proportion of insurance premiums would not entitle them to benefit from any such rent cover.

Rent cesser

The tenants in both cases also unsuccessfully sought to rely on rent cesser provisions, which only applied where there had been physical damage to the premises.

Protective measures

In Commerz, the tenant attempted to argue that the landlord was restricted from seeking to recover rent as a result of the government's economy protection measures, which were designed to prevent forfeiture, recovery and wind ups. However, the Court held that these restrictions did not prevent landlords from bringing a claim for rents and seeking judgment in relation to same.

Frustration

In Bank of NY, the tenants argued that the leases had been temporarily frustrated due to the pandemic. The frustration argument failed as the enforced closure (which the Court acknowledged could be a supervening event capable of frustrating a lease) would not exceed 18 months, which was found to be an insignificant length of time when compared with the outstanding terms of the leases of the tenants. Further, the Court held that a lease could not be temporarily frustrated but rather that frustration has the effect of ending a contract in its entirety.

The Code

Finally, in both cases, the Court considered the Code of Practice for Commercial Property Relationships during the COVID-19 Pandemic, which encouraged commercial landlords and tenants to negotiate rent payments (the Code). The Court held that the Code was not a means for tenants to simply decline to pay rent, as the Code provides that any tenant who is in a position to pay full rent, should do so. In Commerz, the tenant had not engaged with the landlord's efforts to reach an agreement in relation to rent and in Bank of NY, the tenants did not put forward a claim that they could not pay their rent.

The judgments, which were summary in nature and handed down in quick succession, provide clarity on the UK approach to commercial landlord claims for the recovery of pandemic rents. The judgments provide some guidance for Irish courts in the event of similar arguments being raised in Ireland. However, it will be open to the Irish Courts to decide each case on its own facts.

For further information in relation to this topic, please contact Enda Hurley, Partner, Catherine Hayden, Associate, Rebecca Martin, Solicitor or any member of ALG's Litigation and Dispute Resolution team.

Date published: 10 August 2021