The Covid-19 pandemic has had a significant impact on the recovery of rent and service charges for commercial premises. There is estimated to be around £7 billion of resulting commercial rent debt in the UK.
On 28 September 2021 the High Court granted summary judgment in favour of a landlord for a tenant’s non-payment of rent and service charges due under a lease irrespective of the COVID-19 pandemic and the Government’s restrictions on the remedies available to landlords.
In ordinary times, this judgment would probably have not been particularly news worthy; but in light of the COVID-19 pandemic, it is of particular interest and importance.
Whilst the Government have introduced various restrictions since the start of the pandemic on what remedies are available to a landlord in relation to any unpaid rents, those rents remain due, unless the landlord and the tenant agree otherwise.
Here, the landlord issued a claim for summary judgment against its tenant for unpaid rent of £2.9 million. The tenant had not paid the rent and service charges since June 2020. The tenant had to close its cinema, like many others in entertainment and hospitality, for large periods of time because of the Government restrictions.
The Tenant defended the Landlord’s claim for arrears by arguing that:
- Terms should be implied into the leases suspending payment of rent and service charges when use of the premises as a cinema was illegal or the attendance would not be at a level commensurate with that anticipated when the leases were granted.
- There was partial failure of consideration: payments under the leases were for the use of the premises as a cinema, so no payments were due for periods when the premises could not be so used.
These arguments were rejected by the Court who stated “the Defendants have no real prospect of defending the claim.”
The Court also dismissed an earlier application by the tenant to adjourn the summary judgment application based on the Government’s announcement that it intended to legislate for a binding arbitration scheme relating to rent arrears.
There will be many businesses in the same situation as the tenant in this case facing significant rent arrears, especially those operating in the hospitality and entertainment sectors where venues have had to remain closed or have been subject to restrictions during the pandemic.
Landlords welcomed the High Court’s decision as it highlighted that rent claims and related summary judgments continued to be a viable remedy in situations of this nature, despite the temporary restrictions on enforcement action by forfeiture and winding-up petitions for commercial rent arrears until at least March 2022.
Update: However, landlords’ joy is expected to be short-lived. Following a successful application by the tenant on 3 November 2021 this case is set to go to the Court of Appeal for determination in the coming months. Furthermore, new measures published by the Government on 9 November 2021 in the draft ‘Commercial Rent (Coronavirus) Bill’ will (when passed) curb landlords’ ability to obtain and/or enforce a money judgment at Court. We expect this new draft legislation to have a bearing on the Court of Appeal’s decision making in this case.
Further details of the Government’s new proposals can be found in our article here.
If you are a commercial landlord or tenant and you are experiencing difficulties with repaying or enforcing payment of rents, please do not hesitate to contact Nicola King or Jessica Waters for more detailed and case specific advice.
Correct at the time of re-drafting
17 November 2021