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Civil Litigation Solicitors

Commercial rent claim involving COVID-19 issues (1 June 2021)

Date: 01/06/2021
Duncan Lewis, Civil Litigation Solicitors, Commercial rent claim involving COVID-19 issues

It cannot be ignored how landlords have been restrained by the question of whether commercial rents were payable during the pandemic. This has been effectively addressed by the High Court in the recent case of Bank of New York Mellon (International) Ltd and Others v Cine-UK Ltd and Others where the judge ruled in favour of the landlord.

What happened in this case?


Master Dagnall in the High Court grouped three summary judgments together due to their factual similarities. The landlord claimants, Bank of New York Mellon (“BNY”) and AEW UK REIT Plc (“AEW”) sought to recover rent from their commercial tenants; Cine-UK Limited (“Cine-UK”), Mecca Bingo Limited (“Mecca”) and SportsDirect.com Retail Limited (“Sports Direct”).

The landlords were owed rent by the tenants from periods in 2020, which should have been paid in quarterly instalments. The tenants argued on the basis that they were forced to close due to Covid-19 and the associated lockdown measures.

The tenants argued that:


  1. The landlords should have been negotiating with their tenants based on the Code of Practice for Commercial Property Relationships (“the Code”) which encourages both parties to communicate on the measures of rent free periods.

    The Court dismissed this on the basis that the Code “is a voluntary…and does not change the underlying legal relationship or lease contracts between landlord and tenant and any guarantor.” On the tenants being questioned whether they could not make any payments, they declined to provide evidence and the judge put this as follows “it does not seem to me that it is open to any of the Tenants…to contend that the June Code or the Ministerial Statement places any obligation, even of a voluntary nature, upon the Landlords to negotiate.”

  2. The rent cesser clauses in the leases should be construed in a way where implied meanings could be implemented. The landlords submitted that the clause should only operate to suspend rent when there has been physical destruction or damage to render them unfit. The tenants however argued that destruction or damage should include the inability to trade and that should be implied because of the unforeseeable pandemic. Master Dagnall, however, concluded that the clause would be read literally and the losses due to the lockdown could not be read as “physical” or damage. The Court also disagreed on the basis of a pandemic not being entirely unforeseeable due to SARS and the availability of insurance interruption.

  3. The landlords benefited from the pandemic insurance, and this should cover loss of rent. This was again rejected because the insured risks encompassed physical damage and destruction. The insurance covered if the rent was lost and unrecoverable from the tenants.

  4. The periodical lockdowns caused “temporary frustrations” which should have caused the leases to be suspended or terminated. The court disagreed again on the basis that “there is no such thing as a ‘temporary frustration’, effectively suspending the contract for a period of time”. Master Dagnall highlighted that a contract may be frustrated if the obligation is suspended for long enough, and in effect did not apply as all the periods of closure were short, in comparison to their leases which had more than a year in their terms.




Commentary

It is clear that that the decision was thorough and in no doubt will bring much relief to commercial landlords across England and Wales that have struggled to collect rent during the pandemic. This case in conjunction with Commerz Real Investmentgesellschaft mbH v TFS Stores Limited has highlighted the court’s attitude regarding the failure by tenants to pay rent. Whether this decision will be appealed by the tenants is one to watch out for.


Author Anthony Okumah is a Director and Head of the Duncan Lewis Civil Litigation and Dispute Resolution Department. He specialises in dispute resolution (litigation, arbitration or mediation), professional negligence claims predominantly against solicitors, debt recovery; insolvency; contractual disputes, leasehold disputes and contentious probate cases. Anthony also has an in-depth experience of boundary and neighbourhood dispute cases and additionally he regularly conducts his own advocacy in both the County Court and the High Court which allows him to represent his clients throughout their retainer.

Contact Anthony on 020 3114 1227 or email him on anthonyo@duncanlewis.com


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