The pandemic has caused serious problems for both landlords and tenants particularly those operating in the non-essential retail sector who have had to endure numerous closures during the past year.
Since March 2020 many commercial tenants have withheld the payment of rent using the COVID restrictions as justification. The landlords’ usual routes for the recovery of rent arrears have been severely limited by various measures introduced by the Government which have restricted:
• The right of re-entry or forfeiture of business tenancies on the grounds of non-payment of rent. • The use of commercial rent arrears recovery. • The circumstances in which Winding-up Petitions can be presented against companies.
The recent case of Commerz Real Investmentgesellschaft mbH -v- TFS Stores Limited is the first reported case on a commercial rent claim connected with the COVID-19 pandemic.
In that case, the landlord was the leasehold owner of the Westfield Shopping Centre in London where the tenant operated a retail unit called The Fragrance Shop.
During the pandemic the tenant was required to close its store on three occasions together totalling nine months during a twelve-month period and it had not paid any rent or service charge since April 2020.
The landlord issued a debt claim and applied for Summary Judgment for the unpaid rent of £166,885 together with interest.
In defence of the claim, the tenant argued that the landlord’s claim was premature because it had failed to engage with the Government’s Code of Practice for Commercial Property Relationships, that the landlord was seeking to take advantage of the loophole in the law concerning enforcement of rent covenants and that it was an implied term of the lease that the landlord was obliged to claim on its insurance for loss of rent and could not, therefore, seek rent or service charge from the tenant.
However, the High Court rejected all of the tenant’s arguments and granted Summary Judgment for the landlord as it found that:
• The Code of Practice did not have the effect of varying or suspending the contractual terms of any commercial lease. In any event, it was simply not the case, on the evidence, that the landlord had failed to engage with the tenant as required by the Code. • In relation to the “loophole” the Court said that whilst the Government expressly suspended the ability of a landlord to exercise various legal rights, it had not prevented the landlord from bringing a claim for unpaid rent and service charge. • The landlord’s insurance policy was to protect losses incurred by the landlord to its business and there was no obligation on the landlord to insure against losses to the tenant’s business and it was open to the tenant to take out its own business interruption cover to protect itself against such loss. Further, the Court found that there was no implied term of the lease requiring the landlord to look to its insurance policy as such a term would contradict the express terms of the lease.
This judgment will come as welcome news to beleaguered landlords as it provides them with a means of recovering outstanding rent that has accrued during the pandemic.
If you are involved in any property related dispute or COVID-related issue, then the Property Litigation Team at Blacks Solicitors can assist. Please contact Luke Pate on 0113 227 9316 or by email at “LPatel@LawBlacks.com”.