Since COVID-19 hit these shores last year, the government has implemented temporary measures to protect commercial tenants from having their leases forfeited or being forced into insolvency where they have been unable to pay rent as result of the pandemic on...
Since COVID-19 hit these shores last year, the government has implemented temporary measures to protect commercial tenants from having their leases forfeited or being forced into insolvency where they have been unable to pay rent as result of the pandemic on their business but this has also served to protect those simply unwilling to pay rent during the pandemic.
This has left landlords with few remedies where their tenants have not paid their rent other than to issue a debt claim at court. If a claim is defended it could take many months (or even years) before a landlord obtains judgment for the arrears.
Landlords have had a raw deal throughout this pandemic but Steven Ross examines the first reported judgment since COVID-19 concerning a landlord’s claim for summary judgment in a rent arrears claim which represents a small success for landlords - Commerz Real Investmentgesellschaft MBH v TFS Stores Ltd .
The tenant was a well-known fragrance retailer which occupied a retail unit at the Westfield Shopping Centre in London. The tenant had failed to pay rent or service charge since April 2020 and was in arrears in excess of £160,000. It said that forced closures as a result of the pandemic and reduced footfall was the reason. The landlord issued a claim for the arrears in the High Court and then made an application for summary judgment on the basis that the tenant had no real prospect of defending the claim at trial.
The tenant’s main arguments were:
- The landlord’s claim was issued prematurely as it had failed to engage with the Government’s Code of Practice for Commercial Property Relationships during the Covid-19 Pandemic (‘the Code’). The Code requires the landlord and tenant to work together.
- The claim was being used to circumvent the current restrictions in place on forfeiture, winding up and commercial rent arrears recovery (‘CRAR’).
- The landlord had breached its obligation in the lease to insure as it was reasonable to expect an ‘established landlord’ to insure against loss of rent due to forced closures as a result of notifiable disease and government action.
- The COVID-19 pandemic amounts to a suspending event under the rent cesser provisions in the lease that permits the rent to be suspended where there is damage to the premises.
The court ruled in favour of the landlord:
- There was no evidence to suggest the landlord had failed to engage with the Code. The purpose of the Code was not to alter the legal relationship between the landlord and tenant. Put simply, the Code cannot be used as, ‘a charter for tenants declining to pay their rent’.
- The restrictions in place only prevent forfeiture, winding up petitions and CRAR where rent arrears are COVID-19 related. There is no loophole exploited here as the current restrictions do no prevent a landlord bringing a claim for unpaid rent.
- It was accepted that whilst, in this case, the landlord had actually insured its business against notifiable disease, it was not obliged to insure against the tenant’s loss of business. Any claim by the landlord under its policy would therefore be rejected by its insurer on the grounds that the landlord had not suffered a loss to its business.
- The rent suspension provisions in the lease only apply in exceptional circumstances where there has been physical damage to the premises. The economic loss suffered during the covid-19 pandemic cannot fall within this.
The current moratorium against landlords forfeiting leases for non-payment of rent is due to end on 30 June 2021.