In a recent case the High Court held that a shopping centre landlord was entitled to summary judgment against its retailer tenant for non-payment of rent and service charges, despite the fact that the arrears were incurred since April 2020 whilst the government's COVID-19 measures restricted trading.
The government has introduced a number of measures over the past 12 months in order to protect commercial tenants during the current pandemic hence, landlords’ remedies for breaches of covenant have been limited. These measures have included prohibiting the enforcement of a right of re-entry or forfeiture of business tenancies for non-payment of rent, restricting the use of commercial rent arrears recovery (CRAR) and also restricting the circumstances in which winding up petitions can be presented. However, such protections do not impact on the landlords right to take other action for non-payment of rent. Such actions include suing for debt, mesne profits or damages, drawing down on the rent deposit or issuing a claim against any guarantors under the terms of the lease.
In this case the landlord was the leasehold owner of the Westfield Shopping centre London and the tenant held a retail unit in the centre under a 5-year lease. As a result of the lockdown measures the shop had to close. The tenant had not paid any rent since April 2020 and the monthly service charge for April, May and June 2020. The landlord applied for summary judgement for the unpaid rent.
The tenant argued that the claim for non-payment of rent and service charges was contrary to the voluntary Code of Practice (to assist discussions between business tenants and landlords in respect of rent payments) published by the government in June 2020 and was a means of circumventing the government measures put in place to prevent forfeiture and recovery using CRAR. For more information about the Code click here.
The tenant also submitted that due to the provisions in the lease the landlord was obliged to insure for loss of rent from forced closures, The lease contained:
- a tenant’s “keep open” covenant requiring the tenant to keep open unless prevented from doing so due to damage by an insurable risk or in the event it is unlawful to do so.
- a landlord’s covenant to insure against the insured risks or such other risks as the “Landlord may consider it prudent to insure” and
- a rent cesser provisions in the event the shop was damaged by an insured risk or the centre was damaged so as to materially and adversely affect the premises.
The tenant argued that the landlord should make a claim under the policy before issuing proceedings against the tenant and, the rent cesser provisions in the lease applied to the pandemic.
The High Court granted summary judgment to the landlord with interest on the judgement sum as stated in the lease. It confirmed that the Code did not affect the legal relationship between landlord and tenant. The court was clear in that the Code was not a charter for tenants to avoid paying rent. The tenants request that the claim be listed for trial on the basis the landlord had failed to engage with the Code was rejected. It was established on the facts that the landlord engaged with the Code and if anything, it was the tenant who had failed to do so.
The High Court also concluded that the landlord was only obliged to insure against the named risks and the landlord was not obliged to insure against any other risks unless it chose to do so. If tenants want to be covered for this type of loss they should arrange their own business interruption insurance. On the rent cesser provisions it was clear to the court they only applied in respect of physical damage to the premises. There was no basis for the tenant’s interpretation that these provisions applied in the event the centre was closed due to a legal requirement.
Landlords will be relieved that the High Court has confirmed that there was no legal restriction on the landlord bringing the claim and obtaining judgment. However, the steps that a landlord may take following the entering of a judgement, in enforcing it are still restricted.
If you any queries regarding claims for payment of rent or service charges or other commercial property matters do not hesitate to contact Rachel Sims on 01223 532730 or Stuart Simoes on 020 4526 4987 or another member of our commercial property team.
Commerz Real Investmentgesellschaft MBH v TFS Stores Ltd  EWHC 863 (Ch),