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High Court rules in favour of Commercial Landlord for Covid related Rent Arrears

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The High Court has recently awarded judgment in favour of a commercial landlord in a claim for rent arrears which accrued since (and largely due to) the outbreak of the Covid-19 pandemic.

In London Trocadero (2015) LLP v Picturehouse Cinemas Ltd [2021], the landlord sought to recover rent arrears (and service charges) said to be owed under leases for the period June 2020 and July 2021. The tenants however, argued that they could not be liable for rent and service charges which had accrued in any period when the premises could not lawfully be used as a cinema, or for any period when it was uneconomic to do so, as a result of Covid-19 restrictions. The tenants argued that terms should be implied into the lease to essentially suspend the payment of rent and service charges during such periods.

In dismissing the tenant’s argument, the High Court commented that even though the premises could not be used for its intended purpose as a result of unforeseen events, this did not deprive the leases of ‘business efficacy’. It was also relevant that the leases in question included a clause which said that there was “no covenant warranty or representation that the demised premises can lawfully be used for the Permitted Use”. The court held that such wording meant that it could not have been ‘obvious’ to both parties that rent was not to be paid for any period when the premises could not be used; the ‘obviousness’ test being a key test for establishing whether terms can be implied.

Further, the inclusion of a provision for the suspension of rent for any period when the premises could not be used as a result of being damaged by an ‘Insured Risk’ also led the court to conclude that it was not ‘obvious’ that a further term should be implied.

The High Court also dismissed the tenant’s argument that there had been a “failure of basis”. Again, taking into account the express terms of the leases, the High Court held that the use of the premises as a cinema was not “fundamental to the basis” on which the parties entered into the leases. The continued use of the premises as a cinema was simply an expectation which motivated the parties to enter into the leases, but was not fundamental. In coming to this conclusion, the court again considered the fact that the leases expressly dealt with other circumstances when the premises might not be lawfully used as a cinema, for example, due to damage caused by an Insured Risk.

The reasoning applied by the court, in this case, highlights the impact that express terms may now have on commercial tenants seeking to bring similar arguments before the court.

This recent ruling is good news for commercial landlords who are owed rent arrears as a result of the Covid-19 pandemic. The ruling suggests that commercial landlords can still successfully recover arrears even if a tenant could not trade as a result of the Covid-19 pandemic.

Please contact us if you have questions about this update and would like to discuss your options by emailing or calling 03333 208644.