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Articles 6th Dec 2021

Travis Perkins – Real Estate Bulletin – December 2021

In this bulletin, we cover a couple more cases on COVID-related commercial rent arrears, as well as looking ahead to proposed legislation intended to ensure such arrears are ring-fenced and, where the parties cannot reach agreement as to payment, are then subject to a binding arbitration process. We also revisit a case on the meaning of vacant possession in the context of a tenant’s break right, now that the parties have been to the Court of Appeal.

 

Rent arrears – COVID-19

L claimed unpaid rent in relation to retail premises let to T in Leigh and Newcastle-under-Lyme. T sought to rely on similar arguments we’ve seen in previous cases (including one involving the same tenant!), including that:

  • L had been premature in issuing its claim, contrary to the Code of Practice for commercial property relationships following the pandemic;
  • L was trying to circumvent the protective measures imposed by government restricting the use of other landlord remedies such as forfeiture and Commercial Rent Arrears Recovery;
  • The rent suspension provisions in the leases were triggered by the restrictions imposed on T’s use of the premises during lockdown (and that L should have insured against such contingencies in any event), even though there was no physical damage or destruction.

L was granted summary judgment on the basis that none of T’s arguments gave T a real prospect of success at trial.

Practical tip:

  • Practical tip – the Code of Practice (which has been renewed as we will see later on in this bulletin) is just that – a code which is voluntary and that doesn’t impact on liability for compliance with lease covenants
  • Practical tip – the restrictions on landlord remedies do not extend to the right to bring a debt action for arrears; in fact, this is one of the few remedies that has remained available to landlords during the pandemic, so not a loophole at all!
  • Practical tip – traditional rent suspension clauses require physical damage to or destruction of premises that make them unusable and do not cover state-imposed restrictions on use. As we saw in the September bulletin, ‘pandemic suspension clauses’ may well become market practice going forward, but the courts will not stretch the meaning of existing provisions to benefit tenants

 

Rent arrears – COVID-19

T had two leases of cinema premises at the Trocadero Centre. In March 2020, the cinemas had to close due to COVID restrictions and T had not paid any rent since June 2020. L brought proceedings for rent and service charge arrears of £2.9 million and T put forward two arguments at the hearing for summary judgment:

  • A term should be implied into the leases that rent and service charge should be suspended during any periods when use of the premises as a cinema was illegal; and
  • There had been a ‘failure of consideration’ as the payments were for the use of the premises as a cinema, so no payments were due for periods when the premises couldn’t be used as a cinema.

Neither of these arguments found favour with the Hight Court. There was no need to imply any terms into the leases and the use of the premises as a cinema was not ‘fundamental to the basis’ on which the parties had entered into the leases; in addition, the leases addressed the possibility that the premises couldn’t be lawfully used as a cinema and allocated that risk to T.

Practical tip:

  • Practical tip – the courts may imply terms into contracts and leases to fill a gap in the drafting, or to give it ‘business efficacy’, but not to improve the contract for the benefit of one party or the other
  • Practical tip – the failure of basis or failure of consideration argument is not one we’ve seen in other cases, but was equally unsuccessful on these particular facts
  • Practical tip – click here to read a more detailed blog post and further insights from Jill Carey and Paul Tomkins

 

Landlord & Tenant – Break rights and vacant possession

This time last year, we looked at a case where T had a right to break its lease subject to certain conditions being satisfied, including giving vacant possession of the premises. T then went to town in its stripping out works and removed key features of the property, including ceiling tiles, flooring, lighting and radiators, albeit with the intention of replacing these before moving out.

When T did not ultimately reinstate these items, L argued T had not given vacant possession of the ‘premises’ because it had handed back “an empty shell of a building which was dysfunctional and unoccupiable”.

The High Court agreed, rendering T’s break ineffective, so T appealed and has been successful.

  • Practical tip – the Court of Appeal’s judgment provided clarity in relation to interpreting vacant possession conditions, confining it to returning premises free of “the trilogy of people, chattels and interests” rather than relating it to the physical condition of the premises
  • Practical tip – current market practice is to limit the conditions on a tenant’s right to break, but if a lease does require this, tenants have to look carefully at the wording of the lease, the way the premises are defined and how the break clause interacts with other provisions in the lease on repair and yield up
  • Practical tip – listen to Tomkins Talks coverage of the appeal case

 

Commercial Rent (Coronavirus) Bill

The government has introduced draft legislation in Parliament aimed at establishing a legally binding arbitration process for pandemic-related commercial rent arrears. It has also published a new Code of Practice for commercial property relationships following the COVID-19 pandemic. See here for our commentary on the bill and watch this space for further updates.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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