Landlord and tenant – Arrears of rent – Business premises – Claimant landlord seeking summary judgment of claim for payment of arrears of rent and service charge – Whether claim premature as failing to engage with government’s code of practice for commercial property relationships – Whether claimant seeking to take advantage of loophole in law concerning enforcement of rent covenants – Whether claimant obliged to claim on insurance for loss of rent – Claim allowed
The claimant was the leasehold owner of the Westfield Shopping Centre at Shepherd’s Bush in London. The claimant demised to the defendant retail premises at the centre by a lease dated 10 July 2019 for a term of five years from 1 February 2019 at an initial yearly rent of £200,000 per annum excluding VAT. A side letter provided, amongst other things, for rent and service charges to be paid by equal monthly payments in advance on the first of each month.
The defendant was, as a consequence of the extraordinary measures in the Coronavirus Restrictions Regulations 2020, obliged to close its business on 26 March 2020. It remained closed to the public until 15 June 2020. It was then closed again between 5 November 2020 and 2 December 2020 and from 19 December 2020 until 12 April 2021.
The claimant sought payment of rent and service charges due under the lease amounting to £166,884 (inclusive of VAT) and interest at the contractual rate. The defendant had paid no rent since April 2020, citing difficulties in affording the rent due to closures and reduced footfall caused by the Covid-19 pandemic.
The defendant argued that the claim had been issued prematurely contrary to the Code of Practice for Commercial Property Relationships during the Covid-19 Pandemic. Moreover, it was a means of circumventing measures put in place to prevent forfeiture, winding up and recovery, using commercial rent arrears recovery (CRAR) by exploiting a loophole in the government restrictions placed upon the recovery of rent. Further, it was an implied term of the lease, supported by the wording of the covenant to keep the premises open, that the landlord was obliged to claim on its insurance for loss of rent. Therefore, it could not seek the rent or service charge from the defendant. The claimant applied for summary judgment.
Held: The claim was allowed.
(1) The defendant said that the proceedings were premature because the code of practice required landlords and tenants to work together, it had been a reliable tenant and the pandemic had created exceptional circumstances. However, the code of practice was voluntary. It was clear from the first paragraph that it did not affect the legal relationship between landlord and tenant and the code encouraged landlords and tenants to take a balanced view. It was not a charter for tenants declining to pay rent. The defendant had relied upon the code to argue that the claim should go to trial because of the claimant’s conduct in failing to engage with it. But the evidence suggested that it was the defendant who had refused to engage in discussion about the rent arrears.
(2) As part of the measures taken to protect the economy, the government had placed restrictions upon some, but not all, remedies that were open to landlords. There was no legal restriction placed upon a landlord bringing a claim for rents and seeking judgment upon that claim. The defendant’s position conflated on the one hand steps to enforce the right to receive rent under the contractual terms of the lease with, on the other hand, the right of the landlord to obtain a determination of the liability to pay rent and the court entering judgment for a sum. The steps the claimant might be able to take if judgment was entered were restricted; but the entitlement to bring a claim before the court for a determination about liability was unaffected.
(3) As regards insurance, the claimant’s case was that the landlord’s insurance protected losses incurred by the landlord to its business. It was no part of the claimant’s obligation to insure for it to insure against losses to the defendant’s business; it was open to the defendant to take out its own business interruption insurance to protect itself against such risks. The lease required the rent to be paid during the term. The policy covered material damage and loss of rent from one of the perils insured, including a notifiable disease. Critically, however, the policy only covered loss resulting from physical damage to property, including the facility (and therefore the premises) and damage to the claimant’s business, not the defendant’s business. Here, there was no such damage so that the rent continued to be payable under the lease. Any claim by the claimant under its policy would therefore be rejected by its insurer on the grounds that it had not suffered a loss to its business.
The rent cesser provisions only applied where there was physical damage to the premises. Rent was suspended until the premises had been reinstated. There was no basis for construing those provisions so that they applied in the event of the facility and/or the premises being closed due to a legal requirement. The rent cesser provisions in the lease, properly construed, did not apply to the Covid-19 pandemic.
(4) The issues of construction the court had been asked to consider fell well within the ambit of typical issues for determination on an application for summary judgment. Equally, the claimant had discharged the burden of establishing that the rents it claimed were due and the defendant had no real prospect of defending the claim to recover the outstanding rents. There were no compelling reasons why the claim should go to a full trial. The basis of the defence did not rely upon any new principles of law. The issues raised by the defendant were capable of being resolved by applying the well-established principles that governed the construction of contracts and the implication of terms. The context in which the claim was made did not entitle the defendant to contend that those principles were now part of an area of developing law. Equally the defendant was not able to point to any conduct on the part of the claimant that might be regarded as oppressive or that the claim had been issued prematurely. The claimant was entitled to summary judgment for the arrears of rent and service charge in the sum of £166,884, together with interest at the rate specified in the lease.
Gary Cowen QC (instructed by DAC Beachcroft LLP) appeared for the claimant; Oliver Caplan (instructed by TFS Stores Ltd) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Commerz Real Investmentgesellschaft mbH v TFS Stores Ltd
