In Bank of New York Mellon (International) Ltd v Cine-UK Ltd and London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2022] EWCA Civ 1021 the Court of Appeal has dismissed appeals by tenants against judgments entered by their landlords for rents owed during periods when the premises were closed due to coronavirus restrictions.
Both cases concerned cinemas – in Hengrove, Bristol and the Trocadero, London – let on long leases with significant periods still to run. Both had to close for significant periods in compliance with government restrictions between late March 2020 and mid-May 2021. The Hengrove tenant argued that the rent cesser clause in its lease was not limited to physical damage and included financial damage. Both tenants also argued that terms should be implied into their leases that rent would be suspended if the premises could not be occupied or used for the permitted use and that there had been a failure of consideration which was a defence to the claim for rent due.
The Court of Appeal was satisfied that the rent cesser clause in the Hengrove lease did not, as a matter of construction, cover financial or non-physical damage. It only operated where there was physical damages to the premises. Insured risks which were non-physical – eg strikes and labour disturbance – were not intended objectively to encompass financial damage suffered by the tenant due to restrictions imposed by the government during a pandemic. In any event, such insurance was to protect the landlord’s business, not that of the tenant which could obtain its own business interruption insurance.
The implied terms sought neither satisfied the business efficacy test so that without them the contract would lack commercial or practical coherence, nor was it so obvious that it went without saying that such terms should be implied: Yoo Design Services Ltd v Iliv Realty Pte Ltd [2021] EWCA Civ 560. The leases both worked perfectly well without the implied terms, allocating risk that the premises could not be used for their intended purpose to the tenant. The provisions sought to reallocate that risk. An implication that rent was only payable when the premises could be used as a cinema with attendance commensurate with the parties’ intentions at the outset, also failed, since there was no evidence as to what was anticipated when the leases were entered into.
As regards the tenant’s argument that there had been a failure of consideration, the Court of Appeal rejected the tenants’ argument that the restrictive legislation which was introduced was unprecedented and so the court should apply the law in a fresh light. This was no reason to disregard or disapply fundamental principles. To sustain their argument, the tenants needed to identify a gap in the leases which warranted a claim in unjust enrichment. There was no such gap. The leases contained a carefully worked out regime for the allocation of risk which the failure of basis argument would subvert. The consideration for the obligation to pay rent was the demise of the premises in each case for a term of years with exclusive possession, and this had not failed.
Louise Clark is a property law consultant and mediator
