Covid Was No Defence To Obligations To Pay Rent

• Jurisdiction: European Union
• Law Firm: Norton Rose Fulbright
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Author: Mr Akaash Harnal
• Published date: 09 February 2023

Bank of New York Mellon (International) Ltd v Cine-UK Ltd; London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2022] EWCA Civ 1021 illustrates how the English courts will approach cases where commercial tenants seek to resist paying rent during periods of COVID-19 restrictions. The decision demonstrates that COVID-19 related claims face an uphill struggle with the courts unwilling to interfere with the allocation of risk set out in the contract.

Background

In March 2020, the UK Government announced the closure of all non-essential retail, leisure and hospitality venues. This prevented the appellant tenants from lawfully operating their cinemas from the rented premises. They did not pay rent during those periods claiming they had no obligation to do so. The landlords issued proceedings for the rent and the judge at first instance ordered summary judgment in favour of the landlords.

The tenants appealed, advancing a number of grounds why they were not liable to pay rent for the periods during the COVID-19 pandemic when they were unable to lawfully operate their business at the premises.

Key arguments

Both appellants argued that:

1. as the operation of cinemas was unlawful due to Government restrictions imposed during the pandemic, there was 'a failure of basis'; and
2. it was an implied term of the lease that the tenant would not be obliged to pay rent during periods when the premises could not lawfully be used as a cinema.

Additionally, in the Cine-UK Ltd case the tenant argued that it was relieved from the obligation to pay rent by the rent cesser clause. This is a clause in a lease which provides that a tenant's obligation to pay rent under the lease is suspended in certain instances. For example, in the case of physical damage or destruction rendering the premises unfit for occupation or use.

Decision

The Court of Appeal dismissed the appeals brought by the commercial tenants, finding they were not relieved of the obligation to pay rent while they were unable to operate their businesses due to COVID-19 restrictions.

On base (1) above, the Court held that there was no 'failure of basis' that would permit an unjust enrichment claim (such a claim requires a defendant to benefit at the expense of the claimant, and for this benefit to be unjust). The court made reference to the following comments made by Carr LJ in Dargamo Holdings Ltd v Avonwick Holding Ltd [2021] EWCA Civ 1149

"...that an unjust factor does not normally override a legal...