Summary Judgment For Rent Arrears ' The Only Resort For Landlords Post-pandemic?

• Published date: 26 October 2021
• Subject Matter: Litigation, Mediation & Arbitration, Real Estate and Construction, Arbitration & Dispute Resolution, Landlord & Tenant - Leases
• Law Firm: Russell-Cooke Solicitors
• Author: Mr David Fendt and Guy Evans

In response to the pandemic, the Government introduced broad protections for commercial tenants, including restrictions on forfeiture of leases for rent arrears, and restrictions on winding-up petitions.

Debt claims are one of the few options left for landlords, and the recent case of London Trocadero (2015) LLP v Picturehouse Cinemas and others [2021] EWHC 2591 (Ch) is an interesting example of the Court's approach to summary judgment of debt claims in the pandemic.

Background

The tenant had two leases of cinemas in the Trocadero Centre in London. Both provided that the properties could only be used as cinemas. During the pandemic, cinemas were required to close, and the tenant was unable to trade. Even when restrictions were not in place, the cinemas only operated at a fraction of their usual business.

The landlord brought a claim for '2.9m in unpaid rent and service charge, and sought summary judgment.

Arguments

The tenant defended the application, arguing that:

1. A term should be implied into the leases suspending rent and service charge for periods where the properties could not be used as cinemas;
2. There had been a 'failure of basis' (sometimes called a 'failure of consideration'), as the rent and service charge were consideration for use of the properties as cinemas and there were periods were the properties could not be used as such.

The Court decided that no suspension term could be implied. Terms can only be implied where it is necessary to do so (for example, to give commercial or practical coherence, or business efficacy, to the contract), and that high bar was not met as the leases were coherent without an implied term. Further, the implied term would not have been consistent with the existing rent suspension provisions.

The Court also decided that there had been no 'failure of basis'. The nature of a lease is a grant of land for a period of time. That grant was not affected by the temporary prohibition of use of the land for its expected purpose - particularly as the landlord had given no warranty that the land could lawfully be used as a cinema.

On that basis, the Court found in favour of the landlord.

Comment

While the Court's decision was based on the particular wording of the leases in question, it is in line with previous decisions relating to pandemic rent arrears, where the Court has consistently found that rent remains payable notwithstanding the...