The Picturehouse Litigation: Post-Covid, The Court Of Appeal Emphasises That Contracts Are Meant To Be Binding

• Published date: 26 September 2022
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Law Firm: Mayer Brown
• Author: Mayer Brown

The Court of Appeal, in the conjoined appeals of London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and Bank of New York Mellon (International) Ltd v Cine-UK Ltd,once again vindicated beleaguered landlords by refusing to imply terms into professionally negotiated leases. Tenants cannot withhold rent except in circumstances expressly set out in the lease.

Buttressing the judgment is the reiteration of the stated "fundamental basis" of a lease: it is an estate granting exclusive possession for a fixed term, in consideration for payment of rent. The tenants' frustrated intention to use the premises as a cinema was not sufficient to cause a total failure of consideration.

Background

The defendant tenants are both part of the troubled Cineworld Group plc, which is the second largest cinema operator in the world. The appeals related to whether they remained liable to pay rent when COVID-19 restrictions required them to close their cinemas. The landlords pursued the defendants for arrears incurred during this time, and, because there was no basis in law for the tenants' defence, the landlords successfully applied for summary judgment. That first instance decision gave rise to this appeal.

The Arguments

The tenants put forward the following arguments:

• COVID-19 restrictions caused a "failure of basis" which should therefore give rise to a restitutionary claim against the landlords. The tenants had had no benefit from the contract during this time and therefore, they argued, if they did pay rent the landlords would unjustly benefit from its receipt;

• a term should be implied into the leases that the obligation to pay rent would be suspended when the lawful use became impossible and

• in respect of one of the leases, that the tenant were relieved of their obligations to pay rent by the rent cesser clause in the leases.

A strong Court of Appeal firmly rejected all three arguments.

Unjust enrichment

This was an audacious defence for the tenants to raise. Unsurprisingly, the court preferred to maintain the status quo rather than extend radical restitutionary principles to undermine established property rights.

It restated that a lease was a contract whereby the tenant was granted exclusive possession, for a term, at a rent. The COVID-19 regulations did not alter this basis. The jointly held knowledge at the grant of the lease that the tenant would use the premises for a cinema was immaterial; to suggest that the landlords had unmeritoriously benefited by...