Clarkslegal LLP - Solicitors in Reading and London

Legal Updates

Can a commercial tenant get away with not paying rent due to the pandemic?

11 May 2021 #Commercial Real Estate


It has now been 14 months since we first went into lockdown and the Government released measures under the Coronavirus Act to protect both residential and commercial tenants from being evicted if they had not paid their rent up to date.

There was a lot of speculation whether or not a landlord could pursue the tenant for rent arrears due to the limitations they had faced during the pandemic as many tried to argue that it was an event that could not have been anticipated by either party.

However, we now have some clarity following the landmark case of Bank of New York Mellon v Cine UK Limited and others in 2021 that was recently heard.

Background

The landlords brought a debt claim against the tenants, in respect of unpaid rent and VAT that had fallen due during the COVID-19 pandemic. The defendants were Cine-UK, Mecca Bingo, and SportDirect.com Retail. The landlords made applications for summary judgment for the debts owing.

The courts decided to hear all three cases together and the tenants’ main defence grounds were as follows:

  1. Reliance was placed upon the Code of Practice published on 19 June 2020 and subsequently updated on 6 April 2021. The Code basically set out how landlords are to act in a consolatory way regarding commercial premises and leases. The judge held that the Code of Practice still requires the tenant to comply with the obligations set out in the lease.
  2. The rent cesser clauses in the leases should have been applied due to the pandemic. The judge held that this clause would only apply if there was ‘physical damage’ to the property.
  3. The landlords had insured against loss of rent in the event of precisely the event which had occurred, and as the tenants paid for that insurance, they should be entitled not to pay the relevant rent. The judge held that the landlords had not ‘lost’ rent so as to engage the rent cesser provisions to enable them to claim insurance for the same.
  4. The lockdown was a frustrating event, and the leases should be treated as suspended (or terminated). The judge held that, there is no authority for ‘temporary frustration’ – a lease is either terminated permanently by frustration (which is very unlikely to happen in practice) or it is not.

As such, Master Dagnall rejected the tenants’ arguments as he believed the grounds of defence did not show any real prospects of success in defending the claims brought against them.

If you require assistance with any commercial Landlord and Tenant issues please contact our Real Estate team.

 

 

Clarkslegal, specialist Real Estate lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Real Estate matter please contact Clarkslegal's real estate team by email at realestate@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

Read more articles

Kiran Malik

Kiran Malik
Solicitor

E: kmalik@clarkslegal.com
T: 01189604662‬
M: 07748638845

Contact

Commercial Real Estate team
+44 (0)118 958 5321