Good news for commercial landlords with COVID related rent arrears

Insight

Good news for commercial landlords with COVID related rent arrears

In the case of Commerz Real Investmentgesellschaft mbh -v- TFS Stores Limited [2021] EWHC 863 (Ch), the court has ruled for the first time that the COVID-19 measures introduced to prevent landlords from forfeiting, do not affect the underlying rent payable by a tenant.

The landlord who issued a claim based on non-payment of rent was not seeking forfeiture or insolvency action, rather they were seeking a judgment for the arrears of rent and service charge based on the provisions of the lease for the premises at Westfield London. Looking at the facts of the case, the tenant had not paid rent or service charge since April 2020 on the basis that they had periods of closure and a lack of footfall due to the COVID-19 pandemic.

The tenant defended the claim and raised three points in their defence:

That the landlord was in breach of the Code of Practice for Commercial Property Relationships During the COVID-19 pandemic (Code of Practice);
The landlord was attempting to bypass the restrictions put in place by the Government due to the COVID-19 pandemic; and
The landlord should have insured against the loss of rent as a result of forced closure and/or denial of access based on a notifiable disease and/or Government action.

An application for summary judgment was made by the landlord and judgment was handed down on 16 April 2021 by Chief Master Marsh, in which the landlord was ultimately successful.

Chief Master Marsh found that the landlord was not in breach of the Code of Practice, as such Code of Practice is voluntary and for guidance, which does not change or vary the terms of individual leases or contracts. In any event, it was clear that the landlord had attempted to engage with the tenant in respect of the arrears.

As to the second defence point, Chief Master Marsh found that whilst the Government had put in place restrictions on landlords in respect of forfeiture and insolvency action, this did not extend to a restriction on making a debt claim for unpaid rent and service charge. Therefore, the landlord was not attempting to capitalise on a loophole.

The main point raised by the tenant was the third defence point, whereby the tenant alleged that the landlord should have insurance cover which would cover their loss of rent in the instance of an occurrence of a notifiable disease and/or Government forced closure. The outcome of such would be that the rent cessation clause in the lease would be triggered by the insured risk and the tenant would not be liable for rent for the period in question. Chief Master Marsh disagreed and concluded that the landlord was not under any obligation to take out insurance that covered the tenant’s loss of business and that the rent cessation clauses would only be triggered, in this case, on damage to the landlord’s premises. Therefore, there was no justification for the landlord to seek reimbursement from an insurance policy or indeed that they were required to have such insurance policy under the lease.

The result saw judgment given to the landlord for the full rent arrears amount.

This is a positive move for commercial landlords who still face restrictions on forfeiture and winding up until the end of June 2021 and means that claims for unpaid arrears of rent and service charge can proceed regardless.

Good news for commercial landlords with COVID related rent arrears