Another blow for retail tenants affected by the pandemic?

In April, we reported on two cases involving shopping centre landlord Westfield which acted as a warning to retail tenants who had been refusing to pay their rents as a result of the COVID-19 pandemic. We speculated that this might be reflective of the journey out of lockdown, and that fashion and retail tenants who were seeking to renegotiate terms or obtain rent-free periods during the pandemic might not have things all their own way.

The tenants in those cases (including sports fashion retailer Sports Direct and the Fragrance Shop) relied on a newly established Code of Practice (“the Code”) governing the responsibilities of landlords and tenants during the pandemic. The tenants tried to claim that the landlords were not entitled to recover rent under the leases, even though the leases stated that rent was due, because the Code strongly encouraged landlords and tenants to communicate and negotiate (rather than take matters to court).

The Judge held that the Code, whilst important, was not law, and in any event the landlords had sought to comply with it. He gave summary judgment for the landlords – and in doing so, gave hope to commercial landlords all over the country struggling to recover rent from tenants.

And now we have another case that has developed those principles further. On Tuesday, the owners of London’s Trocadero Centre succeeded in a summary judgment application against two cinema chains, Cineworld and Picturehouse Cinemas, for unpaid rent and service charges of close to £3m.

Mindful of the previous failure of the tenants in the Westfield cases to rely on the Code, the tenants in this latest application sought (amongst other arguments) to claim that there should be an implied term in the lease which said that rent should not be payable during any period where use of the premises was illegal (due to government orders to close) and/or during which attendance would not be at a level anticipated (due to restrictions on numbers allowed in) by the parties when the lease was agreed.

Again, the tenants’ argument has been rejected. A term can only be implied into a contract where it is necessary to give business efficacy to the contract. In this case, the judge noted that it was not enough that a term might be fair or reasonable, or even that the parties may have agreed it at the outset if it had been put to them. In short, there was no term in the leases stating that rent would not be payable in the event of an unanticipated event (such as a pandemic), and the fact that the parties had not included one did not mean the contract no longer made commercial sense. It simply meant that in the event that use of the property became illegal or impossible, the risk lay with the tenant, and it must pay the rent accordingly.

What does this judgment mean in practice?

The above decision is yet more positive news for beleaguered landlords, and will conversely be bad news for tenants, many of whom have struggled greatly during the pandemic. It is, however, reflective of a steady move away from the special measures we have seen over the past 18 months.

In addition to this clear evidence in a shift of the courts’ attitude to non-payment of rent,  this week also sees the ending of furlough support, and the ending of other COVID temporary restrictions which will weaken the position of all debtors, including tenants unable to pay rent: In particular:

• Up to 31 June, directors could not be personally pursued for any alleged wrongful trading under the pandemic. Since 1^st July, that risk is now back on the table for directors of indebted companies.  
• From 1 October, it was once again possible to present a winding-up petition on a basis that a company has failed to satisfy a statutory demand.
• Other restrictions on winding-up petitions are being eased significantly, in that it will no longer be necessary to consider the financial effect of Covid-19 on the company.

The last year has also seen a series of extensions to the measures put in place to protect tenants against remedial action by landlords in respect of rent arrears. At the moment, these restrictions are set to remain in place until 25 March 2022. The ban on a landlord’s right to recover rent by seizing a tenant’s goods under the statutory Commercial Rent Arrears Recovery procedure has also been extended until 25 March 2022.

There can be no doubt, though, that the Legislature – and the courts – are keen to resume normal service and are making very plain legislative and judicial steps in that direction. As a result, the arena for tenants with unpaid rent (and other debtors) is becoming more and more unfavourable.