On 16 April 2021, Chief Master Marsh handed down judgment at the High Court in the case of Commerz Real Investmentgesellschaft mbh v TFS Stores Limited  EWHC 863 (Ch) in what is believed to be the first reported judgment on a landlord’s ability to take enforcement action against a tenant for failing to pay rent under a commercial lease due to the impact of the COVID-19 pandemic and the government lockdowns.
In a decision that will be welcomed by landlords but disappointing for tenants, Chief Master Marsh granted summary judgment to the landlord in its claim against the tenant for unpaid rent and service charges that had accrued since the onset of the pandemic.
The claimant is the leasehold owner of the Westfield shopping centre in Shepherds Bush. The defendant, which operates the retail chain trading as “The Fragrance Shop”, was a tenant at the shopping centre pursuant to a 5 year lease granted in 2019.
Due to the COVID-19 lockdown measures imposed by the Government, the tenant (TFS) had been obliged to close its unit to the public between 26 March and 15 June 2020, between 5 November and 2 December 2020 and again from 19 December 2020 to 12 April 2021. TFS stopped paying rent for the unit in April 2020 and the monthly service charges due in April, May and June 2020 were also outstanding.
The landlord issued proceedings against TFS in December 2020 for the outstanding arrears, seeking judgment in the sum of £166,884.82 (inclusive of VAT) and contractual interest.
TFS sought to defend the claim on various grounds, including:
- The claim was issued by the landlord prematurely contrary to the Code of Practice for Commercial Property Relationships During the COVID-19 Pandemic (“the Code”).
- The claim was an attempt to exploit a “loophole” in the restrictions placed upon the recovery of rent put in place by the government to protect tenants impacted by the pandemic including restrictions on forfeiture, winding up and recovery using CRAR.
- That the landlord was obliged under the terms of the lease to maintain insurance for loss of rent resulting from a notifiable disease and/or government action and must claim under the loss of rent insurance policy it maintains before commencing proceedings to recover rent.
- That the rent cesser provisions in the lease, properly construed, apply to the COVID-19 pandemic which amounts to a suspending event for the purposes of the lease.
However, each of the tenant’s arguments were unsuccessful, with the judge finding (amongst other things):-
- That the Code does not affect the legal relationship between a landlord and tenant.
- That there had, in any event, been significant engagement by the landlord and the lack of engagement, if anything, had been on the tenant’s side.
- Although the Government had placed restrictions upon some, but not all, remedies open to landlords, there is no legal restriction placed upon a landlord bringing a claim for rents and seeking judgment upon that claim.
- That the terms of the lease did not permit TFS to assert that the landlord had an obligation to include notifiable diseases and/or government direction as insured risks. The lease was clear that the obligation to insure was limited to the risks that were named in the definition (which did not expressly include notifiable disease or government action, although it turned out the landlord had, in fact, insured its business against such risks) and the landlord was not obliged to insure against any other risks unless it chose to do so, with it being for the landlord to decide which additional risks will be covered.
- Even if there was an obligation on the landlord in respect of such risks, there was nothing in the lease that could ground the notion that the landlord was obliged to insure the tenant’s business against loss.
- That the rent cesser terms in the lease only apply in the limited circumstances they expressly contemplate and no further; that they only apply to physical damage to the premises; and that there was no basis for construing the provisions as applying to a situation where the premises were closed due to a legal requirement.
Chief Master Marsh was, therefore, satisfied that the landlord had discharged the burden of establishing that the rents were due and that TFS had no real prospect of defending the claim and granted summary judgment for the arrears claimed and contractual interest under the lease, stating that the “basis of the defence does not rely upon any new principles of law. The issues raised by the defendant are capable of being resolved by applying the well-established principles that govern the construction of contracts and the implication of terms. The context in which the claim is made does not entitle the defendant to contend that these principles are now part of an area of developing law”.
A copy of the judgment is available here.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Kenny Friday