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For the second time in one week, the High Court has found in favour of the landlord in a dispute around concerning payment of rent during the Covid-19 pandemic. The judgment in Commerz Real Investmentgesellschaft mbH v TFS Stores Limited was closely followed by the judgment in Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others. Both disputes were based on similar facts and arguments. In this insight we focus on the judgment in Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others and what it could mean for similar cases.
The judgment relates to a number of tenants (Cine-UK, Mecca Bingo and Sports Direct) whose cases, each based on a similar set of facts and circumstances, were heard together. The landlords brought a claim for rent. The tenants, who had been unable to trade (fully) during the Covid-19 lockdown periods, resisted liability for payment of rent during these periods. The landlords had the benefit of pandemic insurance, including loss of rent cover irrespective of damage to their buildings.
The tenants each put forward a number of sophisticated arguments to support their claim that rent was not payable during the lockdown periods. We have summarised their main arguments and included the High Court’s take on these:
The High Court’s decision in favour of the landlord is significant and will impact landlords and tenants alike. It is clear that its significance was in the court’s mind. This is evident from the 100 page judgment which is detailed and considered.
The court expresses its sympathy for the tenants and acknowledges the difficult position that they have been in during the pandemic. However, the court’s analysis rests on the need for contractual certainty. Its judgment is underpinned by the notion that, to preserve legal certainty, contractual rights must be interpreted by applying settled principles to the contract in question. Anything else is, in the court’s view, a matter for Parliament.
The decision will be welcomed by landlords, particularly as all of the tenants’ arguments were comprehensively rejected as having no reasonable prospects of success. It remains to be seen whether any of the tenants will apply for permission to appeal.
It is worth mentioning that landlords and tenants should be aware of the impact of any proposals for restructuring on rent arrears claims. In the recent case of Riverside CREM 3 Ltd v Virgin Active Health Clubs Ltd, the High Court stayed the landlord’s rent arrears claim, because the tenant had proposed a restructuring plan under Part 26A of the Companies Act 2006 (as inserted by the Corporate Insolvency and Governance Act 2020) after the landlord’s claim had been issued.
The court ordered a stay as the interests of the wider class of creditors trumped the private interests of the landlord. In this case, it was clear that a majority of more than 75% of the tenant’s secured creditors would vote in favour of the restructuring plan. If the landlord had obtained and enforced judgment, it would have received substantially more than the other landlords in its class under the restructuring plan.
Although the judgment in Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others has brought clarity, further changes may well be around the corner. Last month the Government launched a consultation calling for evidence to establish how landlords and tenants are responding to the build-up of rent arrears during the pandemic.
This will in turn support the Government’s decision making on whether to release the current measures in place (the forfeiture moratorium and the restrictions on the use of the Commercial Rent Arrears Recovery (CRAR) procedure), or whether to replace them with new measures such as voluntary or compulsory non-legal adjudication of Covid-19 rent arrears claims. The consultation closed on 4 May 2021.
Now more than ever, specialist advice is important to navigate the maze of laws, regulations and procedural rules around landlord and tenant negotiations and disputes.
TLT’s transactional and dispute resolution real estate lawyers are experienced in the full range of landlord and tenant matters and remain on hand to assist at this time.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions.
10 May 2021