Lockdown rent arrears remain due from commercial tenants: the decision in Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd [2021] EWHC 863 (Ch)

This is the first of many COVID "debt" claims that has found its way through to a judgment.  It does not deal with all of the arguments that have been raised by tenants in defence of COVID related rent claims – but it is, perhaps, a guide to the court's attitude to these cases.

The facts of the case will have become familiar to many since the first COVID-19 lockdown. The tenant occupied a retail premises in the Westfield shopping centre in London, W1. It had not paid rent since April 2020, which it said was attributable to its forced closure and the general of lack footfall caused by the pandemic. The landlord filed a claim to recover these arrears, in respect of which it applied for summary judgment. In response, the tenant lodged an application seeking an order to adjourn the summary judgment application.

The tenant relied on the following three grounds in defence of the claim, each of which was dismissed in turn.

1. The claim was issued prematurely, contrary to the Code of Practice for Commercial Property Relationships During the COVID-19 Pandemic (the “Code”).

Considering the first paragraph of the Code, the Court recognised that it “is a voluntary code and does not change the underlying legal relationship or lease contracts between landlord and tenant and any guarantor”. Further still, the Court considered that there was simply no factual basis for alleging non-compliance, given that “the lack of engagement, if anything, is on the [tenant]’s side”.

2. The claim was a means of circumventing measures put in place to prevent forfeiture, winding up and recovery using CRAR, and intended to exploit a ‘loophole’ in the restrictions put in place by the government.

The Court also dealt with this issue in fairly short shrift, holding that there was no ‘loophole’ as alleged. Instead, it noted that “as part of the measures taken to protect the economy, the government has placed restrictions upon some, but not all, remedies that are open to landlords. There is no legal restriction placed upon a landlord bringing a claim for rents and seeking judgment upon that claim”.

3. By virtue of the landlord’s obligation under the lease to insure against loss of rent arising from an ‘Insured Risk’, it is reasonable to expect that the landlord would insure against loss of rent due to forced closures due to notifiable disease.

It should be noted that, whilst the occurrence of a notifiable disease did not fall within the definition of ‘Insured Risks’, the landlord had nonetheless insured its business against such losses. The landlord however successfully argued that it was no part of its obligation to insure against business interruption losses suffered by the tenant (such losses instead falling to any appropriate policy which the tenant may have chosen for itself to take out). If rent continued to be payable under the lease, then there is no justification for the landlord first having to turn to its insurance policy for unpaid rent, rather than the tenant liable to pay the same.

Turning to the terms of the lease, the Court recognised that rent was due unless the rent cesser provisions suspend that obligation. The relevant provisions were thought to be entirely unambiguous, which included where the premises “are damaged by an Insured Risk or if the Facility is so damaged as to affect materially and adversely the Premises”. Contrary to the tenant’s case, whilst the obligation in the lease to keep open and to trade was in fact suspended, there was no basis for construing the rent cesser provisions (whether by an implied term or otherwise) such that they apply beyond instances of physical damage.

Rent plainly continues to be payable under the lease, and summary judgment was awarded accordingly.

The judgment is sure to be welcomed by landlords, many of whom are likely to be keen to recover many months’ worth of arrears as stores are finally reopening their doors. Commercial tenants, meanwhile, are unlikely to take the same comfort.

Further decisions are awaited from cases still working their way through the court.  However, if this case is indicative of the court's attitude, it seems most likely that those claims will favour the landlords.