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Lawbite: Spectre of rent arrears looms large

  • United Kingdom
  • Litigation and dispute management
  • Real estate
  • Real estate litigation - LawBite

30-09-2021

London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2021] EWHC 2591 (Ch)

In the week when the pandemic delayed James Bond film “No Time to Die” was finally released, the High Court has issued its own blockbuster judgment in respect of a tenant’s liability for pandemic rent arrears.

The context will be obvious to all – the commercial property press are widely reporting that in excess of £7 billion commercial rent arrears remain outstanding.  The draft legislation arising out of the Government’s policy statement upon resolving commercial rent arrears claims is anticipated in November 2021.  It is also widely understood that one of the early decisions confirming a tenant’s liability for Covid 19 incurred rent arrears (Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others) is due to be appealed to the Court of Appeal – the tenant (Cine-UK) will be arguing that the interpretation of its lease and, in particular, the rent cesser provision was wrong (and the decision on partial failure of consideration). 

The claim related to leases of a cinema at the Trocadero Centre in London. In the decision of Deputy High Court Judge Vos, the Court rejected the tenant’s argument that terms should be implied into its leases suspending payment of rent and service charges when use of the premises (as a cinema in this case) was illegal or the attendance would be far lower than the parties expected when the leases commenced.  The Court also refused to accept the tenant’s argument that there was partial failure of consideration. 

The tenant argued that its payments under the leases were for the use of the premises as a cinema, and therefore no payment obligation could arise where the premises could not be used as a cinema. The court found that the suggested implied terms did not meet the “business efficacy test” or the “obviousness test” necessary to imply terms into a contract.  The court also decided that the suggested implied terms were actually inconsistent with the terms of the leases.

The Court further rejected the tenant’s “failure of basis” defence – finding that use of the premises under the leases was not “fundamental to the basis” the parties entered into the leases.  In short, the expectation that the premises would be used as a cinema was insufficient to displace the entitlement to rent.  The court also determined that the leases addressed the risk (and the risk fell upon the tenant). 

Key points:

  • there is an increasing urgency for the Government to legislate upon how the proposed Arbitration system for resolution of pandemic rent arrears claims is intended to operate.  Landlords and tenants remain in limbo with a £7 billion arrears overhang
  • the appeal of the Cine-UK case to the Court of Appeal causes uncertainty as to how the outcome of that case will impact, if at all, upon the proposed legislation
  • this case affirms the trend of the lower instance courts rejecting tenant’s pandemic period rent arrears defences
  • many landlords have insurance policies to cover loss of rent caused by denial of access, lockdowns, or notifiable disease. Insurers are currently refusing to pay out, and the legislation is expected to clarify whether landlords can claim on policies for loss of rents