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22 Apr 2021

Landlord-friendly decision in a rent arrears case during the Covid pandemic

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In a welcome decision for landlords, on 16th April 2021 the High Court has dismissed many of the legal arguments tenants have tried to run to avoid paying rent during the Covid pandemic. The decision in Commerz Real Investmentgesellschaft v TFS Stores [2021] EWHC 863 dismisses a number of arguments recently raised by tenants when sued for non-payment of rent.  Indeed the landlord won at the summary judgment level, which means that the court ruled that the tenant's arguments were so weak that they had no real prospect of success.

In brief the arguments raised by the tenant and the Court's decision on them were:

  1. Tenant argument: The government's code of practice for commercial property relationships during the Covid pandemic meant court proceedings were premature.

     
    Court decision: the Court was clear that the code is non-binding and does not alter legal relations between landlords and tenants. In addition in this particular case there had also been significant engagement between landlord and tenant.

  2. Tenant argument: Government measures to restrict enforcement by landlords (e.g. restrictions on forfeiture, winding-up and CRAR) meant the landlord should not be allowed to exploit a 'loophole' to recover rent through a money claim.

     
    Court decision: the Court held there was no 'loophole' being exploited – the Government had chosen to restrict some measures (e.g. forfeiture and CRAR) but not others (e.g. money claims). Landlords were entitled to make use of those non-restricted measures.

  3. Tenant argument: The insurance provisions of the lease required the landlord to insure against loss of rent for notifiable disease and/or government action and to claim under that policy to cover the rent (or if there is no policy then the tenant had a damages claim for failure to so insure).

     
    Court decision: again, the Court had little time for this. It held that the lease in this case did not place such an obligation on the landlord (of course this will depend on the drafting of each particular lease). Even if there were such an obligation, it would not follow that this insurance policy should cover losses of the tenant (as opposed to the landlord).  

  4. Tenant argument: the rent cesser/suspension clause in the lease should be interpreted so that the rent was suspended during the Covid-19 pandemic.
     
    Court decision: the Court rejected this argument too – the wording of the particular rent cesser/suspension clause in the lease was considered to apply to physical damage to the property only. The rent suspension did not apply when the premises were closed due to legal requirements (such as a government ordered 'lockdown').

The decision will be welcome for landlords and is a reminder that, while the government has restricted many enforcement methods, the legal obligations of tenants remain unchanged and tenants can still be pursued in the courts. For tenants, the case highlights the limited legal arguments available to them and is a reminder that engaging with landlords to find commercial solutions to their rent arrears is key.

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