In response to the pandemic, the Government introduced broad protections for commercial tenants, including restrictions on forfeiture of leases for rent arrears, and restrictions on winding-up petitions.

Debt claims are one of the few options left for landlords, and the recent case of London Trocadero (2015) LLP v Picturehouse Cinemas and others [2021] EWHC 2591 (Ch) is an interesting example of the Court's approach to summary judgment of debt claims in the pandemic.

Background

The tenant had two leases of cinemas in the Trocadero Centre in London. Both provided that the properties could only be used as cinemas. During the pandemic, cinemas were required to close, and the tenant was unable to trade. Even when restrictions were not in place, the cinemas only operated at a fraction of their usual business.

The landlord brought a claim for £2.9m in unpaid rent and service charge, and sought summary judgment.

Arguments

The tenant defended the application, arguing that:

  1. A term should be implied into the leases suspending rent and service charge for periods where the properties could not be used as cinemas;
  2. There had been a 'failure of basis' (sometimes called a 'failure of consideration'), as the rent and service charge were consideration for use of the properties as cinemas, and there were periods were the properties could not be used as such.

The Court decided that no suspension term could be implied. Terms can only be implied where it is necessary to do so (for example, to give commercial or practical coherence, or business efficacy, to the contract), and that high bar was not met as the leases were coherent without an implied term. Further, the implied term would not have been consistent with the existing rent suspension provisions.

The Court also decided that there had been no 'failure of basis'. The nature of a lease is a grant of land for a period of time. That grant was not affected by the temporary prohibition of use of the land for its expected purpose – particularly as the landlord had given no warranty that the land could lawfully be used as a cinema.

On that basis, the Court found in favour of the landlord.

Comment

While the Court's decision was based on the particular wording of the leases in question, it is in line with previous decisions relating to pandemic rent arrears, where the Court has consistently found that rent remains payable notwithstanding the effect of coronavirus.

However, landlords will be aware that despite such rulings, they are still effectively prohibited from pursuing debts via the winding-up route, despite the recent relaxation of the restrictions on the ability of creditors to present winding-up petitions against debtor companies (see our article on this topic).

That said, the judgment in Trocadero may encourage landlords to at least obtain a judgment for rent arrears now, in order to bolster their positions when they seek to enforce claims for rent arrears in due course when the restrictions on forfeiture and winding-up petitions are removed in March 2022.

Also of note in Trocadero is the Judge's reference to the proposed introduction by the Government of a binding arbitration process in respect of rent arrears, which the tenant argued was a reason why summary judgment should be refused. In this case the Court determined that the proposed legislation was not a compelling reason to allow the matter to go to a full trial. This contrasts with the decision in Re: A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406 (Ch), where the Court granted an injunction restraining a creditor from presenting a winding-up petition on the basis of the then draft Bill that became the Corporate Insolvency and Governance Act 2020, which restricted the ability of creditors to present winding-up petitions against debtor companies.

One of the clear messages from this case is that landlords may try to obtain judgment now for the full sum due to them, rather wait until the legislation is enacted and find they get less under the arbitration scheme. Either way, there is still an incentive for parties to try to agree proposals for dealing with arrears, to avoid court or arbitration.

Russell-Cooke is well placed to advise landlords and tenants on all matters of rent and debt recovery. If you would like more information on this topic please contact Guy Evans, David Fendt, or anyone from the real estate disputes and insolvency teams.