Covid-19 Defence

The owner of Westfield Shopping Centre in Shepherd’s Bush has obtained summary judgment in the High Court against a retail tenant for non-payment of rent and service charges (Commerz Real Investmentgesellschaft MBH v TFS Stores Ltd [2021]).

As a result of the government implemented retail restrictions in response to the COVID-19 pandemic, the tenant, operating as The Fragrance Shop, was obliged to close its doors during the three national lockdowns. Despite the parties entering into a side letter altering the rent payable under the lease, by the time the landlord issued proceedings against the tenant it had not paid rent since April 2020 and had failed to pay the service charge from April to June 2020.

During the pandemic, the government has introduced temporary measures to protect commercial tenants. There has been a prohibition on forfeiture, the use of commercial rent arrears recovery and a restriction on the circumstances in which winding-up petitions can be presented. The government has also published Codes of Practice for commercial property relationships during the COVID-19 pandemic. Ultimately, however, landlords do have alternative remedies available to them. They are able to pursue non-payment of rent by making a claim for debt/mesne profits/damages, draw down on a rent deposit or make a claim against a guarantor.

The landlord filed an application for summary judgment which the tenant sought to adjourn on the basis of the following primary arguments:-

1. the landlord had issued the proceedings prematurely;
2. the landlord acted contrary to the Code of Practice;
3. the landlord was attempting to exploit a loophole in the government’s measures put in place to protect commercial tenants; and
4. the landlord was obliged to insure against the pandemic/government action and that the landlord should claim the loss of rent from their insurer.

The High Court dismissed the tenant’s application to adjourn and awarded the landlord summary judgment. The Judge provided the following comments:-

1. The Code of Practice did not alter the legal relationship between the landlord and tenant. In any event, the landlord provided sufficient evidence that it had made significant attempts to engage with the tenant and comply with the Code.
2. The landlord was not exploiting a “loophole”. The government intended there to be restrictions on some remedies available to commercial landlords, but not on all remedies.
3. The pandemic is not defined as an insured risk in the lease. Although the landlord had, in fact, insured itself against resulting losses it was not obliged to insure against the losses of its tenants. Rent continued to be payable so the landlord was not obliged to claim against its policy.
4. There was no doubt that the rent did remain payable. The rent cesser provisions in the lease did not “kick in” unless and until the premises were physically damaged. The pandemic is not, therefore, a “suspending event” despite the tenant’s ability to trade being suspended.

The landlord successfully established that the rent and service charges were due and that the tenant had no real prospect of defending the claim.

We expect to see many more cases in which a tenant raises “COVID-19 Defences” and the picture may well change. It is clear from this particular judgment, however, that the Courts will not readily sympathise with the tenant.