Covid, lockdowns and liability to pay rent – another instalment of the ongoing saga

Covid has been tough on many business, particularly those in retail, leisure and hospitality.

Landlords have also had it hard, with more limited access to government support.

Depending on your outlook, this blog either amounts to a ‘win’ for landlords or a ‘loss’ for tenants.

Either way the law and the courts are navigating through the mire to deal with a pandemic that landlords and tenants did not envisage.

It is fair to say tenants have been keen to explore all possible routes to challenge their liability to pay rent for periods in which they had to close during lockdown(s).

The High Court in London has delivered another blow to tenants in England and Wales.

Background

Tenants (and cinemas) had already suffered a significant defeat in the case of Bank of New York Mellon (International) Ltd v Cine-UK Limited in which the tenant had unsuccessfully tried to argue that the Covid-19 lockdown allowed the tenant to rely up on the Rent Cesser clause in the lease (in brief terms - where the tenant stops paying rent in the event the property is damaged as a result of an insured risk).

The tenant also argued that there had been a supervening event/illegality which made it impossible for them to perform (and therefore, should not have to pay rent).

Latest case – another blow for tenants

This week the High Court again ruled against cinemas, this time in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd; Gallery Cinemas Ltd; and Cineworld Cinemas Ltd.

The tenant tried another route, this time arguing that there should be implied terms in the lease stating that: (i) if the Permitted Use of the leased subjects becomes illegal, the obligation to pay rent and service charge would be suspended and cease to be payable for that period; and (ii) that the sums due under the lease would not be payable in respect of periods during which the premises could not be used for the intended purpose (in this case - a cinema with permitted attendance levels as anticipated at the time the lease was entered into).

It is not easy to imply a term into a lease:

• a term is not implied just because it appears fair or that a party would have agreed to the term if it had been suggested to them at the time;
• a term will not be implied where it is inconsistent with any express term of the contract; and
• the court will only imply a term where it is necessary to give business efficacy to the contract and where the term being implied is ‘so obvious that is goes without saying’ (in rare cases you only need one of the last two limbs of that test).

The court looked at the suggested implied terms and asked itself whether the lease would lack commercial or practical coherence without it. The court found it would not.

A lease often has risks being borne by the parties and it is for the parties, in negotiating the terms, to decide where the risks lie. The Landlord had not given any warranty that it would be possible for the tenants to use the premises for the permitted use.  In this case, it is not the case that the terms are required for business efficacy, nor are the terms so obvious that they go without saying.

Looking ahead

So, is the law now settled on a tenant’s liability to pay rent during lockdown(s)?

No, not yet.

The tenant in the Cine-UK case has obtained permission to appeal to the Court of Appeal.

Watch this space…

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