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Bank of New York Mellon (International) Ltd v Cine-UK Ltd; AEW UK REIT Plc v Mecca Bingo Ltd; AEW UK REIT Plc v SportsDirect.com Retail Ltd [2021] EWHC 1013 (QB)

7 July 2021

The second reported case where landlords obtained summary judgement to recover arrears of rent which had accrued since the start of the pandemic.

Facts

Three cases brought by connected landlords (L) for summary judgement to recover rent going back to March 2020 relating to a Sports Direct store in Blackpool (under a lease granted in 2008), a Cineworld cinema in Bristol (under a lease granted in 2002) and a Mecca bingo hall in Dagenham (under a lease granted in 2017) were amalgamated together. The tenants were all separately represented and put forward different arguments in their defence. However, it was agreed that they could all rely on each others’ grounds.

The tenants had been unable to trade for (at least) substantial periods of time since the start of the pandemic as a result of government restrictions. L had taken out loss of rent insurance which included cover where the buildings could not be accessed or used as a result of infectious or contagious disease.

Issues

  1. Did the government’s Code of Practice for commercial property relationships during the Covid-19 pandemic mean that L should have been negotiating with the tenants, rather than seeking summary judgement against them?

  2. Did the rent suspension clauses in the leases (which applied where the premises were damaged or destroyed by an insured risk) mean that rent ceased to be payable when the tenants had been unable to trade because of government restrictions?

  3. If not, should such rent suspension provisions be implied into the leases?

  4. Did L’s insurance policies (paid for by the tenants) actually cover the relevant event (meaning the tenants could take advantage of this and not pay the rent)?

  5. Had the pandemic and government restrictions frustrated the leases (causing them to be suspended or terminated)?

Decision

  1. The Code of Practice was a voluntary code and did not change the underlying legal relationship between a landlord, a tenant and any guarantor. The fact that it encouraged negotiation did not prevent a landlord who had a clear case from seeking and obtaining summary judgement. The government had made it clear that, if businesses could pay some or all of their rents, they should do so and the tenants had failed to provide evidence of their inability to pay.

  2. The rent suspension clauses only operated to suspend the rent where the premises had been physically destroyed or damaged by an insured risk as that was the ordinary meaning of the words used. They operated until the premises were “fit again for occupation or use” which inferred that physical damage must have occurred.

  3. It was not clear that an ‘officious bystander’ would say that such implied terms would ‘go without saying’, nor were such implied terms necessary to give the leases business efficacy (the tests for implying terms into contracts). The lease clauses were directed towards damage to ‘bricks and mortar’ and it was always open to the tenants to arrange insurance cover for their own business losses. The leases allocated known commercial risks without the need to imply further terms.

  4. L’s concern was to insure its ‘bricks and mortar’. Although L’s policy included loss of rent whether or not there was any physical damage to the premises, there was no sense in which rent had been ‘lost’ as the rent suspension clauses themselves required damage or destruction to the premises (which had not happened). L had not suffered a loss and there was nothing therefore for them to be insured against.

  5. Whilst the pandemic and the government restrictions were supervening events, the expected periods of closure were unlikely to exceed 18 months. Significant periods of time would therefore remain under each lease after a limited period of enforced closures (12, 11 and 1 year(s)) along with protection under Part II of the Landlord and Tenant Act 1954. There was therefore no real prospect of the tenants arguing that the pandemic and the government restrictions had caused the leases to be frustrated.

    Moreover, frustration was a doctrine which caused a contract to be discharged and brought to an end. A contract could not be suspended temporarily under the doctrine of frustration.

Points to note/consider

  1. Other ‘kitchen-sink’ arguments put forward by the tenants based on partial failure of consideration and illegality also failed. Tenants’ arguments along the lines of those used in this case have been put forward since the start of the pandemic. If they were unsuccessful here, it seems unlikely that they will be successful in any other similar cases. In the absence of any specific clauses dealing with the consequences of a global pandemic (and unless tenants in other cases are able to come up with some novel convincing arguments to the contrary), a tenant remains liable to pay rent under its lease. Only legislation is likely to change this.

  2. Interestingly, Master Dagnall did not agree with the tenants’ argument that the pandemic and the government restrictions were unforeseeable, citing as an example the outbreak of SARS in Asia and the consequent fears that that had aroused a few years ago. L’s insurance policies had covered the pandemic and it had been perfectly possible for the tenants to have taken out their own business interruption policies along similar lines. Although he did express sympathy for the hospitality and non-essential retail sectors, he ultimately agreed with the observations of the judge in a 2020 case (TKC London Ltd v Allianz Insurance Plc) that:

    In times of uncertainty the law must provide a solid practical and predictable foundation for the resolution of disputes and the confidence necessary for an eventual recovery… Contractual rights are to be evaluated by applying settled principles to the contract in question. Legal certainty remains paramount and gives the surest basis for resolution."

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

David Harris

David Harris

Professional Development Lawyer

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