Commercial rent payments in England and Wales

1. General overview

Unlike some other jurisdictions, there have been few reported decisions on this issue in England and Wales. 

The UK Government’s approach to commercial rent arrears during the pandemic has largely taken the form of (1) statutory restrictions on certain forms of enforcement action coupled with (2) encouragement to landlords and tenants to work together to deal with arrears consensually. As such, there has been no legislative intervention to date in England and Wales to modify tenants’ contractual obligations to pay rent. This together with the absence of any restrictions on landlords’ ability to bring proceedings for debt in the courts has tended to suggest that the circumstances of the pandemic do not affect tenants’ liability to pay rent or their landlord’s entitlement to bring proceedings and obtain judgment where this is unpaid.

However, until recently there still remained a degree of uncertainty regarding the approach that the courts would take to tenant defences to claims for rent arrears arising during the pandemic (“Covid Defences”). This changed in April 2021 when the High Court granted summary judgment to the claimant landlords in the cases of (1) Commerz Real Investmentgesellschaft mbh v TFS Stores Limited (the “TFS Case”) and (2) Bank of New York Mellon (International) Ltd v Cine-UK Ltd, AEW UK Reit Plc v SportsDirect.com Retail Ltd, AEW UK Reit Plc v Mecca Bingo Ltd (the “Cine-UK Case”).

In both cases the court emphatically rejected the defendant tenants’ various Covid Defences. Although neither decision is binding, it is widely considered that the view of the courts in the jurisdiction generally is likely to be consistent with these decisions. 

It therefore seems unlikely that courts in the jurisdiction will entertain Covid Defences by tenants in most circumstances. 

Any potential exceptions to this general assessment are likely to involve defences relating to the specific wording of unusually drafted leases and therefore are unlikely to be applicable in the majority of cases.

2. Arguments put forward by tenants before the courts

2.1 Frustration/ supervening event

In the Cine-UK Case, it was argued that the enforced closure of premises in the pandemic amounted to temporary frustration of the leases of those premises or that the obligation to pay rent was otherwise temporarily suspended. The court held that:

  • there was no such thing as temporary frustration (the effect of frustration being to end the contract), and
  • (in relation to the other tenant arguments that the rent should be suspended) that a tenant’s inability to legally trade did not suspend its obligation to pay rent.

2.2 Rent cesser clauses

In both the TFS and Cine-UK Cases, it was argued by the tenants that the rent cesser clauses in the leases (which provide for the rent to be suspended if the premises are damaged or destroyed) had been triggered by the circumstances of the pandemic. 

The court held in both cases that the relevant clauses (which were worded in terms which are common in commercial leases in England and Wales) require physical damage to the premises for the rent to be suspended and no physical damage had occurred.

2.3 Implied rent cesser clauses

The court in both cases also firmly rejected tenant arguments that a rent cesser provision providing for the rent to be suspended during the pandemic should be implied into the leases.

2.4 Tenant’s rights in relation to the landlord’s insurance

Another argument raised in both cases was that the landlord should have obtained disease cover for the tenants’ benefit under the insurance provisions in the relevant leases.  This argument was rejected by the court in both cases in terms which make clear that an obligation on the landlord to obtain insurance for the tenant’s benefit in this way could not be imposed by the (fairly typical) insurance provisions in the relevant leases.

2.5 Code of Practice

In both cases, the tenants also sought to defend the claims on the basis that the claimant landlords had not complied with the UK Government’s Code of Practice for Commercial Property Relationships During the Covid 19 Pandemic (the “Code”) which envisages that landlords and tenants will work together. The court rejected this argument in both cases holding that the Code does not affect the legal relationship between landlords and tenants and so does not prevent landlords from bringing proceedings for arrears.

2.6 Circumvention of Enforcement Restrictions

In the TFS Case, the tenant also argued that the landlord’s proceedings were an attempt to circumvent statutory restrictions on other forms of enforcement action such as forfeiture for non-payment of rent, Commercial Rent Arrears Recovery (i.e. seizing tenant’s goods) and the use of winding up petitions. The court rejected this argument pointing to the fact that no restrictions have been imposed on proceedings in relation to commercial rent arrears.

Portrait of Marie Scott
Marie Scott
Partner
London