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Defeat on tenants seeking to avoid paying rent as a result of Covid lockdowns

Defeat on tenants seeking to avoid paying rent as a result of Covid lockdowns

In London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2021] EWHC 2591 (Ch), the High Court granted a landlord summary judgment for rent and service charge arrears for periods when the COVID-19 pandemic meant the premises could not be used as a cinema.

Background
London Trocadero (2015) LLP was the landlord of premises used as a cinema. The premises were let under two leases to Picturehouse Cinemas Ltd and Gallery Cinemas Ltd.

In March 2020, the cinemas closed due to the COVID-19 pandemic. They had not paid the landlord any rent since June 2020. As a result of the failure to pay the rent the Landlord issued proceedings for the arrears and an application seeking a summary judgment for rent and service charge arrears.

The tenants applied to adjourn the summary judgment hearing on the basis of the government’s proposals to introduce a binding arbitration scheme but this was dismissed.

Tenants’ defence
The tenants argued that they should not be liable for the arrears for the following reasons:

a.  They said there should have been implied into the lease a term that rent and service charges should be suspended during periods when the cinema could not be used or where attendance would not be at the same level as anticipated when the leases were granted; and

b.   That there was a partial failure of basis as they argued that the payments were for the use of the premises as a cinema and so no payment should be due for periods when it could not be used as such.

Decision
The High Court rejected both arguments and confirmed the tenants had no realistic prospect of defending the claims and that there were no other compelling reasons why the issues should proceed to trial. It found that:

  • The proposed implied terms did not meet the business efficacy test or the obviousness test and were inconsistent with the terms of the leases. The issue of liability was one of risk which was a matter of negotiation. The risk lay with the tenants who could have taken out business interruption insurance.
  • There was no failure of basis. Taking into account the terms of the leases, the use of the premises as a cinema was not considered fundamental to the basis on which the parties entered into the leases. The continued and uninterrupted lawful use of the premises as a cinema was simply an expectation which had motivated them to enter into the leases. In addition, the leases addressed the possibility that the premises could not lawfully be used as a cinema and allocated the risk to the tenant. The court’s view was that it would not be right to extend the reach of failure of basis to provide a defence to a contractual claim when the contract remains in existence.

 

Amanda Nudds | Associate | Litigation Department

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