Another victory for landlords on commercial rent recovery

Background

The Defendant here was a tenant, Picturehouse Cinemas Ltd (“Picturehouse”), who held two leases of properties in the Trocadero centre. The Claimant was the landlord and owner of the Trocadero centre, London Trocadero (2015) LLP (“Trocadero”). In consequence of the COVID-19 Pandemic restrictions, both of the tenant’s properties were forced to close for substantial parts of 2020 and 2021, resulting in a reduced revenue of £247,000, compared to £8.92 million for a comparable period in 2018 to 2019. Trocadero subsequently sued Picturehouse for £2.9 million of rent debt.

Picturehouse had two main lines of defence:

That there were terms implied into the lease that during any period of time for which the use of the Cinema was illegal and/or attendance was not at predicted levels, the payment of rent and service charges should be suspended;

That a partial failure of consideration had taken place because operation as a cinema was the fundamental basis on which Picturehouse had entered the lease. Therefore, payment was not due in respect of the periods that the premises could not be used as a cinema.

The implied term defence

This line of defence was also used by the tenants in Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd, and Bank of New York Mellon (International) Ltd v Cine-UK Ltd, with the general argument being that implied terms should be entered into the lease that a period of lockdown triggers a suspension of rent.

The default position is that nothing is implied into a contract. Further, this presumption is stronger the more complete the contract is, and in this case it seemed that the lease between Picturehouse and Trocadero was sufficiently detailed and deemed complete.

Nevertheless, Picturehouse argued that the implied terms were so apparent that they should be given weight. The court did not agree, relying on the express term given by Trocadero of no warranty as to use which is a familiar term in commercial leases.

Additionally, it was held that any implied term relating to attendance levels of the premises was too unreliable to trigger suspension of rent or service charge. It seems that the only thing which may come anywhere close to swinging the pendulum in the tenant’s favour is complete closure of the premises.

The alleged failure of consideration

While Picturehouse suggested that use as a cinema was integral to their reason for entering the lease, Trocadero’s argument was more convincing. The landlord asserted that the fundamental basis for the lease was the grant for a term of years and that use as cinema was an assumption that motivated Picturehouse to enter the lease, not a fundamental basis of it. Therefore, given that Picturehouse had use of the premises, they had received all, or part of, the benefit.

If this argument had been accepted by the court, Picturehouse would have had a reasonable prospect of rent apportionment for the periods of time that the premises could not be used as a cinema.

Although this outcome is discouraging for tenants, it seems there may be scope for tenants to argue that they entered the lease on the fundamental basis of their intended use, which would give rise to a total failure of consideration. It might be possible to document this to give tenants a greater opportunity to argue this however how any express term confirming a tenant’s intention would be construed by the Court remains unclear.

Interestingly Picturehouse attempted to argue that Trocadero’s application for summary judgment should be adjourned given the approaching introduction of the Government’s binding arbitration scheme in relation to Covid-19-related rent arrears in March 2022. This argument was rejected, implying that the court is yet to attach any significant weight to the Government’s proposal.

In the circumstances, given the current clear trend in decisions in cases for undisputed unpaid commercial rents, landlords may do well to issue proceedings as soon as possible in order to attempt to obtain judgment prior to March 2022.