In its judgment in the latest COVID rent case, London Trocadero (2015) LLP v Picture House Cinemas Ltd (28 September 2021) the High Court has inflicted another defeat on tenants seeking to avoid paying rent arising during COVID lockdown periods.
Background and arguments
In what is now a familiar scenario, the tenant cinema chain sought to resist the landlord's claim for £2.9m rent arrears arising after the tenant failed to pay any rent during the pandemic period when its cinemas had to close or otherwise operate on significantly reduced capacity. The landlord sought summary judgment against the tenant (ie an early determination of the issues without the need for a full trial, thus speeding up the whole process).
The tenant put forward two defences:
- That terms should be implied into its lease that:
- If the permitted use under the lease was to become illegal, then the obligation to pay rent would be suspended and cease to be payable for that period, and
- Sums due under the lease would only be payable in respect of periods during which the premises could be used for its intended purpose as a cinema with attendance at a level commensurate with that which the parties would have anticipated when the lease was entered into.
- A "total failure of basis" ie that the tenant had bargained for the use of the premises as a cinema, the lease was granted on that basis and when that basis failed, the landlord would be unjustly enriched by being paid for something that the tenant was not getting.
The Court's conclusions
The High Court examined both of these legal arguments in some detail but was firm in rejecting both lines of defence:
- There could be no such implied terms, as such terms were not necessary for the "business efficacy" of the lease as a whole. The concept of the grant of the lease still made legal sense even the tenant was not able to use the premises; it was simply that the tenant shouldered the risk of the lease (which remained in existence) being of little practical benefit over the pandemic period.
- The tenant still has what it essentially bargained for namely a lease of the premises. The landlord had not warranted the premises could always be used as a cinema, and so there was no basis for the tenant to argue that the landlord would be unjustly enriched by receiving rent in respect of the ongoing lease.
Comment, and relevance of proposed COVID rent arbitration scheme
Following the previous two well-known COVID rent summary judgment cases, Bank of New York Mellon v Cine UK Limited, and Commerzreal v TFS Stores (both of which were decided firmly against the tenants) the Court currently remains resolute in deciding COVID rent cases against tenants.
On the other hand, landlords and tenants must also bear in mind:
- The Government's proposed COVID rent arbitration scheme, full details of which are still awaited, and
- The fact that Cine UK has been granted permission to appeal the earlier judgment against it at the Court of Appeal at some point in the future.
That said, both of these points were raised in this latest case as reasons why the court should not proceed with summary judgment in this case against the tenant, but the Court saw no reason to delay giving judgment to the landlord by reason of these two factors. The Court considered that the arbitration scheme would not affect whether or not rent was legally due from the tenant (which was the precise issue the court was being asked to decide), rather it would affect what legally due rent the tenant should actually pay to the landlord, bearing in mind (amongst other things) the tenant's actual financial position.