Lockdown business rent arrears are recoverable: High Court
Commercial landlords will welcome a recent High Court decision, in which an application for a judgment against a tenant in arrears was upheld.
In the first judgment of its kind since the national lockdown was imposed, a landlord has made a successful application for summary judgment against its tenant, who owed many months’ rent and multiple instalments of service charges.
As a result of UK government restrictions owing to the pandemic, the tenant had been forced to shut its premises at the Westfield Shopping Centre. Unlike many tenants it appears that it had not formally agreed a rental holiday with its landlord at that point in time.
The tenant argued that the landlord’s claim against them was unjustified, on the basis that:
- the claim was issued too soon, going against the Code of Practice for Commercial Property Relationships (a voluntary Code introduced in June last year to help preserve landlord & tenant relationships during the pandemic);
- the landlord was trying to find a loophole in measures the government had put in place to protect tenants and prevent the use of particular remedies by landlords, such as commercial rent arrears recovery, forfeiture and winding-up petitions;
- the court should imply a term that the landlord should have insured against rent loss arising from the unavoidable closure of the business due to the pandemic.
In response, the court found that the voluntary Code of Practice was not able to change or suspend the terms of the lease, and that there was nothing to prevent the landlord from claiming for lost rent and asking for a summary judgment.
The court interpreted that the rent suspension clause only removed the obligation to pay rent if there were actual physical damage to the landlord’s building, which was not the position here.
This case may concern tenants who do not have business interruption insurance in place, or those who felt that they would be protected from all rent claims by virtue of the Code of Practice.
For landlords, on the other hand, this will give hope that summary judgments for unpaid rent claims are still achievable, despite the raft of protective measures introduced by the government during this emergency period.
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If you are a landlord or tenant and would like a review of your lease to clarify your obligations in this scenario, please do get in touch for advice.Email Nick
Property litigation expert Nick is recommended by The Legal 500 UK. He deals mainly with disputes over commercial properties, acting for a wide range of landlords and tenants.