COVID-19 and Rent Arrears

The first reported judgment on commercial rent arrears arising from the COVID-19 pandemic was handed down last month in the case of Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd [2021] EWHC 863 (Ch).

Facts of the case
The tenant occupied a retail unit in Westfield Shopping Centre, London and accrued arrears of both rent and service charge since April 2020. The landlord filed a claim to recover the arrears and the tenant filed a defence and raised issues of store closures and lack of footfall due to the pandemic.

Tenant’s grounds for defence and the Court’s decision

  1. The landlord’s claim was issued contrary to the Code of Practice governing commercial property relations during the COVID-19 Pandemic (“the Code). The Court held that the landlord was not in breach of the Code in issuing its claim, as the Code is a voluntary code and does not change the relationship or lease obligations between the parties.
  2. The landlord’s claim was a means of bypassing measures put in place by the Government to protect tenants from remedies such as forfeiture, winding up and recovery using CRAR. It was held that whilst the Government had placed restrictions on some, but not all remedies, a landlord’s entitlement to bring a claim remained unaffected.
  3. The landlord should have insured against loss of rent as a result of the forced closures for which the rent cesser clause within the lease would be triggered. The Court strictly construed the wording of the rent suspension clause in the lease of the retail unit and it was found that there was no basis for assuming the rent suspension provision would apply beyond the instances of physical damage by an insured risk. The landlord successfully argued that it was not obliged to insure against any other risk not defined as an insured risk, let alone business interruption losses suffered by the tenant. It would fall to the tenant to take out its own insurance policy to protect against its losses.

The High Court awarded summary judgement to the landlord.

Comments
This judgment offers an outlook on how the courts may deal with these types of claims and no doubt will provide comfort to landlords. It does not provide good news to tenants as it demonstrates that the Code does not alter a tenant’s obligations to pay rents.

With the moratorium on forfeiture due to end on 30th June 2021, it will be interesting to see if the outcome of this case encourages proactive engagement between parties without the need for involving the courts.

Alisha Khinda

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