Lockdown Rent Arrears – Commerz Realinvestmentgesellschaft mbh v TFS Stores Limited  EWHC 863 (Ch)
A recent High Court decision in respect of rent and service charge arrears due from a retail tenant at Westfield, London is good news for landlords but also serves as a warning for commercial tenants.
The claim was in respect of arrears that had fallen due since the beginning of the Covid-19 pandemic. The Claimant, Westfield’s owners, had made an application for summary judgment. The Defendant, TFS Stores Limited, had set out the following three grounds for defending the claim:
- That the claim had been issued prematurely contrary to the Code of Practice for Commercial Property Relationships During the Covid-19 Pandemic.
- That the claim was a means of circumventing measures put in place to prevent forfeiture, winding up and recovery using CRAR and that the Claimant was exploiting a ‘loophole’ in the restrictions placed upon the recovery of rent put in place by the Government.
- That the Claimant was in breach of its obligations under the terms of the lease which included an obligation for the landlord to insure. The Defendant, referring to that obligation, said it was reasonable to expect that the Claimant would insure against loss of rent due to forced closures and/or denial of access due to notifiable disease and/or government action.
The Court rejected the defences put forward by the tenant, including the suggestion that the claim was contrary to the Code of Practice for Commercial Property Relationships During the Covid-19 Pandemic, making the point that “The Code is not a charter for tenants declining to pay any rent“.
The Court also rejected the arguments relating to the landlord’s insurance obligations, noting that there was no obvious reason why the Claimant should wish to obtain cover against losses to the Defendant’s business and that such losses are for the Defendant to insure.
It was also evident that the landlord had tried to engage with the tenant prior to issuing the claim and that it was in fact the tenant who had failed to engage.
This is an indication that the Court’s approach towards commercial tenants who owe arrears of rent is shifting, which can only be encouraging for landlords who, due to Covid-19 restrictions, are still unable to present winding-up petitions against companies based on the company’s inability to pay its debts (unless the landlord has reasonable grounds to believe that Covid-19 has not had a financial impact on the company or that the debt issues would have arisen anyway), until at least 30 June 2021.
Commercial tenants with unpaid arrears of rent and/or service charge, who have failed to engage with their landlord should take heed.
It should also be noted that it is (and always has been) possible to issue a statutory demand against a tenant who is an individual, rather than a company, for arrears of rent and service charge. Covid-19 restrictions in this respect only apply to tenants who are companies.
If you are in need of any assistance with the matters addressed above, or would like to discuss current enforcement options for landlords, please contact Joanna Osborne, Emma Gregory, Anne-Marie Harding or any member of the Property Litigation team.
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