Landlords battling tenants for payment of Covid arrears will be relieved by the first reported decision in such a claim (Commerz Real Investmentgesellschaft mbh v TFS Stores Limited). The landlord (the owner of the Westfield Shopping Centre in Shepherd’s Bush) obtained summary judgment for £166,884.82 plus interest against the tenant.
The court process was quick, with proceedings having been issued in early December 2020. The defences raised by the tenant will be of particular interest as they focused on the Government’s Code of Practice (“the Code”), the terms of the landlord’s insurance policy and interpretation of the rent cesser clause in the relevant lease.
The court gave short shrift to the tenant’s argument that the landlord had issued proceedings too soon and was exploiting a “loophole” by issuing proceedings at all at a time when other remedies like forfeiture were still restricted. The Code clearly states “that it does not change the underlying legal relationship or lease contract” and the restrictions have focused on enforcement, rather than, as in this case, a landlord’s right to ask the court to determine whether the tenant should pay rent.
The tenant had been forced to develop its defence in respect of insurance shortly before the hearing (having been refused an adjournment) and “the precise landing point in terms of the case” it wished to pursue were far from clear to the court. One of the issues was whether the landlord’s loss of rent insurance should have covered a situation like the Covid-related government orders for shops to close. In dealing with arguments raised, the court noted that while the landlord’s policy did include cover for Notifiable Diseases, the landlord was not obliged to provide this cover and, although the tenant paid for it, the policy covered the landlord’s losses, not the tenant’s; such losses are for tenant businesses to insure. As to the rent cesser, the provisions only applied where there was physical damage and there was no basis to construe them so they applied where the premises were closed due to a legal requirement.
Landlords should note that the terms of the lease and any insurance policy are key. We expect more judgments in this area, where courts will also be asked to look at tenants’ defences based on frustration, implied terms and supervening illegality.
The Code is not a charter for tenants declining to pay rent