Summary judgment granted to commercial landlord for non-payment of rent and service charge during pandemic

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The raft of temporary measures introduced by the government to protect commercial tenants throughout the pandemic has prevented their landlords from enforcing a right of re-entry or forfeiture on the grounds of non-payment of rent and restricted the use of commercial rent arrears recovery (CRAR) by increasing the minimum outstanding net unpaid rent limit before it can be used. The circumstances in which winding-up petitions can be presented against companies has also been limited during last twelve months.

However, whilst the options available to landlords have been blunted during the last year, the option, albeit not always the most favourable, to go down the County Court enforcement route has remained open.

This was the case in Commerz Real Investmentgesellschaft MBH v TFS Stores Ltd [2021] which eventually reached the High Court. In its decision, the High Court upheld the landlord’s application for summary judgment against a tenant for non-payment of rent and service charges since April 2020 following COVID-19 restrictions on trading.

The tenant was required to close its shop at the Westfield Shopping Centre during successive lockdowns and, as a result, had not paid any rent since April 2020 nor the service charges owed for the period between April and June 2020. Prior to the pandemic, the tenant had not defaulted on payments.

The tenant contested the landlord’s claim on the grounds that:

  • The landlord had commenced legal action prematurely and contrary to the Code of Practice for Commercial Property Relationships During the COVID-19 Pandemic (Code) which requires landlords and tenants to cooperate in seeking a solution to such situations.
  • The landlord was seeking to exploit a “loophole” in the government restrictions on enforcement to prevent forfeiture, winding-up and use of commercial rent arrears recovery (CRAR).
  • The landlord was obliged to insure against and claim for the loss of rent and service charges due to forced closures and/or denial of access due to notifiable disease or government action via a clause within the lease.

The Court held that the Code did not change the relationship between the landlord and the tenant or vary or suspend the contractual terms of any commercial lease. Further, it held that the Code was not an invitation for tenants to refuse to pay rent and that, despite the tenant’s claim to the contrary, the landlord had sought to engage with the Code whereas the tenant had not. Indeed, the landlord’s efforts in this regard ultimately strengthened its claim for summary judgment.

It also found that, regardless of restrictions on enforcement action being in place, a landlord could still bring a claim for rent and seek summary judgment on such a claim. Although the steps a landlord may be able to take if judgment is entered are restricted, the entitlement to bring a claim for the court to determine liability remains unaffected.

Finally, as no physical damage had been sustained to the tenant’s property, the tenant’s argument regarding insurance did not apply in this case.

On that basis, the High Court granted summary judgment for the landlord.

Landlords are expected to welcome the Court’s decision as it highlights that rent claims and related summary judgments continue to be a viable remedy in situations of this nature, despite the temporary restrictions on enforcement action.

The ruling also emphasises that landlords and tenants have separate insurable interests and the need for tenants to obtain business interruption insurance.

If you are a landlord or tenant and you are experiencing difficulties with repaying or enforcing payment of rents, please review our other articles detailing the options available and do not hesitate to call for more detailed and case specific assistance.