There has been a flurry of recent cases looking at the impact of the COVID-19 pandemic on disputes that have arisen between landlords and tenants of commercial leases over the past 12 months.
The recent case of WH Smith Retail Holdings Limited –v- Commerz Real Investmentgesellshaft MBH resulted in the court supporting the tenant’s claim for the insertion of a pandemic rent suspension clause. However, the cases of Bank of New York Mellon (International) Ltd & Ors v Cine-UK Ltd & Ors and Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd saw the court grant judgment in favour of landlords and requiring tenants to pay all rent owing under their leases which they had failed to pay during various periods of the pandemic. At the time of writing, it may be that these decisions are the subject of appeal by the tenants.
Nevertheless, this raft of cases demonstrates there is a lot more activity between landlords and tenants in the commercial lease market and subject to change.
- Reduction in rent - The valuers acting for the landlord and tenant in WHS had already agreed that there should be a 20% reduction in the market rent being solely attributable to the impact of the pandemic. This reflects the reality of pressure on retail rents in shopping centres but should not necessarily be taken as a new “rule of thumb.”
- Pandemic rent suspension clauses – the court inserted a clause into the WHS lease which provided that only half the rent is payable in the event of a pandemic event whenever non-essential stores are required to close (even if the unit itself remains open as an essential retailer). Whether this becomes the norm remains to be seen. But crucially, there is still some debate as to the extent to which landlords may seek an uplift in rent by virtue of introducing new rent suspension clauses on renewal. On the specific facts of the WHS case the court was not persuaded that the insertion of such a clause should attract an increase in the market rent.
- Payment of rent under a lease is absolute – none of the arguments advanced by the tenants so far have persuaded a court to waive or reduce the tenants’ liability for rent. As indicated above though, the matter has not as yet been settled by the Higher Courts.
- Business Interruption Insurance - it is clear that tenants should be looking to insure themselves as the case law to date shows they are not able to seek to invoke rent suspension provisions under their leases and to pass this burden onto their landlords.
What should you do if you are involved in a rent dispute or a 1954 Act renewal?
- Watch this space – there are likely to be further judgments in the near future that will provide more clarity
- In the meantime landlords and tenants would, at least initially, be well advised to try to follow the spirit of the existing Code of Practice and to seek to resolve their disputes rather than rushing into costly litigation
- Take care when negotiating pandemic rent suspension clauses – they seem set to become more common but bear in mind there are many variations in play and one size does not fit all.
Our real estate disputes team can provide you with expert assistance in understanding your position whether as landlord or tenant before and during any negotiations or assist you with any prospective or ongoing Court proceedings.
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