Covid-19 rent arrears case set to be heard at the Court of Appeal

The case of London Trocadero v Picturehouse Cinemas Ltd and others sought to deal with the issue of rent arrears during the covid-19 pandemic where the tenant’s income has been significantly affected. The Court of Appeal has now granted permission for this case to be appealed, meaning the debate over who bears the financial burden is not over yet.

Case overview

The tenant held two leases of the premises in Trocadero London permitted for use as a cinema. Because of covid-19 lockdown restrictions, cinemas were forced to close. This significantly impacted the tenant’s trading income and they were unable to pay rent since June 2020. The landlord claimed rent arrears totalling £2.9 million.

The case raised two issues:

1. Whether a term could be implied into the lease that allowed for rent and service charges to be suspended during the period where use of the premises as a cinema would have been illegal due to lockdown restrictions, or attendance would not be at the same levels as anticipated when the lease was entered into.
2. Whether there was a failure of consideration because rent was for the use of the premises as a cinema, and as the premises could not be used as a cinema, no rent was therefore due.

High Court decision

The High Court determined that a term to suspend rent was not necessary for the contract to display business efficacy. It also held that rent was not conditional on the premises being used for the permitted use of a cinema.

The lease also provided for certain situations in which rent could be suspended, so to imply a term with additional circumstances for rent suspension would be contrary to the provisions in the lease.

On the failure of consideration point, the court accepted the landlord’s argument that the tenant had actually bargained for the grant for a term of years and therefore the tenant had received all or part of that benefit. In light of this, the court held that the use of the premises as a cinema was not fundamental to the basis on which the parties entered into the lease.

Practical implications of an appeal

An appeal in this case would hopefully answer the questions of whether landlords should share the financial burden with tenants during the covid-19 pandemic, and whether the unprecedented event of covid-19 is capable of interfering with a long-established commercial contract.

Some leaseholders have tried to argue that the lease has been frustrated because of the covid-19 pandemic, and that no rent is therefore due. The courts have consistently rejected the frustration defence, and “frustration” was not an issue in this particular case.

The government has put forward a draft bill, called The Commercial Rent (Coronavirus) Bill, which proposes an arbitration method to help landlords and tenants to reach an agreement on how best to deal with commercial rent arrears which arose during the covid-19 pandemic if they cannot do this themselves. It would be surprising if the Court of Appeal did not at least consider this case in the context of the proposed reforms.

This article was co-written by Simon Tucker, property litigation lawyer and Jenny Dodds, trainee lawyer.