Real Estate Blog: No concessions available for cinema

COVID-19 commercial rent arrears: further success for landlords as High Court grants summary judgment and provides additional guidance - London Trocadero (2015) LP v Picturehouse Cinemas Ltd [2021] EWHC 2591.

 Summary

In the latest decision to deal a blow to tenants hoping to dispute the obligation to pay rent during the Coronavirus pandemic, the High Court has granted summary judgment to the landlord of commercial premises in Central London. The claim was for arrears of rent and service charges that had accrued since the outbreak of the pandemic. The tenant had defended the claim on the basis that the rent should be suspended during the period when it was unable to trade from the premises. The landlord applied for summary judgment.

The Court made the order for summary judgment on the basis that the tenants had no realistic prospect of defending the claim, and that it was not appropriate to imply terms into the leases so as to suspend payment during any period for which use of the premises as a cinema was illegal. Further, it found use of the premises as a cinema had not been fundamental to the basis on which the parties had entered into the lease.

Summary judgment is the early determination of a claim without the need for a full trial. If one party applies for summary judgment, and the Court considers that the other party has no prospects of success, and there are no other reasons why the matter should be heard at trial, it will make the order. If the Court does not make an order for summary judgment, the claim will continue in the usual way. Where the application is successful, it can therefore save a great deal of time and costs.

The case relates to the high profile Picturehouse Central cinema on Shaftesbury Avenue. The tenant was in occupation of the premises under two leases, which contained a covenant by the tenant not to use the premises other than as a cinema. There was a second clause to stipulate that the landlord gave no warranty that the premises could be used for this purpose.As a result of the COVID-19 pandemic, the various lockdown restrictions imposed between March 2020 and July 2021 had required cinemas across the country to close. Even in the periods between lockdowns, trading conditions were so poor that opening the cinema was largely uneconomic. As a consequence, the cinema was open for just 71 days between 23 March 2020 and 16 May 2021, taking only £247,000 as compared to £8,920,000 in the same period prior to the pandemic.The tenant began to withhold rent and service charge in June 2020. Eventually the landlord issued a claim for arrears of rent and service charge totalling £2.9 million.The tenant argued that it was not liable for the arrears because:

• A term should be implied into the leases that would suspend payment of rent and service charges during periods when use of the premises for the permitted use under the leases as  a cinema was not feasible; and
• There was a failure of basis/consideration because the payments were for the use of the premises as a cinema. Where the premises could not be used as a cinema, there had been partial failure of the basis for the leases, and so the payments were not due.

The landlord applied for summary judgment. The tenant tried to argue that summary judgment should not be awarded, and made its own application to adjourn proceedings until after further details of the upcoming government arbitration scheme for COVID-19 arrears had been released. However, the Court felt that the arbitration scheme would not affect whether or not rent was legally due from the tenant, which was the precise issue that the Court had been asked to decide. Instead, the Court felt that arbitration would affect what the tenant should pay to the landlord, bearing in mind - amongst other issues - the tenant's actual financial position. The Court therefore saw no reason to delay giving judgment to the landlord. The High Court rejected both arguments, finding that:

• The tenant had not cleared the hurdle for the Court to imply terms into the leases. The term was not necessary to give the leases business efficacy and it was not so obvious that it would go without saying. The Court also found that the implied term would then be inconsistent with the express terms of the leases, which already made provision for the rent to be suspended in certain circumstances, such as damage due to an insured risk. The conclusion was therefore that the risk of not being able to use the property during other circumstances lay with the tenant, which could have insured against business interruption caused by infectious disease.
• There was no failure of basis. Read in light of the leases as a whole, the use of the premises as a cinema was not "fundamental to the basis" on which the parties had entered into the leases. Instead, the use of the premises as a cinema on a continuing basis was simply a commercial motivating factor for entering into the leases. In addition to this, the leases allocated the risk of being unable to use the premises as a cinema to the tenant in those instances.

Our Views

Whilst every case will turn on its own facts and the wording of the specific lease, the decision in this case is aligned with the earlier decisions, making it clear that in the absence of any specific wording, tenants are unlikely to challenge liability for rent during the COVID-19 pandemic.

However, the landscape may change again shortly, and both landlords and tenants should bear in mind:

• The Government's proposed COVID-19 rent arbitration scheme – the scheme is due to be introduced in March 2022 to deal with rent arrears that have accrued as a result of the COVID-19 pandemic. No real details of how this scheme will operate have been published as yet.
• The tenants in Bank of New York Mellon (International) Limited v Cine-UK Limited, Mecca Bingo Limited (and others) [2021] have been granted permission to appeal the decision in that case and so further clarity from the Court of Appeal may well be forthcoming.
• In light of this, landlords may be encouraged to press on with recovering arrears before any possible restrictions come into effect as a consequence of the above
• In a small victory for the tenant, in this case, the Court found that it could set off its counterclaim for overcharged insurance premiums against the arrears. The wording used in the lease provided that rent must be “without any deduction whatsoever”, which the Court felt was insufficient to exclude a right to set-off. Where tenants may have any form of claim, it will be important to check whether the wording excludes “any deduction, set-off or counterclaim”.

If you are concerned about one of your commercial tenants and want to discuss the potential options available to you, please get in touch with our Property Litigation Team.