Light at the end of the tunnel for commercial landlords?

Throughout the last 14 months, landlords of commercial property have been frustrated by the wide range of tenant protections and seeming lack of enforcement options regarding non-payment of rent. Government guidance on the subject has been interpreted by many tenants as giving carte blanche to withhold rent or unilaterally impose a reduction in rent payments, effectively on the basis that the Covid-19 pandemic has restricted tenant’s income. The obvious upshot of this is that such reductions effectively pass some of the losses on to landlords despite the existence of contractual obligations on the part of tenants to pay rent without offset or deduction.

Of course, many tenants did not take this stance and instead sensibly communicated their position with the landlord. This resulted in some landlords agreeing to temporary reductions in rent or “rent holidays” on the basis that “we are all in this together/ we all need to share the burden”. Other landlords simply could not afford to accept the reduction.

For landlords who do not hold a large portfolio, but rather let out one commercial property and rely on the rent for their monthly income, a 50% reduction in rent even on a temporary basis creates a huge financial strain.

When faced with unilateral rent reductions from tenants who cannot or will not pay, landlords have been stymied at every turn by temporary suspension of their options to recover rent or their property. At various times over the last year, the ability to effect forfeiture, issue statutory demands, commence winding up proceedings or use the Commercial Rent Arrears Recovery (“CRAR”) procedure have been placed on hold by the government.

However, perhaps in keeping with businesses gradually opening up, the tide appears to be turning back towards the middle ground. In the recent case of Bank of New York Mellon v Sports Direct and others the High Court has rejected arguments put forward by large commercial tenants (Mecca Bingo, Sports Direct and Cine-UK) which sought to justify withholding rent in light of the Covid-19 Pandemic.

Arguments raised by tenants, in opposition to applications for summary judgment issued by landlords in debt recovery proceedings, included:

  1. Reliance on the Government's Code of Conduct for Landlords and Tenants first published on 19 June 2020. This encourages both parties to leases to communicate and negotiate their way through matters by way of rent-free periods, “rent holidays”, etc.
  2. That the leases were frustrated by the national lockdown and should therefore be suspended or terminated.
  3. That landlords who had insured against loss of rent should not be entitled to payment of rent from tenants (regardless of whether those policies had resulted in payment).
  4. That rent cesser clauses in the leases should be interpreted so as to activate during the national lockdown on the basis of the tenant’s inability to trade. Alternatively, it was argued that terms should be implied to that effect.

The High Court Held:

  1. That the Code of Conduct provided no authority for rent to be withheld. The Code makes it clear that it does not affect the contractual obligations between the parties.
  2. The concept of a frustrated contract is an absolute. A contract or lease is either frustrated (and cannot be performed) or it is not. There is no such concept in law as “temporary frustration”.
  3. The presence of insurance against lost rent, does not entitle tenants to withhold rent. Withheld rent is not “lost”.
  4. Generally, rent cesser clauses only permit non-payment of rent when premises cannot be used due to physical damaging occurring. A government mandate to close premises owing to a pandemic does not amount to physical damage.

The judgment will be welcome news for landlords and may be a light at the end of the tunnel of what may have been a frustrating year. Regrettably for tenants that “light” may be the oncoming train of landlords preparing for immediate forfeiture or CRAR proceedings at the end of the current moratorium on 30 June. Similarly, whilst landlords have been able to commence debt recovery proceedings for unpaid rent throughout the pandemic, the judgment in the Bank of New York case appears to have set a clear tone for the court’s stance coming out of lockdown and the last year. With that said, the deadline for applications for permission to appeal was 7 May 2021 and so this may not be the last we hear on the matter.

For all landlord and tenant enquiries please contact our commercial property and property litigation teams on

01258 459361. 

Blanchards Bailey

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