The UK Government introduced a Moratorium in March 2020 which restricted commercial landlords’ options to seek redress for non-payment of rent. It banned forfeiture, evictions, statutory demands, winding up petitions and Commercial Rent Arrears Recovery (CRAR), to give a lifeline to tenants whose businesses were forced to close during the COVID-19 pandemic. Recently in two landmark cases landlords have now successfully secured Summary Judgement for unpaid rent. Should more commercial landlords be taking this route to reclaim unpaid rent?
Without doubt the Moratorium greatly assisted tenants who are genuinely unable to pay their rent. However, it has also freed other tenants with sufficient means from any repercussions of choosing not to pay.
The cumulative effect has directly impacted private landlords’ cash flow, and indirectly impacted lenders, pension funds and investors. It is anticipated that by the time the Moratorium ends in June 2021, the total amount of unpaid rent will exceed £7 billion.
“Unpaid rent is payable”
In the High Court, landlords have now arguably obtained a viable option to recover some of this unpaid rent, summarised together: Bank of New York Mellon (International) Ltd v Cine-UK and others [2021] EWHC 1013 (QB); and Commerz Real Investmentgesellschaftmbh v TFS Stores Ltd [2021] EWHC 863 (Ch); [2021] PLSCS 74. Here, the landlords’ application for summary judgement was successful. The tenants’ defences – that a full trial would be necessary due to the complex issues – were rejected by the courts, finding there to be no compelling reason for a full trial.
The Summary Judgement itself was held in favour of the landlords: unpaid rent is payable. Amongst the many reasons (in a 100-page judgement) the Court held that lease covenants were not frustrated by reason of the coronavirus pandemic – which was foreseeable – and that landlords are not precluded from claiming for rent payments, in full.
This has been widely reported as a big victory for landlords and likely to inspire more summary judgement applications – but how many landlords will actually take this up?
Some landlords will be emboldened to do so because tenants now risk costs if they unsuccessfully defend proceedings. Summary Judgement might therefore be a viable option, particularly if tenants have the means to pay.
However, it is likely to be less effective if tenants are genuinely unable to pay – because enforcement will be practically worthless. Some landlords might prefer to wait until the Moratorium ends so they can once again utilise CRAR, statutory demands etc.
A lot will also depend on the nature of the commercial relationships between the landlord and tenant. If cooperation has completely broken down during the pandemic, a landlord might prefer to wait until it can once again apply to forfeit leases, evict tenants, issue winding up petitions etc.
If good commercial relationships have been maintained, a landlord might instead want to negotiate a rent deferment or new lease terms.
Ultimately, landlords’ decisions to apply for Summary Judgement will also depend on various other factors, including the risks associated with empty units, such as liability for business rates.
Bishop & Sewell’s Commercial Property team in conjunction with other teams in the firm have been advising commercial landlords and tenants on practical ways forward, throughout the COVID-19 pandemic.
Please do get in touch if you require advice as to your options, particularly if you are considering:
- How should I follow the Governments Code of Practice (for commercial property relationship during the COVID-19 Pandemic)?
- How can negotiated agreements be documented – to write off, reduce, or defer rent payments?
- What alterative options are there for mutually beneficial resolution to resolve rent arrears?
- Can I use my rent deposit to pay some of the rent arrears?
- Will I be able to break my lease, to end it early?
- What alterative rent calculation models might be available for new leases, i.e. turnover rent?
If you would like to discuss any of the points raised in this article, please do get in contact. Christopher Simpson is a Solicitor in Bishop & Sewell’s Commercial Property team. Should you require any further advice or assistance, please contact [email protected] or call on +44 (0)20 7631 4141
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
