Business tenancies: Whether a tenant was liable for full rents during COVID-19 trading restrictions (London Trocadero v Picturehouse Cinemas – 2021)

Where premises were required to close as a result of the COVID-19 pandemic’s lockdown restrictions, was the tenant still liable for payment of full rents? The High Court issues first binding judgment on implied term arguments.

The background

In London Trocadero v Picturehouse Cinemas [2021], the tenant occupied premises for use as a cinema in London. As a result of national COVID-19 lockdowns, the cinema was closed and unable to trade for large periods. In periods where trading was permitted, business was very poor and the cinema remained closed for much of these periods.

The tenant stopped paying rent, resulting in a claim for arrears from the landlord which was defended on grounds:

1. Terms were implied in the lease that rent was not payable if the permitted use became illegal, or where cinema attendances fell below levels anticipated at the time the lease was completed; and
2. A ‘failure of basis’ had occurred as a result of the tenant being unable to use the premises for the permitted use, such failure being total during the required closures and resulting in no rent being payable for those periods.

The decision

The High Court found in favour of the landlord, concluding that any implied term was neither obvious nor necessary for the lease to work for the purpose intended by the parties. The tenant was liable to pay rent in full.

In considering the failure of basis argument, the court stated that the tenant needed to evidence a ‘failure of basis’, and that such a failure was ‘total’. The tenant could not evidence a failure of basis, as the use of the building as a cinema was not a fundamental basis for the parties entering into the lease.

The judgment stated that use as a cinema was an expectation, rather than fundamental to the parties’ decision to enter into the lease. The court also considered how risk was dealt with in the lease. Rent suspension was provided for where premises could not be used as a result of fire, but otherwise there is an implication that other risks are borne by the tenant. Further, in the lease terms the landlord did not covenant with the tenant that the premises could be lawfully used as a cinema, indicating that this was not a fundamental basis for the parties’ completion of the lease.

Advice and action for landlords

This is a positive decision for landlords, finding that there was no reason for the landlord to take the commercial hit of the lockdown any more than the tenant.

Whilst cases are very much decided on their facts and the specific lease terms in each case, it appears that many of the arrears claims arising as a result of tenant lockdown closures are being decided in the favour of landlords.