Business Tenancies: Whether rents were payable by tenants during closure due to pandemic

Continuing the fallout of litigation sparked by retail and leisure closures during the coronavirus pandemic, this review considers 4 similar cases decided together by the High Court, all related to rents withheld by tenants whose premises were required to close during the pandemic’s lockdown restrictions and where landlords had obtained ‘pandemic insurance’.

The background

In Bank of New York Mellon (International) Ltd v Cine-UK Ltd and others [2021], four tenants occupied retail and leisure premises which were required to close during the coronavirus pandemic. Each tenant withheld rent from March 2020, at the start of the first national lockdown. Their landlords had obtained ‘pandemic insurance’ prior to the pandemic, covering loss of rents.

The High Court heard the cases together. Tenants presented different arguments, although each was able to rely on the others:

1. Summary judgment was unsuitable given more complex technical defences and the commercial lease terms under review;
2. Landlords were under a duty to negotiate with tenants, rather than pursue proceedings against them as a result of the Code of Practice dated 19^th June 2020 which encouraged communication and consideration of other measures such as rent-free periods;
3. Rent suspension provisions in leases should be interpreted as being applicable to the pandemic lockdown, including an inability to trade in the definition of ‘damage or destruction’; or otherwise that such a term should be implied;
4. The tenants paid insurance premiums, and the landlords had obtained insurance against losses incurred by the pandemic; and
5. Leases should be suspended or terminated, as the lockdown frustrated the leases.

The decision

The High Court found in favour of the landlords, dismissing each tenant argument.

1. The pandemic wasn’t an unforeseeable event; it was entirely possible that it could have occurred, particularly bearing in mind the SARA epidemic which preceded it;
2. The landlords’ insurance was prudent. A landlord’s priority is in the ‘bricks and mortar’ insurance and no rent had been ‘lost’ in these circumstances because the premises had not been damaged or destroyed; and
3. The tenants could equally have obtained business interruption insurance, if this was a matter they felt was important.

In considering frustration of the leases, the Court found no rationale for the temporary or permanent suspension of the leases. The pandemic could be classed as an event which interrupted the leases, but the Court did not consider this interruption would last for much longer than 18 months. The leases still had at least a year of their term left following this period and they were protected by security of tenure provisions under the Landlord and Tenant 1954. The shorter-term nature of the closures weakened the tenants’ cases.

Advice and action for landlords

Cases so far relating to the pandemic and the effect on commercial rents have been decided in landlords’ favour, and this decision is no different.

Whilst landlords obtained insurance to cover damage or destruction, and ‘pandemic insurance’, this doesn’t necessarily extend to a loss of rent simply because a tenant chose not to pay the sums due. Tenants have been required to demonstrate proper reasons for their refusal to pay, beyond just an argument relating to the unfairness of paying rent whilst not achieving turnover from their premises.