Commercial property rent arrears recovery – good news for landlords

Many commercial property landlords have faced increasing frustration since the pandemic started last year, so there is now some good news at last with the recent case of Commerz Real Investmentgesellschaft mbh v TFS Stores Limited [2021] EWHC 863 (Ch).

Background

The claim was brought by the landlord for rent and service arrears which, including interest, had amounted to £166,884.82 since April 2020.  The tenant’s shop had been legally required to remain closed during certain periods in this pandemic.

Defences

The tenant put forward three defences:

1. The claim was issued prematurely in light of Code of Practice.

The tenant argued that, in light of the Code of Practice for Commercial Property prepared during the pandemic, the issuing of the claim for arrears was premature and that there had been a failure by the landlord to engage with the tenant to try to reach a resolution to the dispute before issuing proceedings.

2. The claim brought by the landlord exploited a loophole in the government’s restrictions.

The tenant’s submission was that the landlord’s claim for the arrears was exploiting a loophole in the restrictions put in place by the government to restrict the ability of a landlord to pursue commercial property tenants for the arrears during the pandemic.

3. The landlord failed to insure against loss of rent resulting from forced closures and was in breach of its obligations to insure.

The tenant initially sought to argue that the landlord had failed to obtain insurance in accordance with the terms of the lease, which the tenant claimed should have included insurance against loss of rent during forced closures or inability to access the premises due to notifiable diseases or government action.

Decision

This case was determined by way of Summary Judgement rather than a full trial and the court dismissed all three defences.

1. The court held that the landlord and tenant legal relationship was not altered by the Code of Practice and it was not intended to be a “charter for tenants declining to pay any rent”.

2. The court was of the opinion that the Government restrictions currently in place did not restrict the landlord’s right to pursue a claim at court for the arrears and so there was no loophole to exploit.

3. The tenant’s argument on insurance failed and the court held that the rent cesser did not apply in this case as the premises was not damaged by an insured risk.

With the restriction of many of the usual available avenues of enforcement against tenants failing to pay their rent, this case will be of particular interest to both landlords and tenants as guidance of how the court will approach a claim for arrears which have arisen during the pandemic.

If you require advice relating to commercial property arrears, or any other advice relating to disputes regarding commercial property, please contact Nicola Stewart on 0207 689 7252 or via email at nstewart@rooksrider.co.uk.

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