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The hospitality and leisure industry has, during the course of the pandemic, had a particularly difficult time. As a result of the restrictions that were put in place, many businesses found it difficult to trade and to pay their rent in accordance with the terms of their lease.
To assist with this, the usual methods available to a landlord to recover arrears of rent were either prohibited or restricted under the Coronavirus Act 2020.
Arbitration scheme under the Commercial Rent (Coronavirus) Act 2022
Furthermore, the UK Government introduced a legally binding arbitration scheme under the Commercial Rent (Coronavirus) Act 2022 to resolve commercial rent arrears disputes arising as a result of businesses being closed during the pandemic.
Under the arbitration scheme, landlords or tenants had a six-month window to refer matters to arbitration. This window expired on 23rd September, and therefore, as this date has now passed, a landlord can now use the usual methods of enforcement to recover any rent arrears that are still outstanding.
The usual methods of enforcement are:
- The Commercial Rent Arrears Recovery Scheme can be used to recover the rent arrears provided the statutory requirements are met, and the unpaid rent reaches the minimum threshold. This involves an enforcement officer being instructed to attend the property and seize goods to the value of the arrears.
- Forfeiture can be used if the landlord wants to take back possession of the property. This involves changing the locks on the premises. Whilst a tenant could apply for relief from forfeiture, they would need to act quickly, and it would involve applying to Court.
- Court Proceedings can be issued to obtain a judgment in respect of the arrears. This is likely to impact a tenant’s ability to obtain credit in the future.
- The landlord could also pursue guarantors, or former guarantors, draw down on rent deposits or proceed with insolvency action.
Outstanding arrears of rent
Parties that have made a referral under the arbitration scheme are to await the outcome of their case and cannot use the usual methods of enforcement. Any tenants that still have arrears of rent outstanding should see if they can reach an agreement with their landlord over how it is to be paid if they have not done so already.
Since the introduction of the arbitration scheme, the Court of Appeal has rejected a number of arguments made by the tenants seeking to avoid liability for rents during the pandemic, and the tenants had appealed against the findings in the High Court.
Obligation to pay rent
In the cases of Bank of New York Mellon (International) Limited v Cine-UK Limited and London Trocadero (2015) LLP v Picture Cinemas Limited, the Court of Appeal rejected appeals made by the tenants of cinema premises. In the appeals, the tenants tried to argue that they were not under an obligation to pay rent when the pandemic restrictions meant they had to close their cinemas.
The tenants tried to argue the following points:
- The tenant had no benefit from the contract between the landlord and tenant, and if they paid rent to their landlord, the landlord would unjustly benefit from receiving it;
- A term should be implied that rent would be suspended where the lawful use of the property became impossible. The tenant argued that damage to a property could be financial as well as physical damage; and
- In relation to one of the leases, the tenant was not obligated to pay rent as a result of the rent cesser provision.
The tenants’ appeals were dismissed. The Court of Appeal disagreed that the landlord had unjustly benefitted by demanding rent during a period when the tenant could not run its business. The landlord had a legal right to receive the rent. It held that the rent suspension provision was related to physical damage and not financial damage. In relation to implying terms into leases, it held that terms would only be implied to give business efficacy to the contract or that it was absolutely necessary for a term to be implied. In this case, to imply the terms requested would contradict the terms of the lease and reallocate the risk that the landlord and tenant bargained at the time the lease was entered into.