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UK Landlords Seize The Reins On Commercial Rent Arrears – Landlord & Tenant – Leases

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The ground-breaking Covid Commercial Rent Arrears arbitration
scheme imposed a moratorium on landlord’s enforcement action
for ringfenced arrears until 23 September 2022. Tenants have not,
on the whole utilised the scheme. As the end-date looms closer and
there are no whispers of an extension (unsurprising in the wake of
the reshufflings at Downing Street. there are likely one or two
items further up their current agenda!), debt enforcement action is
on the rise and we are seeing an upturn in landlords and developers
considering all of the options open to them to protect income
streams in their investments.

In this blog, we highlight two recent cases which will only
serve to bolster landlords considering action against defaulting
tenants for Covid-19 period arrears.

Landlord secures summary judgment for £141,000 of rent
arrears from former tenant and guarantor, dismissing claims that
the assignee tenant’s court sanctioned restructuring plan
varied the lease or released their liability

Oceanfill Ltd v Nuffield Health Wellbeing Ltd
& Cannons Group Limited

This case concerned a gym in Leeds, originally let to Nuffield
Health and later assigned to Virgin Active. Nuffield and their
guarantor, Cannon, guaranteed Virgin Active’s performance of
the lease covenants in the Licence to Assign.

In 2021, the High Court approved a part 26A restructuring plan
for Virgin Active under the Companies Act 2006. The effect for the
landlord, Oceanfill, was that all past, present and future payments
which Virgin Active were obliged to make under the lease were
compromised. Oceanfill received a lump sum under the restructuring
plan, but it fell (very) short, so it issued proceedings against
Nuffield and Cannon for the shortfall.

The defendants argued that the restructuring plan had varied the
lease so that payments had not fallen due to invoke their
obligation to pay under the term of the Licence. In the
alternative, they argued that the restructuring plan operated as a
variation of the lease and as they had not consented to any
variations, it had released their obligations in the Licence.

Both defences failed. Whilst the restructuring plan released the
tenant’s liability, it did not vary the terms of the lease. The
Licence was clearly drafted that a release would not arise on a
variation of the lease but could only be given under seal (ie in a
formal deed of release).

Court of Appeal dismisses “Covid defences” based on
implied terms and failure of basis

Bank of New York Mellon (International) Ltd v
Cine-UK Ltd; London Trocadero (2015) LLP v Picturehouse Cinemas Ltd
and others

Avid readers of our blog will recall our previous posts on these cases. The High Court
acknowledged that for certain periods it was unlawful to operate
the premises as a cinema due to Covid-19 restrictions, and at other
times it was uneconomic to do so. But there was no real prospect of
the tenants establishing that terms should be implied to the effect
that the payment obligations under the leases were suspended during
those periods. Nor was there any real prospect of establishing that
there had, in the circumstances, been a “failure of
basis”. As such, the tenants could not avoid paying rent for
the affected period. However, the tenants appealed, leaving
uncertainty for landlords with similar cases.

The Court of Appeal has now dismissed appeals against the grant
of summary judgment to commercial landlords for payment of accrued
rent in two cases where the relevant premises (in each case
operated as cinemas) had to be closed for extended periods due to
Covid restrictions.

Click here for our full article analysing these
cases (previously published on our Litigation Notes blog).

Of course, court proceedings against the tenant or a third-party
guarantor are just a couple of the options in the suite of remedies
that may be available to a landlord of commercial premises, now
that the various moratoriums imposed during the Covid-19 period
have expired (and assuming that the arbitration scheme is not
extended). Which remedy will be the appropriate next step for
landlords will depend on many factors, including the relationship
between the parties, the viability of the tenant’s business and
whether it holds assets against which a judgment may ultimately be
enforced. For forfeiture, the potential for reletting will be
critical. However, with the ‘cost of living crisis’ and
businesses buckling under the weight of energy costs, landlords
will be monitoring tenant default particularly closely over the
coming months.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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