Important ruling in rent arrears dispute

Commercial landlords with tenants in rent arrears will be encouraged by the High Court ruling in Commerz Real Investmentgesellschaft mbH v TFS Stores Limited.  This is the first High Court ruling on the non-payment of rent and where Covid-19 has been argued as the defence.

In this case the tenant TFS Stores Limited which traded as the Fragrance Shop at Westfield Shopping Centre in London, had not paid rent since April 2020 and they had incurred a number of other service change debts.  Their defence centred on claims that the Landlord’s claim for the payment of the rent arrears was issued prematurely which breached the Code of Practice for Commercial Property relationships during the pandemic.  Secondly that the Landlord was taking advantage of a loophole in the Government’s restrictions on the recovery of rent arrears. Thirdly that the loss of rent should have been covered by the Landlord’s insurance policy and provisions the lease placed on the Landlord to insure against the loss of rent and claim under the insurance policy first.

The Court ruled that:

• The Code of Practice is voluntary and it cannot provide grounds for defence for the non-payment of rent.
• There is no loophole and there is no legal restriction on the Landlord’s ability to pursue a claim for unpaid rent or services charges.
• The lease only included an obligation for the Landlord to insure against the risks included in the definition (which did not include a notifiable disease or Government action) and if there was such an obligation it wasn’t the landlord’s responsibility to insure against business interruption losses suffered by the tenant.
• The rent cesser terms in the lease only applied to limited circumstances of the physical damage to the premises and not where it was closed due to a legal requirement.

Paul Burbidge comments: “This is a step in the right direction for those landlords who have been left with significant arrears by their tenants and hopefully those tenants with arrears will begin discussions with their landlord regarding the repayment of it. This has been a tough period for many businesses, however that doesn’t mean that they can ignore their contractual obligations where rent and service charges are concerned.”

Paul Burbidge can be contacted at p.burbidge@gullands.com