The Trocadéro affair relieves commercial landlords

In another battle between commercial landlords seeking to recover rent contractually owed to them and tenants seeking assistance in times of crisis, the Court of Appeal has delivered judgment in the Trocadero Covid rent arrears appeal.

The result will be a relief for commercial landlords, as the Court of Appeal was unanimous in concluding that there was no failure of the basis on which rent was due.

In one of the most controversial cases of the pandemic and a decision that has generated a lot of interest in the real estate world, it further clarifies the position of landlords and tenants who remain in dispute over accumulated rent arrears. during the pandemic.

The appeal in this case was heard with Bank of New York Mellon (International) Limited v Cine-UK Limited, as both cases raised the same issue: were tenants who operated cinemas on the premises required to pay a rent during times when Covid-19 restrictions prohibited them from legally operating their cinemas?

In the Trocadero case, members of the Cineworld Group sought to raise the following technical legal arguments in response to the landlord’s claim for rent arrears of approximately £2.9 million:

  • First, that conditions should be implicit in their leases allowing for a suspension of payment of rent and service charges during any period when the use of the premises as a cinema would be illegal and/or when attendance is lower than the parties had expected at the time they entered into the leases.
  • Secondly, that there had been a partial default in consideration on the grounds that the payments due under the leases related to the use of the premises as a cinema and therefore no payments were to be made during periods when the premises were not could not be used for their contractual basis.

Contractual relationship

To uphold the tenant’s arguments, the courts would be required to interfere in the contractual mechanism that governs the relationship between the parties. However, interfering with the terms of the lease would change the landscape of rules that traditionally govern the relationship between a landlord and a tenant.

Typically, a tenant signs a lease to take possession of the premises and in return the landlord receives rent, usually at market value. The business of the lessor is to rent premises and while it is in the interest of the lessor to ensure that the lessee operates a viable business, the lessee’s obligation to pay rent is unrelated to its ability to pay the rent, except in the case where the rent is tied to turnover, which comes with its own complications.

The power of the courts to imply terms in a contract is limited and would only be used where it is necessary to give commercial effect to the agreement between the parties or where the term is so obvious that it goes without saying.

The decision was eagerly awaited by landlords and tenants, with landlords concerned that the courts took a benevolent approach in reallocating risk between the parties due to unprecedented circumstances and tenants remaining hopeful that the courts would willing to intervene. making a decision that would be fair and reasonable in the circumstances.

Neither of these arguments was accepted by the trial judge nor by the Court of Appeal, which ruled that there was no “gaps” in the leases to be filled. , as the leases contained a carefully constructed contractual regime for the allocation of risk. The courts do not have the power to imply a clause simply because it might be fair and reasonable.

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