What is the court’s approach to rent arrears claims during covid-19? A recent ruling is a salutary tale for those taking the financial risk of not engaging with the other side. The specialist commercial lawyers at award-winning Bahamas law firm ParrisWhittaker are highly experienced in advising commercial clients on covid-19-related and other disputes.
The High Court in the UK recently issued an important ruling on what is, so far, a fairly novel situation arising out of the pandemic. The ruling has important persuasive authority on the courts in The Bahamas and businesses should not ignore it.
What’s the background?
In short, a high-profile corporate landlord won its claim for unpaid rent against a small retailer. The landlord owns the Westfield Shopping Centre in London’s Shepherd’s Bush where The Fragrance Store (TFS) rents a unit.
TFS closed its doors in March 2020 when the UK first imposed emergency coronavirus legislation, reopening in June for a short period, but then had to close again for the duration of subsequent lockdowns. At the time of the hearing in April 2021, it had paid no rent since the previous April and it also owed three months’ worth of service charges.
TFS defended the claim though, importantly, it did not raise any new principles of law in doing so. Instead, it argued that:
The claim was premature contrary to a code of practice for commercial property relationships during the pandemic. This is a voluntary code which encourages parties to work together and take a balanced view of the issues.
The claim was a means exploiting a loophole in government measures to prevent forfeiture winding-up and recovery using commercial rent arrears recovery.
The landlord was in breach of a lease obligation to insure. TFS said it was reasonable to expect it to insure against loss of rent due resulting from forced closures, denial of access due to notifiable disease and/or government action.
The court gave these arguments short thrift. The claim was not ‘premature’: in reality, commercial landlords had never been prevented during the pandemic from issuing claims for rent arrears.
It also pointed out that the code of practice is voluntary and has no bearing on the strict legal relationship between the parties to the lease.
Finally, it was clear under the lease terms that the obligation to insure was limited to the named risks – which did not include either notifiable diseases or government directions.
Perhaps the most important point to highlight from the ruling is the criticism levelled at the lack of engagement on the part of TFS. On the other hand, the landlord had attempted to engage with the TFS with a view to reaching an arrangement as to payment of the rent arrears and had actively attempted to avoid formal proceedings.
What does this mean?
An unfortunate by-product of the pandemic, for many businesses, is how they are able to pay commercial rents and other financial obligations.
This decision has provided important insight into the courts will approach the issues, though each will depend on the facts of the case. Defences to such claims need to have their basis in legal principles – an obvious point but it seems one that needs emphasising.
The key to resolving a dispute is, invariably, actively engaging with the other side in an attempt to resolve issues without having to resort to expensive litigation. And if litigation becomes inevitable, a solid legal basis for claims and any defence and counterclaim is vital.
How can we help?
We advise and represent commercial organisations of all sizes across all sectors on their contractual disputes, including those related to the pandemic. Contact the expert commercial lawyers at ParrisWhittaker for strategic advice and representation.
