Covid Rent Arrears: A Victory For Commercial Landlords

In The Bahamas and across the world, the covid-19 pandemic forced lockdowns on individuals and businesses for extended periods of time, but where has this left commercial organisations still coping with the challenges around covid-related rents? The award-winning commercial and property litigation lawyers at ParrisWhittaker are specialists in commercial lease disputes and advise both landlords and tenants clients on rent arrears accumulated during the pandemic. 

Many commercial organisations are still dealing with the financial impact of covid-19, including issues around rent arrears accumulated during pandemic lockdowns. It has, until recently, been an untested area of law, but a key ruling¹ provides vital clarification for landlords and tenants who have been keenly awaiting the outcome. 

This ruling, coming from the UK’s Court of Appeal, has important persuasive authority on the courts in The Bahamas. Two cases were heard together.

What’s the background?

The essential factual background to this case is effectively repeated many times over across the business world – a business was forced to close, but its legal responsibility to pay the rent due under the lease terms continued. However, what’s interesting about this case is that an additional argument was put forward: that there was a failure in ‘consideration’/failure of basis. (Were that argument to succeed, it would raise potentially wide-ranging implications for the basic principles of contract law.) 

Here, a cinema operator in the first case did not pay any rent due to the landlord – the Bank of New York Mellon (International) – for the leasing of cinema premises during lockdowns.  The tenant denied liability on the basis that the premises were rendered unusable (it would have been unlawful) and could not be used as a cinema during the state-imposed lockdowns. A term to that effect should be implied into the leases.

Alternatively, the tenant said there was a failure of consideration, on the basis that as the rent was for use of the premises as a cinema, no payments were due for periods during which the premises could not be used as for that purpose. 

What did the appeal court decide?

The tenants failed to convince the appeal judges that they were not legally responsible for the rental arrears. The court agreed with the decision High Court judge: 

1. He had considered the issue of business efficacy: the tenant’s obligation to pay rent even though the premises could not be used for the intended purpose (the risk thus being shouldered by the tenant rather than the landlord), “did not lead to the conclusion that the leases lack commercial or practical coherence”

1. The argument that the fundamental basis for the obligation to pay rent is that the premises can be lawfully used as a cinema was not consistent with the express lease terms and allocation of risk between the parties. There was, therefore, no failure of basis at all. 

What does this mean?

The outcome was as expected and provides much-needed clarification for both commercial landlords and tenants. In such cases, the courts have had to conduct a difficult balancing act in determining disputes around covid-related rent arrears. This appeal ruling settles a matter of uncertainty that has concerned many business, particularly those in the retail, hospitality and leisure industries. 

It is important for all businesses involved in disputes concerning rent obligations to check the express terms of the lease and understand the implications of this ruling. For specialist advice, get in touch with the award-winning team of commercial lawyers at ParrisWhittaker on +1.242.352.6112 

¹London Trocadero (2015) LLP v Picturehouse Cinemas Limited [2022] EWCA Civ 1021