Can manufacturers who occupy their property as tenants rely on Covid-19 for rent arrears?

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Commercial Property Article

08 June, 2021

It is beyond doubt that Covid-19 has caused considerable financial challenges for commercial tenants, many of whom have had to endure either their business not being able to run as effectively, or not run at all. The Government has for the most part been sympathetic towards commercial tenants during the pandemic, with landlords having limited recourse against their tenants. However, recent High Court cases serve as an important reminder to commercial tenants that their landlords are still able to reclaim rent arrears through the courts.

Ever since the Government produced its 'Code of Practice for Commercial Property relationships during the Covid-19 pandemic' in June 2020, the message was clear: landlords and tenants should discuss and negotiate rent arrears, to seek a mutually beneficial solution. This encouragement of co-operation has allowed commercial tenants in some cases to re-negotiate the terms of their leases or obtain temporary concessions. However, what has always been important to remember is that the guidance was voluntary and not legally binding, and the Government has maintained a stance that any commercial tenant who is able to pay all or some of their rent, should continue to do so.

The tenants in the recent High Court judgement in Bank of New York Mellon (International) Ltd v Cine-UK Ltd and others (2021) faced a harsh reminder of this. In this case, the tenants were businesses who hadn't been able to fully operate during Covid-19 due to Government regulations. The tenants had fallen into rent arrears and the landlord applied for a summary judgement for their claim for rent.

The tenants brought forward a number of arguments as to why rent should not have been payable (including reference to the Code of Practice, but also that rent suspension clauses for the event of damage to the property should apply, that the lockdown constituted a frustration of the lease, that the landlords could rely on loss of rent insurance or that to trade would have been illegal, so the tenants should be released from their obligations). The court rejected all of these arguments and found in favour of the landlord.

The case serves as an important reminder for commercial tenants that whilst they have been offered a degree of relief, they are not free of the responsibility to pay rent. In some circumstances, landlords may be open to negotiating the terms of the lease so as to make the terms more viable for the tenant until all social restrictions in the UK come to an end. Nevertheless, it still vital for commercial tenants to organise their financial affairs so as to not fall into rent arrears.

For more information contact Richard Clithero in our Manufacturing & Engineering department via email or phone on 0333 207 1159. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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