Time Flies

Approximately five months or so have now passed since the Commercial Rent (Coronavirus) Act 2022 (Act) received Royal Assent and introduced a statutory scheme of arbitration for disputes concerning certain coronavirus rent arrears. Unless there is an extension of time by the Secretary of State, further referrals must be made by 23 September 2022. Any party eligible to use the scheme should now consider whether it is in its commercial interests to get a referral in before the deadline, or wait for the remaining restrictions on enforcement action for protected rent debts to fall away.

In making that decision, parties will no doubt be interested in the recent Court of Appeal decision in Bank of New York Mellon (International) Ltd v. Cine-UK Ltd and London Trocadero (2015) LLP v. Picturehouse Cinemas Limited and others. This was a joint appeal in two cases concerning coronavirus rent arrears. The tenants (both cinema operators) were arguing that they should be relieved from payment of coronavirus rent debts. Their two principal assertions were:

• first, that there should be an implied term in their leases that they were released from the obligation to pay rent given the disruption caused by the pandemic; and
• secondly, that as the rent was being paid for the use of the properties as cinemas, if the properties could not in fact be lawfully used as cinemas, no rent was due (i.e. that there had been a failure of basis).

The Court of Appeal, following the trend seen in other coronavirus rent cases, upheld the express terms of the leases and found that rent was due and payable. Even if the pandemic, and the regulations in response to it, were unprecedented, that was not sufficient reason to disapply the fundamental principles of contract.

Even if that decision gives landlords some confidence that the terms of leases will be upheld, it does not mean that tenants can actually afford to pay the rent that has fallen due. Instead, where tenants are struggling, it may still be in both parties’ interests to seek a settlement. This is, in part, why the Act introduced a scheme of statutory arbitration in the first place.

Under the scheme, qualifying tenants with protected rent debts can seek relief from all or part of the debt. Whether relief is granted depends on: (i) whether the debt satisfies the criteria for a protected rent debt; and (ii) the balance between preserving a viable tenant’s business and not undermining the solvency of the landlord. The former issue was starkly highlighted in the first arbitration award published under the scheme. In that case, the referral was dismissed because one of the criteria for a protected rent debt had not been satisfied, namely that the relevant premises needed to have been subject to a specific closure requirement pursuant to the coronavirus regulations.

So the time is almost up for parties to weigh up their options and decide on the best course of action. That may differ from case to case, but what is sure is that in all cases time flies…………

For more information, contact Patrick Farrington pfarrington@keelys.co.uk or on 01543 420495 or Joanne Davies jdavies@keelys.co.uk or on 01543 420059.