Westfield London’s owners have won a ruling that The Fragrance Shop must cough up over £160,000 in unpaid rent and service charge accrued during the pandemic.
Chief Master Marsh at the High Court granted fund manager Commerz Real – which owns the centre in a joint venture with Unibail-Rodamco-Westfield – summary judgment in its claim against the perfume retail chain, TFS Stores, without the need for a full trial.
The ruling will be welcomed by landlords, but will send a shockwave through retail tenants as unpaid rents continue to pile up.
Kim Clifford, senior associate at law firm Ashurst, said that the decision – the first in respect of Covid-19 rent and service charge arrears – would be greeted as good news by landlords.
She said: “The High Court awarded summary judgment in favour of the landlord and holds that such arrears claims do not circumvent the Code of Practice nor government measures, there was no implied term within the rent cesser provisions that rent can be withheld where premises are closed due to a legal requirement and that as the rent cesser provisions didn’t bite there was no loss of rent claim under the landlord’s insurance policy (which they were in any event not obliged to have in place in respect of loss of rent resulting from notifiable disease or government action).”
TFS took a five-year lease of premises at Westfield London in July 2019 at an initial yearly rent of £200,000, but in a “side letter” agreed to an aggregate of a £180,000 per year base rent plus turnover rent.
However, due to Covid-19 lockdowns, the business remained closed to the public from 26 March 2020 until 15 June 2020, between 5 November 2020 and 2 December 2020 and from 19 December 2020 until 12 April 2021. TFS has not paid any rent since April 2020 and the monthly service charge for April, May and June 2020 is also outstanding. Commerz sought summary judgment for rent amounting to £166,884 (inclusive of VAT) and interest at the contractual rate.
Pandemic effect
Chief Master Marsh said: “On its face, the claim is unremarkable. Indeed, given the sum that is involved, it might appear surprising that the claim is being dealt with in the High Court. However, up to the end of January 2020, claims for commercial rent issued in the High Court in London were not normally transferred to the County Court at the initial triage point against the possibility of tenants seeking to maintain a defence based upon grounds arising from the exceptional circumstances created by the Coronavirus pandemic. A defence has been served in this case and the issues it raises are directly related to the pandemic.”
But he added: “It is not part of this judgment to examine the precise effect of the pandemic upon either the claimant’s or the defendant’s business. That they have both been affected is not in doubt. The issue for the court is whether the claimant should be granted summary judgment on its claim for rents or whether the claim should proceed to trial.”
Protecting the economy
TFS had set out grounds for defending the claim, including that the claim was issued prematurely contrary to the Code of Practice for Commercial Property Relationships During the Covid-19 Pandemic and that it was a means of circumventing measures put in place to prevent forfeiture, winding up and recovery using CRAR, amounting to Commerz exploiting a “loophole” in the restrictions placed on the recovery of rent put in place by the government.
But, ruling that Commerz was entitled to summary judgment, Chief Master Marsh said: “As part of the measures taken to protect the economy, the government has placed restrictions upon some, but not all, remedies that are open to landlords. There is no legal restriction placed upon a landlord bringing a claim for rents and seeking judgment upon that claim.”
He added: “I am satisfied that the claimant has discharged the burden of establishing that the rents it claims are due and the defendant has no real prospect of defending the claim to recover the outstanding rents. There are no compelling reasons why the claim should go to a full trial.”
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