Case analysis: Commerz Real Investmentgesellscahft mbH v TFS Stores Ltd
This is the first reported judgment concerning a landlord’s claim for rent arrears when considering various Covid-19 related defences raised by the tenant.
In this recent case, the High Court was asked to determine whether Commerz Real Investmentgesellscahft mbH (the Landlord) was entitled to summary judgment against its tenant, TFS Stores (TFS) operating as The Fragrance Shop, for non-payment of rent and service charges for periods between 26 March 2020 and 12 April 2021 when the government placed restrictions on trading.
TFS sought to defend the Landlord’s claim on the following grounds:
- the Landlord issued the claim prematurely contrary to the Code of Practice for Commercial Property Relationships During the COVID-19 Pandemic (the Code) as introduced in June 2020;
- pursuing a debt claim was exploiting a ‘loophole’ in the Government’s restrictions against the recovery of rent arrears; and
- the Landlord was obliged to claim on its insurance for loss of rent.
The Court held that the legal relationship between landlord and tenant was unaffected by the Code. Whilst the Code encouraged landlords and tenants to work together in the face of financial constraints; it did not give tenants the prerogative to decline to pay rent entirely. Additionally, the Court did not find that the landlord had failed to engage with the Code.
With regard to the argument that the Landlord was exploiting a lacuna in the government measures, the Court considered that there was no legal restriction on a landlord bringing a claim for rent arrears and seeking judgment on that claim. Whilst the current government measures restrict some of the remedies available to a landlord such as forfeiture for non-payment of rent, they do not prevent a landlord from bringing a claim before the court. The courts’ powers to determine on such an issue are also unrestricted.
When considering the Landlord’s obligations to insure, the Court looked to the insurance clauses of the lease which obliged the Landlord to obtain insurance for specified Insured Risks. The Landlord could also insure against other risks at its discretion. A pandemic was not an Insured Risk and the Court found that the Landlord was not obliged to insure against a pandemic as a specific risk.
Interestingly, the Landlord’s insurance policy happened to include protection for damage caused by a notifiable disease (of which Covid-19 would be one). However, the Landlord submitted that it could not claim on its insurance policy as the rent cesser clause had not been triggered, meaning it had not suffered any loss. It would only be able to claim on its policy if the rent cesser clause bit and the requirement to pay rent suspended. The Landlord was not required to insure against TFS’s business losses. TFS could protect itself in this regard with a business interruption insurance policy.
TFS attempted to persuade the Court that the rent cesser clause should include an implied term to the effect that the rent would be suspended where the premises and shopping centre were closed because of government action. However, the Court considered that the lease was clear about when the rent cesser provision would apply, namely when there is physical damage to the premises. Neither was an implied term so obvious that it did not need to be said.
For these reasons, summary judgment was granted for the Landlord for the full amount sought.
This decision is likely to be welcomed by landlords as it clarifies that not all routes to rent arrears recovery are closed. Well established principles on construction of contracts and the interpretation of terms will continue to be applied despite the unusual circumstances of the last year.
Whilst this is the first reported case considering a money claim by a landlord against a tenant required to close for a significant period of time, it is expected that there will be many more in the coming months.
A copy of the Judgment can be found here.