The owners of Westfield London have won a ruling that The Fragrance Shop must pay over £160,000 in unpaid rent and service charges accrued during the pandemic.
Although restrictions on landlords enforcing remedies for unpaid rent have been in force since the start of the pandemic, a tenant still remains liable for that rent (unless a deal has been reached with their landlord).
The Fragrance Shop has not paid any rent since April 2020 and owes over £160,000 in unpaid rent and service charges. Government restrictions have meant that The Fragrance Shop has had to close its shops for large parts of that time.
The case is the first in which a ‘Covid defence’ has been used for the non-payment of rent. However, this is a situation many business owners will have found themselves in following the last year of government guidelines.
The Fragrance Shop took a five-year lease of premises at Westfield London in July 2019 at an initial rent of £200,000 a year, but in a ‘side letter’ agreed to an aggregate of a £180,000 per year base rent plus turnover rent.
Arguments and judgment
The arguments put forward by The Fragrance Shop in its defence were based on the government’s voluntary Code of Practice, the potential to undermine the current restrictions on landlords’ remedies, the extent of the landlord’s insurance obligation and the construction of the rent suspension clause.
The court dismissed all these grounds and ruled in favour of the landlords. Chief master Matthew Marsh at the High Court granted Commerz Real Investmentgesellschaft (the landlord) summary judgment in its claim against the perfume retail chain, TFS Stores, without the need for a full trial.
What does this mean for commercial property landlords and tenants?
There is now a widespread concern for retailers and other business owners as unpaid rents have and continue to accrue. While the government has imposed many restrictions on businesses that have led to the financial difficulty, there is no legal restriction placed upon a landlord bringing a claim for rents and seeking judgment upon that claim.
Last week the government published a call for evidence on the best course of action for when the current restrictions on landlords’ remedies expire at the end of June.
There is a considerable risk to economic recovery posed by remaining rent debts. The government is calling for landlords and tenants to adjust lease terms to reflect a recovery period for struggling tenants. In short, the Fragrance Shop judgement is good news for landlords but very worrying for tenants.
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