Commercial Rent Arrears: ‘Covid-19’ defence falls at the first hurdle

The first ruling on rent arrears where the defendant raised covid-19 as a defence to a rent arrears claim has now been reported.

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It was inevitable that cases involving covid-19 and business rent debts were going to crop up sooner rather than later.

InCommerz Real Investmentgesellschaft v TFS Stores Ltd [2021] EWHC 863 the commercial landlord won in its claim for unpaid rent, so what was the court’s approach to this novel scenario and what are the implications?

The background

The claimant landlord owns the Westfield Shopping Centre in Shepherd’s Bush, in which The Fragrance Store (TFS) rents a unit. The pandemic hit the UK in March 2020 and, as it was legally required, TFS closed shop – reopening on 15 June, then closing for further periods when subsequent lockdowns were implemented.

At the time of the hearing, TFS had paid no rent since April 2020 and three months’ worth of service charged remained outstanding. The landlord brought a claim in December 2020 seeking almost £167,000 in unpaid arrears.

TFS defended the claim, raising issues directly related to the pandemic but did not rely on any new principles of law. It argued:

  • The claim was premature given the provisions of the Code of Practice for commercial property relationships during the pandemic. This was a voluntary code encouraging the parties to work together and take a balanced view of the issues.
  • The claim was a means of circumventing government measures put in place to prevent forfeiture winding-up and recovery using commercial rent arrears recovery (CRAR); and that the landlord was exploiting a loophole.
  • The landlord was in breach of a lease obligation to insure. TFS argued that it was reasonable to expect the landlord would insure against loss of rent due to forced closures, denial of access due to notifiable disease and/or government action.

The court soundly rejected all three prongs of the defence. It was always the case, since the restrictions and covid-19 business support measures were introduced, that landlords could still issue proceedings for rent arrears. As for the code of practice, it is voluntarily and does not impact the legal relationship between the parties in any way.

As for the obligation to insure, the judge found the lease to be clear that this obligation was limited to the risks as named in the definition, which did not include notifiable diseases or government directions.

A final point as highlighted by the judge is worth a mention here: TFS raised no matter relating to the landlord’s conduct that could be considered oppressive or that its claim was issued prematurely. The court noted that the landlord had engaged with TFS in an effort to implement an arrangement to clear the rent arrears. On the other hand, there was a lack of engagement on TFS’s part.

What does this mean?

We can expect many more commercial rent arrears cases to come and each will be decided on its facts. Had this particular lease included a wider obligation on the landlord to insure against, for instance, notifiable diseases, the outcome for the parties could have been markedly different.

The court’s approach to covid-19-related defences sets out an important judicial sounding board for commercial landlords and tenants as they engage together and negotiate any issues of rent/service charge arrears. The code of conduct, though voluntarily, encourages transparency and engagement and landlords and tenants and their advisers are urged to follows its principles in a combined effort to reduce the risk of expensive and protracted proceedings.


Posted on 12.05.21