London Trocadero and the Bank of New York Mellon have been backed at the Court of Appeal in linked landlord test cases against Picturehouse Cinemas and Cine-UK in a decision that has major implications for commercial landlords and tenant negotiations in England and Wales.
A three-day appeal began on Tuesday (21 June), focusing on whether a commercial tenant whose business was hit by the pandemic is responsible for payment of rent during that period.
Today a three-judge panel dismissed the two claims from tenants ultimately including Cine-UK and Cineworld. The Trocadero case against Picturehouse Group related to £2.9 million of specific rent arrears owed, but many other landlords and tenants have been awaiting the decision. For a review of three critical cases focused on the matter during the pandemic click here
The Bank of New York Mellon (International) Limited v Cine-UK Limited case was interlinked and covered similar ground and was focused on a cinema on a shopping centre at Hengrove, Bristol.
In September 2021, London’s Trocadero Centre in Piccadilly Circus won a high court battle against cinema chains Cineworld and Picturehouse Cinemas over the unpaid rent.
The owners had brought a legal action against the two chains and the original tenant, Gallery Cinemas, over outstanding bills since June 2020.
The three firms, which are all members of the Cineworld group, were accused of owing rent and service charges “in the region of £2.9 million” at Picturehouse’s flagship venue Picturehouse Central.
In a major decision in favour of landlords during the pandemic, Judge Vos had ruled: “In my view, the requirement for the tenant to pay rent even though the premises could not be used for the intended purpose as a result of unforeseen, extraneous events does not deprive the leases of business efficacy or mean that they lack commercial or practical coherence.”
He added: “There is no good commercial reason why the loss should necessarily be borne by the landlord.”
The tenant subsequently appealed the decision, raising two critical arguments in defence of the arrears action.
The tenant argued that a term should be implied into the leases to suspend the tenant's obligation to pay rents when the premises could not be lawfully used.
Separately, it argued there had been a failure of consideration as the leases were entered into on the basis the premises could be used as a cinema. It said the premises could not be used as a cinema because of the COVID restrictions.
The Court of Appeal has today definitively rejected all arguments.
The appeal decision has wide implications for the industry, as well as English contract law, and the massive outstanding pandemic-related rent arrears. And it goes some way to providing an answer to the question should commercial landlords share the financial burden of the pandemic with their tenants?
Mark Reading, executive member of the Property Litigation Association, said the decision will provide "great comfort" to landlords in relation to rents paid during the various COVID-19 lockdowns, but also gives clarity and certainty to both landlords and tenants on their respective positions.
"In reaching its decision, the Court of Appeal was definitive in its response to the tenants' arguments, with their submissions regarding rent cesser, implied terms and failure of consideration all being unanimously rejected.”
Emma Preece, Charles Russell Speechlys: "While most of us feel like we’re back to something like normal after the pandemic, many tenants are still recovering from financial losses sustained during multiple lockdowns, particularly in the hospitality and entertainment sectors.
This appeal was always going to be an uphill battle for the tenants as the High Court originally found in favour of the landlord following its summary judgment application, meaning the court was satisfied the tenants’ defences had no real prospects of success.
"The dismissal of the appeal was therefore anticipated but still provides a warning for tenants who have been unable to reach an agreement with their landlord on rent accrued during the pandemic which falls outside the binding arbitration scheme.
"This will be a welcome decision for commercial landlords who may choose to use the decision as a negotiating tool in their ongoing discussions, or indeed when the arbitration scheme comes to an end.
"More broadly, the case underlines that the impact of the pandemic on landlords and tenants in the commercial property sector lives on.”