A three-day appeal hearing has ended today with a decision expected shortly that will have major implications for commercial landlords and tenant negotiations in England and Wales.
The test case of London Trocadero versus Picturehouse Cinemas 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.
The case relates to £2.9 million of rent arrears, but many other landlords and tenants will be awaiting the decision. For a review of the trio of critical cases focused on the matter during the pandemic click here.
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 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, which the Court of Appeal is now determining.
It argues 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 argues 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 says the premises could not be used as a cinema because of the COVID restrictions.
The appeal decision will have wide implications for the industry, as well as English contract law, and the massive outstanding pandemic-related rent arrears. It should provide an answer to the question should commercial landlords share the financial burden of the pandemic with their tenants?
Emma Preece, senior associate at Charles Russell Speechlys, said:
“While most of us feel like we’re back to normal after the pandemic, many tenants are still recovering from financial losses sustained during the multiple lockdowns –particularly in the hospitality and entertainment sectors.
"A decision in favour of London Trocadero would serve as a stark reminder for tenants who have been unable to reach an agreement with their landlord on rent accrued from when they were unable to trade during the pandemic.
"Whereas a win for Picturehouse Cinemas would support the protective measures the government put in place for tenants during the pandemic, an outcome that would ultimately be a very disappointing decision for commercial landlords across the country.
"The Court of Appeal’s decision will be awaited with much anticipation, as the legacy of the pandemic and the impact it has had on both landlords and tenants in the commercial property sector lives on.”