In London Trocadero (2015) LLP v Picturehouse Cinemas Limited and others [2021] the Court once again grappled with inventive defences in the Covid-19 landscape.
The claimant/landlord, London Trocadero (2015) LLP, brought a claim against the defendants, the current tenant, original tenant and guarantor, for unpaid rent and service charge arrears in excess of £2.9 million, said to be due under two leases of the cinema at the iconic London Trocadero centre in London.
This case is one of a number of high profile commercial rent arrears cases that have come before the Courts in recent months in which tenants have put forward a variety of creative defences prefaced on the fact the pandemic was an unprecedented, unforeseeable event which ought to shift the Court's approach. However, in all those prior cases, the Courts have found in favour of the landlords.
The defendants in this case put forward three defences:
- Implied term
The defendants argued that terms should be implied into the leases to the effect that payment of rent and service charges should be suspended during any period for which the use of the premises as a cinema was illegal, and/or during periods where the attendance level would not be at a level commensurate with that which the parties would have anticipated.
The Court rejected this argument on the basis such implied terms were neither required to give "business efficacy" to the lease, nor were such terms "so obvious that they go without saying". The fact the landlord had explicitly not given a warranty as to legality of the use of the premises, and that there was a clause dealing with rent suspension in certain circumstances, illustrating the parties had broadly considered the issue, was taken into account by the Court.
- Failure of basis
By this defence, a concept seen in unjust enrichment cases, the defendants argued payments due under the leases were for the use of the premises as a cinema, therefore where that use was not possible, no payments were due for those periods.
The judgment provides a detailed and useful overview of the case law in this area. Ultimately, the Court concluded there had not been a failure of basis, as the use of the premises as a cinema is not "fundamental to the basis" on which the parties entered into the leases.
Despite this decision, the judgment also deals with issues which were raised in relation to this strand of the defence, namely (a) whether the leases are severable, and (b) whether failure of basis can be a defence to a contractual claim in principle, which might provide useful reference for future claims seeking to raise the defence of failure of basis.
- Set off
The final argument was of a more practical than legally imaginative nature. The first defendant brought a counterclaim for alleged overpayments of insurance sums of £621,000 and argued these ought to be off-set against the sums claimed.
The Court considered whether the wording in the lease "without deduction" prevented this defence, however concluded the case law showed such wording (in the absence of specific reference to set-off) could not exclude an equitable right to set-off. The Court therefore found in favour of the tenant on this point and, on granting summary judgment to the claimant, reduced the sums due by £621,000. It is worth noting that most modern commercial leases exclude a tenant's right of set-off against rent and other payments due under the lease.
While we await legislation regarding the proposed new arbitration scheme (which has been the subject of comment in a number of our recent bulletins), it is clear that the approach of the Courts when deciding arrears cases has not changed.
