LEGAL

Understanding GOING LEGAL Legalities

Enforced shop closures during the various lockdowns have resulted in many businesses – large and small – being unable to meet their rent obligations to their landlord. We have taken expert advice from Fox Williams LLP on where retailers stand with regard to unpaid rent

In April, there were two Court judgments which acted as a warning to fashion business holding tenancies of retail premises, and who had been refusing to pay their rents as a result of the COVID-19 pandemic. We speculated that this might be reflective of the journey out of lockdown, and that fashion retail tenants who were seeking to renegotiate terms or obtain rent-free periods during the pandemic might not have things their own way.

The tenants in those cases (including sports fashion retailer Sports Direct and the Fragrance Shop) relied on a newly-established Code of Practice (‘the Code’) governing the responsibilities of landlords and tenants during the pandemic.

The tenants tried to claim that the landlords were not entitled to recover rent under the leases, even though the leases stated that rent was due, because the Code strongly encouraged landlords and tenants to communicate and negotiate (rather than take matters to Court). The Judge held that the Code, while important, was not law, and in any event the landlords had sought to comply with it. He gave summary judgment for the landlords – and in doing so, gave hope to commercial landlords all over the country struggling to recover rent from tenants.

And now we have another case that has developed those principles further. In October, the owners of London’s Trocadero Centre succeeded in a summary judgment application against two cinema chains, Cineworld and Picturehouse Cinemas, for unpaid rent and service charges of close to £3m.

Mindful of the previous failure of the tenants in the Westfield case to rely on the Code, the tenants in this latest application sought (amongst other arguments) to claim that there should be an implied term in the lease which said that rent should not be payable during any period where use of the premises was illegal (due to government orders to close) and/ or during which attendance would not be at a level anticipated – due to restrictions on numbers allowed in – by the parties when the lease was agreed.

Again, the tenants’ argument has been rejected. A term can only be implied into a contract where it is necessary to give business efficacy to the contract. In this case, the judge noted that it was not enough that a term might be fair or reasonable, or even that the parties may have agreed it at the outset if it had been put to them.

In short, there was no term in the leases stating that rent would not be payable in the case of an unanticipated event (such as a pandemic), and the fact that the parties had not included one did not mean the contract no longer made commercial sense. It simply meant that in the event that use of the property became illegal or impossible, the risk lay with the tenant, and it must pay the rent accordingly.

The above decision is bad news for tenants although, conversely, good news for landlords. It is reflective of a steady move away from the special measures we have seen over the past 18 months. In addition to this clear evidence in a shift of the Courts’ attitude to non-payment of rent, October also saw the ending of furlough support, and the ending of other COVID temporary restrictions which will weaken the position of all debtors, including tenants unable to pay rent: In particular:

• Up to 31 June, directors could not be personally pursued for any alleged wrongful trading under the pandemic. Since 1 July, that risk is now back on the table for directors of indebted companies.

• From 1 October, it became once again possible to present a winding-up petition on a basis that a company has failed to satisfy a statutory demand. • Other restrictions on windingup petitions are being eased significantly, in that it will no longer be necessary to consider the financial effect of Covid-19 on the company.

The past year has also seen a series of extensions to the measures put in place to protect tenants against remedial action by landlords, in respect of rent arrears. At the moment, these restrictions are set to remain in place until 25 March 2022. The ban on a landlord’s right to recover rent by seizing a tenant’s goods under the statutory Commercial Rent Arrears Recovery procedure has also been extended until 25 March 2022.

There can be no doubt, though, that Parliament – and the Courts – are keen to resume normal service and are making very plain legislative and judicial steps in that direction. As a result, the arena for tenants with unpaid rent (and other debtors) is becoming more and more unfavourable.

Paul Taylor is a corporate partner and Tom Morton is a property senior associate at Fox Williams LLP (www.fashionlaw.co.uk and www.foxwilliams.com)

Avoid blurring the professional and the personal when running your business AGENTLAW SEMINAR It’s a hard ask to be a leader and a friend, isn’t it?

As with your customers, you should always avoid extreme crossing over of the two; neither too bossy a boss, nor best

10 November 2021

Fox Williams LPP 10 Finsbury Square London EC2A 1AF

In this year’s seminar we shall discuss:

Failure to reach sales targets? How terminated agents may be able to strike back at their principals.

It is common for agency agreement to include sales targets. The intention is to ensure performance of the agent and allow the principal to end the agency agreement if the target is not reached. But can an agent terminated for failure to achieve a target claim against the principal?

Minimum purchase requirements – can suppliers squeeze out underperforming distributors? If so, what is the best way of doing so?

If a distributor is not buying, the supplier is not making sales. So how best can a supplier end its agreement with an underperforming distributor?

Do not destroy – the extent of disclosure in litigation and how agency and distribution agreement disputes can be won or lost.

English law requires that in litigation both claimant and defendant produce all documents relevant to the dispute – and whether good or bad for their respective arguments. So how best to use disclosure when fighting an agency or distributorship dispute? And also does this mean you should destroy unhelpful documents before commencing litigation?

Controlling sales by distributors, dual pricing and other changes – what’s in store for 2022.

Many suppliers want to control how distributors resell. But their ability to control is restricted. But the law it is a-changin’. We discuss what suppliers and distributors can expect in 2022.

After the formal presentations, there will be an opportunity to ask questions of the speakers and then to network over drinks. We do hope you can join us. There is no charge.

For further information click here To attend, email events@foxwilliams.com.