Sports Direct, Cine UK and Mecca Bingo lose rent arrears case

Three well-known national companies have failed to stop a rent arrears claim against them despite arguing that their businesses had been adversely affected by the Covid-19 pandemic.

The case involved two commercial landlords and their tenants Cine-UK Ltd, Sports Direct and Mecca Bingo.

The landlords applied for summary judgment in claims for rents due under leases of commercial premises.

All three tenants had been unable to trade for some periods because of lockdown restrictions. During other periods it was possible for them to open, subject to certain restrictions, but they took the view that it was not commercially feasible to do so.

The leases were in a standard form. Each set out provisions regarding insurance. They each contained a rent cesser clause which was worded slightly differently in each case, but all were to the effect that if access to the property should be destroyed or damaged by specified insured risks so as to render the property unfit for occupation or use, then the basic rent should be suspended.

The issue was whether the rent remained due and payable despite the circumstances of the pandemic.

The court ruled in favour of the landlords.

It noted that in June 2020, the Government issued a Code of Practice that strongly encouraged commercial landlords and tenants to negotiate ameliorative measures for tenants, including rent-free periods.

However, the Code was expressed to be voluntary and was outside the litigation process. The Code was clear that tenants who were able to pay rent should do so, and that tenants were liable for payment obligations under their leases, unless they renegotiated them.

The tenants were not claiming an inability to pay their rents. The Code was therefore not applicable to them.

The commercial purpose of the rent cesser clauses was directed towards physical damage. It was not clear that the parties would have agreed that the rent cesser clauses should operate in the circumstances of the pandemic. The rent cesser clauses had to be triggered by an event which caused the relevant premises to be physically damaged or destroyed, and that was not the case here.

Please contact us if you would like more information about the issues raised in this article or any aspect of commercial property law.