The High Court has granted summary judgment to the landlord of commercial premises in a claim for arrears of rent and service charges due since the outbreak of the Covid-19 pandemic: London Trocadero (2015) LP v Picturehouse Cinemas Ltd  EWHC 2591 (Ch).
This case is another example of the court’s approach to applying legal principles in the context of disruption to commercial arrangements caused by the Covid-19 pandemic. However, in contrast to previous cases where claims to be excused from contractual performance have been based primarily on force majeure or frustration (see for example here, here and here), the tenant’s arguments were based on alleged implied terms and a total failure of consideration (or “failure of basis” as it is now called).
In the present case, while acknowledging that for certain periods it was unlawful to operate the premises as a cinema due to Covid restrictions, and for others it was uneconomic to do so, the court found that there was no real prospect of the tenants establishing that terms should be implied to the effect that the payment obligations under the leases were suspended during those periods. Nor was there any real prospect of establishing that there had, in the circumstances, been a failure of basis. As such, the defendants could not avoid paying rent for the affected period.
However, and whilst the argument ultimately failed in this case, the court acknowledged that it may be possible for a party to pursue a claim for unjust enrichment for rent paid in circumstances where: (i) the use of the premises in a specified way was a foundation of the leases, ie where it was fundamental to the basis on which the parties entered into the leases rather than simply an expectation which motivated them to do so; and (ii) that use was unavailable for a specified period of time (the court having found that it was reasonably arguable that the leases could be severed on a time basis, so that there could be a total failure of basis in respect of a severable part of the leases).
There would seem to be no reason in principle why such arguments should be limited to leases, and therefore it may be possible for a party to succeed in a claim for unjust enrichment in other contexts where it has been unable to enjoy a foundational benefit under a contract, even for a limited time. However, it is clear that such instances are likely to be rare. Further, the court in the present case took the view that, while a claim could be brought for restitution of sums paid due to a failure of basis, it did not accept that failure of basis could provide a defence to a contractual claim for payment. This would, in the court’s view, be tantamount to creating a doctrine of temporary or partial frustration, which the courts have rejected in previous cases.
Of course, in order to achieve greater certainty, parties can include a force majeure clause in their contract setting out what is to happen if unexpected events intervene – providing, for example, for obligations to be temporarily suspended if performance is prevented by specified types of occurrence. Continue reading