High Court orders Sports Direct, Cineworld and Mecca to pay rent arrears

In a second judgment in a week on unpaid rent during the pandemic, the High Court has ruled against retail and leisure chains Sports Direct, Cineworld and Mecca Bingo in their clash with landlords over mounting arrears. Master Dagnall awarded landlords Bank of New York Mellon (International) and AEW UK REIT Plc summary judgment in their claims for unpaid rent relating to a Sports Direct store in Blackpool, a Cineworld cinema in Bristol and a Mecca bingo hall in Dagenham. Finding that the Code of Practice was no obstacle to bringing a claim for unpaid rent, he said: “I do not see that the existence of a voluntary Code encouraging negotiation should in any way obstruct a claimant who contends that they have a clear case seeking summary judgment and, assuming that such a clear case is made out, from obtaining it at this point… I regard the Code both as being outside the litigation process and not applicable to these tenants who are not said to be unable to pay.” The decision follows swiftly after a similar ruling in favour of the owners of Westfield London against The Fragrance Shop, with many other claims set to follow. It sends a strong message to retail and leisure tenants that they remain obliged to pay rent for the periods that their businesses have been affected by the Covid-19 pandemic. Guy Fetherstonhaugh QC and Elizabeth Fitzgerald of Falcon Chambers, who acted for the successful landlords, said: “Given the combined resources of the tenants, it can be expected that every single available argument that might be conceived of for non-payment of rent was deployed in this case. “The unhesitating rejection of those arguments, for the second time in a week, and at summary judgment level, will no doubt provide much comfort to landlords in a property market characterised by difficulties of rent collection over the course of the last year.” The tenants had raised a number of grounds in arguing that the claims were not suitable for summary judgment, and should only be resolved following a full trial. They included arguments that, under the Code of Practice, the landlords should have been negotiating with their tenants rather than bringing proceedings against them; that rent cesser clauses in the leases should be construed to apply in these circumstances or, alternatively, that clauses to that effect should be implied in their leases; that the landlords were insured against loss of rent, meaning they should not have to pay; and that lockdown was a frustrating event, terminating or suspending the leases. However, Master Dagnall rejected each ground of defence as having no reasonable prospect of success. In doing so, he said: “The situation of Covid and the Covid Regulations has (at least in modern times and as a matter of degree) been unprecedented and, in particular, with regard to its effect upon the entertainment (and hospitality) sector but also the non-essential retail sector which has been deprived of the turnover which is the lifeblood of their businesses (and especially where there is no online equivalent). It is impossible not to feel sympathy for them.” But, quoting from an earlier decision, he added: “In times of uncertainty the law must provide a solid practical and predictable foundation for the resolution of disputes and the confidence necessary for an eventual recovery… Contractual rights are to be evaluated by applying settled principles to the contract in question. Legal certainty remains paramount and gives the surest basis for resolution.” He concluded: “That has been the basis of my analysis and this judgment.  Anything else is a matter, in my view, for parliament and not for the courts.” The Master had arranged for these cases to be heard together in order to ensure consistency of decision-making. He said that he was aware of a number of similar proceedings in various courts. Kim Clifford, senior associate at Ashurst, said: “After more than a year of restrictions, government measures and significant rent arrears, landlords will be back in the driving seat following the second favourable Covid-19 rent arrears decision in a week, which was a win for the landlord claimants. “The judgment of Master Dagnall follows the hearing of several similar claims together, builds on the first decision of Chief Master Marsh and further considers the ‘kitchen sink’ of arguments that have been advanced by tenants, including frustration, insurance and implied terms. This second decision will also be a boost to lenders, funders and pension funds sitting behind landlords, who are also dealing with the ramifications of the build-up of arrears across the industry.”   To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette Picture © Jenny Goodall/Daily Mail/Shutterstock