The High Court has considered defences to a claim for arrears of rent in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others [2021] EWHC 2591 (Ch); [2021] PLSCS 165.
The claimant was the landlord of leases of cinema premises at the Trocadero Centre in London. The defendants were the tenant of the premises, the original tenant under one of the leases and the guarantor of sums due under both leases. Due to government restrictions between 23 March 2020 and 16 May 2021 the premises were open for only 71 days and takings were £247,000 compared to £8.92m for the comparable period in 2018/19.
The leases include a clause suspending payment of rent or service charge where the premises are unfit for use through damage or destruction by an insured risk. The permitted use of the premises is as “a cinematograph theatre or theatres” with ancillary sales of merchandise, but there is no warranty in the leases that the premises can be lawfully used for such purposes.
The landlord sought summary judgement for outstanding rent and service charges which – at the date of hearing in July 2021 – were approximately £2.9m: the defendants counterclaimed in respect of rent paid in March 2020 under a mistake of law and insurance payments.
The defendants argued the following defences:
• That terms should be implied into the leases to the effect that payment of rent and service charges should be suspended for any period when use of the premises as a cinema is illegal and/or when attendance would not be at levels commensurate with that anticipated by the parties when the leases were executed. The court decided that such implied terms were neither necessary to give business efficacy to the leases nor so obvious that they went without saying and they were inconsistent with the terms of the leases.
• That there has been a failure of basis – a concept relevant to claims in unjust enrichment. Payments due under the leases were for use of the premises as a cinema so no payments are due in respect of periods when the premises could not be used as a cinema. The court decided that there was no failure of basis: use of the premises as a cinema was an expectation which motivated the tenant to enter into the leases rather than fundamental to its entering into the leases. Such a finding would interfere with the allocation of risk between the parties and be inconsistent with the terms of the leases.
• That the tenant is entitled to set-off in equity its counterclaim against any sums found to be due. The court decided that the words “without any deduction whatsoever” were insufficiently clear to exclude equitable rights of set-off. The tenant could set-off its counterclaim against any judgment against it as could the guarantor in respect of sums due from the tenant. The landlord’s claim against the original tenant was a separate claim so neither the original tenant nor its guarantor could claim a reduction as a result of the tenant’s right of set off.
Louise Clark is a property law consultant and mediator
