Bank of New York Mellon (International) Ltd & Ors v Cine-UK Ltd & Ors

Commercial lease rent remains payable during pandemic-related closure unless the lease, properly construed, provides otherwise. Rent cesser clauses referring to premises being destroyed or damaged ordinarily require physical damage, particularly where surrounding provisions concern rebuilding and reinstatement. A pandemic and compulsory closure do not justify implying a rent cesser merely because the result is commercially severe or unprecedented. The strict tests of obviousness or necessity for business efficacy must be satisfied. Frustration of a lease is possible in principle but rare, and there is no general doctrine of temporary frustration suspending rent. Insurance against loss of rent ordinarily responds only where the landlord has suffered an insured loss, such as rent ceasing under an applicable rent cesser clause. A voluntary government code encouraging negotiation does not prevent summary judgment for rent where the tenant can pay.

The landlords sought summary judgment for rent, VAT and interest under three commercial leases occupied respectively as a cinema, bingo hall and retail shop. The tenants had been required to close, or had been unable to trade economically, during COVID-19 restrictions. They argued that rent had ceased under the leases, should be suspended by implication, or was recoverable from insurance. They also relied on frustration, illegality, partial failure of consideration and government guidance.

The court also considered whether the landlord in the SportsDirect claim could recover an omitted VAT element after obtaining default judgment in county court for the March 2020 quarter’s rent. The central issues were whether the leases or insurance policy relieved the tenants from rent liability, and whether the omitted sum was barred by merger or cause of action estoppel.

1. Summary judgment. The applications were suitable for summary determination. The issues were principally matters of construction and legal principle, with no material factual dispute and full argument. The tenants had no real prospect of defending the rent claims and there was no compelling reason for a trial under CPR 24.2.
2. Rent cesser. The rent cesser clauses required destruction or physical damage caused by an insured risk. Their wording, context and references to rebuilding, reinstatement and making the premises fit for occupation supported that construction. COVID restrictions caused non-physical interference and did not trigger the clauses.
3. Implied terms. A term suspending rent during pandemic closure was neither obvious nor necessary for business efficacy. The leases were detailed risk-allocation instruments, already contained carefully limited rent cesser provisions, and tenants could obtain business interruption insurance.
4. Insurance. The policy did not require the insurer to pay sums equivalent to rent where rent remained payable and the landlords had suffered no loss of rent. The landlords’ inclusion of COVID-related risks did not require them to insure rent in circumstances outside the contractual rent cesser clauses. The Mark Rowlands and Frasca-Judd principles could potentially benefit tenants where insurance actually responded, but did not establish cover.
5. Frustration and related arguments. Frustration can apply to leases but only rarely. The closures did not create the required radical difference, considering their expected duration and the substantial unexpired terms. There was no doctrine of temporary frustration. Illegality did not excuse payment of rent, and partial failure of consideration was not a freestanding defence.
6. SportsDirect balance. The tenant had a real prospect of establishing that the county court claim and judgment covered the entirety of the March quarter’s rent, including VAT. The claim for the balance was therefore not summarily determined and required further directions.
7. Orders. Summary judgment was granted for the rent, VAT and contractual interest claims, except the SportsDirect balance and interest on it.

First-instance decision. No prior appellate decision is stated in the judgment.