Bank of New York Mellon (International) Limited v Cine-UK Limited

A detailed commercial lease will not ordinarily relieve a tenant from rent merely because a legal restriction prevents the intended use of the premises. A rent-cesser clause referring to property destroyed or damaged by insured risks applies, on its proper construction, to physical damage or destruction where the clause, read as a whole, contemplates rebuilding or reinstatement.

A court will not imply a broader rent suspension term where the lease works coherently without it and expressly allocates the relevant risk. Nor can failure of basis in unjust enrichment be used to contradict a valid lease’s express basis for rent and its allocation of risk. There is no contractual “gap” in those circumstances.

The court heard together two appeals by cinema tenants from summary judgments for rent arrears incurred while Coronavirus restrictions prevented, or materially restricted, cinema operations.

In the Hengrove appeal, Master Dagnall gave summary judgment on 22 April 2021. The tenant relied on the lease’s rent-cesser clause, an alleged implied term, and failure of basis. In the Trocadero appeal, Robin Vos, sitting as a Deputy High Court Judge, gave summary judgment on 28 September 2021. The tenants relied on implied terms and failure of basis, including a proposed time-apportionment of rent.

The central question was whether statutory closure restrictions relieved the tenants of contractual liability for rent under these long commercial leases.

1. Both appeals were dismissed. Sir Julian Flaux C gave the court’s judgment, with which Snowden LJ and Sir Nicholas Patten agreed.

2. The Hengrove rent-cesser clause applied only where physical damage or destruction of the property by an insured risk rendered it unfit for occupation or use. Its references to the property being made fit again, and to rebuilding or reinstatement, confirmed that construction. The economic consequences of Coronavirus restrictions were suffered by the tenant, not damage to the property. The landlord’s loss-of-rent insurance did not alter the clause’s meaning or protect the tenant from a continuing contractual obligation to pay rent.

3. None of the proposed implied terms met either the business-efficacy or obviousness test. The leases remained commercially and practically coherent without a wider rent suspension. Their physical-damage cesser clauses reflected an agreed allocation of risk, rather than a gap to be filled. The proposed Trocadero term based on anticipated cinema attendance was also incapable of workable application. The terms were inconsistent with the express contractual allocation of risk.

4. The failure-of-basis defence also failed. Applying the contractual analysis in Avonwick, unjust enrichment cannot override a valid and subsisting contractual regime or its allocation of risk. The consideration for rent was the demise for a 35-year term and exclusive possession. The alleged additional basis—that the premises could lawfully be used as cinemas—contradicted the leases’ cesser clauses, rent covenants and, in the Trocadero lease, the express absence of any warranty of lawful permitted use. There was consequently no space for unjust enrichment to operate.

5. As there was no failure of basis, the court did not decide whether any such failure would have been total or whether rent could be apportioned by time.

• Court of Appeal (Civil Division) — dismissed both tenants’ appeals: [2022] EWCA Civ 1021.
• High Court, Queen’s Bench Division — Master Dagnall granted summary judgment for the Hengrove landlord on 22 April 2021.
• High Court, Chancery Division — Robin Vos, sitting as a Deputy High Court Judge, granted summary judgment for the Trocadero landlord on 28 September 2021.