COVID-19 not enough to suspend payment of rent under commercial lease

The recent Case of Oyster Shuckers Limited T/A KLAW (1) v Architecture Manufacture Support (EU) Limited and Wooi Heong Tan [2020] IEHC 527 tested the argument of whether COVID-19 can be seen as a frustrating event allowing for the suspension of rent under the commercial lease.

Background

The plaintiff was seeking to secure an interlocutory injunction against the Landlord to prevent its eviction from the premises at 5A Crown Alley, Temple Bar, Dublin 2, (the “Premises”), commonly known by its trading name of ‘Klaw’.  The plaintiff argued that damages were not an adequate remedy and sought injunctive relief.

The plaintiff had been successful in seeking an interim injunction although it was conceded by the sides at the interlocutory stage that this was granted as a result of Section 5(7) of the Emergency Measures in the Public Interest (COVID-19) Act, 2020 (“the 2020 Act”), which provided that all proposed evictions in all tenancies in the State were prohibited during the operation of the 2020 Act.  By the time the case was heard at interlocutory stage the Residential and Tenancies and Valuation Act 2020 removed section 5(7) of the 2020 Act clearing up the ambiguity brought about by the section 5(7) of the 2020 Act.  The matter therefore had to be decided according to the usual principles governing an interlocutory application.

The Legal Arguments

A central issue of the case was whether or not a binding lease was in place between the parties.  The plaintiff argued a lease came into being on 19 November 2018 and sought to argue that they could rely on the clause in the Lease allowing for the non-payment of rent in circumstances where the premises or where any part of the premises becomes destroyed or damaged so as to become unfit for occupation.  In such circumstances the rent payable or a fair proportion shall be suspended.  It was submitted by the plaintiff that there was a serious issue to be tried as to whether the plaintiff was entitled to regard rent as having been suspended under the terms of the lease by reason of it not being in a position to trade as a result of COVID-19.  While COVID-19 was not a defined term under the “Insured Risks” it was argued that this could be implied under the ‘officious bystander test’.  The plaintiff also argued the doctrine of frustration allowed for the temporary excuse of a particular contractual obligation without frustrating the contract as whole.

The defendant argued that the Tenant was overholding under an old lease and argued that a new lease was not in place between the parties.  It also highlighted that the plaintiff had not operated from the Demised Premises since March 2020 and had no plans to do so until at least 2021 at the earliest.  No rent had been paid by the plaintiff since March 2020 and no viable option of payment of rent had been put forward by the plaintiff.  The defendant put particular emphasis on the non-payment of rent as being a breach of the most fundamental term of the lease and that there was therefore no support to the plaintiff’s argument for an injunction to prevent forfeiture in such circumstances of such a manifest breach.

The defendant also put particular emphasis on the fact that the plaintiff did not put forward the argument of forfeiture stating “…the plaintiff has studiously avoided seeking the only relief which might be available as the requirement to discharge its arrears of rent and interest is a necessary precondition to doing so…”

The Judgment

Mr Justice Mark Stanfey in his judgment noted that the fundamental dispute is as to whether the landlord and tenant relationship exists at all.  He commented on the unfortunate state of affairs that the tenant was in, brought about by COVID-19.  The judge however noted that no specific reasons were given to substantiate the plaintiff’s contention that it would be unconscionable to evict the Tenant in the midst of a “global pandemic”.  The judge commented that a valiant effort was put forward by counsel for the plaintiff in its interpretation of the “rent suspension” clause however the judge commented that the Demised Premises was not “destroyed or damaged” making it “unfit for occupation or use”.  He noted that to interpret the clause in the manner being proposed would do “violence” to the meaning of the actual words in the clause in the lease.  He rejected the argument of frustration noting the obligation to pay rent was a fundamental part of the contract and could only be set aside under the “rent suspension” clause.

In conclusion Justice Stanfey noted there was no stateable case made to allow for the non-payment of rent for the period in which the plaintiff had to close by reason of COVID-19.  The plaintiff had also not shown an irreparable harm would be done by not granting the injunction and he held that the balance of justice required the refusal of the interlocutory relief being sought.  He noted the Tenant had not paid rent for 6 months and not paid full rent under a lease which it argued was in place for 2 years.  The defendant was being asked to subsidise the future trading prospect of the plaintiff while being deprived of their own opportunity to attract a new tenant.

Conclusion

While ultimately refusing the injunctive relief sought, the judge did note that the defendant’s conduct was in marked contrast to other landlords in the Temple Bar area who had worked with their tenants towards postponement of their rent.  Landlords should recognise the value of the relationship they have with their tenant and both parties should work together to get through this current economic crisis.  Tenants should continue to pay their rent under the Lease where possible or otherwise engage with their landlord and agree a solution that is viable for both parties which can then be drawn up by way of a Side Letter or a Deed of Variation.  The Department of Business, Enterprise and Innovation (“DBEI”) has released a voluntary code (the “Code”) as a measure aimed at assisting Landlords and Tenants to agreeing a viable solution that would see them through COVID-19.  Please click here to read our article on the Code.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail, please feel free to contact Siobhán Whelan in our Real Estate Department (swhelan@bhsm.ie / +353 (0)1 440 8339) or Mark Homan in our Litigation & Dispute Resolution Department (mhoman@bhsm.ie / +353 (0)1 440 8304).

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.

Insight

Latest News