Commercial Property: Rent suspension during pandemic lockdown & who bears the risk (Poundland Ltd v Toplain Ltd – 2021)

In further litigation arising out of the pandemic closure of retail units, this County Court decision provides some indication as to how the courts may address the question of whether clauses should be contained in leases to deal with a reduction in, or suspension of, rent during government-enforced lockdowns.

The background

In Poundland Ltd v Toplain Ltd [2021], the tenant occupied retail premises and the proceedings arose during its lease renewal negotiations. The parties disputed a schedule of lease terms, which included requirements by the tenant of:

1. A 50% rent and service charge reduction during any future government coronavirus lockdowns, together with suspension of obligation to comply with the landlord’s insurer requirements and suspension of the landlord’s right to forfeit during any lockdowns;
2. Revision of a number of clauses to better suit the tenant’s business model, such as rent payable in arrears rather than in advance; and
3. Revision of some terms to ‘modernise’ the lease, including a new provision referring to the Domestic Minimum Energy Efficiency Standard Regulations 2018 (“MEES”).

The decision

The County Court judge referred to O’May v City of London Real Property Co Ltd [1983] in his decision, concluding that the rent suspension provision sought by the tenant should not be incorporated into the lease.

O’May dealt with the transfer of risk. The court did not include a new term requested by the landlord to levy a service charge on the tenant in respect of works the landlord had previously paid for, as the effect of this transferred a landlord risk to the tenant, despite the tenant’s shorter interest. In the present case, the judge rejected the tenant’s request for a rent suspension during pandemic closure, as the risk of lockdown closures fell on the tenant, rather than the landlord.

On point (2) above, the judge again found that cash flow was the tenant’s business risk and again the tenant failed on this point. On point (3), the judge did agree to introduce new terms relating to MEES.

Advice and action for landlords

Although this case is not binding, having been decided in the County Court thus far, the decision does give some insight into the court’s approach to dealing with the assumption of risk in the case of commercial lockdown closures.

The tenant needed to present sufficient evidence to justify the new terms in this case, and the requirement for new pandemic clauses or clauses to fit with a tenant’s business model were not reason enough to amend the lease. The tenant must bear the risk in each of these circumstances.