High Court considers implied terms and “failure of basis” in context of COVID-19 pandemic

There have been only a limited number of commercial cases arising solely as a result of the COVID-19 pandemic and so judicial guidance on the legal principles applicable to the disruption of commercial contracts in this specific context is sparse.

However, in a recent decision, the High Court has granted summary judgment to the landlord of commercial premises in a claim for arrears of rent and service charges due since the outbreak of the pandemic: London Trocadero (2015) LP v Picturehouse Cinemas Ltd [2021] EWHC 2591 (Ch).

Although set in a non-financial context, the decision will be of interest to financial institutions as an example of the court’s approach to applying the relevant legal principles in the context of COVID-19. In contrast to previous cases where claims to be excused from contractual performance have been based primarily on force majeure or frustration (see for example here, here and here), the tenant’s arguments were based on alleged implied terms and a total failure of consideration (or “failure of basis” as it is now called).

In the present case, the court found that there was no real prospect of the tenants establishing that terms should be implied to the effect that the payment obligations under the leases were suspended during the periods that it was unlawful to operate the premises due to COVID-19 restrictions. Nor was there any real prospect of establishing that there had, in the circumstances, been a failure of basis. As such, the tenants could not avoid paying rent for the affected period.

For a more detailed discussion of the decision, please see our litigation blog post.

Note: In January 2022, the defendant applied for permission to appeal to the Court of Appeal, which was allowed. The Court of Appeal hearing is currently due to take place on 21 June 2022.