Talk About Frustrating – Property Litigation Lawyers Called Upon For Advice On Frustrated Contracts
It would be somewhat of an understatement to say that 2020 has been a challenging year for both landlords and tenants in the commercial property world!
As a contentious property litigation lawyer, I have been called upon to advise clients on ‘both sides of the fence’ on their rights and obligations under the terms of their leases. The obligation to pay rent, the available enforcement options regarding arrears have been recurring themes, as well as frustrated contracts.
Since March 2020, we have seen legislation brought in by the government restricting landlords’ remedies (including forfeiture and CRAR) as well as the ‘Code of Practice for commercial property relationships during the COVID-19 pandemic’. There have also been significant changes to insolvency procedures which impact upon the use of statutory demands in relation to corporate tenants.
Many tenants have (understandably from their perspective) sought to mitigate their liability for rent due to restrictions on their ability to trade from their premises. The issue for many landlords is, of course, that they suffer a corresponding impact on their rental income from frustrated contracts.
In the early days of the pandemic, a great deal of ‘bandwidth’ was taken up by whether tenants could argue that their leases have been frustrated. ‘Frustration’ is a specific legal doctrine whereby the parties can essentially walk away from a contract. There would have to be a supervening event which defeats the main purpose of the contract.
In a case in 2019, it was found that the UK’s departure from the European Union (Brexit) did not frustrate a lease and it appears that this is unlikely to occur in the majority of leases and landlord and tenant relationships.
However, an interesting report appeared on the internet earlier this month that indicates an alternative approach may be being tested in the courts.
It appears that Lillywhites (the sports retailer that forms part of the Frasers Group) is defending a multi-million pound claim by their landlord for unpaid rent and other sums on the basis that they are only due payable when the store in Piccadilly Circus “could be used in full for its intended purpose”. Further, they will not pay rent until “the level of trade reaches a level which the parties would have envisaged when they drew up the lease”.
This is an interesting argument, and it appears from the report that Lillywhites’ case is not that the lease is frustrated. The case law would seem to be against them but the sums involved must make it commercially attractive to ‘test the water’ on this.
No doubt there will be further news on the frustrated contracts in due course, particularly given the parties involved. We will monitor developments with interest.
If you’re looking for more advice on frustrated contracts, you can contact GA Solicitors Partner and Property Litigation Lawyer, Jonathan Boutcha, via email: jonathan.bouchta@GAsolicitors.com or call 01752 203500.
Jonathan is a member of the Property Litigation Association, membership of which is only available to those who are “substantially engaged in property litigation or property mediation. Having worked in the law industry for over 20 years, Jonathan has vast experience in advising companies, charities, public bodies and more on resolving and avoiding disputes relating to land and property.