knowledge 11 November 2020 |

COVID-19: Commercial Tenant Fails to Halt Landlord Repossession

Background

In Oysters Shuckers Ltd v Architecture Manufacture Support (EU) Ltd,¹ there was a dispute between a landlord and tenant as to whether a new lease had been agreed between them some two years earlier.  Pending the outcome of the proceedings, the tenant sought an interlocutory injunction to prevent the landlord taking possession of the restaurant premises from it as an overholding tenant or otherwise interfering with the tenant’s use and quiet enjoyment of the property.  However, significantly, the tenant had not paid rent since March 2020 as a result, it claimed, of the impact of COVID-19 on its business and it had never paid the increased amount of rent due under the disputed new lease.

The tenant had been initially successful in preventing the landlord taking immediate possession.  It obtained an ex parte short term interim injunction from the High Court largely on the basis that under section 5(7) of the Emergency Measures in the Public Interest (Covid-19) Act 2020 “all proposed evictions in all tenancies in the State” were prohibited during the operation of that Act.  Arguments from the landlord were not heard at that application.  However, by the time that the interlocutory injunction came on for hearing, the “emergency period” during which that Act was in operation was no longer in force and did not influence the court’s decision which was decided according to the usual principles governing an interlocutory application, in particular the framework proposed in the recent Supreme Court judgment in Merck Sharpe & Dohme v Clonmel Healthcare Ltd.²

Decision of the court

Applying those principles and having reviewed the relevant case law, in summary, Sanfey J was satisfied that:

• There was a fair question to be tried as to whether the disputed new lease was valid, binding and effective;

• The existence of rent arrears did not automatically preclude a plaintiff from obtaining the type of injunction sought here;

• The failure to discharge rent in the past and an admitted inability to discharge rent in the future were matters which weighed heavily when assessing the balance of convenience or justice;

• Having examined its terms, there was no stateable basis upon which the court could hold that rent was not payable under the disputed lease for periods in which the plaintiff had to close the premises because of the Covid-19 pandemic;

• Following on from that point, there was therefore no basis upon which any amount towards arrears or towards (part payment only) of any future rent should be paid into escrow, rather than directly to the defendant.  The court also noted that there were no proposals as to how any rent shortfall would be met;

• The plaintiff had not persuaded the court that it would suffer irreparable harm if an injunction was refused, or that an award of damages would not fully compensate it.  It was not evident how any goodwill of the business was dependent on the plaintiff remaining in the premises or whether the premises was an integral and essential part of the business or not;

• There was no substance to the undertaking as to damages offered by the plaintiff who could not currently pay the full rent, was unlikely to resume trading until 2021 and had not produced any other evidence of assets to satisfy this undertaking.

The court concluded that the balance of justice required that the plaintiff’s application be refused. 

Specific arguments canvassed around the impact of COVID-19

In the course of his judgment, while expressing sympathy for the plaintiff, Sanfey J also rejected its submission that it would be “unconscionable” if the defendant “sought to evict the plaintiff in the midst of a global pandemic”.  The plaintiff had given no specific reasons for this contention, nor was it substantiated by any legal principle or precedent.

He also rejected the plaintiff’s submission that a rent suspension clause in the disputed lease entitled the plaintiff to regard the rent as being suspended when it could not trade due to the pandemic.  Quoting from the clause, Sanfey J said that the premises could not be regarded as “destroyed or damaged”; it was not “unfit for occupation or use”.  On the contrary, the plaintiff’s injunction application was advanced on the basis that the premises was fit for occupation and use.  Also, none of the insured risks applied to the plaintiff’s situation.  He concluded that to interpret the clause as the plaintiff contended would do violence to the meaning of the actual words set out in the clause.

The court also rejected the plaintiff’s argument that the obligation to pay rent under the lease had been “temporarily suspended and/or partially frustrated”.  Sanfey J pointed out that in Ringsend Property Ltd v Donatex Ltd,³ Kelly J trenchantly rejected a defence of “partial frustration”.  Sanfey J agreed saying that the obligation to pay rent was an integral and indeed fundamental part of the contract.  The obligation could be suspended in certain circumstances set out in the lease but these did not apply here.  Accordingly, the plaintiff could not argue that the rent obligation was frustrated, while arguing that the lease itself remained valid. 

There was also no basis on which the court could imply such a term into the lease, whether pursuant to the “officious bystander test” or otherwise.  Having contemplated and purportedly agreed the circumstances in which rent could be suspended, the plaintiff could not now ask the court to amend this list to include previously unforeseen circumstances.

Comment

This application provides an insight into the strains being placed on the landlord and tenant relationship as a result of the current pandemic.  In many cases, parties will come to an accommodation on the way forward.  However, Sanfey J neatly summarised the dilemma faced by the landlord in this case.

“The plaintiff wants to remain in the premise… [and] to make certain payments towards arrears and rent in the future…[but the] defendant would still be at a substantial loss for an uncertain period going forward.  The…defendant is in effect being asked to subsidise or underwrite the future trading prospects and prosperity of the plaintiff, which in the current circumstances can only be regarded as precarious.  In the meantime, the…defendant is deprived of the use of its premises and the opportunity to attract another tenant.”

Also contributed to by Conor Sheridan.