The compulsory closure of non-essential retail, hospitality and leisure sectors during the Covid-19 pandemic has, unsurprisingly, left businesses facing significant financial losses.

As the country begins to open-up again, it is perhaps to be expected that businesses are seeking some form of a safety net in the event of future Government imposed lockdowns. The recent County Court case of Poundland Ltd v Toplain Ltd gives an example how a tenant may seek to protect themselves financially and more importantly, how the courts may respond…

The case was heard at the County Court at Brentford on 2 July 2021. Poundland had exercised its right to request a new lease under the Landlord and Tenant Act 1954. Toplain Ltd, the landlord, did not oppose the grant of a new lease but court proceedings were issued to determine the terms of the renewal lease.

Poundland requested that the new lease included a ‘use prevention pandemic clause’ with the effect of reducing the rent and the service charge by 50% in the event of a lockdown requiring the retailer to close. Poundland argued that inclusion of such a clause would modernise the lease, reflecting the current pandemic.

Poundland sought to rely on the case of WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellshaft mbH which saw the Court allow the inclusion of a rent suspension clause in the event of any future lockdown periods preventing trading of non-essential retailers. In this case the clause limited the rent payable to 50% but the crucial difference was that the parties had already agreed to the clause being included; the only issue in dispute was what should actually trigger the rent suspension.

Toplain Ltd opposed for the inclusion of the pandemic clause on the basis that it would materially change the parties’ relationship and there was no market precedent for such a clause.

District Judge Jenkins declined to include the clause, following the guidance given in O’May v City of London Real Property Co Ltd which set out that any departure from the terms of the current lease must be fair and reasonable in all the circumstances. He concluded that to include the pandemic clause would be ‘sharing the risk in circumstances over which [the landlord] would have no control whilst [the tenant] may have some by reference to reliefs or schemes that might be available to them by the government.’

Poundland also proposed that the use prevention clause suspend the need to comply with a number of other obligations within the lease and suspended Toplain’s right to forfeit. The court declined to include such terms on the basis that inclusion would unfairly force the landlord to carry some of the tenant’s risk.

The court’s decision in this case indicates that whilst the pandemic is very much still an issue, the court is likely to have mind to the bigger picture including the provisions of the current lease and the financial support available for tenants but not landlords.

The comparisons drawn between the Poundland case and the WH Smith case also highlight the importance of making every effort to agree terms before an application to the court is made, or in the alternative, heard; the court is unlikely to refuse inclusion of a clause when it has been agreed by the parties but has full discretion when the parties are completely opposed.

Key contact: Jessica Dickinson | jld@gosschalks.co.uk | Tel: 01482 324252