July 2022

In this series of articles, we aim to highlight 3 of the most interesting cases in our field decided in the past month. This month: both an arbitration and a Court of Appeal case relating to commercial covid-19 rent arrears, and the Court of Appeal on the scope of solicitors’ duties when accepting responsibility to advise on development issues.

Signet Trading Limited v (1) Fprop Offices (Nominee) 4 Limited (2) Fprop Offices (Nominee) 5 Limited

Summary

?A reference to arbitration under the Commercial Rent (Coronavirus) Act 2022 was dismissed on a preliminary issue, because the premises in question had not been subject to a closure requirement, so there was no ‘protected rent debt’ within the meaning of s.3 of the Act.

The applicant’s business was selling jewellery from retail shops. The premises which were the subject of the reference were the applicant’s registered offices. During the lockdown period, the applicant’s retail shops had been closed, the majority of the staff working in the offices had been placed on furlough, and the remaining staff had primarily worked from home, other than a security guard and a post room worker.

The tenant argued that the business carried on by it from the office premises had been subject to a closure requirement within the meaning of s.4(1) of the Act, on the basis that the business carried on at the office premises was to support its retail shops, which had been required to close. The arbitrator dismissed that argument, holding that the Act was concerned with the business actually carried on from the premises themselves. The tenant had not been selling goods from a shop in the office premises, and accordingly the office premises had not been subject to a closure requirement.

Why it’s important

This was the first award under the Commercial Rent (Arbitration) Act 2022, which is designed to provide a scheme to resolve disputes between landlords and tenants about unpaid rents arising from the impact of the pandemic. This decision illustrates that while tenants may be able to obtain relief in respect of rent for many premises, the Act is not a panacea for all impacts of the pandemic.

Two further decisions have been published this month by Falcon Chambers Arbitration, dealing with the impact of liquidation of the tenant going into liquidation on an arbitration under the Act and the requirements for formal proposals under the Act and the circumstances in which an amendment to a formal proposal can be made.

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Spire Property Development LLP v Withers LLP [2022] EWCA Civ 970

Summary

The Court of Appeal allowed an appeal against a finding that a solicitors’ firm who failed to advise on the remedies open to a client for removal of high voltage cables beneath a development site had committed a breach of duty. It held that in answering the client’s request for information about what searches had been carried out at the time of purchase, the solicitors had not assumed a duty to advise in respect of possible remedies for removal of the cables.

The claimant developers had retained the defendant solicitors in respect of a purchase of two development properties. High-voltage cables beneath the properties were not discovered during initial searches. When the presence of the cables came to light, the developers asked various questions of the solicitors. The solicitors’ responses to those questions did not refer to the possibility of removal of the cables at the electricity company’s expense if they were not able to produce a wayleave, nor to the possibility of compensation under the Electricity Act 1989.

At first instance, the judge found in favour of the developers, finding that the solicitors had accepted a wider duty to advise as to rights and remedies the developers may have against the owners of the cables (and that the solicitors were negligent for failing to discover the presence of the cables at the time of purchase).

On appeal, the solicitors argued that they had not been asked to advise about the remedies that might be available.?The developers argued that the failure to give any such advice, in the context of the advice that was given, amounted to advice that there was nothing to be done.?.

The Court of Appeal allowed the appeal, finding that, on a proper analysis of the correspondence, the solicitors had only been asked questions about why the cables had not been discovered previously, and not about how they could now be removed, and this limited the scope of duty assumed by the solicitors. ?

Why it’s important

Although the court stressed that this was an application of familiar legal principles to the particular facts, the judgment is of note for a number of reasons.

Firstly, it contains a salutary reminder to parties involved in the giving and receiving of informal advice to recognise the limits of such an exercise and to be clear about what responsibility they are accepting. The analysis of the emails in this case provides a useful illustration of how the court approaches that question.

Secondly, the judgment contains discussion of whether or not the principle that a solicitor is under a duty to advise on matters ‘reasonably incidental’ to the primary subject matter of their instructions applies in cases of acceptance of responsibility – although in this case, no finding needed to be made about that, as advice about remedies would not have been ‘reasonably incidental’ to the questions the solicitors were asked in any event. The judgment suggests that the sophistication of the developer clients, and the amount of work required to give this advice, were relevant factors.

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Bank of New York Mellon (International) Limited v Cine-UK Limited and Picture House Cinemas Limited v London Trocadero (2015) LLP [2022] EWCA Civ 1021

Summary

The Court of Appeal dismissed appeals against summary judgment entered in favour of landlords claiming unpaid rent from their tenants, who had not been able to operate their businesses from the premises due to coronavirus restrictions.

Each appeal was brought by a tenant of cinema premises. Across the various appeals, it was argued that the tenants were not liable for the rent because of a failure of basis; because of an implied term; and because of the rent cesser clause in the lease.

The Court of Appeal rejected the tenants’ arguments:

1.???None of the suggested implied terms passed either the business efficacy test or the obviousness test. The leases in question already made detailed provision for the allocation of risk between the parties, which worked perfectly well without a term being implied. Many of the implied terms suggested were an attempt to imply more extensive rent cesser clauses than were already provided for by the express terms of the leases.

2.???The ordinary restrictions on the application of the law of unjust enrichment applied; there could be no claim if it would conflict with the terms of a valid contract. There was no ‘gap’ in the detailed provisions of the leases where room could be found for such a claim.

3.???On a true construction of the relevant rent cesser clause, it was limited to physical damage to the premises.

Why it’s important

This case is a reaffirmation that there is no easy escape route from rental liability for tenants who were unable to trade during the lockdowns other than under the 2022 Act arbitration scheme. Although the terms of individual leases may differ, many are likely to contain similar types of provisions to those at issue in these appeals, in respect of which the landlords were wholly successful. Tenants may be better advised to try to come to an agreement with their landlords.

The Court of Appeal declined to comment on whether , in the event that there was a failure of basis for part of a period, rent could be apportioned, which it considered to be a point of some complexity which would be better dealt with in a case where it would not be obiter.

STEPHANIE TOZER Q.C

FERN SCHOFIELD