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Covid-19 & Commercial Tenancies

    When business were forced to close in March 2019 as a result of Covid-19 restrictions, many commercial tenants simply stopped paying rent. A number of disputes relating to such tenants have now been decided by the Irish courts.

    Those decisions uniformly support the view that a tenant will be obliged to continue paying rent to the landlord even if forced to close by Covid-19 restrictions, unless the lease itself contains a specific provision allowing for suspension of rent in those circumstances.

    Oyster Shuckers

    In Oysters Shuckers Ltd T/A Klaw v Architecture Manufacture Support (EU) Ltd [2020] IEHC 527 there was a dispute about the tenancy of a restaurant premises in Temple Bar, Dublin. The tenant claimed that it was entitled to regard rent as having been suspended in circumstances where it was not in a position to trade due to the Covid-19 Pandemic. The tenant made three arguments.

    The first argument was that the lease made provision for such a scenario. The relevant lease provision provided:

    “If and whenever during the Term hereof the Demised Premises or any part of them or access to them are destroyed or damaged by any of the Insured Risks so that the Demised Premises or any part of them are unfit for occupation or use and provided that the insurance thereof has not been vitiated by the act, neglect, default or omission of the Tenant or any servant agent licensee or invitee of the Tenant or any person on the Demised Premises expressly or by implication with the Tenant’s authority, then the rent payable under this Lease or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended and cease to be payable according to the nature of the damage and of the extent of the damage sustained until the Demised Premises, the damaged part, or the access to the Demised Premises shall have been reinstated so that the Demised Premises or the damaged part are made fit for occupation or use or until the expiration of the Term whichever is the shorter and any dispute with reference to this proviso shall be referred to arbitration by a single arbitrator under the Arbitration Acts 1954-1980.”

    The first argument was rejected. The premises could not be regarded as “destroyed or damaged” and was not “unfit for occupation or use”.

    The second argument was that the lease contained an implied term that the tenant would be entitled to a rent suspension ex debito justitiae (as of right).

    The second argument was rejected. There was no basis for implying a term into the lease, as the lease already contained a clause dealing with the circumstances in which rent would be suspended.

    The final argument was that the doctrine of frustration would temporarily excuse performance of a particular contractual obligation in certain circumstances, without frustrating or discharging the contract as a whole.

    The final argument was rejected. There concept of ‘partial frustration’, if it exists in Irish law, only applies to obligations which are severable. The obligation to pay rent is not severable in this case.

    Foot Locker

    This case (Foot Locker Retail Ireland Ltd v Percy Nominees Ltd [2021] IEHC 749) related to a retail premises on Grafton Street. Again, the tenant was disputing its obligation to pay rent during the period it was forced to close due to Covid-19.

    Having regard to the decision in Oyster Shuckers, and sidestepping the issue of ‘partial frustration’, the tenant initially argued that the lease had been entirely frustrated by the Irish government’s decision to force non-essential retail stores to close.

    When the case came on for hearing, however, the tenant advanced an argument of ‘partial frustration’. The tenant’s case was that the doctrine of partial frustration allowed it to pay no rent, to remain in occupation of the premises to the exclusion of any alternative letting by the landlord, and to resume trading out of the premises (and paying rent) when and for as long as the Covid-19 rules permit.

    Unsurprisingly, the tenant lost. As the judge noted, the tenant was unable to point to any caselaw to support the ‘extraordinary’ argument. The caselaw was, in fact, ‘uniformly against the case made’ by the tenant.