Keep Open? A Closed Case in English Law
|
Shopping centres rely on anchor stores, such as large supermarkets and department stores, to keep open for the duration of their tenancy. Anchor stores attract a wide range of customers. This helps smaller stores to trade, and more importantly, to pay their rent. It is therefore not surprising that a landlord of a shopping centre would insert a ‘keep open covenant’ into a commercial lease to maintain the value of the centre and to ensure payment of rent from neighbouring retailers.
|
The House of Lords has stated, however, that it will not grant the equitable remedy of specific performance if a tenant ceases to trade, and shall, instead, assess common law damages in those circumstances. The decision in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd, confirmed this rule after an earlier Court of Appeal judgment granted specific performance, and reminded the Court of the reasons why it is undesirable to force a business to proceed, even if the tenant is in breach of covenant:
- The order would require close supervision, as carrying on a business does not achieve one final result. This could result in constant court applications.
- Finding the tenant in contempt would be damaging to the tenant and would place the landlord in a strong bargaining position.
- Loss to the tenant could be greater than loss to the landlord.
Although the ruling came as a relief to tenants of commercial premises, commentators have criticised the settled practice as leaving the landlord potentially under-compensated, even if damages have been awarded generously in like cases.
It is clear that the English courts will not order a tenant to continue business for the purposes of a keep open covenant unless ‘exceptional circumstances’, such as short-term leases, gross breach of personal faith or threat of non-performance as blackmail, dictate otherwise.
For advice on any property matter, please contact Richard Gordon (rkg@silvermansherliker.co.uk) or Maria Guida (meg@silvermansherliker.co.uk) or call +44 (0)20 7749 2700. |
