Frustration of Leases in the context of Covid-19

13 December 2021

In accordance with emergency legislation, which was introduced in Ireland in 2020, many Irish commercial tenants were required to temporarily shut their premises. It therefore came as no surprise that many tenants found themselves in difficulty when it came to complying with lease obligations – particularly payment of rent.

While many landlords and tenants successfully resolved disputes regarding rental arrears outside of court, one particular case of interest is the Commercial Court dispute between Foot Locker Retail Ireland Limited (“Foot Locker”) and Percy Nominees Limited (the “Landlord”) in respect of a store located on Grafton Street.

In September 2020, Foot Locker instituted proceedings against the Landlord claiming that the lease had been frustrated by the Covid-19 trading restrictions on non-essential retail businesses.

Frustration is a legal concept and where a contract (i.e. a lease) has become incapable of being performed, it is said to have been frustrated and is treated as being terminated. The parties remain liable for their obligations up to the date of frustration.

On 30 November 2021, judgment was handed down by Mr Justice Brian O’Moore.

Commercial Court Challenge

Initially Foot Locker maintained that the lease had been ‘entirely frustrated’ and that Foot Locker could not be required to discharge rent for a premises which could not be used for the purposes as set out in the lease. However, at hearing, Foot Locker changed tack and argued that there was only partial frustration of the lease and sought a declaration that it was entitled to not pay rent to the Landlord for the period during which they could not open to trade due to Covid-19 restrictions. Foot Locker pointed to the ‘keep open’ and ‘user’ clauses in the Lease with which it could not comply during that time. Foot Locker also argued that it was entitled to remain in the premises without paying rent for that particular period.

The court ultimately had two issues to consider – 1) is there such a thing as partial frustration of a lease? and 2) if there is, has Foot Locker established an entitlement to a declaration that the lease has been partially frustrated?

It was accepted by Foot Locker that there is no direct Irish authority supporting the concept of partial frustration. Foot Locker sought to distinguish the judgments in Ringsend Property Ltd V Donatex Ltd & Anor (2009) IEHC 568 and Oysters Shuckers Limited V Architecture Manufacture Support (EU) Limited 2020 IEHC 527 on the particular facts i.e. the keep open clause and the user clause.

Footlocker also relied on English authorities to say that, in principle, there was no reason why a lease could not be subject to partial frustration, However, the court found that the English authorities did not assist Foot Locker.

Furthermore, Foot Locker argued that if a lease could be frustrated that, in principle, a lease could be partially frustrated.

The position taken by the Landlord was much more straightforward – that partial frustration was unknown in law or was known not to exist.

Determination

The court noted that the case made by Foot Locker was that it is free from its obligation to pay rent, yet it was entitled to remain in occupation of the premises on Grafton Street. In noting that frustration requires a contract to be terminated, the court described Foot Locker’s submission as being at odds with the doctrine of frustration itself and as being a ‘violence to the fundamentals of the doctrine’. O’Moore J. noted that Foot Locker was unable to point to any legal authority to support this submission.

Having considered all the submissions made by the parties, the court confirmed that the concept of partial frustration does not exist in Irish Law and indicated that, if it were to be introduced, it would require legislation rather than development through case law.

For the avoidance of doubt, O’Moore J. also stated that even if the court accepted partial frustration as a concept, he would not have found this contract to have been partially frustrated, in any event.

Foot Locker’s claim was dismissed and judgment in respect of non-payment of rent was awarded on the basis of a counterclaim by the Landlord.

Conclusion

This decision follows similar decisions in England and Wales and demonstrates the difficulties tenants will have in successfully arguing frustration of a lease in the context of Covid-19. It will be regarded as a precedent and will no doubt be closely reviewed by the many commercial landlords and tenants with cases pending before the courts in respect of Covid-19 related non-payment of rent. This case will also have wider application in contractual disputes generally as it confirms that there is no doctrine of partial frustration under Irish law.

For further information please contact Caoilfhionn Ní Chuanacháin, Partner, Niamh O’Brien (NOBrien@EFC.ie), Solicitor or another member of the Dispute Resolution department at Eugene F Collins.

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