Commercial Tenant’s Defence of ‘Partial Frustration’ during COVID Rejected by High Court

PUBLISHED: 23rd November 2022

A commercial tenant of a retail premises, in arrears, was unsuccessful in its claim that the lease was partially frustrated due to the restrictions on trading imposed as a response to the COVID-19 pandemic.

The High Court held that partial frustration does not exist in Irish law and that the landlord is entitled to recover all sums due for arrears of rent and insurance premiums.

Treacy v Lee James Menswear Limited and O’Regan [2022] IEHC 600 

In this recent judgment, the High Court rejected a defence of partial frustration of a commercial lease owing to the forced closure of the premises in response to  COVID-19. 

In defending the case, the tenant relied upon two provisions in the lease: 

1    “Not to engage in any activity in or on the demised premises which may result in: The landlord incurring liability or expense under any statutory provision”. 

2    “[N]ot to use the demised premises — for any illegal — purpose —”.

The tenant contended that these provisions in the lease prevented it from using the premises as a retail outlet during the COVID-19 restrictions, and that it was therefore relieved of the obligation to pay rent and other amounts under the lease during this period.  

Frustration

The tenant’s defence relied on frustration of contract.  The doctrine of frustration applies to circumstances where the law recognises that, without default of any party, that the performance of a contract in the manner envisaged by the parties has become impossible due to a supervening event that was not contemplated by the parties.  

The Court recognised that the tenant’s defence was one of ‘partial frustration’ as the tenant did not claim the lease was entirely frustrated – simply that its obligations to pay rent and other sums were temporarily frustrated.  In dismissing the tenant’s defence, the Court stated that partial frustration is not enforceable in Irish law – if the doctrine of frustration is successfully invoked, it will result in the relevant contract (or lease) being terminated.   The Court concluded that the landlord was entitled to recover the arrears from the tenant. 

Comment

This decision follows a similar line of reasoning to a number of other judgments relating to commercial tenancy disputes arising from non-payment of rent during COVID-19 restrictions.  It is also a reminder that the provisions of a commercial lease cannot be ‘partially frustrated’ to avoid payment of rent arrears while the lease itself is valid.

For more information, contact Patrick Ryan or Emer Wilkie.