Recent Cases Illustrate the Fortunes of Landlords and Tenants in Commercial Property Law
As landlords are all too aware, the government has introduced measures that prevent Landlords from using forfeiture and winding up proceedings against their tenants for non-payment of rent.
Despite this, there is nothing usually preventing a landlord from suing their tenant for rent arrears and any other sums due under the lease. This is often accompanied by an application for summary judgment because the tenant has no valid defence.
The two cases below are in relation to landlords’ claims for rent arrears and summary judgment.
In Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd  EWHC 863 (Ch)(the TFS case) the court granted a landlord summary judgment in their claim against the tenant for substantial rent arrears.
In the case of Riverside CREM 3 Ltd v Virgin Active Health Clubs Ltd  EWHC 746 (the Virgin Active case), the court granted a stay of proceedings as the defendant, who also owed the claimant landlord substantial rent arrears was at a well advanced stage of a company restructuring plan.
The Virgin Active case
Virgin Active was part of the Virgin Active group of companies (VAG). It operates health clubs that had to close during the Covid 19 lockdown implemented by the government. During this period substantial rent arrears arose.
Virgin Active and other companies in VAG had been working on a restructuring plan that was at an advanced stage under section 26A of the Companies Act 2006 (CA 2006). Those keen readers that follow Prettys’ regular updates will know that section 26A was introduced by The Corporate Insolvency and Governance Act 2020 (the Act) which came into effect last year. The Act introduced far reaching changes and introduced a debt moratorium and a flexible restructuring plan. However, the moratorium on pursuing debts does not apply during the initial restructuring plan phase. Previously, during this delicate period, in similar circumstances involving section 26 of the CA 2006, the Court had stayed any proceedings for debt to protect the scheme of arrangement and allow it to be furthered.
The case of Sea Assets Ltd v PT Garuda Indonesia  6 WLUK 583 allowed a stay because the restructuring plans were at a well advanced stage and the court considered that they had a reasonable prospect of success.
In the case of Bluecrest Mercantile BV v Vietnam Shipbuilding Group  EWHC 1146 (Comm) a stay was granted on the basis that a scheme of arrangement amounted to special circumstances calling for a stay. Moreover, the Court concluded that the arrangements were at an advanced stage, had prospects of success, and to not grant it would jeopardise the interests of the majority of the class of creditors and reward only a few (the claimant).
Virgin Active argued that the situation in these two cases under section 26 of the CA 2006 was the same as their situation under section 26A. The Court agreed and granted the stay. The court made its decision after considering the following:
- the restructuring plan was not aspirational. A lot of work had gone into it and it had support from the secured creditors. Dates to see it through to sanction had been booked;
- if a stay was refused it would disrupt the restructuring process. Riverside would be entitled to payment in full rather than as a Class B Landlord under the restructuring plan;
- under the restructuring plan, Riverside would receive 120% of the sum it was estimated to recover in an administration scenario;
- the sanction hearing was 6 weeks away and the stay was proposed for 7 weeks, so relatively short;
- regard should be had to the principle that creditors were considered as a class and should be treated equally and that where the conditions of section 26 A were met, the process should be allowed to proceed;
- creditors should be considered as a whole. So to reward Riverside by allowing proceedings to continue was probably to the detriment of creditors as a whole if the restructuring was not allowed to proceed.
The TFS case
In this case, decided only 6 days after Virgin Active, the Landlord had applied for summary judgment on a debt claim for rent arrears against its tenant and succeeded.
This case confirms that pursuing a tenant for rent arrears as a debt and seeking summary judgment because the tenant has no defence, will be upheld by the court in the absence of any special circumstances.
Clearly, the key differences between the facts of the 2 cases, are that in Virgin Active, restructuring plans were well advanced. This may mean that where such plans are well established, the landlord is best to go along with them. Similarly, for tenants, they may wish to look at the provisions of the Act and restructure.
The court will grant further protections to support restructuring plans that are at an advanced stage and have reasonable prospects of succeeding under Section 26A CA 2006. How frequent a situation such as this will occur, however, is unclear.
The TFS case clearly shows that claims against tenants for debts and summary judgment applications are still a very real threat and that despite the government’s many protections, tenants are not entirely safe.
Should you wish to discuss your situation, be you a landlord or a tenant, please do not hesitate to contact the writer, Graham Mead on 01473 298234 or by email at email@example.com.