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Time gentlemen, please!  Pub lease forfeiture and insolvency

Phoenix GRP Limited v Spirit Pub Company (Leased) Limited Guildford County Court 

Joe Ollech, instructed by Emma Cork of TLT LLP, appeared for the successful landlord in defending an application for relief from forfeiture in respect of a lease of pub premises in Leatherhead. The case concerns a rare outing for 146(9) of the Law of Property Act 1925, and its strict application.  S.146(9) provides that:

(9) This section does not apply to a condition for forfeiture on the bankruptcy of the lessee or on taking in execution of the lessee's interest if contained in a lease of—

(a) Agricultural or pastoral land;

(b) Mines or minerals;

(c) A house used or intended to be used as a public-house or beershop..

Phoenix GRP Ltd had a tenancy of the Duke’s Head, on the High Street in Leatherhead. Some years prior to these proceedings it had entered into a CVA, which Spirit Pub Co, amongst others, was bound by.  In the months leading up to these proceedings the CVA supervisor had initiated winding up proceedings against the tenant company for falling behind with its payments.  Separately, the tenant and landlord had entered into, but not completed, an agreement whereby the tenant would surrender the lease in return for a reverse premium of £100,000. In the event, a winding up order was made against the tenant company before the agreement to surrender was completed.  The landlord forfeited the lease by peaceable re-entry, in reliance on a clause in the lease which provided that “We can end this agreement if…you are a company and you have gone into liquidation…” and without serving a s.146 notice. 

Thereafter Phoenix GRP Ltd applied within the insolvency proceedings for an order rescinding the winding up order, which was granted, followed by a further hearing of the petition where it was dismissed.  Phoenix GRP Ltd then issued proceedings claiming wrongful forfeiture or relief from forfeiture on the basis that the rescission of the winding up order and dismissal of the petition meant that it had never been in liquidation, that there had been a failure to serve a s.146 notice, and/or that it ought be granted relief.  If successful the result would have been that the lease was back on foot and it could proceed with the surrender at the agreed price.

Spirit Pub Company (Leased) Ltd argued that the effect of the winding up order being set aside and the petition being dismissed could not be, and was not, retrospective. The orders of the court in those proceedings had been properly made at the time, even if it transpired that at a subsequent hearing the court exercised its discretion to set aside orders that had previously been made.  R.12.59 of the Insolvency Rules 2016, which sets out the court’s power to rescind winding up orders, says nothing about retrospective effect, and there is no basis for implying such meaning into the rule or to s.146(9). A contrast could be found with s.1032 of the Companies Act 2006 which expressly states that the effect of an order for restoration of a dissolved company to register is that it is deemed to have continued in existence as if it had never been struck off. 

Ruling in the landlord’s favour the judge held that the proper application of the statutory provisions in these circumstances meant that this has been and remained at all times a case of forfeiture of a “house used as a public house” based on bankruptcy, and s.146 LPA 1925 was disapplied.  It followed (a) that the forfeiture had been lawful, (b) that no s.146(1) notice had been required, and that (c) there was no jurisdiction to grant relief from forfeiture under s.146(2).  

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