SHB Realisations v Cribbs
Caroline Shea QC and Ciara Fairley appeared for the successful defendants in an important decision concerning relief from forfeiture in circumstances in which the tenant is and will remain unable to comply with a keep open covenant, which contains useful lessons for practitioners.
The case arose out of the insolvency of the former BHS (the first claimant), who owned a long lease of a unit in a major shopping centre owned by the defendants. The lease had been purchased in 1998 for a premium of over £7m at a peppercorn rent; at the date of the trial it still had 104 years left to run. The second claimant had taken a charge over the lease as security for a large loan which it had advanced to the struggling company shortly before its eventual collapse. BHS ceased trading from the unit shortly thereafter, in August 2016. The defendants served a section 146 notice citing (principally) the breach of the keep open covenant. The tenant (now in liquidation), and the mortgagee, both applied for relief for forfeiture – though they failed to specify the particular terms on which they sought relief.
At trial, they claimed that they wanted time in which to assign the lease for valuable consideration. This was notwithstanding the fact they had tried, and failed, to do so for almost 2.5 years prior to trial. A five day trial eventually took place at the end of January 2019 before HHJ Ralton, followed by written submissions. The Court heard extensive evidence from the parties’ respective letting experts about whether there was any market for the lease given its terms and the nature of modern retailing. It also heard expert valuation evidence concerning the value of the lease to the Claimants and the value to the defendants’ reversion should relief be refused. The Claimants claimed that the latter was in the region of £65million. They argued that such a massive windfall to the defendants meant that relief ought to be granted.
Judgment was handed down on 1 April 2019. The Claimants have been given a strictly limited period of time (until 28 June 2019) in which to complete an assignment, provided they pay specified sums in short order. The case confirms that a lease can be forfeited for breach of a keep open covenant and re-affirms the central importance of being able to remedy the breach. It also establishes that there will be limits to the time allowed to a tenant to use assignment of the lease as an indirect means of remedying persistent breaches of covenant, even where the forfeiture will result in a significant windfall to the landlord and will result in a major loss to a lender. It is also a useful reminder to those seeking conditional relief of the need to clearly set out the terms on which relief is sought. Caroline and Ciara were instructed by Hogan Lovells LLP.
A copy of the judgment can be found here
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