Landlords & CVA’s: effect of surrender
Company Voluntary Arrangements (CVA’s) have experienced more than their fair share of publicity over the last few months. They are increasingly being used to deal with retail insolvencies, usually in conjunction with an administration. Big name recent CVA’s include Stylo/Barratt and JJB. Stylo/Barratt’s failed after the body of landlord creditors rejected the proposals, while JJB’s succeeded. As CVA’s become more prevalent, so too does CVA case law.
One of the most recent decisions gives valuable guidance to landlords in dealing with their claims. In Threadneedle ([2009] EWHC 1151 (Ch)), the Court considered the effect of a deed of surrender on a claim for future liabilities under a lease.
Background
The case dealt with the CVA of the Cotswold Company Limited. The company’s CVA was approved at a meeting of creditors on 15 January 2007.
The company had entered into a 15 year lease in 2003 with Threadneedle Pensions Limited. In June 2007 the Landlord submitted a claim of over £500,000 in the CVA, which included arrears of rent and service charges, a claim for rent up to the end of the term and a dilapidations claim.
In October 2007 the company entered into a deed of surrender, as requested by the Landlord, who wished to re-let the property. As a result of the surrender, the Supervisor of the CVA rejected the “future” element of the Landlord’s claim, and this decision was challenged by the Landlord.
The Supervisor’s Approach
The supervisor of the CVA took the view that the Landlord’s claim was valid up to the date of the deed of surrender. The supervisor was unwilling to admit a claim for future loss after that date, as he argued that as the date of the deed of surrender, the Company’s obligations under the lease were extinguished.
The Landlord’s Argument
The Landlord argued that the whole of the Landlord's claims were comprised in the CVA at the time of the surrender, and that the surrender had no effect on the Landlord's claims.
The decision
The Court in this case considered the terms of the CVA, the trading circumstances of the Company, and the terms of the surrender itself in reaching its decision.
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As the Company had vacated the leased premises and ceased trading, the Court took the view that the whole future liabilities under the lease were included within the CVA. The Court contrasted this with the position where a tenant company was trading from the premises while in a CVA, and opined that in those circumstances, the company would be paying ongoing rental, such that future liabilities would not be so included in a CVA.
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On the effect of the surrender, the Court disagreed with both the Supervisor and the Landlord’s arguments; the Supervisor’s view that the surrender extinguished all and any lease obligations, and the Landlord’s view that it had no effect on the Landlord’s claim, both went too far. Instead, the Court considered the terms of the surrender. It found that the wording “save in respect of the Landlord's right to claim within the CVA” adequately reserved the Landlord’s rights to claim within the CVA in respect of future liabilities. The recitals in the deed also made clear that the surrender was being completed to allow the landlord to re-let the property and mitigate its loss.
Conclusion
The Threadneedle case has provided some much-needed clarity into landlord’s claims in a CVA, particularly in relation to future and contingent claims. Careful consideration of what needs to be preserved should be given where a lease is assigned or surrendered.
For further information please contact: Fiona Carlin
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