Real Estate Litigation team and Counsel lead City Surveyors to victory in two day trial
Another successful result for Real Estate Litigation, Mike Lewis and George Faulkner had victory in a two-day trial for a leading firm of City Surveyors against Spink (the international auction house) at Central London County Court. It was a most interesting case as to when an agent was the “effective cause” of a negotiated rent for a lease renewal.
Counsel on the case George Woodhead, Selborne Chambers stated:
“Mike and George managed the case superbly from pre-action letters to trial. They looked after our client’s interests throughout by giving astute advice and ultimately, ensuring that the necessary evidence was available and effectively presented at trial. A deserved result reflecting both our client’s hard work and Sherrards’ well-known litigation prowess.”
Mathew Bailey, Partner at Angerman Goddard Lloyd Surveyors:
“This was a fantastic result exceeding our expectations and fully justifying our decision to pursue the claim. Mike and his team provided expert advice throughout the process and George, our barrister, argued our case with the upmost skill. A great team and a great victory”
Mike Lewis, Partner:
“It was great to work with our long-standing client surveyors AGL and achieve such a fantastic result for them. The Judge accepted the significant levels of work that they had undertaken in assisting with lease negotiations and awarded the maximum remuneration. Working with Mathew Bailey at AGL was a pleasure. I have worked with Counsel George Woodhead on numerous cases and once again his support and input throughout the case was excellent and his performance at trial was outstanding.”
Esquires Coffee’s latest store opening
A huge congratulations to Esquires Coffee who have recently celebrated the opening of their newest store in Brackley.
Esquires Coffee is an ethical coffee chain with a community spirit, and have over 50 stores across the UK and Ireland.
Our team, led by Terry Fendt, assisted the Esquires team with their new commercial lease.
To find out more about Esquires, click here: https://esquirescoffee.co.uk/
Giggling squid open their 42nd restaurant
Partner Stephanie Kierans helped Giggling Squid open their 42nd restaurant, situated right in the centre of Welwyn Garden City.
Giggling Squid is thai food with personality and a firm favourite for Team Sherrards.
Founded by husband and wife Pranee and Andrew Laurillard, Giggling Squid opened its first restaurant in 2002 in Brighton, but despite the recent difficult period for all in the hospitality industry, the restaurant chain continues to push ahead with their expansion plans opening beautiful restaurants all over the UK.
Seven Dials welcomes WatchHouse Coffee
Charles Hodder, partner in the Commercial property team worked alongside the London Corporate and Commercial team to assist WatchHouse with the opening their ninth specialist coffee shop which boasts state of the art coffee technology including a Slayer Steam LPx and full brunch service seven days a week.
Sherrards are delighted to continue to support Watchhouse as their vision continues to grow.
You can read more about WatchHouse by clicking here.
Sherrards retail team work with client Evapo expand and explore new business ventures
During the course of the last calendar year Stephanie and the team have advised Evapo on the renewal of three leases; the strategic re-gearing of two further leases and the acquisition of three new units. This is typical of the type of work the commercial property team carry out for a number or retail clients.
The team are also now working with the owners of the company in connection with a new business venture and we have concluded the first, of what we hope will be many, acquisitions of premises for the new concept.
Jamaica Blue opens new coffee shop and café at Kings Walk Gloucester
Jamaica Blue offers coffee made with beans from the Jamaican Blue Mountains along with a contemporary menu featuring classic dishes with a twist using the fresh locally sourced ingredients as well as a range of vegan and vegetarian options, and not forgetting the café’s famous big brekkie!
The store opening came just in time for the festive period for shoppers to enjoy.
To find out more, please contact Terry Fendt.
Landlords or Retailers? Nobody’s a winner. Mike Lewis in ‘The Retailer’.
It’s no surprise the COVID-19 pandemic has had a significant impact on retailers and the sector as a whole. As many retailers were forced to close during both lockdowns, they have been unable to keep up with their rental payments, and as customers continue to self-isolate and stay at home footfall has been significantly lower.
On the flip side, landlords have struggled too with some not receiving payments from tenants, and the loss of protection following the implementation of the Coronavirus Act 2020 (the CA 2020) means they are unable to rely on contractual rights to forfeit commercial leases by peaceable entry, or by issuing court proceedings.
Click here for the full article in The Retailer (page 42) for an overview of the changes applied to the law due to Covid-19.
To find out more, please speak to Mike Lewis.
The Coronavirus Act 2020- The Cat and mouse for Retailers and Rent Payments
The Coronavirus Act 2020 came into force on 26 March 2020 to provide protection to many aspects of society. One such group are retail tenants on the High Street . One of the key features of the Coronavirus Act 2020 (“the Act”) legislation, in relation to landlords and tenants are a moratorium on wind ups, bailiffs and forfeiture. As a recap, forfeiture is when a landlord takes back possession of the premises. Provided there is a forfeiture provision in the lease, a landlord does not need a court order and can simply change the locks.
The Coronavirus Act 2020 provides a moratorium on forfeiture of commercial leases for non-payment of rent. Rent is defined to include any amount payable under the lease. Thus, this applies to all payments required to be made by a tenant including service charge, insurance payments, utilities etc.
The forfeiture moratorium applies as from 26 March 2020 and, after a series of extensions, has now been extended until 25 March 2022, or such later date as may be specified. This means that, whilst the moratorium is in place, a landlord will not be able to evict a tenant for non-payment of rent. Many commentators have shown surprise at the length of this extension and no doubt landlords are dismayed.
A landlord also has lost other recovery methods such as sending in the bailiffs to seize goods to the value of the debt. The Commercial Rent Arrears Recovery (CRAR) can only be used where tenants owe at least 544 days’ principal rent.
A landlord continues to not have the option of threatening Insolvency. There will be an additional three month extension (from 30 June 2021 until 30 September 2021) on the blanket prohibition on statutory demands and the restriction on winding up petitions based on a company’s inability to pay its debts (unless the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company). Arguing that COVID-19 has not had a financial impact on your tenants finances is not an attractive or straightforward argument for landlords.
The inability to forfeit, send bailiffs in, or commence the insolvency process portrays a picture of tenants being in the driving seat and landlords being in an extremely weak and vulnerable position. However, landlords do have one weapon in their armoury.
A less known fact is that there is not protecton in place from stopping a landlord simply suing the tenant for rental arrears.
Recent Westfield Case
The courts have been prepared to follow this principle as reinforced by a case brought by Westfield against a tenant earlier in the year.
Many Retailers will be concerned after the High Court ordered a tenant to pay Westfield £160,000 in unpaid rent and service charges that accrued during the pandemic. The retailer had not paid any rent since April 2020. Westfield sought payment for rent amounting to £166,884 and interest at the contractual rate.
The High Court granted Summary Judgment in its claim against the retail tenant without the need for a full trial; signalling in no uncertain terms the Court’s approach and that it is prepared to enforce the terms of leases. The Code of Practice in place for landlords and tenants to settle the position regarding rental payments was deemed to be merely guidance.
Helen Dickinson, CEO at the BRC, said: “This case highlights the weakness of the Code of Practice in that it doesn’t change the legal liabilities of the tenant with regards to rent. Thousands of retailers were legally forced to close by Government restrictions during the pandemic, and thus had little or no income with which to pay rents. While the rent enforcement moratorium has been welcome, it has left the County Court Judgment loophole open that landlords can exploit. The Government must tackle the issue of rent arrears in a way that is equitable to all parties, and doesn’t ignore the loss of trade to shops who have been closed for most of the last 12 months. Unless a more imaginative approach is found, many otherwise viable businesses will be forced into administration, closing shops, costing jobs, and jeopardising future tax revenue for the Chancellor.”
What next after the Moratorium?
The government has made clear, and indeed the recent case referred to above that, tenants cannot view this “break” as an indefinite silver bullet.
The extension to the moratorium on commercial evictions is to allow time for negotiations to take place but the government has also confirmed that where parties cannot agree a mutually beneficial outcome in respect of COVID-19 arrears, new legislation will step in and compel the parties to a binding arbitration process. There is little further information about this and whether arbitrators can provide for payment plans/variations to leases.
Landlords and tenants will be watching carefully what proposals are set out, in the meantime, there will inevitably be further cases where landlords issue court proceedings for rental arrears.
This article has also been published in the British Retail Consortium’s Magazine. The Retailer, on pages 28-29. Click here for the full copy of the Summer 2021 edition.
If you would like to find out more, please contact Mike Lewis.
Pre-pack administration for the retail sector
With the recent collapse of a few retailers, including House of Fraser, and retail parks and shopping centres changing their business structure and appearance with the rise of online shopping, it is time to remind ourselves of what a ‘pre-pack’ can offer to retailers when things go wrong.
What is a pre-pack?
The term “pre-pack” refers to an agreement to sell all or part of an insolvent company’s business and/or assets to a buyer (usually a new company) negotiated before an administration commences, with the administrators then effecting the sale to the buyer immediately after their appointment.
Pre-packs have received a mixed review from the media over the years but have nonetheless been used with success particularly in the retail sector.
Why are pre-packs so criticised?
Historically, the bad press surrounding pre-pack administrations arose from the suspicions of unsecured creditors who saw the management team stripping away valuable assets from a company, carrying on the same business in another company, but freed from their debts, whilst leaving onerous liabilities and debts behind in the old structure.
However, directors of an insolvent business cannot arrange a pre-pack without careful consideration of certain legal issues such as:
- their duties to provide the administrator with detailed information about the business, specifically to enable the administrator to make a proper assessment of its value (and so sale price);
- their risk of incurring personal liability for “wrongful trading”, where they cause a company to trade beyond the point at which there is no reasonable prospect of avoiding an insolvent liquidation. This potential liability cannot be extinguished by a pre-pack and therefore this risk must be carefully assessed and timed;
- their other obligations as directors of a company under the Companies Act 2006 (including non-profiting, care of creditors and other stakeholders of the business).
Since 2009, insolvency practitioners are also required to comply with transparency guidelines applicable to pre-pack administrations. These are called “Statement of Insolvency Practice 16” or SIP 16.
Under those guidelines, insolvency practitioners should disclose to creditors certain details of the deal, such as the name of the purchaser, the price paid and any connection the purchaser had with the former directors and shareholders, any valuations of the business or assets being transferred, the consideration for the sale and the terms of payment.
Administrators may face regulatory or disciplinary actions if they have failed to comply with SIP 16.
Right to challenge a pre-pack deal
Where a pre-pack is implemented by an administrator appointed out of court, often a sale will be completed before the unsecured creditors are aware of the pre-pack and have an opportunity to object. If the administrator is court appointed, the proposed pre-pack will need to be considered by the court and so creditors can make their objections to the court.
It remains however that a challenge to a pre-pack is extremely difficult, with the court generally placing reliance on the experience and judgment of the administrator if he favours a pre-pack.
Creditors also have a right to bring an action against an administrator if the administrator’s conduct has unfairly prejudiced the interests of the creditors, or where an administrator is not performing his functions quickly and efficiently. Again however, these are difficult tests to meet.
A quicker and cheaper way of challenging a pre-pack is to contact the Insolvency Service’s Pre-Pack Complaints Hotline. This may be used where creditors consider that they have been unduly disadvantaged by an administration (or any other corporate insolvency process).
What does pre-pack administration mean to a retail supplier?
Pre-pack administrations are not a perfect answer to everyone’s problem when a company is experiencing severe financial difficulties, but it is another tool available to owners or managers of a struggling business.
Overall, it is generally thought that pre-packs are a relatively quick and efficient way of transferring the business and/or assets of an insolvent company. They have a lesser impact on the costs involved compared with an administration. They can result in a better return for creditors, minimise disruption, save more jobs and limit the loss of goodwill with suppliers, customers and others. The latter is key for retailers who are heavily reliant on consumer confidence in their brands and assets.
To find out more, click here to speak with Michael Lewis.
Rent Reviews: Not to be disregarded
A landlord can only conduct a rent review if there is a rental review provision in the lease. In modern leases, rent reviews are around every three to five years.
Negotiations over rent clauses are crucial because the landlord will have a different objective to the tenant as the provisions often only allow for increases in rent. It is very rare that the provision allows for a decrease in rent and so at the time of review, the rent will either stay the same or increase.
When the time comes for rent to be reviewed, the process can be instigated by notice (in writing) or by parties entering into negotiations. However it is clearly in both parties’ interest to negotiate a new rent and resolve any dispute early on to avoid incurring unnecessary time and costs. Tenants should remember that often rent reviews can be backdated.
The most common type of rent review falls under the umbrella of open market rent reviews – the rent at which the premises might reasonably be expected to let at in the open market. It enables rent to be set according to market conditions at the time of conducting the review (on par with other rents being charged on similar properties in similar areas at the best rate).
How is open market assessed?
Usually an expert assists in helping both parties and more often than not they will appoint a surveyor to decide on the open market rent and help them with negotiations.
The surveyor will determine the value of the new rent in the fairest way, by considering the ‘hypothetical lease’ basing it on assumptions and disregards. The reason for this is that if the surveyor valued the open market rent based on the actual property it may lead to an unfair valuation (say, if the property was in a state of disrepair because the tenant failed to comply with covenants relating to repairs), so the assumption would be made that the tenant has complied with all covenants. Certain aspects will also be disregarded, for example, if the tenant has built up a good rapport with neighbours or if the tenant has made significant improvements to the property, these can be disregarded to give a general unbiased valuation.
To minimise potential risks, it is strongly advised that both landlord and tenant seek professional legal advice to ensure they are fully aware of the rent review provisions of the lease.
After a valuation has been provided to both parties, hopefully they will agree. If this is not the case and parties cannot come to agree a new rent, the rent review clause in the lease usually stipulates a procedure for alternative dispute resolution (ADR) which involves the use of a neutral third party.
If negotiations fail, parties then often look to arbitration where a neutral party comes in to actually resolve the dispute and make a decision, requiring both parties to comply with the final outcome.
The rent continues to be paid at the old rate until a new figure has been agreed. Once the new amount is agreed, it can be back dated to the review date meaning that an additional sum making up the difference may be owed by the tenant, and interest may also be charge
To find out more, click here to speak to Michael Lewis.