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High Court Grants Breathing Space to Commercial Tenant Hit by Pandemic

Many commercial tenants who are experiencing cash-flow crises due to the COVID-19 pandemic have been constrained to stop paying rent and are racing to restructure their debts – but where does that leave their landlords? The High Court squarely confronted that issue in a guideline case.

There was no dispute that the landlord of a health club, part of a national chain, was owed more than £900,000 in respect of the premises after rent was withheld in four successive quarters at the height of the pandemic. In seeking summary judgment in the amount of the debt against the club's corporate tenant, the landlord said that, in accordance with government guidance, it had not pressed the tenant too hard and had held back from taking enforcement action for a considerable period.

In arguing that the claim should be stayed, however, the tenant pointed out that proposals to restructure its debts were at an advanced stage and would shortly be submitted for judicial approval under Part 26A of the Companies Act 2006. The scheme would involve shareholder injections of £45 million in fresh funding and a further £22.3 million in liquidity support. The restructuring was said to offer a far better outcome for creditors than if the tenant were to fall into administration.

Granting the stay sought, the Court noted that more than 75 per cent of the tenant's secured creditors had already indicated their support for the scheme and that there was, at minimum, a reasonable prospect of it receiving judicial sanction. Firm court dates had been set for the hearing of the tenant's application.

The tenant argued that, were an immediate judgment granted to the landlord, the scheme could be seriously disrupted. The amount of the judgment debt would probably have to be removed from the pot available to creditors and the landlord would be in a position to recover substantially more than others in the same position.

In the interests of equal treatment of all the tenant's creditors, the Court found that the restructuring process should be allowed to proceed without a judgment being entered in the landlord's favour. Overall, the interests of the wider class of creditors trumped the landlord's private interests. The order staying the claim included a recital that the landlord was entitled to judgment.

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