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Lawbite: A little bit of relief for BHS

  • United Kingdom
  • Real estate litigation

14-05-2019

(1) SHB Realisations Ltd and (2) GB Europe Management Service Ltd v (1) Cribbs Mall Nominee (1) Ltd and (2) Cribbs Mall Nominee (2) Ltd.

The County Court recently considered a claim for relief from forfeiture involving premises previously occupied by BHS (now SHB Realisations Limited and in liquidation).  The lease in question had over 100 years left to run having originally been granted at a premium and a peppercorn rent. It had been forfeited by the defendants landlords for breach of a keep open covenant following the insolvency of SHB.  SHB and its mortgagee, GB, now sought relief.

It was common ground that SHB could not remedy the breach in the circumstances, and its only option was to assign the lease at a premium in the hope of recovering some of the mortgagee’s secured debt.  Efforts over the 32 months period up to the date to assign had not been successful but  the Court acknowledged that there was a prospect of assignment in the future. 

In applying its wide discretion the Court noted SHB and GB’s questionable conduct in creating a “phantom purchaser” in the hope of triggering the landlords’ pre-emption rights in the lease.  It was also conscious of the ongoing damage to the landlords of having the property vacant but, on the other hand, also of the potential windfall (estimated to be £1 million) that they could secure by recovering the property.

Key points

  • The courts have historically shown a willingness to exercise its discretion and grant relief in circumstances involving long leases granted at premiums on the basis that the tenant would lose a valuable asset and the landlord, in contrast, would obtain a windfall.  However, the case demonstrates that forfeiture should be considered by landlords even in circumstances involving long leases granted for a premium.
  • The case further reminds us of the court’s wide discretion in granting relief (even in circumstances involving an irremediable breach), and upon what terms (for example conditional relief as in this case).
  • When relief is granted the lease is restored as if forfeiture had never taken place.  When conditions are placed on relief orders with long stop dates for compliance with conditions (as happened in this case), the tenant will not obtain that relief until it has complied with the conditions.
  • The Court granted relief but conditional upon SHB assigning the lease within three months (not the 6 months SHB and GB argued they should be given) of the Judgment and payment of various costs.

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