MB had been the secured tenant of a property in which she lived with B, and which she had bought at a substantial discount. The property was conveyed into the joint names of MB and B as joint tenants. Although MB’s mortgage company had insisted the property be in joint names, she claimed that the intention had always been that B would only have a minimal interest in it. He had made no contribution to the purchase price, mortgage repayments or household expenses. When MB had ascertained the effect of the joint tenancy, she gave notice of severance to B.

Re Powerhouse Limited: Prudential Assurance Company Limited v PRG Powerhouse Limited [2007] EWHC 1002 Ch Guarantees are widely used in commercial transactions to provide assurance to creditors that debts or other obligations owed to them are discharged fully in the event the principal debtor fails to perform. This assurance was shaken by the steps taken in early 2006 by PRG Powerhouse Limited (Powerhouse) to enter into a company voluntary arrangement (CVA) that contained proposals to release certain parent company guarantees given to landlords of premises being vacated by Powerhouse.

A fashion retailer in administration had unpaid rates of over £2.6 million across its many outlets. The court was asked to consider whether the administrators were liable to pay the accrued rates as "expenses of the administration", meaning that they would take priority over sums due to other unsecured creditors.

A recent decision from the High Court has shed some light on the remedies available to landlords under insolvency legislation against tenants who enter into administration. The decision provides useful guidance on the ability of a landlord to exercise its right of forfeiture.

The Powerhouse CVA, which sought to strip away guarantees provided by the parent company to landlords of Powerhouse, has been struck down as unfairly prejudicial by the High Court. However, certain aspects of the judgement remain unclear and could be subject to future appeal…

BACKGROUND TO THE POWERHOUSE CVA

Powerhouse (an electrical retailer) proposed a CVA on 1 February 2006 with the intention of closing 35 of its stores (the Closed Premises).

In an important decision for commercial property landlords, the High Court in Prudential Assurance Co Ltd and Others v PRG Powerhouse Limited and Others has ruled that a CVA (defined below) cannot operate so as to prevent landlords from enforcing a parent company guarantee. The Court's decision however was reached on the basis that to determine otherwise would have been "unfairly prejudicial" to the landlords.

How to get out of a guarantee

There are not many legal cases which are claimed to have a potential financial impact of £38bn across the property industry, or to represent ‘Armageddon’, but both these claims were made in relation to Prudential Assurance Company Ltd v PRG Powerhouse Limited [2007]. While that may have been a little over the top, it is not hard to see the reasons for alarm.

ARMAGEDDON?

Editor’s Note:Legal Corner contains case summaries and analysis of recent court decisions that impact retail leasing and lease administration. These summaries focus on the leasing issues covered in each case and do not include detailed discussions or analysis of the procedural and peripheral issues in the cases.

Is a Liquidated Damages Clause Enforceable?

The novel coronavirus COVID-19 pandemic has the potential to impact the U.S. economy at a level which could ultimately rival or surpass the global financial crisis of 2009. Reports from commercial landlords suggest that a majority of retail and restaurant tenants, perhaps as many as 75%, failed to make payments of rent due on April 1^st.

Historically, many companies seeking bankruptcy protection have attempted to streamline and shorten their Chapter 11 cases to reduce cost and risk.¹ But the COVID-19 pandemic may be disrupting that trend, especially in industries that rely on in-person shopping or dining or are otherwise disproportionately affected by the economic slowdown. Across the country, many businesses are seeing revenues dry up as consumers stay home, following concerted governmental and social efforts to “flatten the curve” of the novel coronavirus’s transmission.²