Careful Drafting Essential to Preserve Rights
Careful drafting of all legal agreements is critical, as was illustrated by a recent dispute between a landlord and tenant.
The tenant was a well-known retailer of home furnishings and hardware, which entered into a corporate voluntary arrangement (CVA) with its creditors in 2007, having arranged to sell its share capital to a quoted company to provide a dividend for the creditors.
The company's landlord did not attend the meeting at which the CVA was approved. However, a sum of £200,000 was provided in the CVA as a provision against the company’s liability to the landlord for unpaid rent and dilapidations. The CVA made no specific provision to deal with any claim by the landlord under the terms of the lease.
The landlord later submitted a claim for more than £1/2 million, which included a claim for an extra year’s rent because the landlord expected that would be the void period before a new tenant could be found and the rent payable by the new tenant would include a discount for a period.
The landlord could not reoccupy the premises until the supervisor of the company’s CVA had entered into a deed of surrender of the lease. This was necessary for the landlord to attempt to mitigate its loss. A deed of surrender was therefore entered into.
The supervisor wrote to the landlord advising that the surrender extinguished all the landlord’s claims against the company except for £176,000 by way of dilapidations, rent and service charges unpaid at the date of surrender.
The supervisor claimed that the surrender had put an end to the lease. The landlord could not therefore claim for any future rentals after the date of the CVA because the future rents etc. were not specifically compromised (dealt with) in the CVA document. The landlord argued that its claim was compromised in the CVA and the later surrender of the lease did not affect that position.
In court, the terms of the surrender were examined carefully and the court found that it was quite clear that it preserved the landlord’s rights under the CVA. Indeed, the whole point of the CVA was to create a binding compromise between the company and its creditors. The wording of the deed of surrender was crucial to preserving the landlord’s rights.
Accordingly, the landlord's claim was upheld.
We can advise you how best to protect your rights if you have a tenant who becomes insolvent.