Comfort for landlords – UK restructuring plan did not affect liability of guarantors

On 15 August 2022, the UK High Court handed down judgment in Oceanfill Ltd v Nuffield Health Wellbeing Ltd and Cannons Group Ltd.

Background

The claim was for rent and other arrears by Oceanfill, the landlord of a gym in Leeds. It was brought against Nuffield, the original tenant and Cannons, the original guarantor under the lease.

Nuffield had assigned the lease to Virgin Active in 2000, guaranteeing the performance of Virgin Active as tenant and Cannons had given a guarantee of Nuffield's obligations.

Virgin Active restructuring plan 

In May 2021, the High Court approved a restructuring plan for Virgin Active (the Plan): see our alert here.

The effect of the Plan on ‘Class D Landlords’ including Oceanfill was that no past, present or future rent, service charge or other liabilities would be payable by the plan companies under their various leases. Instead, the landlord would be entitled to a restructuring plan return – for Oceanfill, less than 1p in the pound.

Oceanfill claimed the arrears from Nuffield and Cannons as guarantors, they argued that the Plan also released them from liability.

The decision 

The Court held in favour of Oceanfill that the Plan merely altered the liability of Virgin Active under the lease by operation of law, leaving the liabilities of Nuffield and Cannons unaffected.

Key takeaways

The case may provide some reassurance to commercial landlords with concerns about tenants’ abilities to ‘cram down’ their claims under a restructuring plan. It highlights the importance of carefully considering the terms of any restructuring plan and its effect on the possibility of recovering arrears against former tenants and guarantors.