Landlord fails in forfeiture claim for US restructuring of guarantor

Provision for re-entry where a party is “unable to or deemed unable to pay its debts within the meaning of sections 122 or 123 of the Insolvency Act 1986” requires the inability to be established or proved to the court’s satisfaction as stipulated by those sections, before the right to forfeit is triggered. The High Court has considered this issue in SBP 2 SARL v 2 Southbank Tenant Ltd [2025] EWHC 16 (Ch). The claimant landlord owned premises at Two Southbank Place, London SE1, a serviced office building opposite Waterloo station. The defendant tenant, part of the WeWork group, held a 20-year lease of the premises. Its lease obligations were guaranteed by a Delaware company. The claim arose from a corporate reconstruction in the US affecting the guarantor. The lease provided a right of re-entry to the claimant for non-payment of rent and breach of tenant covenants or conditions. These included the appointment of a liquidator or administrator or the tenant or guarantor being unable to or deemed unable to pay its debts within sections 122 or 123 of the Insolvency Act 1986 (which requires evidence or proof “to the satisfaction of the court”) or any equivalent action in an analogous jurisdiction including US bankruptcy proceedings. Following the grant of the lease, the guarantor entered into a corporate restructuring under Delaware law by which the guarantee obligations under the lease were allocated to WeWork Companies LLC. A further restructuring in November 2023 divided WWC LLC in two. A limited liability company incorporated as a result of the division was allocated the guarantor obligations of 81 leases of properties including the premises. The surviving company then filed for Chapter 11 bankruptcy in the US. The claimant served two section 146 notices and issued two sets of forfeiture proceedings. The first notice claimed that the plan of division was ineffective and the Chapter 11 filing was a breach of condition. The second notice provided that if the resulting company was the guarantor under the lease, it was or was deemed unable to pay its debts or was in breach of other conditions required for the appointment of a replacement guarantor. The defendant’s strike-out application succeeded. The court concluded, as a matter of construction, that the breach of condition the claimant relied upon in its second section 146 notice required the resulting company’s inability to pay its debts to have been proved to the satisfaction of the court prior to service of the notice. As there had been no prior court determination, the right of forfeiture had not been triggered. Louise Clark is a property law consultant