Nuffield Health liable for Virgin Active rent as guarantor, High Court rules

The landlord of a Virgin Active health club has successfully sued rival gym provider Nuffield Health for rent arrears racked up by Virgin during the pandemic. The case stems from last year’s high-profile contested restructuring battle between Virgin Active and its landlords. In May last year, High Court judge Mr Justice Snowden approved a company voluntary arrangement (CVA) for Virgin Active just before it ran out of liquidity. Landlords opposed the restructuring because it involved the court replacing the rent payable to them with a so-called “restructuring plan return” that was significantly less than the agreed rent. However, without the CVA, the company would most likely have gone bankrupt, leaving the landlords with nothing. Today’s judgment concerns the Virgin Active gym located in Centaur House on Great George Street in Leeds. The case was brought by the freehold owner of the building, a company called Oceanfill. According to the ruling, in 1998 Oceanfill leased the ground floor and basement of the building to Nuffield (then known as Vardon Health and Fitness) for 25 years. In 2000, the gym was taken over by Virgin Active and Nuffield assigned it the lease. However, Nuffield remained a guarantor of the lease. After the Virgin Active CVA was agreed, Oceanfill sued Nuffield for £140,000 worth of rent arrears as guarantors of the lease. At a hearing in July, lawyers for Oceanfill argued that, under the terms of the lease, Nuffield was liable for Virgin Active’s rent despite the CVA. Lawyers for Nuffield argued that the company wasn’t liable as the CVA varied the terms of the lease, replacing the rent with a restructuring plan return that was Virgin Active’s responsibility to pay, not theirs. However, in today’s ruling (16 August) the judge, Deputy Master Arkush, disagreed and awarded summary judgment to Oceanfill. He ruled that, while the CVA did release Virgin Active of its responsibility to pay rent, replacing it with a restructuring plan return, it did not alter the terms of the lease that applied to any other party. “In my view, it is not correct to say that the plan rewrites the lease,” he said in his ruling. “It is more correct to say that it releases the plan company from future liability under the lease terms by providing that the rent and other liabilities are not payable on its part. “Alternatively, to the extent that this can be described as rewriting the lease, it is a rewriting only as between the landlord affected by the plan and the plan company. It leaves unaffected the rights of the landlord against third-party guarantors.” He said that the landlord should work out how much money it has received under the CVA. “I shall be careful to ensure that Oceanfill is not in receipt of double-payment,” he said. Oceanfill Ltd v (1) Nuffield Health Wellbeing Ltd and (2) Cannons Group Ltd Business and Property Courts (Deputy Master Arkush) 15 August 2022 Photo © Shutterstock