London Trocadero (2015) LLP v Shinners & Ors, Court of Appeal - Chancery Division, November 23, 2018, [2018] EWHC 3200 (Ch)

Resolution Date:November 23, 2018
Issuing Organization:Chancery Division
Actores:London Trocadero (2015) LLP v Shinners & Ors
 
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CR-2017-007215

Neutral Citation Number [2018] EWHC 3200 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST

IN THE MATTER OF LONDON BRIDGE ENTERTAINMENT PARTNERS LLP (IN ADMINISTRATION)

AND IN THE MATTER OF THE INSOLVENCY ACT 1986

AND THE LIMITED LIABILITY PARTNERSHIP REGULATIONS 2001

Royal Courts of Justice

7 The Rolls Building

Fetter Lane

London

EC4A 1NL

Date: 23/11/2018

Before :

ICC JUDGE BARBER

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Between :

(1) LONDON TROCADERO (2015) LLP

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Zia Bhaloo QC and Charlotte Cooke (instructed by Hogan Lovells International LLP) for the Applicant

Gary Cowen and Nigel Dougherty (instructed by Howard Kennedy LLP) for the Respondents

Hearing dates: 12 and 13 November 2018

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JudgmentICC Judge Barber

  1. This is the hearing of certain issues directed to be tried as preliminary issues by a consent order dated 26 July 2018.

    The Parties

  2. The Applicant, London Trocadero (2015) LLP (`Trocadero'), is the registered proprietor of The London Pavillion, 1 Piccadilly, London W1 (`the Building'), a large five-storey building situated in a prominent location occupying a corner site on Piccadilly Circus. The Third Respondent (`the Company') was the lessee of parts of the Building under various leases. The premises demised to the Company were used as a museum trading under the name `Ripley's Believe it or Not!' The First and Second Respondents are the joint administrators of the Company, having been appointed on 29 September 2017.

    The Lease

  3. By a lease dated 2 November 2007 made between (1) London Trocadero Limited and (2) London Bridge Entertainment Partners LLP (`the Lease'), Units G3, G4, G7, C9 and C10 and parts of the first, second, third, fourth, and fifth floors of the Building (`the Property') were demised to the Company for a term of 25 years commencing on 2 November 2007 at an initial basic rent of £1,750,000 per annum, payable quarterly in advance on the modern quarter days (1 January, 1 April, 1 July and 1 October). The passing rent at the date of forfeiture was £2,051,924.35. The Lease included, at Clauses 4.3, 4.4 and 4.5, covenants to repair, decorate and maintain the Property and fixtures and fittings therein. Clause 4.8 of the Lease contained a covenant against alterations.

  4. By a further lease dated 10 July 2008 and made between London Trocadero Limited and the Company, a plant room on the fourth floor of the Building was demised to the Company for a term commensurate with the term of the Lease.

    The Rent Deposit Deed

  5. The parties to the Lease entered into a rent deposit deed on the same date as the Lease (`the Rent Deposit Deed', or `Deed'), under which the Tenant deposited £2,056,250 (`the Deposited Sum').

    Subsequent Events

  6. On 20 August 2015, the freehold interest in the Building was acquired by the Applicant.

  7. On 29 September 2017, the Company went into administration and the First and Second Respondents were appointed as joint administrators of the Company.

  8. The rent which fell due under the Lease on 1 October 2017 was not paid. It was withdrawn from the Deposited Sum on or by 9 October 2017, the Applicant giving notice through its (then) solicitors that it was withdrawing rent for the quarter commencing 1 October 2017 from the Deposited Sum in accordance with the Deed.

  9. The Applicant's solicitors served notice pursuant to Clause 5 of the Deed requiring replenishment within 14 days. The Company failed to comply with that notice and a notice pursuant to section 146 of the Law of Property Act 1925, requiring the Company to remedy the breach, was served on 26 October 2017. The Company did not respond and did not replenish the Rent Deposit.

  10. On 1 November 2017, Trocadero's current solicitors, Hogan Lovells International LLP, asked the Administrators to consent to a forfeiture of the Lease. The Administrators initially refused and, on 30 November 2017, Trocadero issued an application for permission to forfeit. Consent to forfeit was eventually given on 21 December 2017 and forfeiture took place on 22 December 2017. The application was then amended by consent to seek directions as to the treatment as an expense of the administration of certain obligations of the Company which accrued during the course of the administration while possession was being retained for the benefit of the administration prior to forfeiture.

  11. Following further correspondence, certain preliminary issues were directed to be heard by consent.

  12. Since the forfeiture, the Property (as part of a slightly larger demise) has been re-let by the Applicant to Exhibitions Holdings Limited, which opened its `Body Worlds' exhibition to the public on 6 October 2018. The new lease was granted on 18 July 2018 for a term of 10 years with an option to take a further 10 years at a rent of £3 million per annum (compared with £2,051,924.35 payable under the Lease) with a rent free period until 1 December 2018 (4 ½ months).

  13. The Respondents maintain that the Applicant's claims for losses arising under the Lease are fatally undermined by the new lease, on the basis that, in consequence of it, the Applicant cannot demonstrate any diminution in the value of the Applicant's freehold reversion or other recoverable loss. This is disputed and is not an issue which I am required to determine. I am not concerned with quantum at all.

    The Preliminary Issues

  14. The issues which I am required to determine are set out in an agreed directions order dated 26 July 2018, approved by Insolvency and Company Court Judge (Chief Registrar) Briggs on 30 July 2018. The salient parts of that order are as follows:

    `UPON the application of the Respondents for the hearing of preliminary issues. ...

    AND UPON the parties agreeing that the Applicant's claimed consequential losses as set out in its Revised Summary of heads of loss and quantum dated 18 April 2018 include loss attributable to void periods in respect of ... [the Property] that are: (a) a period corresponding to the period which it would reasonably take to put the Property back into the state of repair and condition such that they can properly be re-let (`Applicant's Works Period'): (b) a further period after the Applicant's Works Period or Respondents' Works Period (as appropriate) that the Applicant claims the Property would be vacant whilst seeking and completing a new letting to an incoming Tenant (`Marketing Period') (c) any rent-free period granted as an incentive or otherwise to any incoming Tenant (`Rent Free Period')

    AND UPON the parties agreeing that the Respondents' position is that the works period above should in fact be defined as the period which it would reasonably take to put the Property back into the state of repair and condition in accordance with the Tenant covenants in the leases of the Property (`Respondents' Works Period')

    AND UPON the Respondents admitting that the Landlord (as defined in the Rent Deposit Deed dated 2 November 2007 (`Rent Deposit Deed')) is entitled to withdraw all or any part of the Deposited Sum (as defined in the Rent Deposit Deed ) as may be required to satisfy any loss of rent, service charge and insurance suffered by the Landlord (if any) in respect of the Respondents Works Period subject to the statutory cap imposed by section 18 of the Landlord and Tenant Act 1927, but denying that the Landlord is entitled to do so for any period that the Applicants Works Period is longer than the Respondents Works Period

    IT IS HEREBY ORDERED THAT:

  15. The following issues be heard as preliminary issues:

    1.1 On the proper interpretation of the Rent Deposit Deed, is the Applicant's Works Period or the Respondents' Works Period the correct period for which the Landlord is entitled to withdraw loss of rent service charge and insurance from the Deposited Sum?

    1.2 On the proper interpretation of the Rent Deposit Deed, and in particular, clauses 2 and 4, is the Landlord entitled to withdraw all or any part of the Deposited Sum (as defined in the Rent Deposit Deed) as may be required to satisfy any:

    1. loss of rent, service charge and insurance etc. during the Marketing Period before the Property is re-let;

    2. loss of rent, service charge and insurance etc. during the Rent Free Period which the Landlord would afford to a new Tenant; and/or

    3. any properly assessed agency fees, management fees, legal fees, lender's fees, Heart of London Bid Levy and utilities standing charges incurred by the Landlord in connection with the re-letting of the Property?

    1.3 If the obligation pursuant to clause 5 of the Rent Deposit Deed was incurred whilst the Respondents beneficially retained the Property, is it a matter of the Court's discretion whether this liability (and how much) is payable as an expense of the Third Respondent's administration?'

  16. Issue 1.1 is concerned with the correct definition of `Works Period' for the purposes of Issue 1.2. I am told that the parties' solicitors, when drawing up the issues to be determined as preliminary issues at this hearing, initially focussed on the issues collectively described as Issue 1.2, but then found themselves in difficulty as they could not agree on the correct definition for `Works Period', from which various other periods were claimed to run. Accordingly, they added Issue 1.1. They also added 1.3, which we shall come on to in due course.

  17. It is common ground that, pursuant to clauses 2 and 6 of the Rent Deposit Deed, the Landlord is entitled to withdraw sums representing the damages to which the Landlord would be entitled as a result of a failure to perform and observe the covenants and conditions contained in the Lease. Put another way, the Landlord is entitled to withdraw sums properly due to it as damages for breach of covenant.

  18. If a tenant is in breach of its obligations to repair a property at the end of the term of a lease, the landlord is, on the face...

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