Louise Clark analyses a significant recent decision involving WeWork’s UK flagship location.
Key points
- If a contract incorporates a statute, the actual words are incorporated
- A trigger to a right of re-entry must be established before the right of re-entry arises
Where a forfeiture clause provides for re-entry if 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”, the inability must be established or proved to the court’s satisfaction under those sections before the right to forfeit is triggered.
This is the effect of the High Court’s decision in SBP 2 SARL v 2 Southbank Tenant Ltd [2025] EWHC 16 (Ch), one which may have far-reaching implications.
Background
The claimant landlord, a Luxembourg company and part of the Almacantar group, owned premises at 2 Southbank Place, London, SE1, a serviced office building of 300,000 sq ft over 17 floors opposite Waterloo station.
The defendant tenant, part of the WeWork group, held a 20-year lease of the premises, which were described as WeWork’s flagship location in the UK. The tenant’s lease obligations were guaranteed by a Delaware company.
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 – the resulting company – was allocated the guarantor obligations of 81 leases of properties situated in Australia, Ireland and the UK, including the premises. On the same day, the surviving company, which held guarantees under leases of properties in the US and other liabilities, filed for Chapter 11 bankruptcy in the US.
The re-entry clause
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 or any equivalent action in an analogous jurisdiction including US bankruptcy proceedings.
Forfeiture
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 or should not be recognised under English law as affecting WWC LLC’s guarantee obligations and the Chapter 11 filing was a breach of condition.
The second notice, served without prejudice to the validity of the first notice, provided that if the resulting company was the guarantor under the lease, it was or was deemed unable to pay its debts under section 123 of the 1986 Act or was in breach of other conditions required to be satisfied for the appointment of any replacement guarantor.
The defendant sought summary judgment to strike out the claims.
The law
The court may grant summary judgment under CPR 24.3 where a party has no real prospect of succeeding on the whole of its claim or a particular issue and there is no other compelling reason why the case or issue should be disposed of at trial.
The question turned solely on the proper construction of the re-entry clause, considered within the language of the lease as a whole and in its relevant factual matrix. The judge’s task was to ascertain the objective meaning of the language used by the parties in what was plainly a complex, formal contract drafted by highly experienced solicitors. The judge was struck by the comprehensiveness of the list of forfeiting events, particularly those arising on insolvency of the tenant or guarantor.
The re-entry clause had to be interpreted in its factual matrix but much of the language employed, including “being unable to or deemed unable to pay its debts within the meaning of section 122 or 123 of the 1986 Act”, was formulaic and found in very many re‑entry clauses in commercial leases. In the absence of specific qualifying language in this lease the clause meant the same in this lease as in other commercial leases where it formed part of the panoply of a re-entry clause.
Section 122(1) of the 1986 Act provides that a company may be wound up if one or more conditions are satisfied. These include deeming provisions at (a) where a creditor owed more than £750 has served a demand for payment which is unsatisfied after three weeks; and (b) where execution on a judgment in England and Wales is unsatisfied, as well as judicial determination where the court is satisfied under (e) that the company is unable to pay its debts when they fall due or under section 122(2) that the value of the company’s assets is less than its liabilities.
The decision
The judge concluded that the breach of condition the claimant relied on 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. Since there had been no prior court determination, the right of forfeiture had not been triggered.
The judge was persuaded by the language of the re-entry clause, which clearly envisaged the right of re-entry being exercised after the occurrence of one or more forfeiting events. In the case of dispute, a court determination was required. Such construction also provided a certain, clear and workable scheme, and gave proper effect to the language of sections 122 and 123 that the insolvency of the tenant/guarantor is proved to the court’s satisfaction.
The case will provide much thought for landlords and tenants alike.
Louise Clark is a property law consultant
