The High Court takes a strict interpretation of a forfeiture clause in SBP 2 SARL v 2 Southbank Tenant Ltd [2025] EWHC 16 (Ch).
The background
The claimant landlord owns 2 Southbank Place, London SE1, WeWork's flagship UK location leased to the defendant tenant for a 20-year term at a passing rent of £20 million per year.
The tenant's obligations were guaranteed by a Delaware WeWork company which was divided following two rounds of corporate restructuring. One entity resulting from the division adopted the guarantor obligations of 81 of WeWork's leases worldwide (including the property in this case) (the Resulting Entity). The other entity (which was allocated the guarantees under the tenant's American leases) filed for Chapter 11 bankruptcy in the US (the Surviving Entity).
The lease contained a forfeiture clause, which allowed for re-entry if the tenant or guarantor were "unable to or deemed unable to pay its debts within the meaning of sections 122 or 123" of the Insolvency Act 1986 (the 1986 Act), amongst a host of other typical trigger events.
The claims
Evidently spooked by the Chapter 11 filing, the landlord served two notices pursuant to section 146 of the Law of Property Act 1925 on the tenant (the second without prejudice to the first):
- The first on 9 November 2023 contended that the division of the guarantor was ineffective or should not be recognised under English law, and so the lease had been breached by the Surviving Entity filing the Chapter 11 petition; and
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The second on 20 December 2023 on the basis that – if the Resulting Entity was now the true, sole guarantor – the lease had been breached as the guarantor was unable (or deemed unable) to pay its debts per sections 123(1)(e) or 123(2) of the 1986 Act.
Both notices were followed by possession claims filed on 18 December 2023 and 27 December 2023 respectively.
The tenant disputed the landlord's entitlement to re-entry under both forfeiture claims and applied for summary judgment in respect of the second claim, submitting that the landlord had not established that the guarantor was unable (or deemed unable) to pay its debts by the time the section 146 notice was served. The tenant argued that the deemed inability to pay must be "proved to the satisfaction of the court" as per the 1986 Act's wording.
The landlord contended that a judicial determination was not necessary and if the tenant's interpretation was correct, the trigger event would be rendered unworkable, particularly in the context of the parties' and premises' characteristics.
The tenant also argued that service of the second claim was premature. They contended that less than four working days between service of the second notice and the possession claim was not a reasonable period for the tenant to consider its position and decide whether any breach was remediable.
The outcome
The Court ultimately granted summary judgment against the landlord in respect of the second claim in accordance with the tenant's submissions regarding interpretation. As the lease incorporated the statutory language of the 1986 Act, the Court decided that the landlord should have established the guarantor's inability to pay by judicial determination prior to serving the section 146 notice. Without insolvency having been established through the courts (for example, through a creditor's winding-up), no breach had arisen, and the landlord's entitlement to forfeiture had not arisen.
The Court disagreed with the landlord's argument regarding unworkability, stating the forfeiture clause "would not be denuded of practical efficacy" on the tenant's interpretation and warned against "overplay[ing] the contextualist card".
A determination of the tenant's latter argument (regarding reasonable time for remedying a breach) was deemed unnecessary as a consequence of finding in the tenant's favour on interpretation.
In the meantime, the first forfeiture claim is ongoing with the tenant maintaining that the guarantor's division was effective and therefore the Resulting Entity (having not filed a Chapter 11 petition) has not breached the lease.
The full decision can be read here.
The case serves as a reminder in the lease context that parties should review forfeiture provisions to ensure they are as broad as they expect. More generally, parties to any contract must double check statutory provisions before incorporating them to make sure they align with their commercial intentions.
