The fragility of the retail sector poses a real difficulty for landlords in protecting the value of their assets. Many retail leases include keep-open covenants but enforcement can be problematic with only limited options available: seeking an injunction, claiming damages or forfeiting the lease.
The availability of these remedies is in fact even more limited, especially following the decision in Co-operative Insurance v Argyll Stores when the House of Lords refused an order for specific performance on the basis that it did not make sense to force a tenant in financial difficulty to keep its doors open. Equally, it can be difficult to make out a claim for damages, especially in leases without turnover rent provisions.
This leaves the option of forfeiture, the enforceability of which came before the court in SHB Realisations v Cribbs. Here, BHS occupied the fourth-largest unit at Cribbs Causeway, Bristol. In August 2016, the store permanently closed following financial difficulties, rendering BHS in breach of a keep-open covenant, which stipulated that the store would be open to the public seven days a week during specified hours. The landlord issued forfeiture proceedings and SHB (previously named BHS) sought relief from the court.
The court focused on whether, and how, the breach could be remedied. SHB argued that there was real potential for an assignment of the lease, whereas the landlord argued that the hopes of securing such an assignment were “vanishingly small” as SHB had already tried for 32 months to do so. In addition, by having possession, the landlord could re-let the premises to a “vibrant retailer”, negotiate new terms and carry out works that would benefit the unit.
The court acknowledged that it was to both the landlord’s and the neighbouring tenants’ detriment if the unit remained boarded up for a long time. There was also little evidence that any potential assignee had expressed more than a passing interest in the unit. Nevertheless, there was still a market for the lease and the landlord would benefit from a substantial windfall if the lease was forfeited. The court recognised that SHB should not be deprived of the opportunity to reduce its debts. Ultimately, the court granted SHB relief on the condition that it assigned the lease within three months of the judgment, otherwise the lease would remain forfeit.
So, it seems there is still value in a keep-open covenant provided a landlord accepts its remedies are limited to damages and forfeiture and that the court might grant relief.
Alison Hardy is a partner and Kim Clifford is an associate in the real estate dispute resolution team at Ashurst