Overriding
Interest
Highlighting developments and
issues in the real estate industry
CVAs
Since the recent successful JJB Sports CVA, retailers and other businesses in financial
difficulties have been looking afresh at this insolvency procedure as a possible way out of
Summer 2009
their problems.
In this issue:
What is a CVA?
CVAs............................................. 1
A CVA is a Company Voluntary Arrangement. It is a binding compromise agreement
Deals............................................. 3
News and Initiatives........................ 4
made between a company and its creditors. A CVA is designed to avoid the stigma and
consequences of more formal insolvency procedures, such as administration or liquidation. It
allows a company to settle its creditor claims and emerge from the process as a solvent entity.
Competitive Dialogue...................... 5
Cases............................................ 7
A CVA may be proposed by the directors of a company but will only succeed if its approved
by more than 75% by value of the creditors of the company and by 50% of the shareholders.
Although, if the outcome of the shareholders’ vote differs from that of the creditors’, the
creditors’ decision will prevail.
If the CVA is approved, it gives rise to a statutory contract between the company and the
creditors who were entitled to vote on the CVA proposal. The agreement binds those creditors
whether or not they voted and whether or not they supported the proposal.
Creditors aggrieved by the CVA can challenge it on the grounds that it is unfairly prejudicial to
their interests or that there was some material irregularity in the procedure.
Successes and failures
There have been a number of high profile CVAs in the last few years in the retail sector,
the most recent of which was JJB Sports’. Under the JJB Sports CVA, 140 stores were
to be closed and the leases ended but the affected landlords were to have a £10m
Continued on page 2
K&L Gates LLP
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www.klgates.com
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Continued from page 1
compensation fund to draw upon. In
value of their interests and required that
addition, the rents of the stores that remained
they bear the brunt of the “pain” under
opened were to be paid monthly for a year
which up to 150 Stylo shops would close
before returning to quarterly payment terms.
and the leases ended and the rents of the
That arrangement was overwhelmingly
stores that remained open would be cut.
approved by landlords and other creditors.
Stylo subsequently went into administration,
In contrast the Powerhouse CVA was
successfully challenged by a number of
landlords in the case of Prudential Assurance
former management.
Conclusion
that the proposed release of guarantees with
It is likely that, during the remainder of this
no compensation was unfairly prejudicial
recession, more CVAs will be attempted
to the landlords who had the benefit of
by companies in difficulties. It is clear that
those guarantees.
the arrangements will need to reflect fairly
proposed CVA by the shoe retailer Stylo
was rejected by landlords on the basis that
the arrangement insufficiently reflected the
Overriding Interest
were acquired from the administrators by its
- v - PRG Powerhouse (2007) on the basis
More recently, in February this year, a
2
following which less than half of the stores
the interests of all the creditors involved,
including landlords, if they are to achieve the
necessary level of approval.
Deals
133 Houndsditch
comprises total ground floor space of
Deka Immobilien GmbH last year
Henderson Central London Office Fund has
approximately 62,000 sq ft, plus a
for £91,500,000. Real estate partner
let nearly 100,000 sq ft to two tenants in its
21,400 sq ft mezzanine. Real estate
John Hussey led the deal.
first lettings at 133 Houndsditch in the City
partners Melanie Curtis and John Hussey,
of London. The fifth floor, which comprises
advised Henderson.
32,000 sq ft was let for a 10 year term
Milton Keynes
for Henderson has commented on these
Henderson UK Retail Warehouse Fund have
deals saying, “We have enjoyed a fabulous
recently disposed of Central and Rooksely
relationship with various Henderson Funds
Retail Park in Milton Keynes to a joint
over the past few years, and we have been
venture between First Alliance Properties
delighted to be involved with this disposal
and Rockspring PIM for £19.85m. The
activity at this stage of the cycle in what are,
price reflects a net initial yield of more than
clearly, challenging conditions. We are very
10%. Tenants on the open A1 Retail Park
much looking forward to helping our clients
complex include Habitat, Comet, Pets at
through the remainder of this year and into
Home, Hobbycraft, Orange and Halfords.
the next phase of the cycle”.
to serviced office operator MWB Business
Exchange. It was structured as a profit-share
agreement at a notional rent of around
£40/sq ft. Henderson also let the 33,900
sq ft second floor to technical data and
information provider IHS on a 15-year lease
without breaks. IHS has three years rent free
and a capital contribution from Henderson
that amounts to a further year rent free.
Henderson bought the scheme in 2006 from
British Land and carried out a comprehensive
refurbishment. Real estate partners Richard
Smith and Chris Major represented Henderson
on the lettings.
A team at K&L Gates, involving property,
construction and planning lawyers and
comprising real estate partner Melanie
Curtis, and lawyers Juno Davidson,
Laura Burrows and Fez Abbas, acted
Wayne Smith, Head of the London Office
Real Estate Team, and Relationship Partner
Capper Street, London W1
Platform-A International Limited (an AOL
subsidiary) recently completed a lease on
further space of their current building in
Capper Street, London W1. Rents were
Kew Retail Park
for Henderson.
Henderson UK Retail Warehouse Fund has
Cambridge Retail Park
and Platform-A secured variations of the
Cambridge Retail Park LP, a joint venture
terms of their existing lease, an extension
between Henderson UK Retail Warehouse
of their existing lease and an agreement
Fund and Aviva Investors has completed the
for first refusal on future space in the
sale of Cambridge Retail Park Phase III for
building. A team at K&L Gates, involving
£3,000,000, subject to 3 occupational
property, planning and construction lawyers
tenants. This sale follows on from the
and comprising real estate partner Piers
Partnership’s sale of Phases I and II to
Coleman, together with lawyers Juno
completed the sale of Kew Retail Park to
UK Commercial Property Trust, managed
by Ignis Asset Management, for £31.35m,
a 6.89% yield. Tenants at Kew include
Mothercare, TK Maxx, Gap, Next and
Boots, with rents ranging from £35.75
per sq ft to £37.75 per sq ft. The park
agreed at £45 per sq ft for a ten year term
Davidson, Laura Burrows and Fez Abbas,
advised Platform-A.
Summer 2009
3
News and Initiatives
Upcoming Breakfast Seminars
On 22 and 29 September, we will be
Firm Receives Recognition
from The Lawyer
hosting real estate breakfast seminars on a
K&L Gates was recently short-listed by
variety of current topics. We look forward
The Lawyer magazine in the category
to seeing you there. Your formal invitations
“International Law Firm of the Year”. This is
will follow by e-mail but please meanwhile
the first time that we have been short-listed
make a diary note.
in this category.
Firm
Burrows
Opens Dubai Office
K&L Gates has established its 33rd
and Cox Achieve
LEED status
office worldwide with the opening of an
Laura Burrows (construction and real estate)
office in Dubai, the firm’s first in the Middle
and Steven Cox (real estate) have both
East. The new office, which followed K&L
recently achieved accredited professional
Gates international office openings in
status with LEED (Leadership in Energy and
Singapore and Frankfurt earlier this year,
Environmental Design), the rating system
is to represent the firm’s clients active in the
for green buildings established by the US
United Arab Emirates and throughout the
Green Building Council.
Middle East. Please visit our website for
further information.
4
Overriding Interest
Competitive Dialogue
Under EU regulations, most high value public contracts, whether for building works,
there are no figures on how many of these
for services or for the purchase of supplies, need some form of advertisement and an
projects have now been signed up.
open competition. A new competitive procedure, known as “Competitive Dialogue”
was introduced in 2004.
From our experience, there seem to be
three significant advantages to using the
What is Competitive
Dialogue?
The authority then engages the bidders in
The Competitive Dialogue procedure is a
the Invitation to Submit Detailed Solutions
flexible process, with the procuring authority
(ISDS), and is permitted to de-select bidders
being able to refine its thinking through
progressively as the process goes on,
a series of rounds of dialogue with the
leaving the two (or sometimes three) best
bidders. The idea of the dialogue phase is
bidders to submit final tenders. The preferred
to allow the authority to discuss with bidders
bidder is then chosen based on the most
opportunity to demonstrate to the
the three main elements of the project—
economically advantageous tender. Under
authority where they will “add value” in
delivery solution, legal framework and
the rules of Competitive Dialogue, there is no
delivering the project and encourages
finance requirements—in confidence.
ability to “negotiate” after the final tenders
bidders to consider the best value for
have been submitted.
money solutions.
one or more rounds of dialogue, including
Initially the authority conducts a
Competitive Dialogue procedure:
• It is a more fluid and open process
in the early stages and the authority
does not need to set out in detail its
requirements early on in the project.
• The procedure gives bidders the
prequalification exercise in the usual way,
The emphasis throughout is on bidders
usually using some form of questionnaire,
coming up with inventive and interesting
after the final tenders have been
and reduces the number of bidders to
solutions to the authority’s needs.
submitted means that there is much less
3 - 5 (the minimum number at this stage
How successful has it been?
opportunity for “deal creep”.
is three). The authority then issues to those
bidders what is known as an Invitation to
Submit Outline Solutions (ISOS) in which
it sets out what it is hoping to achieve
through the project (e.g., a new town hall or
transport interchange) and invites the bidders
to submit their outline solutions. The solutions
are quite high level at that point.
•the statutory prohibition on negotiation
It is early days yet since major procurements
Criticisms
can take two years to get signed up and
The Competitive Dialogue procedure
the Competitive Dialogue procedure is
has been criticised for being too costly,
relatively recent. To date, over 700 contracts
time-consuming and resource intensive. A
have been advertised in the UK using the
bidder committed to winning the contract
Competitive Dialogue procedure (around
may have to proceed through several
2.5% of all contracts advertised), although
rounds of dialogue in order to be selected
Continued on page 6
Summer 2009
5
Continued from page 5
as the preferred bidder and a half-hearted
large amounts of time and money in getting
tool for all parties - it offers flexibility to both
effort will not be enough to win. Bidders
through to the final stages without receiving
bidders and authorities, it encourages an
are often understandably concerned about
any benefit at the end of the day.
innovative, well-tested solution, in which
diverting significant time and resources
towards preparing a detailed bid, when
they are very unlikely to be able to recover
any costs for doing so should their bid
prove unsuccessful. Because more work is
that bidders are often unable to make the
necessary binding financial commitments
when submitting their final bids.
done before the final tenders are submitted,
Conclusion
this inevitably means that greater costs are
As with all new procedures, Competitive
incurred by a larger number of bidders
Dialogue will inevitably take time to bed
- which makes Competitive Dialogue
in. As procuring authorities become more
unattractive to some private sector partners.
used to operating the procedure and their
The work is front-loaded and, since only
one bidder will end up signing the contract,
two or three others may have expended
6
In addition, the financial crisis has meant
Overriding Interest
personnel develop expertise in managing the
process, it should become more streamlined
and cost effective. Competitive Dialogue has
the potential to be a beneficial procurement
all parties will be confident and allows the
parties to move swiftly to financial close
once the preferred solution is chosen.
At K&L Gates we recently ran a joint
seminar with Cushman & Wakefield on
the Competitive Dialogue Process.
If you would like a copy of the seminar
pack or require further information,
please contact Chris Causer (christopher.
causer@klgates.com) or Neil Logan Green
(neil.logangreen@klgates.com).
Cases
Restrictive Covenants
Rights of Way
Rent Review Arbitration
A church building was subject to a 100
A landowner erected a gate that narrowed a
In a rent review dispute, the arbitrator
year old restriction that it could not be used
passageway that crossed part of his land to
refused to order disclosure of certain
other than as a place of worship. However,
such an extent that users of the passageway
documents said by the landlord to
there had been no express annexation of the
were forced to step onto land of the
be relevant and, as a consequence,
benefit of the covenant to any land and,
landowner that was not subject to the right
the landlord did not to make counter-
for some years, the church had been used
of way. It was held that the existence of the
submissions. It was held that the arbitrator
as a hall and youth club. The Court said
alternative route for users did not extinguish
was entitled to proceed as he did to make
that, for both these reasons, the covenant
the original right they had which was found
his determination in the absence of the
was unenforceable.
to have been infringed but did affect the
landlord’s counter-submission; the documents
remedy that the Court might grant.
were not relevant and the arbitrator had
Comment: It was said that there had been
an implied release by open non-observance
Comment: An equally convenient alternative
for many years.
route might justify the refusal of an injunction.
Southwark Roman Catholic Diocesan
Corporation -v- South London
Church Fund, ChD
Heslop -v- Bishton, ChD
Easements
A landowner had the right to lay cables
across an adjoining landowner’s site.
However, the adjoining landowner refused
to execute a deed required by the electricity
company who would not lay cables without
it. It was held that the easement did not
impose a positive obligation on the adjoining
landowner to execute such a deed.
Comment: An easement is essentially
negative in nature and only imposes positive
obligations in very limited situations.
William Old International -v- Arya, ChD
Authorised Guarantee
Agreements
acted fairly between the parties.
Comment: It was also said that the
arbitrator’s refusal to permit an oral hearing
was justified.
Bromley Park Garden Estate -v- Mallen, ChD
An AGA provided that the guarantor was
Alienation
to be liable under a lease for the period
Under a business sale agreement, the
during which the assignee was bound by
purchaser was given licence to occupy
the lease covenants. The assignee went into
leased premises used by the business. A
liquidation and disclaimed the lease. It was
sublease was to be taken once landlord’s
held that the guarantor’s liabilities continued
consent was obtained but, if no consent
despite the disclaimer.
was obtained within 12 months, either party
Comment: The House of Lords decision
in Hindcastle -v- Barbara Attenborough
Associates (1997) was followed.
Shaw -v- Doleman, CA
could terminate on notice. Consent was only
obtained after 12 months had passed and
after the purchaser had given notice. The
Court said that neither party could require
completion of the sublease.
Comment: The notice ended the
parties’ relationship.
Akzo Nobel UK -v- Arista Tubes, ChD
Summer 2009
7
For further information contact:
Steven Cox steven.cox@klgates.com T: +44 (0)20 7360 8213
Milton McIntosh milton.mcintosh@klgates.com T: +44 (0)20 7360 8259
Bonny Hedderly bonny.hedderly@klgates.com T: +44 (0)20 7360 8192
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K&L Gates is a global law firm with lawyers in 33 offices located in North America, Europe, Asia and the Middle East,
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