The landlord of the former Beatties department store in
In January 2006, following House of Fraser’s purchase of the store owner James Beattie Ltd, landlord K/S Victoria Street bought the property, in Victoria Street, Wolverhampton, for £46m under a sale-and-leaseback arrangement, under which it was leased back to House of Fraser (Stores Management) Ltd (Stores Management)), a then dormant subsidiary.
A clause required Stores Management to assign the lease by April 2006 to another House of Fraser group company of good covenant strength, with the House of Fraser parent company acting as guarantor of the assignee’s liabilities.
However, no assignment was made and, in March 2010, the landlord, a Danish limited partnership, brought proceedings against Stores Management, House of Fraser Stores Ltd (Stores) and parent company House of Fraser, seeking to force the assignment of the lease to Stores.
In a preliminary ruling last month, Mr John Randall QC decided points in favour of each party, declined to grant summary judgment for either and granted an injunction preventing House of Fraser’s threatened course of action, under which it proposed to assign the lease as promised, but then immediately assign it back to Stores Management.
Today, in a further preliminary ruling, Mann J granted the landlord a declaration that House of Fraser’s threatened course of action would breach the assignment clause in the lease.
He ruled that the assignment clause was “apparently central to the sale and leaseback”, adding: “Its ostensible purpose is to make sure that the lease ends up in the hands of, and guaranteed by, a tenant which is financially sound.
“If it had been the intention of the parties that the lease could, essentially at the whim of the House of Fraser group, end up back with Stores Management, as long as House of Fraser guaranteed it, that would be quite contrary to the apparent purpose of that clause.”
He said that change of ownership at House of Fraser and the economic crisis had brought about a situation in which Stores is still a “valuable company with a good balance sheet” but House of Fraser “has a negative balance sheet”.
Summing up the position, he said: “Consequently, Stores’ covenant is worth having, but House of Fraser Ltd’s apparently is not. Stores Management’s never was.”
K/
Anthony Speaight QC (instructed by Stockler Brunton) appeared for the claimant; Nicholas Taggart (instructed by Slaughter & May) appeared for the defendant.
