The high court has rejected a claim for specific performance that could have forced 10 Hilton-branded hotels, including the Kensington flagship, to spend £100m bringing them up to standards.
The claim was brought by Vincent Tchenguiz’s Zinc Hotels, which bought the hotels from the Hilton Group in 2002, and which entered administration in January this year.
In the claim made against Hilton subsidiary Adda Hotels, Zinc alleges that the condition of the 10 hotels – at Cobham, Croydon, East Midlands Airport, London Kensington, Leeds, Northampton, Nottingham, Tewkesbury, Watford and York – has damaged their reversion value, and reduces the price that a potential purchaser would be willing to bid.
Zinc sought a court order demanding that the hotels be brought up to standard. However, a judge has now struck out that remedy at a preliminary stage.
As a result Zinc will only be entitled to pursue a claim for damages to compensate for the alleged loss if and when the case proceeds to a full trial.
If successful, any damages figure is unlikely to be as high as £100m.
Zinc’s administrators are pursuing a sale of their interest in the hotels, with heads of terms entered into for the preferred bidder of the Kensington site, and deputy judge Andrew Hochhauser QC said that a sale of all 10 was likely before the case could reach a full trial.
The hotels changed hands in 2002 under a sale-and-leaseback agreement, through which Adda effectively paid Zinc to operate under the Hilton brand.
Following inspections of the hotels in 2015, Zinc claimed that each was in breach of Hilton operating standards and sought an order for specific performance, requiring Adda to carry out the necessary work to bring them into compliance.
The judge said: “In essence, Zinc is seeking an order from the court that Adda carry out over £100m of works to the hotels.”
However, upholding an earlier ruling striking out the claim for specific performance, he concluded that such an order would be “inequitable”, adding that the annual rent for the hotels is only £26m.
As a result, if Zinc pursues the claim, it will be limited to damages as a remedy. The judge said that this would be “adequate” to compensate it for its alleged loss.
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