Commercial property law FAQs: Service of applications, without prejudice, experts

Service of applications, without prejudice and experts

5 July 2013

Our panel of property experts Ed John and Lucinda Hutton offer advice on industry issues 

V is for service of applications (voluntary liquidation)

I have received a Notice of Disclaimer from the liquidator of a tenant, stating that the lease has been disclaimed. According to the company’s most recent accounts it is not insolvent. Can it do this?

A company can resolve to put itself into liquidation either when it is solvent (i.e. can pay its debts – a 'Members Voluntary Liquidation') or insolvent (i.e. cannot pay its debts – a 'Creditors Voluntary Liquidation'). In this case, unless you have been given notice of a creditors' meeting, it is likely to be the former.

If a liquidator regards a lease held by the company as 'onerous property', they are able to 'disclaim' it. A disclaimer operates to determine the interests of the tenant in the disclaimed lease, but the rights and liabilities of third parties such as guarantors and original tenants under pre-1996 leases will generally remain in place as if the lease continued in existence.

If the landlord cannot recover the rent from a guarantor or former tenant, they are able to recover their losses caused by the disclaimer (including the loss of rent and other sums for which the tenant is liable under the lease) as a creditor in the tenant's liquidation. In principle, the landlord should be no worse off as a result of the disclaimer, however the amount payable in each case depends on several factors, including the landlord's ability to re-let.

Ed John, Senior Associate, Hogan Lovells International LLP

W is for Without Prejudice

I am negotiating a rent review with a tenant. The tenant has sent a letter marked 'Without Prejudice'; what does this mean?

If a letter is marked as being 'Without Prejudice' this would generally prevent any statement or concession made within the letter being used in court or arbitration as evidence against the party that sent the letter.

The without prejudice rule is an exception to the rule that where a party admits or concedes something against their own interest it can be used against them in court. The without prejudice rule encourages parties (or potential parties)to litigation to settle their disputes out of court. If parties believe that their admissions cannot be used against them in court should settlement discussions break down, they are willing to speak more freely in order to reach a settlement.

However, if a letter is marked 'Without Prejudice' and in substance it is not a genuine attempt to settle an existing dispute, it will not be protected by without prejudice privilege. Indeed, a letter need not contain the words 'Without Prejudice in order to benefit from the without prejudice privilege, as long as in substance it is a genuine attempt to reach a settlement.

Lucinda Hutton, Trainee Solicitor, Hogan Lovells International LLP

X is for eXperts

The rent review on one of my properties was subject to expert determination. The expert sided wholly with the other side and I believe may have made some serious errors of judgment or miscalculations in arriving at the rental figure. Is there anything I can do?

In this case, the lease will probably provide that the rent will be determined by an independent expert if not agreed. If the parties agree the expert who determines the rent, that determination is binding between the landlord and tenant, even if the valuation was negligent. It can only be 'set aside' (determined by the court to have no contractual effect) if the expert has:

  • failed to do what was required of them (e.g. valued the wrong property)
  • acted fraudulently
  • colluded with one of the parties.

An expert appointed to determine a rent review has a contract with each party to the lease. They owe both parties a contractual duty of care and will be open to a claim in negligence by the party that has lost out as a consequence of their mistake. So, if the expert has undervalued the rent as a result of a negligent mistake, the landlord can recover damages comprising the shortfall between the rent as determined and the rent it would have been had they done their job correctly.

Ed John, Senior Associate, Hogan Lovells International LLP