1, 2, 3 reasons for landlords to be cautious when negotiating forfeiture provisions

Of particular interest to commercial landlords, the recent decision of the court in SBP 2 SARL v 2 Southbank Tenant Ltd [2025] EWHC 16 (Ch) illustrates the risks to a landlord of simply cross-referring to Section 123 of the Insolvency Act 1986 (respectively, Section 123 and the 1986 Act) in the forfeiture provisions of a lease without specifying any amendments to the statutory language and thereby provides a reminder of the importance of careful and accurate drafting.

In this note we consider the key takeaways from the decision. For our in-depth analysis of the decision of the court in this case, and its wider repercussions for commercial landlords, please see our article.

Court ruling highlights risks for landlords of inaccurate forfeiture provisions in lease drafting

The case - which also raised but did not answer the question of whether a reference to Section 123 can apply to an overseas company - established that judicial determination of a company's inability to pay its debts is crucial for lease forfeiture pursuant to Section 123(1)(e) or Section 123(2). When negotiating the forfeiture provisions of any new lease it would be wise for a landlord to look carefully at the wording of any references to Section 123 and consider whether they are appropriate or if they should be appropriately adjusted as a bulwark against any uncertainty in their application. 

The facts of the case involved a dispute over the forfeiture of a lease for an office building leased by a WeWork Group SPV English company. The guarantor, WeWork Companies LLC, had undergone a division under Delaware law, resulting in two entities: the Surviving Company and the Resulting Company. The Surviving Company - which retained all assets of the original guarantor company and had granted an indemnity to the Resulting Company in respect of the liabilities to which the Resulting Company was subject as a result of the guarantees allotted to it - filed for Chapter 11 bankruptcy, raising concerns for the landlord about the Resulting Company's ability to fulfil its guarantor obligations. Accordingly the landlord sought to forfeit the lease based on the guarantor's inability to pay its debts, citing forfeiture provisions in the lease which referred to “the Tenant or the Guarantor being unable to or deemed unable to pay its debts within the meaning of sections 122 or 123 of the 1986 Act” as an appropriate grounds for doing do. 

The question for the court was how to interpret the forfeiture provisions in the lease, which included statutory language from Section 123; and in particular whether it was necessary to prove to the satisfaction of the court that the Resulting Company as guarantor was unable to pay its debts on the basis that the value of the Resulting Company's assets was less than the amount of its liabilities, taking into account its contingent and prospective liabilities. The judge ruled in favour of the tenant, stating that a judicial determination of the guarantor's inability to pay its debts was necessary before forfeiture could proceed. 

Mitigating risks for landlords: the need for clear forfeiture clauses

Given the conflicting case law on which we elaborate in our in-depth analysis, it feels as if there is still scope for another, future court to reach a different decision on the same facts. However, in the meantime, this case underscores for landlords and their lenders the necessity of thorough due diligence and careful drafting of lease agreements. Ensuring that forfeiture provisions are clear and unambiguous can help mitigate risks and avoid prolonged legal disputes.