Effect of Dissolution of Tenant on Lease of Premises

This is an Inner House court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.

ELB Securities Ltd v. Alan Love & Prestwick Hotels Ltd, 18 September 2015

Background

Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006 (s1012), when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease. ELB therefore sought to recover possession of the subjects from Prestwick.

The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:

“The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.”

Arguments

Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.

Decision of the Sheriff Principal
However, on appeal, the Sheriff Principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.

As such, the Sheriff Principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that specific provisions concerning the company’s property (contained in ss1012 to 1014 and 1020 to 1022) should prevail over the general effect of s1032. Again Prestwick appealed.

Decision of the Inner House

The Inner House agreed with the approach taken by the Sheriff Principal and refused the appeal. When a company is dissolved and the Crown opts to disclaim the property, the effect is that (1) all of the company’s rights in the property are brought to an end (in terms of s1020(1)) and (2) the property is deemed not to have vested in the Crown (in terms of s1014) . This meant that PHL’s rights in the lease had been terminated from the date the Crown opted to disclaim the property. The judgement states:

“on a proper construction of the 2006 Act, “the general effect” of the restoration of the company as provided for by section 1032, namely “that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register”, merely provides for the general approach which is to be adopted in such circumstances; but that general approach must give way to the specific and detailed provisions concerning the company’s property as set out in sections 1012 to 1014 and 1020 to 1022. As a result, therefore, we consider that PHL’s rights in the lease came to an end on 15 July 2013. [The date the Crown opted to disclaim the property.]”

And goes on:

“The construction contended for by [Prestwick] would lead to uncertainty and confusion in the commercial world… In general, applications for restoration of a company may be made at any time in the six years following dissolution, but in the case of a personal injuries claimant, there is no time-limit (section 1030(1)). Thus on [Prestwick’s] construction, any transactions, contracts, titles, leases, and loans relating to the relevant company property would be struck at years later by an application for restoration resulting in an “as-you-were” position whereby the property simply reverted to the restored company as if the company had never ceased to exist and as if the dealings with the property over the recent years had never occurred… Parliament cannot have intended to produce such results.”

The full judgement is available from Scottish Courts here.

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