Addleshaw Goddard has won a test case in The High Court which sets an important precedent regarding the grounds upon which landlords of commercial retail premises can protect their interests.

In February 2006, Powerhouse proposed a CVA under which it would close 35 of its 85 stores that were making a loss. Landlords of the closed stores, whether they had guarantees or not, would be paid only 28p in the pound, and other classes of creditors would be paid in full. In addition, PRG would be released from its guarantees. At a meeting of all the creditors, including those to be unaffected by the terms of the CVA, the proposals were accepted.

Addleshaw Goddard was advising the property investment funds of British Land, Scottish Widows, and Standard Life Investments in a dispute with electrical retailer PRG Powerhouse Ltd, the supervisors of its Company Voluntary Arrangement and its parent company PRG Group (now called The Wall Group) regarding the use of the CVA to absolve PRG from guarantees or compensation given in respect of Powerhouse’s obligations under its leases.

The court heard two preliminary issues. Addleshaw argued that the CVA could not release the guarantees and also that landlords who had guarantees had been treated unfairly by receiving no benefits.

Louise Verrill of Addleshaw Goddard said: “In our view, it would have set a very dangerous precedent for financially unstable companies to terminate parent company guarantees at will. Any other result than victory for our clients would have undermined the value of such guarantees in the property sector and had a significant effect on the value of the commercial property. It would also have had a major impact on all sections of UK Plc where guarantees have been given.

“Today’s decision will be welcomed by landlords who now have greater clarity as well as protection from the law to recover monies owed to them.”

Ian Fletcher, commercial and residential director, said: “It highlights points of principle. I am glad it was resolved in the courts, as otherwise our members would be seeking changes in legislation, which isn’t now necessary. It is a significant win for the property industry.”