CVA Case Law Created By A KSA Client – Thomas Vs Ken Thomas Ltd

Thomas Vs Ken Thomas Ltd and the Court of Appeal upheld our clients position.

The case can be summarised as below:

The Court of Appeal’s decision in Thomas v Ken Thomas Limited highlights a significant aspect of the landlord-tenant relationship concerning the appropriation of payments made by a tenant in arrears and where a CVA is proposed. Here’s a summary:

Key Issue:

The case dealt with whether a landlord can appropriate (allocate) a tenant’s payment towards rent for a period other than the one specified by the tenant. The court examined the implications of accepting payments from a tenant who has specified the payment to cover rent for a particular – in this case one month in advance – period.

Facts:

Ken Thomas Limited, was a medium sized loss making haulage contractor requiring a turnaround. It approached KSA to oversee a CVA led restructure. It leased over 1million square feet of logistics premises  from Mr. Thomas but fell into rent arrears and became insolvent. It proposed to enter into a Company Voluntary Arrangement (CVA).  During the CVA construction/ preparatory period, our KSA operations director, Iain Campbell agreed with the landlord that the tenant would pay future rent on the first day of each month for that month, whilst arrears were frozen. This was agreed in writing with the company and the landlord. The company offered to pay the monthly rent for December and subsequently for January, specifying the allocation of these payments. Mr. Thomas, however, unilaterally applied these payments to previous arrears and claimed the company was in breach of the lease and sought forfeiture action in the Norwich County Court, which was granted.

Decision:

The Appeal Court ruled in favour of Ken Thomas Limited, finding that Mr. Thomas had waived his right to forfeit the lease by accepting payments specified for December and January rent, thereby binding himself to the tenant’s appropriation of the rent funds. The court emphasised that a landlord must refuse or return the payment if they disagree with the appropriation specified by the tenant, to avoid waiving their right to forfeit the lease for non-payment.

Legal Principle:

The case underscores the principle of appropriation in the landlord-tenant context, stating that a tenant can decide how their payments are to be allocated if specified. Absent such specification, the landlord could choose the allocation.

Implications:

This judgment highlights the importance for landlords to understand the implications of accepting payments from tenants in arrears. It illustrates the need for landlords to be clear about their commercial objectives and the potential consequences of accepting payment against the backdrop of a breach of covenant. The case also led to the common practice of including ‘no waiver’ clauses in leases to protect landlords from inadvertently waiving their rights to remedies for breaches by accepting rent payments.

Looking at this case some 15 years later we remember how difficult it was but the company had its CVA accepted by creditors with KSA leading the restructuring project. Our more recent cases are highlighting that many landlords premises are “overrented” post Covid and may need to either be exited using the CVA or have the rent varied by a well written CVA.  We are currently working with haulage and logistics companies recruitment companies, software/tech companies, manufacturing companies and retailers to assist them to reduce fixed costs like rent.

If you are a tenant of a commercial premises and your business  needs to restructure, or is considering exiting the lease to support cashflow then you need expert advice. It could be a CVA is the appropriate tool to use. KSA Group helped create the above case law  so you can be sure we know a thing or two about CVAs and properties.