Successful real estate deals and dispute resolution need local lawyers with deep knowledge of their jurisdictions. We have frequently heard it said that real estate, by its very nature, does not have an international focus as it is governed by the laws of its jurisdiction alone. However, at Herbert Smith Freehills Kramer, the only law firm with top tier Chambers Real Estate rankings in the US, UK and Australia, three of the world's largest real estate markets, we understand the importance of the connections between them. In this new series of blogs and articles, we explore these connections and how they impact our clients.
In our first instalment of this International Insights series, we focus on tenant insolvency in the UK, European and US commercial real estate markets. It is increasingly common for international businesses to structure their real estate holdings by offering a locally-incorporated special purpose vehicle (SPV) company as the tenant under the lease. As these SPVs typically do not have any assets or financial strength, landlords often require security in the form of a guarantee from a group company with a stronger balance sheet. The terms of the guarantee generally oblige the group company to comply with the lease obligations itself if the tenant defaults, such as continuing to pay the rent or taking an assignment of the lease. But landlords must take care to focus on the individual parties to the lease and isolate them from the brand of the group.
In a widely reported dispute between WeWork and Almacantar, the landlord issued court proceedings in December 2023 to forfeit the lease of the co-working group's flagship serviced-office in London. The lease, granted for 20 years to an English SPV with a US guarantor, contained a typical forfeiture clause, which allowed the landlord to re-enter the property and terminate the lease in specified circumstances. These included English insolvency procedures for the tenant or guarantor and "any order or event occurring in any jurisdiction that is analogous to or has a similar effect or result to" those insolvency procedures.
The US guarantor underwent a reorganisation and sub-division process (in accordance with Delaware laws), which resulted in a new guarantor entity assuming the lease obligations, whilst most of the assets and financial strength of the group were transferred to the other sub-divided entity. The original group company guarantor filed for Chapter 11 bankruptcy. The landlord's primary position was that the reorganisation was ineffective or should not be recognised under English law, and the Chapter 11 filing triggered the forfeiture clause as it was analogous to, or had a similar effect or result to, the English insolvency procedures referred to in that clause.
The parties reached a commercial settlement in February 2025, so we do not have the benefit of judicial guidance on this issue, but it highlights the interplay between local insolvency laws and a landlord's potential remedies under the lease.
Where the key value of security lies in a different jurisdiction, very careful consideration should be given to their insolvency and restructuring regimes. Our guide, Crossing Jurisdictions, focuses on five jurisdictions – France, Germany, Spain, the UK and the US – and provides an overview and comparison of the insolvency processes that apply in each jurisdiction. In particular, we consider:
- What are the main insolvency/restructuring processes a landlord may encounter in relation to their tenant?
- What remedies does a landlord have for the recovery of rent arrears and how are these impacted by insolvency proceedings?
- How can a landlord regain possession of their property during insolvency proceedings?
- What is the impact of a tenant's insolvency on under-tenants/guarantors?
Understanding the differences between the regimes is critically important for landlords and investors looking to expand into commercial real estate in other jurisdictions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
