Supreme Court decision highlight’s corporate structure risks for retail, hospitality and restaurant businesses

A recent decision from the Supreme Court concerning Glasgow’s historic Rogano restaurant highlights the commercial risks of separating a commercial property’s leaseholder from the company operating the business.

Although the appeal concerned Scots law, it provides a useful reminder for businesses across the UK of the risks that can arise where a leaseholder and trading company are separate legal entities.

The decision does not change English law but illustrates the risks posed when corporate structures and occupational arrangements are not aligned.

The case: Forthwell Ltd v Pontegadea UK Ltd

Forthwell Ltd held the lease of the premises from which the Rogano restaurant operated. It granted a licence to occupy to its subsidiary, Lynnet Leisure (Rogano) Ltd, which operated the restaurant.

Following flooding and a fire, the premises became unusable. Disputes arose between Forthwell and its landlord concerning repair obligations. Lynnet consequently suffered lost trading profits, which Forthwell sought to recover from the landlord.

The Supreme Court ultimately found that Forthwell  was not responsible for reimbursing the restaurant operator’s lost profits. Those losses belonged to a separate company and the Court declined to create an exception to the general rule that a party can only recover damages for its own losses, rather than those suffered by a separate legal entity.

The commercial risks

There are legitimate commercial reasons for separating property interests from trading operations. Businesses may wish to ring-fence property assets, isolate trading liabilities, centralise property management, facilitate investment or make it easier to sell individual operations.

However, using separate corporate personalities to hold a property and operate a business can have legal consequences. In this case, the leaseholder of the restaurant and company that operated the restaurant are different entities. As a result, the company suffering the financial loss will likely have no direct claim against the landlord. Equally, the leaseholder cannot automatically recover its subsidiary’s lost profits.

In its ruling, the Supreme Court considered potential exceptions to the general rule, including permitting recovery of certain losses in particular circumstances. However, it concluded that Forthwell’s claim did not satisfy the requirements. and rejected the broader exception advanced in the proceedings.

While the case was decided under Scots law ,the lessons are equally relevant for businesses in England and Wales. The significance of the case for English businesses lies not in any change to the law, but in its illustration of the risks inherent in this type of corporate structure.

The case also highlights  a further property risk. The lease prohibited subletting and sharing possession, and the Court noted that the licence appeared, on its face, to breach those restrictions. Arrangements that do not comply with a lease may expose the tenant to enforcement action and, depending on the circumstances, potential termination of lease.

Businesses should therefore consider not only how losses might be recovered following damage to their premises, but also whether their occupational arrangements comply with the lease.

Key takeaways for businesses

• Review corporate structures: Ensure the leaseholder and operating company are appropriately aligned.
• Check occupational arrangements: Confirm that licences comply with restrictions on subletting, sharing possession and permitted use.
• Protect recovery rights: Consider contractual protections, third-party rights and indemnities.
• Assess forfeiture risks: Understand the consequences of a potential lease breach and whether landlord consent or a variation of lease is required.
• Review insurance: Ensure property damage and business interruption cover reflect the actual corporate structure and allocation of risk.

Separating property and trading operations can offer legitimate commercial advantages. However,  businesses should ensure that their leases, occupational arrangements and risk protections reflect how their premises are actually used.

How Hamlins can help

The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.