Latest decision on hotel room leasing

The latest decision on the failure of a hotel development where investors were purportedly granted long leases over hotel rooms in return for investment has taken place in Northern Ireland.

The developer encouraged investment from members of the public in return for the granting of long leases over rooms on completion of the development. The development never completed and, with only 70% of the work done, the developer went into administration.

The administrators’ (and the first ranking secured lender’s) view was that the property should be sold to the highest bidder on the open market “as is” as they had no funds to complete the development. The investors disputed that position arguing that an investor could be found to fund completion of the development so that the completed hotel could be sold and all parties could recover in full.

The administrators applied to court for directions asking the court to sanction the “sold as is” approach and to confirm the priority of distribution of sale proceeds. The investors objected and obtained adjournments on the back of proposals by a prospective investor.

However, the investor’s proposals, despite requests, lacked clarity and detail and the court ultimately held, after two years of the administrators, that the “sold as is” was the correct approach. The court accepted that the investors had purchaser’s liens in light of the unfulfilled contract to grant them long leases, but held that those liens ranked behind the expenses of the administration, the lender’s security and a charging order.

Re Bedford Hotel Limited [2022] NICh 10

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