WeWork - How far can it flex?

It's not the first occasion that a major serviced office provider has landed in a corporate restructuring but it may be the most high-profile. The current evolving situation follows on from such previous fireworks as the failed IPO, a corporate reorganisation that swapped a US headco "inc.“ for an "LLC" (prompting litigation at the end of the last decade), and continuing market uncertainty as to the robustness of the brand. 

Our experience for landlords in managing matters involving WeWork goes back to the era of the inc./LLC swap. Typically, WeWork appears to operate on the basis of an SPV tenant with a US senior guarantor whose liability is then capped. This is the case even though WeWork leases have been granted with terms measured in decades. There is now the potentially complex interaction of US and UK insolvency proceedings, and landlords considering their remedies in circumstances where they may (or may not) have the right to terminate their leases to WeWork and/or rights against a US guarantor compromised in the Chapter 11. If they do, then they may be faced with challenges such as claims for relief from forfeiture, and the added question as to what to do about existing serviced occupiers who were clients of WeWork.

Decisions as to how/where to make a claim, and how to deal with the practicalities such as ownership of fit-out, obstacles to reletting, and opportunities for recovery of monies through the insolvency process, are likely to arise very swiftly.

So too is any question as to whether a landlord, or a group of landlords, is willing to challenge the current processes including through possible multi-jurisdictional Court action. Given that WeWork has stated that its current intention is to continue to work with some landlords and to seek to exit from unprofitable locations, the obvious question is what rights the landlords of those properties intended to be discarded might have. This situation is similar to the classic negotiations with a distressed tenant threatening insolvency proceedings (or CVAs or restructuring plans) where creditor rights can be impaired.

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