Valley Park Distribution Depot, Rugby

Valley Park was ‘inherited’ by the Co-op as a surplus lease liability through merger activity. The property comprised a 332,265 sq ft modern distribution unit held on a full repairing lease until 2023 at a rent of £1.732m pax and sub-let to Woolworths. Following the insolvency of Woolworths, the property reverted back to the Co-op via privity of contract and a Section 17 Notice.

Despite the modern age of the building, the floor slab was found to be defective rendering the property unlettable. Due diligence identified that the defects liability period under the construction contract was due to expire and legal proceedings were launched to preserve the protection of the collateral warranty. As the original contractor denied liability, we were forced to undertake the remediation works at a cost of £1.56m to mitigate the Co-op’s losses. This cost, together with consequential losses for loss of sub-rent, business rates, insurance, security etc formed part of our claim against the original contractor who eventually settled out of court.

With the building back in full repair and capable of operational use again, the property was marketed and sub-let to DHL at £1.732m pax until 2019. This still leaves a liability period, reflecting the shortfall between the head lease and sub-lease terms for which an IAS37 provision will still be required. The surplus lease liability has however been significantly mitigated by the DHL sub-lease and should DHL renew in 2019, the provision will be reduced still further.