We have written before on the subject of Landlords’ remedies when there is a pre-pack administration where a new company is formed to buy the viable part of the business and is put into occupation by the administrators without even prior notice to the landlord let alone landlord’s consent.
Although the new company may have been given a licence by the administrator, that amounts to unlawful occupation and a breach of the tenant’s alienation covenants in the lease as far as the landlord is concerned. Normally the unhappy landlord could bring an action against the tenant company for breach of the lease
In some tenant insolvencies the landlord might be happy to accept the new company’s occupation and so will permit a formal assignment of the lease to them. However, in many cases, the landlord will view the new company as being at least as risky a covenant as the tenant that has gone bust and will want to remove them as soon as possible in order to re-let at a market rent to a more substantial covenant. If so what can the landlord do?
The problem for landlords is that under the insolvency legislation, no action can be commenced against the company in administration, including forfeiture by peaceable re-entry, without the consent of the administrators or the permission of the court. The administrators likely won’t consent, as they will be receiving a fee from the company in occupation, for the benefit of the administration. So, should a landlord press on to court? Is there a realistic prospect of getting the occupier out?
The recent case of Re SSRL Realisations Limited provides some hope for landlords. In this case, the premises were restaurant premises in Brunswick Shopping Centre. The administrators argued that to forfeit the lease would impede the administration, as they could extract a premium under the terms of the lease from an assignee, if the landlord would give consent to assign. That premium (found to be £250,000) would benefit the administration. The landlord, on the other hand, had legitimately refused consent to assign and had evidence that a third party letting had been lost as a result of the continued occupation of the company. The court found that the administrators could not unlock the value of the lease to the tenant, since consent to assign had been reasonably refused. In any event, the value was insignificant compared to the shortfall in assets of some £11m.
As always in these cases, the landlord’s interests had to be balanced against the interests of the creditor body and on these particular facts, the landlord’s loss in not being able to assign the lease and the time taken to get the matter before the court, significantly outweighed the loss to the administration.
A landlord will have to be determined to spend time and money if it pursues a claim for forfeiture against an administrator, but, in the right circumstances, perseverance will be rewarded and a claim will be successful.