The recent High Court decision in Lazari Investments v Saville & Ors, which involved the Strada restaurant chain, should provide some comfort for landlords that often face frustrating experiences when a tenant goes into administration.

The Insolvency Act moratorium protects the insolvent tenant from forfeiture and the landlord frequently finds that a third party is allowed to occupy its property on a licence from the administrators.

Negotiations for an assignment of the lease or for a new lease can be protracted. Landlords can feel constrained to negotiate with this party even though they would prefer to expose the property to the open market.

As is often the case, in Lazari Investments v Saville & Or, the landlord was offered a wholly inadequate covenant in the shape of a newco as assignee and as guarantor. The landlord proved that it could find a good quality covenant willing to pay a higher rent in the open market. Negotiations dragged on inconclusively over nine months with little attempt to address the inadequacy of the covenants on offer.

But the landlord’s robust approach was rewarded. Even though the lease had a further 16 years to run and secured creditors would have benefited financially from the assignment, the landlord was given leave to forfeit the lease.

The whole process had taken too long and the landlord was entitled to refuse consent to assign to an inadequate covenant. Perhaps surprisingly, while the administrator could point to the loss of the secured creditors, the landlord was entitled to take into consideration its financial interest in being able to forfeit the lease and obtain a higher rent on a reletting. Therefore the landlord got its windfall.