A problem frequently faced by landlords in the current economic climate is that of tenants who time their entry into administration so that it takes place just after rent payable in advance on a quarter day has fallen due. This growing practice has left landlords frustrated and out of pocket.
Entry into administration triggers a statutory moratorium that prevents forfeiture or other legal action to recover rent arrears (including distraint) unless the administrator consents or the court gives permission. In the meantime, the rent arrears for the quarter day that has just passed merely rank as an unsecured debt, even if the administrator has retained the lease for the benefit of the administration. The landlord in Leisure (Norwich) II Ltd and others v Luminar Lava Igna Ltd (In Administration) and others  All ER (D) 165 May, who challenged the administrator's refusal of consent, found this to his cost. The court rejected the argument that the rent for the preceding quarter day should, if the administrator withholds his consent to forfeiture, fall to be paid as an expense of the administration. Having accrued before the start of the administration, it could only be proved for, like any other pre-administration debt. In the meantime the administrator could continue to use the premises, in effect rent free, until the next quarter day.
Landlords will therefore welcome the recent decision of Mr Justice Briggs in Lazari GP Ltd v Gervis  EWHC 1466 (CH). Here, despite the joint administrators' objections, the court gave the landlord permission to forfeit. The administrators had implemented a "pre-pack" sale of the tenant company's business, granting the buyer a licence to occupy the premises, and were now seeking permission to assign the lease. This was (reasonably) refused as the new company did not represent a good covenant. Instead, having found an alternative tenant willing to take a new lease at a higher rent, the landlord requested the administrators' consent to forfeit on the grounds of insolvency and unlawful occupation. The administrators refused and the landlord applied to the court.
When refusing consent, the administrators had failed to identify any prejudice that forfeiture would cause to achieving the purpose of the administration. The judge, noting this, found that the purpose of the administration had already been substantially achieved by the pre-pack sale of the business and concluded that granting permission to forfeit would not interfere with this. The landlord was allowed to peaceably re-enter.
This is an encouraging judgment for landlords, but should not be seen as setting a general precedent. Had the administrators been able to demonstrate that forfeiture would impede the achievement of the purpose of the administration, permission may well have been refused. What the case does demonstrate is that when a tenant goes into administration, the prudent landlord should look carefully at the purpose of the administration and consider whether forfeiture could be shown to pose no threat to its achievement.