Administrators beware when a landlord seeks to forfeit a lease
Tuesday 28th June 2016
Following the case of Re SSRL Realisations Ltd (In Administration), there are lessons to be learnt for Administrators when faced with a dispute over a lease.
In this case the landlord applied for permission to forfeit the lease held by the tenant (in administration) by peaceable re-entry. The Court, in allowing the application, decided that the purpose of the administration would not be impeded by granting the landlord permission to pursue its proprietary rights and that there was no identifiable purpose of the administration which would be served by limiting the landlord to seeking forfeiture by legal proceedings, rather than by peaceable re-entry.
In addition the Court found that there were no grounds to believe that the Administrators would be able to achieve a premium by assigning the lease; even if there were grounds to believe that the Administrators would be able to obtain a premium, the likely level of that premium would be comparatively small.
The Court considered that the landlord would therefore suffer greater loss if permission was refused than the loss that the company in administration would suffer if permission were granted.
There are a few areas where this judgment is helpful in clarifying the law. In particular:
- the Court will not accept that the deferred consideration payable by a pre-pack purchaser in the event of a successful assignment is the true or market value of the lease;
- an administrator must show not only that a lease has some value, but that it is of sufficient value that a failure to assign the lease will in fact impede the achievement of the purpose of the administration;
- in carrying out a balancing exercise, the landlord’s inability to re-let a property to another tenant at a higher rent is an important factor to be taken into account, not a windfall benefit which ought to be given no or little weight.
Lessons we can learn:
- Administrators must take care to ensure that they have robust evidence that the lease has value and that the value is not minimal in the context of the Administration as a whole. Administrators should also be very careful to engage with the landlord and not leave negotiations about the assignment solely to the would-be assignee.
- Sub-tenants with retail landlords (such as BHS) in insolvency will need to keep an eye on possible forfeiture in cases such as this, as that will often have a dramatic effect on the sub-tenant’s business.
For more information please contact Sallyanne Phillips on 01274 703 925 or at firstname.lastname@example.org.