In a recent case , a landlord was granted permission to forfeit a lease it had granted to a tenant company which was in administration.
The landlord owned a shopping centre, from which the tenant had run a restaurant prior to the tenant entering administration. The tenant’s administrators applied to assign the lease to a subsidiary of the tenant (STL) in 2014. The landlord refused to give permission for the assignment on the basis that STL was not of sufficient financial standing and that the tenant had not offered an authorised guarantee agreement (AGA) as required under the lease. The administrators applied again for consent to assign the lease to STL. The landlord asked for clarification on a number of issues, but got no response, and refused to consent. The landlord then asked the administrators for confirmation of steps taken to market the lease to entities other than STL but received no response. The landlord issued the application for permission to forfeit the lease and in response the administrators gave evidence that another company (W) had offered to acquire the leasehold interest for a premium of £250,000 and that such offers demonstrated that the lease had significant value. The landlord stated that it would have accepted W as an assignee, but W had confirmed that the lease was not suitable as it had not been aware that the landlord had terminated an outdoor seating licence.
The issues to be decided were whether:
- Forfeiture would impede the purposes of administration
- If the purpose of the administration was impeded, where the balance lay between the landlord and the creditors’ interests
- Forfeiture should be by peaceable re-entry or by way of court proceedings.
The landlord submitted that forfeiture would not impede the purposes of the administration but that if a balancing exercise fell to be performed, the balance came down in favour of granting the relief because otherwise the landlord would suffer financial loss by being denied the opportunity to grant a new lease at a higher rent to a new tenant.
The administrators submitted that the purpose of the administration would be impeded by forfeiture as the leasehold interest represented a valuable asset which would allow the administrators to achieve a better result for the tenant’s creditors.
The Court granted to application and made the following findings:
1. In response to the first question of whether forfeiture would impede the purposes of the administration, the Court followed a previous ruling. It was ruled that the higher the value of the lease the more likely it was that the purpose of the administration would be impeded by forfeiture. In the instant case, the purpose of the administration would not be impeded by granting the landlord permission to pursue its proprietary rights. There were no grounds to believe that the administrators would be able to achieve a premium by assigning the lease. The lease had some potential premium value, but the administrators were unable to unlock that value due to the landlord’s lawful exercise of its rights, including the right to terminate the outdoor seating licence, and to require the provision of an AGA. If, contrary to those findings, the administrators did obtain a premium, the likely level was modest, and likely to be significantly less than the £250,000 offered by W who had not appreciated that there was no seating licence. The sum would be so small in comparison to the estimated shortfall to creditors of £11m that its lack of recoverability would not impede the purpose of administration.
2. When balancing the landlord’s legitimate interests with those of the creditors the Court considered that the administrators had taken the risk that their attempts to obtain the landlord’s consent to assign to STL would fail, and by the time of the hearing they were not able to demonstrate that other avenues were available. There was no reason why the administrators should be allowed a further opportunity to market the leasehold interest in order to realise the benefit of the lease for creditors. In the meantime, the landlord had lost the opportunity to lease the property to a new tenant on terms which would have been financially advantageous. The guidance in Atlantic Computers recognised that administration was intended to be only an interim and temporary regime and by the time the matter came to court they had been appointed for nine months.
3. In response to the third issue to be considered, the Court ruled that the landlord was not restricted to seeking permission to forfeit by way of court proceedings.
 Re SSRL Realisations Ltd (in administration) also known as Lazari Investments Ltd v Saville