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guidance when forfeiting against a tenant in administration

2 October 2015

In the matter of SSRL Realisations Limited (in administration)

Landlords faced with a tenant’s breach will usually have the contractual right to forfeit or terminate the lease. However if the tenant is in administration the landlord’s right to forfeit is prohibited without the permission of the court or the administrators. Previous case law has demonstrated that the court will grant that permission in certain circumstances and this case provides landlords with further comfort. 

The case of SSRL Realisations Limited (in administration) concerned premises in the Brunswick Centre in London let to the chain restaurant Strada. The companies operating the Strada chain entered a complex pre-pack administration in September 2014. At the time of the landlord’s application to court, the occupying tenant was Strada Trading Limited (STL) to whom the administrators had been trying to assign the lease for some nine months. The lease had over 16 years remaining. The landlord was granted permission to forfeit after arguing that STL was leasing the premises illegally and that the administrators had spent far too long trying to find an acceptable assignee.

In reaching its conclusion, the court applied the principles in Re Atlantic Computer Systems plc [1992] 1 All ER 476, namely: (1) whether the grant of permission would impede the purposes of the administration, and (2) if so, whether more loss would be suffered by the landlord if permission were refused than by the insolvent estate if permission were granted. 

As to the first issue, it was held, contrary to the arguments of the administrators, that there were no grounds to believe that the administrators would be able to achieve a premium by assigning the lease to a third party. The judge accepted that it might have some modest premium value, but noted that any such value was locked up due to the landlord’s legitimate exercise of its legal rights.

As to the second issue, the court referred to the guidance in Atlantic Computers and confirmed that an administration is intended to be a temporary regime only. The administrators’ delay of nine months, during which time they had focussed on STL and not on marketing the lease, did not accord with that guidance. The fact that the administrators had been paying the rent as an expense of the administration did not mean that there had been no loss to the landlord, rather, the landlord had lost the opportunity to grant a new lease of the premises at a higher rent to a tenant who could provide a good covenant. 

Commercial landlords can take comfort in this judgment, confirming that an administrator in this position would have to show not only that a lease has some value, but also that it is sufficiently valuable that any failure to assign it will impede the achievement of the purpose of the administration. This must be considered in the context of the administration as a whole and will need to be supported by robust evidence in order to succeed.

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