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Court clarifies when landlords can forfeit the lease of a tenant in administration

Landlords can forfeit a lease held by a tenant in administration if the landlord’s losses where the tenant remains in occupation significantly outweigh the administrator’s losses if the lease is forfeited, a ruling makes clear.

A tenant went into administration. The landlord wanted to forfeit the lease by peaceable re-entry but the administrators argued that there was a potential new tenant (lined up in advance as part of a complex pre-pack arrangement) who was now occupying the property in breach of the lease – if the landlord consented to the assignment of the lease to the new occupier, the administrator would receive a significant premium (of around £250k), to help pay off the tenant’s creditors.

Under insolvency law landlords are not allowed to start any legal action against an administrator, including forfeiture by peaceable re-entry, unless the administrator agrees or the court gives its permission. The landlord refused to consent to the assignment on grounds the proposed assignee was not of sufficient financial standing, and there was no suitable guarantee. It applied to the court for permission to start forfeiture proceedings.

The landlord argued that:

  • Its refusal to consent to the proposed assignment was reasonable
  • It had lost the opportunity to grant a lease to a new, viable tenant because of the existing tenant’s continued occupation
  • The premium of £250k was a small sum compared to the tenant’s overall losses of £11m

The court decided that the landlord’s refusal to consent to the assignment was reasonable and that, on the facts, the loss to the landlord if the tenant remained in occupation significantly outweighed the loss to the administrators if the lease was forfeited. It therefore gave the landlord permission to start forfeiture proceedings.

Operative date

  • Now

Recommendation

  • Landlords wishing to recover property from tenants in administration may be able to do so if, on balance, their losses if an unauthorised occupier remains in occupation significantly outweigh the administrator’s losses if the lease is forfeited

Case ref: Re SSRL Realisations Limited [2015] EWHC 2590

9 December 2015

Alex Cook initially trained as a Barrister (non-practicing) before cross-qualifying as a specialist commercial and property litigation solicitor. Prior to becoming joint owner of Helix Law in 2013, he was Head of Litigation and one of the youngest partners in the region in a large firm based in Eastbourne. Comfortable and experienced litigating against large international City firms, he has successfully resolved complex commercial and property disputes for clients ranging from large international businesses and property investors to individual business people. Alex is an accredited commercial mediator  and he is increasingly asked to advise on contracts, risk, dispute avoidance and exit strategies. He also continues to develop and innovate our products, services and funding arrangements with the aim of making specialist litigation services more transparent and accessible.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Contact Helix Law on 01273 761 990 or email: [email protected]