Where a company goes into administration, it remains liable for rent and other sums due under its leases. In the meantime, its landlords are prohibited from issuing proceedings to enforce the tenant’s covenants without the permission of either the adminstrator or the court.
Where such permission is sought, the courts are obliged to balance the landlord’s interests against those of other creditors. The requirement is intended to assist the company, under the management of the administrator, to achieve the purposes for which the administration order was made and to obtain a better result for the company’s creditors than would be likely were the company to be wound up. However, the court can order an administrator to pay rent as a cost of the administration if the premises are required by the company to facilitate the administration and the court refuses to allow the landlord to forfeit or distrain.
Sunberry Properties Ltd v Innovate Logistics Ltd (in administration) [2008] EWCA Civ 1261; [2008] PLSCS 314 illustrates how these controls can deprive a landlord of the carefully negotiated restrictions on alienation in its lease. The tenant went into administration; the administrator found a buyer for the business. The buyer wanted to occupy the premises for a short period, and did not therefore require an assignment of the tenant’s lease. The administrator granted the buyer a licence to occupy the premises for six months in return for a monthly licence fee.
The landlord applied for permission to issue proceedings for an order requiring the administrator to terminate the licence. The High Court upheld the landlord’s claim. The judge ruled that the purpose of the administration had been achieved immediately upon the sale and that the administrator had acted in a reprehensible and illegal manner by flagrantly breaching the restrictions on alienation in the tenant’s lease.
The Court of Appeal has overturned that decision. It ruled that the court must balance the interests of the landlord against those of other creditors and that the injunction sought by the landlord would impede the administration because the buyer wanted to use the premises to store and distribute goods to customers, many of whom owed money to the company. The landlord would lose interest on the rent that would normally have been paid quarterly, as opposed to monthly, in advance. However, it would benefit from the buyer’s occupation because the administrator was paying it the licence fee and the tenant’s rental obligations could not be discharged in any other way.
The position might have been different had the administrator allowed the buyer to occupy the premises rent-free in circumstances where rental payments to the landlord had also ceased. It is more difficult to predict how the courts might react were an administrator to seek to negotiate a lower rent for premises while they are required on the grounds that property values have fallen and that the company and/or any temporary occupier cannot afford to pay more.
Allyson Colby is a property law consultant
