Insolvency practitioners have been dealt a blow after the high court forced the administrator of restaurant chain Strada to relinquish its Brunswick Centre lease in London.
Judge Richard Spearman QC granted the landlord permission to forfeit the lease, which was entered into in 2007 and still had more than 16 years left to run.
After the companies which operate the Strada chain entered a complex pre-pack administration in September 2014, the administrators had been trying to assign the lease to new tenants Strada Trading Limited (STL).
However, new landlord Lazari Investments Limited – which bought the Brunswick Centre in November 2014 – opposed the move, arguing successfully that the new tenant was leasing the site illegally and that the administrators had taken far too long to find an acceptable assignee.
They also successfully argued that the fact that rent was still being paid did not supersede its right as landlord to forfeit the lease, claiming that if permission were refused, the landlord would suffer financial loss by being denied the opportunity to grant a new lease of the property at a higher rent to a suitable tenant which can offer a good covenant.
Judge Richard Spearman QC ruled that the purpose of the administration “will not be impeded by granting the landlord permission to pursue its proprietary rights”.
He said that there are no grounds to believe that the administrators will be able to achieve a premium by assigning the lease. Although he accepted that the leasehold interest has some potential premium value, because the current rent is lower than the market rent, he added: “However, the administrators are unable to unlock that value due to the landlord’s lawful exercise of its rights.”
He said: “The legislation, the case law, and as far as I am aware the arguments before me, do not go so far as to suggest that a lessor is not entitled to rely on rights which it can invoke without legal process, even if it would further the purpose of the administration for the lessor to agree or to be prevailed upon not to rely on them.”
Although the administrators have been paying rent, he added that this does not mean that there has been “no loss” to the landlord as a result of the administration and the temporary occupation by STL.
He concluded: “I do not consider that the purpose of the administration would be impeded by granting the landlord permission to exercise its rights of forfeiture; even if that is wrong, I consider that the balancing exercise which the court has to perform if the grant of permission would impede that purpose comes down in favour of granting the landlord the permission that it seeks; and I do not consider it appropriate to limit the landlord to forfeiting by legal proceedings.”
David Marsden, a partner at Charles Russell Speechlys which acted for Lazari, said that the judgment provides a much-welcome additional protection to landlords of commercial property.
He said: “The case is important for a couple of reasons. First that it warns administrators that even if they are paying rent that does not buy them use of the property for as long as they want. Administration is supposed to be a temporary measure not a delay of nine months as in this case.
“The other key point is that, even if administrators are suffering financial prejudice as a result of forfeiture, it does not necessarily mean that it impedes the purpose of the administration.”
In the matter of SSRL Realisations Ltd (In Administration) Chancery (Richard Spearman QC) 14 September 2015
Blair Leahy (instructed by Charles Russell Speechlys LLP) for the applicant
Katharine Holland QC (instructed by Taylor Wessing LLP) for the rspondents
