Administrators are unlikely to be able to resist a landlord’s attempts to forfeit a lease, unless they can show two principal things. That there is a realistic prospect of the lease being lawfully assigned, and that there is a genuine benefit to the creditors of the company in the lease being retained, so as to further the purposes of the administration.
In SSRL realisations, the tenant in administration failed in its attempt to resist the landlord’s efforts to forfeit the lease.
The administrators argued that the creditors would benefit from a substantial premium that a proposed assignee would pay, and that the landlord was not prejudiced because rent was being paid as an administrative expense.
These were the landlord’s arguments:
- It was a condition of landlord’s consent to assignment that the assignee’s obligations were properly guaranteed. A proper guarantee was not available, and the landlord objected to the proposed assignee’s covenant strength.
- Because the landlord could block the assignment, and otherwise inhibit trade, no assignee would pay a premium.
- Any premium paid on the assignment would be distributed to the secured creditor. The general body of creditors would not receive anything.
- The landlord had a potential new tenant lined up with a better covenant strength than the proposed assignee.
It is no surprise that leave to forfeit was granted.
The case appears to have come to court because the administrators were being advised that the lease had some value, when it probably did not.
In very similar circumstances, the administrators in the well-known Luminar Leisure case agreed just before trial that they would consent to forfeiture.
They then successfully resisted the landlord’s claim for rent to be paid as an administration expense, a decision which was of course overturned in Game.
Parties in such circumstances should always carefully consider the conditions to any lawful assignment. If the lease contains pre-conditions that the insolvent tenant will likely not be able to fulfil, it will ultimately be very hard to resist a claim for forfeiture.