Case law: 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.
This update was published in Legal Alert - December 2015
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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.
- 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  EWHC 2590
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