In September 2014 administrators were appointed over Strada restaurants (trading under SSRL Realisations Limited). The restaurant was tenant of a unit in a shopping centre in Bloomsbury.
The tenant's administrators proposed to assign the lease for a premium in order to fulfil their obligations under para 3 of Schedule B1 bearing in mind the objective to (a) rescue the company, (b) achieve a better result than winding up or (c) to realise property. The assignment was part of a pre-pack sale to Strada Trading Limited under an asset purchase agreement dated 22 September 2014. The administrators allowed the proposed assignee into occupation under a licence pending consent from the landlord to the assignment. That licence was in breach of the lease.
The landlord objected to the proposed assignment because the assignee was a newco and no AGA was offered. The lease specified various requirements the landlord could request as a condition of consent pursuant to section 19(1A) of the Landlord and Tenant Act 1927. The administrators later offered a 6 month rent deposit and a parent company guarantee but this still did not meet the requirements of the lease. The landlord asked the administrators if they had marketed the lease elsewhere but did not receive a response.
In December 2014 the landlord served a notice under s.146 of the Law of Property Act 1025 to forfeit the lease due to the tenant's insolvency and unauthorised sharing of occupation. Paragraph 43 Schedule B1 of the Insolvency Act 1986 requires that the landlord obtain either the administrators' consent or the Court's permission to forfeit due to the administration moratorium.
High Court's decision
The Court considered that the administrators' object was primarily to realise property under para 3(c) Sch B1 of the Insolvency Act 1986 and not to achieve a better result than winding up because the administrators had not identified any unsecured creditors. The premium on assignment would only benefit the secured creditors.
The Court gave the landlord permission to forfeit the lease because the administrators had not satisfied the landlord's requirements under the alienation provisions of the lease, because the proposed assignee was a newco and no AGA was offered. In addition, the landlord was able to show that it had alternative tenants willing to take the property. As items specified in the lease under s.19(1A) of the Landlord and Tenant Act 1927, the landlord was not unreasonable in refusing its consent.
Commentary
The administrators are seeking permission to appeal from the Court of Appeal. It is likely that permission will be given particularly as the assignment was part of a pre-pack administration. However, it will be interesting to see how the Court of Appeal balances the insolvency interests under a pre-pack and the landlord's rights under s.19(1A) of the Landlord and Tenant Act 1927.
This case is less a windfall for landlords and more of a reminder to lenders to carefully consider alienation provisions in leasehold security. Can the security be readily assigned without interference from the landlord?
Re SSRL Realisations Ltd (In Administration) (Lazari Investments v Saville & Ors) [2015] EWHC 2590 (Ch).
Charlotte May is an associate in Burges Salmon's Real Estate Disputes team led by James Sutherland.