Landlords: Beware The Quarter Date - Tenants In Administration

Last year saw a spate of high profile retailers entering administration. In 2012 Blacks, Peacocks, Clinton Cards, La Senza, Game, JJB Sports, Comet and Past Times all went into administration. That trend has continued into the first quarter of 2013 with Blockbuster, Jessops and HMV being the highest profile examples.

For landlords covenant strength is now more important than ever. Landlords need to be particularly vigilant just after the quarter date as, for reasons explained in this article, that is when tenants are now tending to go into administration.

Administrator's Strategy

When a tenant goes into administration the administrator will usually separate out the profitable stores in the portfolio from the non-profitable stores. The administrator will write to the landlords of the non-profitable stores and offer a surrender of the relevant lease.

The administrator will wish to continue to use the profitable stores but whether the administrator will pay rent as an expense of the administration for that use is dealt with below.

Pre-Pack

Often, the administrator will sell the assets of the company in administration to a newly incorporated company. The administrator will then grant a licence to occupy to that newly incorporated company and will seek retrospective consent from the landlord to assign the relevant leases to that company.

The terms on which a landlord can or cannot refuse consent to assign are set out in the lease for each property. Often, a landlord can reasonably withhold consent to an assignment to a newly incorporated company on the grounds of financial standing.

Effect of Administration

Once a Notice of Intention to appoint an administrator has been filed at court, the company is protected by a moratorium which prevents any action being taken by its creditors. In the context of a lease the moratorium prevents the landlord from:

distraining on rent (instructing a bailiff to seize goods); or

forfeiting the lease (i.e. terminating the lease by proceedings or peaceable re-entry).

Forfeiture is therefore only available against a tenant in administration where the landlord either obtains consent from the administrator or permission from the court.

Forfeiture

If a landlord makes an application for permission to forfeit, the court will follow the guidelines in Atlantic Computer Systems Plc [1992] Ch 505 (CA). It is essentially a two fold test:

1. Purpose of Administration: permission should normally be given if forfeiture is unlikely...