Tenants In Administration

Charles Russell have recently acted for landlords in the high profile administrations of Game and Blacks, in both cases managing to get not just the rent paid but also achieving forfeiture.

With further administrations likely, particularly immediately following each quarter date, this article sets out a landlord's choices when faced with a tenant in administration, focussing on the two issues that concern landlords the most:

Will my rent be paid? Can I get the property back? Moratorium

The administration process starts when the tenant files a Notice of Intention to appoint an administrator. As soon as this is done, the tenant is protected by a moratorium which prevents any action being taken by creditors. This means that a landlord cannot distrain on rent or forfeit against a tenant in administration unless the landlord either gets consent to do so from the administrator or permission from the court.

Administrator's strategy

An administration in the sense of a property portfolio is usually a restructuring exercise. The administrator will separate out the profitable stores in the portfolio from the nonprofitable stores. The first thing a landlord should do therefore is ask the administrator whether he is prepared to pay rent as an expense of the administration. In response the administrator will usually offer a surrender of the non-profitable stores.

The administrator will however wish to continue to use the profitable stores. In that situation it used to be that the administrator would offer to pay rent as an expense of the administration during their period of occupation only. This has been somewhat complicated by two recent cases of Goldacre and Luminar (see below).

Assignment to licensee

The administrator will often 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 (usually in breach of lease) and will seek retrospective consent from the landlord to assign to that newly incorporated company.

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

A response to any request to assign needs to be swift but also carefully considered as a landlord cannot add subsequent reasons later for their refusal to consent to assign. If the landlord gets it wrong...