SSRL Realisations Ltd, Re

On an application for permission to forfeit a lease of a company in administration, the court must first ask whether forfeiture would impede the purpose of the administration. If it would, the court must balance the legitimate interests of the landlord against those of the company’s creditors. The exercise is evaluative and includes the probable financial consequences, the administration’s prospects, its duration and the parties’ conduct. Significant loss to a landlord may include losing the opportunity to grant a more advantageous lease. A landlord’s prospective gain is not to be discounted as a windfall where it results from the parties’ contractual rights. The statutory moratorium does not prevent a landlord relying on rights exercisable without legal process. Permission may be granted for peaceable re-entry where no purpose of the administration would be served by requiring forfeiture proceedings.

Lazari Investments Ltd, the landlord of premises occupied under a lease by SSRL Realisations Ltd, applied for permission under paragraph 43 of Schedule B1 to the Insolvency Act 1986 to forfeit the lease. The tenant was in administration and had licensed a purchaser, STL, to occupy the premises in breach of the lease. The administrators contended that the lease was a valuable asset which could be assigned for the benefit of creditors. The landlord argued that consent to assignment had been reasonably withheld and that forfeiture would not impede the administration, or alternatively that the balance favoured permission. The central issues were the value realisable by the administrators, the effect of forfeiture on the administration, the landlord’s loss, and the proper form of relief.

1. Permission granted. The court applied the guidance in Re Atlantic Computer Systems plc [1992] Ch 505, as summarised and applied in Sunberry Properties Ltd v Innovate Logistics Ltd [2009] BCC 164.
2. The court first considered whether forfeiture would impede the administration. The proposed premium payable on an assignment to STL reflected the structure of the asset sale and not the open-market value. Consent to assignments to STL and CDG had been reasonably withheld because of inadequate covenant strength and the absence of an authorised guarantee agreement. Wagamama’s offer was conditional on a seating licence which had lawfully been terminated. There was therefore no real prospect that the administrators could realise a premium by an assignment to an acceptable assignee.
3. The moratorium was intended to postpone enforcement of substantive rights so that administrators could retain or realise assets. It did not prevent the landlord relying on contractual rights which could be exercised without legal process, including terminating the seating licence, refusing consent to an assignee, and requiring an authorised guarantee agreement.
4. Even if forfeiture would impede the administration, the balancing exercise favoured the landlord. The administrators’ possible loss was uncertain and modest. The landlord had suffered significant loss by being prevented from exercising proprietary rights and from pursuing more advantageous letting opportunities. That prospective benefit was not a windfall but the product of the parties’ contractual rights. Payment of rent removed the most obvious loss but did not eliminate the landlord’s other loss.
5. The administrators’ conduct did not amount to illegitimate or improper use of the moratorium. Nevertheless, the nine-month duration of the administration, the limited marketing of the lease and the failure to respond effectively to the landlord’s repeated position counted against them under the principle that a landlord’s proprietary interests should be prejudiced only to a strictly limited extent.
6. There was no purpose of the administration which would be served by limiting the landlord to forfeiture by legal proceedings. Permission was therefore granted to exercise the right of forfeiture, including by peaceable re-entry. The parties were invited to agree the form of order and ancillary matters.

First-instance application. No prior appellate decision is stated in the judgment.