London Trocadero (2015) LLP v Shinners & Ors

A rent deposit deed may secure liabilities extending beyond the tenant’s obligations under the lease where its wording and commercial context show that intention. “Proper loss” consequent upon forfeiture is limited to loss of a type and extent reasonably contemplated by the parties at the time of contracting as the probable result of forfeiture. It does not create an open-ended entitlement to recover every consequential loss.

On the facts, the landlord could recover actual rent, service charge and insurance loss for up to six months after forfeiture, subject to preventing double recovery. A chosen rent-free period and ordinary re-letting fees were not recoverable under the forfeiture provisions. The court also confirmed that whether a liability is an expense of an administration is a question of legal principle, not judicial discretion.

The applicant landlord sought directions concerning the use of a rent deposit after forfeiture of a lease held by a company that had entered administration. The preliminary issues concerned the proper works period, loss recoverable during marketing and rent-free periods, re-letting fees and charges, and whether the tenant’s obligation to replenish the deposit was an expense of the administration.

The lease had been forfeited during the administration. The parties agreed that the court would determine the preliminary issues before quantum. The central questions were the proper construction of the rent deposit deed and whether the replenishment obligation fell within the Lundy principle.

1. Construction of the deed. The rent deposit deed had a dual commercial purpose. It secured the tenant’s obligations under the lease and gave the landlord additional protection against loss following forfeiture. Clauses 2(b), 4 and 10.1 would have no proper effect if the deed were confined to liabilities already arising under the lease.
2. Meaning of proper loss. “Proper loss” incidental to and consequent upon forfeiture meant loss of a type and extent reasonably contemplated by the parties at the time of contracting as the probable result of forfeiture. A bare “but for” test was inappropriate and would make “proper” add little. The construction was broadly consistent with the contractual remoteness principle in Hadley v Baxendale, as discussed in the judgment, and with business common sense.
3. Recoverable loss. The landlord could withdraw actual loss of rent, service charge and insurance suffered before re-letting, subject to a maximum six-month period from forfeiture and credit for sums withdrawn under the provisions securing the tenant’s direct obligations. The six-month period was supported by the lease’s marketing provision and the absence of a guarantor, who would otherwise have provided comparable protection.
4. Works and marketing periods. The respondents’ works period, measured by the time reasonably required to restore the property in accordance with the tenant covenants, was the correct measure. The applicant’s formulation, based on making the property capable of being properly re-let, was unworkable and legally unrecognised. Marketing loss was recoverable only insofar as it fell within the six-month period.
5. Excluded heads of loss. Loss during a rent-free period voluntarily granted on re-letting was not sufficiently probable to satisfy the contractual remoteness test. Re-letting fees and similar charges were also excluded because they would have been incurred, or substantially incurred, on an ordinary expiry of the lease.
6. Administration expense. Whether a debt is an expense of an administration is governed by legal principle and is not a matter of discretion: Re Toshoku Finance UK Plc [2002] 1 WLR 671; Jervis v Pillar Denton Ltd [2014] EWCA Civ 180. The court declined to decide whether the clause 5 replenishment obligation fell within the Lundy principle. That issue required clarification of the sums properly retainable from the deposit and was left for determination on another day.