No strings attached?
Date: 16 October 2009
Authors: Malcolm Dowden
Issue: Vol 159, Issue 7389
Categories: Features, Landlord&tenant, Property
In Somerfield v Spring [2009] EWHC 2384 (Ch), [2009] All ER (D) 68 (Oct) the landlord went into administration after serving a counter notice opposing renewal of the tenant’s lease on redevelopment grounds. The landlord’s administrator sought to defer the tenant’s application for a new tenancy until it could put together a scheme of redevelopment that would satisfy Landlord and Tenant Act 1954 (LTA 1954), s 30(1)(f).
It was common ground that a landlord cannot normally defer a tenant’s application where it has no current and credible scheme for redevelopment.
However, the administrator sought to buy time by relying on the moratorium imposed by Insolvency Act 1986 that “no legal process...may be instituted or continued against the company or property of the company except with the: (a) consent of the administrator, or (b) permission of the court”.
The tenant applied to the court for permission to pursue its proceedings. In determining the tenant’s application, the court had to balance the statutory objectives of administration against the crucial issue under the claimant’s 1954 Act application, namely whether or not the landlord, or the administrator in its place, intended to redevelop the premises.
An administrator of a company must perform his functions in line with the statutory objectives of:
(i) rescuing the company as a going concern; or
(ii) achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); or
(iii) realising property in order to make a distribution to one or more secured or preferential creditors.
Where it can be achieved, the first objective (rescue as a going concern) is paramount. The realisation of property in order to make a distribution to secured or preferential creditors is an objective to which the administrator must have regard if, but only if, he thinks that it is not reasonably practicable to achieve either of the objectives specified in (i) and (ii). Even then, the interests of the creditors of the company as a whole must not be harmed unnecessarily.
The judge found that for practical purposes the administration in this case was being carried out, at least so far as regards this property, for the benefit of the bank as secured creditor. There was no suggestion that the landlord could be rescued as a going concern.
The judge considered that hearing the tenant’s 1954 Act proceedings, now or in the future, would have no effect on other unsecured creditors. Nor would they prevent any realisation of the property to make a distribution to the bank, though the bank’s position might be improved by delaying them.
The tenant was not a creditor, and so its interests fall outside the administrator’s statutory objectives. However, the judge emphasised that its 1954 Act right to a new tenancy was the equivalent of a proprietary right. The tenant also had a right, in the interests of justice, to have its application heard without undue delay.
The onus was on the administrator to demonstrate that there was an intention to redevelop before s 30(1)(f) of the 1954 Act could be invoked. If the administrator could not meet that test then the tenant would be entitled to a new lease.
Balancing rights
Balancing the rights of the administrator to conduct an orderly administration in accordance with the statutory objectives and the right of the claimant to have its application heard, the judge considered that it would be wrong to withhold permission to continue the proceedings where it was virtually common ground that the defendant could not currently meet the test of intention to redevelop the premises.
The landlord, or its administrator, must establish the necessary intention at the date of the hearing. If at that date the landlord can demonstrate a realistic prospect of putting in place the necessary finance and consents, then the court may consider the appropriate terms of any renewal lease.
Rather than ordering immediate termination, the court may order a short tenancy or one with a break exercisable when redevelopment is to begin. While that might in itself create some uncertainty, the judge considered it a matter to be considered on all the evidence before the appropriate court, which both sides accept must eventually come to adjudicate upon this issue.
Given that acceptance, it seemed to the judge that the matter should proceed with proper expedition. It would be wrong of the court to improve the position of the administrator or the bank to the prejudice of the tenant, which has a right to have its proceedings heard without undue delay, and (unless a credible scheme emerged) the right to a new tenancy.
Malcolm Dowden, solicitor, LexisPSL
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