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The balancing act and rent claims in administrations
Jul 8, 2010
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Two
recent cases
throw light on what landlords might expect if a tenant company goes into
administration, reports partner Nick
Cox.
In Innovate Logistics Limited (in
administration) v Sunberry Properties Limited the administrators entered
into a licence for six months with a third party (YHL) to occupy the
leased premises on the very day of the administration order. YHL had bought
Innovate’s business, but not the lease, from the administrators.
Acting as agent for the administrators, YHL were to fulfil contracts and
collect Innovate’s book debts, which ran to several million pounds. The idea
was to try to benefit the creditors. The only way this could be done, the
administrators said, was to keep the premises open so that the stock could be
moved. This was done without any approach to the landlord, Sunberry, who
applied to the court to put a stop to the arrangement.
The judge who first heard the case saw a flagrant breach of the covenant in the
lease, preventing its assignment without landlord’s consent and granted
Sunberry an injunction to terminate the licence, but the decision was reversed
on appeal.
It became clear that the real reason for the landlord’s actions had been to try
to force YHL to take an assignment of the lease. At the same time the court
agreed that a short-term licence would enable YHL to recover the book debts and
benefit the creditors as a whole. They said there was no real damage to
Sunberry’s interest in the property and the loss of ongoing rent could be
balanced by YHL paying the licence fee to Sunberry direct. The purpose of the
administration could not be achieved until the contracts were fulfilled and
book debts realised. The key question was why was the administration entered
into in the first place?
Typically, there is a balancing act to be struck between the purpose of the
moratorium — usually to allow the administrator to achieve the purpose of the
administration to the general benefit the creditors of the company —and the
legitimate rights of the landlord.
Contrast this with the simple approach taken in Goldacre (Offices) Limited v Nortel Networks (UK) Limited (in
administration). The judge here took a very straightforward view. He said
that if the administrators kept using the premises, the landlord would be
entitled to the ongoing rents as an expense of the administration. He decided
that there was no balance to be struck between the interests of the landlord
and the other creditors. The only question was, should the rent be viewed as an
expense of the administration? If so, as here, they should be paid.
This will mean that landlords seeking only rent from the date of the
administration should be paid in full from that date for as long as the
administrators use the premises. The landlord jumps the queue ahead of other
unsecured creditors.
Whether it opens the door to claims against administrators for other
liabilities that arise, such as service charges that fall due during their use
of premises and dilapidations, remains to be seen.