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Insolvency of landlord

Application for new lease

Landlord in administration

Somerfield Stores Limited v Spring (Sutton Coldfield) Limited
[2009] EWHC 2384 (Ch)

Summary

An application by a tenant for a new lease under Part II of the 1954 Act is a "legal process" within paragraph 43, Schedule B1, Insolvency Act 1986. This means that if the landlord goes into administration the tenant cannot proceed with the claim without the consent of the administrator or the permission of the court. In this case the tenant was given permission to pursue a claim for a new tenancy where the landlord had objected on ground s30(1)(f). (For applications under para 43 generally see the Insolvency page).

Facts

When the landlord went into administration, the administrator refused to consent to the claim. It wanted to explore the possibility of a scheme that would allow it to redevelop and thereby increase the sums available for the creditors – principally a bank with a charge over the landlord's property. The tenant therefore applied to the court for permission to continue with the claim.

Held

The court gave permission for the claim to continue. The court applied the principles in Atlantic Computer Systems [1992] Ch, 505. In striking a balance between the rights of the administrators to conduct an orderly administration in accordance with the administration objective, and the right of the applicant to have its application heard, and to be granted the lease to which as things stand it is entitled the court considered that the interests of the tenant prevailed. The administrator was not in a position to carry out a redevelopment for some time, if at all, and in the meantime there was great uncertainty for the tenant. If appropriate, on the application for the new lease the court could grant a short lease or a lease with a break clause that would allow a development to proceed.

Citation

Perle J. at paras 16 and 17:
    "In my judgment, this is not a case where I should refuse the applicant the permission it seeks. On the contrary, it seems to me a clear case where I should grant such permission. The 1954 Act application has to be heard sooner or later. As Mr Wonnacott points out, section 31(2) of the 1954 Act, the terms of which I shall not endeavour to summarise, appears to presuppose (perhaps somewhat optimistically) that a 1954 Act application should be heard within twelve months. In addition, paragraph 4 of Schedule B1 requires an administrator to perform his functions as quickly and efficiently as is reasonably practicable, and administrations are only valid in the first instance for a period of 12 months, though there is power for that period to be extended. Moreover, the administrators are for understandable reasons seeking to ensure that the proceedings are not heard until a ground of objection which the defendant does not presently have emerges. As, however, the onus is on the defendant to demonstrate that there is an intention to redevelop before ground (f) can be invoked, it seems to me wrong to withhold permission to continue the proceedings in circumstances where, as things stand, it is virtually common ground that the company does not intend to redevelop. In addition, the interests of creditors generally are, as I have endeavoured to explain, unaffected by the 1954 Act proceedings, and it is a matter of chance that these are in form the claimant's proceedings, when in substance they are the defendant's, upon whom the onus of establishing ground (f) rests.
    The claimant is presently in a state of continuing uncertainty in relation to a store that it wishes to refurbish. It is wrong for that uncertainty to continue indefinitely. It is possible, when the matter comes before the court on the 1954 Act application, that either a short tenancy will be granted or a tenancy with a break clause. This might itself create some uncertainty, but that is a matter which can be considered upon all the evidence before the appropriate court, which both sides accept must eventually come to adjudicate upon this issue. Given that acceptance, it seems to me right that the matter should proceed with proper expedition. It would be wrong of this court to improve the position of the defendant or the bank to the prejudice of the claimant, which has a right to have its proceedings heard without undue delay, and (on the evidence as it stands) the terms of a new tenancy determined."

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