The background
Somerfield made an application for a new tenancy of supermarket premises that it occupied under the Landlord and Tenant Act 1954 (“the 1954 Act”). Somerfield’s landlord opposed the application on the basis that it proposed to redevelop the site (a valid ground for opposing a renewed tenancy under section 30(1) (f) 1954 Act).
The landlord subsequently went into administration and the administrators would not give their consent for the proceedings for a new tenancy to continue. Rather, they hoped to delay Somerfield’s 1954 Act application in order to explore the possibility of redeveloping the site with a view to considerably enhancing its value, thereby increasing the realisations for creditors (one of the objectives of administration).
Somerfield accordingly applied to the Court for permission, under the Insolvency Act 1986, Schedule B1. The High Court agreed that the application for a new lease was indeed a ‘legal process’ and so would be caught by the moratorium, which meant that it had to decide whether leave should be given to Somerfield to pursue its application.
The decision
The Court considered that the crucial issue on the 1954 Act application was whether or not the landlord intended to redevelop. The landlord was not in a position to redevelop by virtue of the administration.
The Court found that the outcome of the administration in respect of this property would be mainly to benefit the bank as secured creditor because, whilst there were other creditors, the debt due to the bank, secured by way of a fixed charge on the property, was well in excess of the value of the property, even at an uplift should the land be redeveloped.
The Court found that it was clearly not the objective of an administration to enable secured creditors to advance their position at the expense of creditors as a whole, nor to put secured creditors in a better position than they would have been in had there been no administration. The Court held that, had a Receiver been appointed in this case (which would have been the usual situation prior to the passing of the Insolvency Act 1986), the bank would have stepped into the shoes of the landlord (s.67 of the 1954 Act). The 1954 Act proceedings would then have continued with the bank substituted as the defendant in place of the landlord. Should the bank under these circumstances have requested a substantial adjournment of some 12 months or more in order to be able to establish its defence under ground (f), they would have been given short shrift.
The tenant was granted leave to proceed with the application for a new tenancy, the Court holding that it had to balance the right of the administrators to conduct an orderly administration in accordance with the administration objective against the right of the applicant to have its application heard and to be granted the new lease to which, as things stood, it was entitled. Somerfield should not be kept in a state of continuing uncertainty in relation to the tenancy of a store it wished to refurbish and would be wrong of the court to improve the position of the landlord or the bank to the prejudice of the tenant in these circumstances.
Advice
The decision in this case would appear to give some certainty to tenants when their landlord goes into administration and where they have already issued proceedings requesting a new tenancy. In those circumstances, it seems likely that a tenant will get leave to continue with its application for a new tenancy. Whilst a possible outcome of proceedings may be a short lease or a lease with a redevelopment break clause, this at least provides more certainty than an open-ended delay. Administrators will also need to be aware of the potential pitfalls of any ongoing 1954 Act applications when carrying out their administration duties.
If you have any queries or require more detailed advice on any property matter, please contact:
Michael Copestake
0845 165 5497
Eleanor Deady
0845 404 2487
Andrew Flounders
0845 404 1511
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