This post was also written by Clare Whitaker.

We have spent a lot of time thinking about landlords being affected by tenants going into administration over the last year. This posting is about a court case where the landlord’s administrators were trying to postpone the tenant’s application to Court for the grant of a new tenancy under the 1954 Act.

The administrators failed in their attempts to defer the 1954 Act proceedings even though it severely affected the value of the property in question and the amount that was going to be paid out to the secured creditor.

The case in question was Somerfield Stores Limited v Spring (Sutton Coldfield) Limited. Somerfield as tenant had applied for a new lease under the 1954 Act and the landlord had objected on the grounds that it was intending to redevelop the property. The tenant made its Court application and then the landlord was put into administration.

As is usual the administration meant that ongoing court proceedings could not be progressed without the consent of the administrators or the leave of the court and this was the application for leave to continue the lease renewal application.

The only creditor likely to receive any money out of the administration was the bank as secured creditor. The preferential creditors and unsecured creditors were unlikely to be paid anything out of the administration whether or not the landlord company redeveloped the property.

There was no prospect of the landlord company being rescued as a going concern.

The administrators could not prove sufficient intention to redevelop at the time of this hearing and were likely to be unable to prove that even after a delay of six or even 12 months. It is common for landlords to use the period of time between serving the 1954 Act notice (objecting to a new lease and specifying an intention to redevelop) and the court hearing date getting evidence of their intention to redevelop and the courts have always required a clear and settled intention to redevelop to be proved. The tenant however wanted a new lease and had its own refurbishment plans it was keen to implement.

The High Court allowed the lease renewal application to progress. They said that the rights of third parties (in this case the tenant) should not be prejudiced by the administration. For the administrators to succeed the administrators would have to have shown that the prejudice to the tenant’s rights was truly necessary to achieve the administration objective and in this case it wasn’t. The tenant had a legitimate interest in having the court application heard and the court balanced that against the right of the administrators to conduct an orderly administration, the objective of the administration.

Tenants caught by their landlords insolvency may take comfort from this judgment which shows that the landlord’s administration need not necessarily frustrate their business plans.

Administrators of companies with investment properties cannot assume that the moratorium on court proceedings will give them the ability to defer any lease renewal cases indefinitely. In the absence of ‘fire sales’, we may start to see more situations where administrators and banks are holding properties and are prepared to invest in their redevelopment. If so, administrators may want to think about more imaginative solutions than simply pursuing the strategy of the landlord company, such as short term leases to existing occupiers whilst the redevelopment market picks up.

As ever the solution to each problem will depend on the detailed facts but administrators cannot have it all their own way.