Key points

• The High Court has ruled that, where a tenant goes into administration, rent which is payable in advance and falls due before the commencement of the administration is not recoverable by the landlord as an administration expense
• Landlords must take their place with other unsecured creditors in relation to sums payable before the appointment of administrators, even if they relate to a period during which the administrators had use of the property

Background

Having enforceable security over all of a borrower’s assets is obviously of primary importance to a lender.  However, where a borrower occupies leased premises, ensuring the lender has quick and reliable access to the collateral is equally important, especially if the landlord proves to be unco-operative after a borrower’s default.  Although court-ordered access to a borrower’s leased premises can be sought after a borrower’s loan default, a landlord waiver obtained prior to an initial advance of a loan can bring some added certainty to the realization process outside of a bankrup

In June 2007 we reported on the decision in Prudential Assurance Company Ltd v PRG Powerhouse Limited. Although the case has given rise to a great deal of debate, until now there has been no subsequent reported case in which the court has had to consider whether and how a company voluntary arrangement (CVA) might fairly effect a compromise of a landlord's claim against a guarantor of its tenant.

Nortel Networks UK Limited (the company) was a tenant under two leases. The company went into administration. The administrators occupied a small proportion of each of the premises to enable them to carry out the administration. Under the terms of both leases rent was payable quarterly in advance.

The landlord applied to the court for an order directing the administrators to pay the rent as an expense of the administration.

Where a landlord forfeits its lease, subject to any available relief or exemption, the landlord is liable to business rates in respect of the premises.

Empty premises business rates exemption will provide time-limited relief to a landlord who has re-entered premises. However, a landlord should be cautious of exercising its right to forfeit a lease in cases where it does not have another tenant "waiting in the wings".

The ratepayer

Business rates are paid by occupiers and, in certain circumstances, owners of premises.

A question facing many landlords is whether, when a tenant company faces insolvency and shows no intention of continuing to trade from the premises, they should take back the property and seek to relet it?

There are several key issues here, including:

• rates liability
• mitigating losses
• ability to recover from third parties and former tenants.

A landlord's decision has often turned on the type of insolvency faced by the tenant.

If a liquidator disclaims the lease:

MB had been the secured tenant of a property in which she lived with B, and which she had bought at a substantial discount. The property was conveyed into the joint names of MB and B as joint tenants. Although MB’s mortgage company had insisted the property be in joint names, she claimed that the intention had always been that B would only have a minimal interest in it. He had made no contribution to the purchase price, mortgage repayments or household expenses. When MB had ascertained the effect of the joint tenancy, she gave notice of severance to B.

In 2016 the High Court considered the validity of an assignment of a lease by a tenant to its guarantor. The antiavoidance provisions in section 25 of the Landlord and Tenant (Covenants) Act 1995 ("1995 Act") strictly limit the freedom of contract of parties to leases governed by that Act, broadly, those granted after 1995. Agreements which frustrate those provisions are void even if they are commercially justifiable.

BRIEF FACTS AND DECISION

EMI Group Limited v O&H Q1 Limited [2016] EWHC 529 (Ch)

Hong Kong’s notoriously landlord-friendly leases make it hard to renegotiate terms during an economic downturn, tying many tenants into leases well above market values. The territory’s high rents, added to 24 months of declining retail sales, have left retailers in Hong Kong feeling the chill. Many tenants may wish to look beyond their contractual rights and obligations to find a commercial solution. In such difficult circumstances, there are six options retailers could consider.

1. Rent restructure

The British Retail Consortium (BRC) recently reported strong trading for the UK high street in the weeks leading up to Christmas 2016. In a fillip for a sector beset by problems, the slow start to the Christmas trading period was reversed as spending in the sector in December grew 1.7% on the same period last year.