Insolvent Landlord - Tenant's Lease Renewal Application Must Be Considered

Under the Landlord and Tenant Act 1954 (LTA), a tenant normally has the right to renewal of a lease on commercial premises unless the landlord requires occupation of the premises for its own purposes, which may include the purpose of redeveloping the site.

In a recent case, a tenant sought renewal of its lease in the normal way from an insolvent landlord. The application was opposed by the administrator of the insolvent landlord, who wished to buy time so he could put together a scheme for redevelopment that would satisfy the demands of the LTA.

The administrator relied on the Insolvency Act 1986, which provides that ‘a legal process’ cannot be taken against a company in administration without the consent of the administrator or the permission of the court.

The administrator is an official of the court, whose duty is to try to rescue the company as a going concern or, if that is not possible, to achieve a better result for the creditors of the company than would be likely if the company were wound up. If either of these cannot be achieved, then the administrator’s duty is to realise property for distribution to preferential creditors. Accordingly, administrators have considerable power to prevent actions which might ultimately favour one class of creditor against another or be to the detriment of creditors generally.

In this case, the administration was, in effect, for the benefit of the insolvent company’s bank. There was no likelihood that the landlord company could continue as a going concern.

In the view of the court, the tenant’s application for a new lease would not affect the interests of the creditors of the company – of which the tenant was not one – nor could it affect a distribution to the bank. The tenant’s right to have its application to a new lease heard promptly was also in point.

Since the landlord, or its administrator, could not demonstrate that it had in place a scheme for redevelopment of the premises at the date of the hearing of the application for the new lease, that application had to be heard and it was up to the court hearing the application to impose such terms on the lease as were appropriate in the circumstances.

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