Sunberry Properties Ltd v Innovate Logistics Ltd (In Administration) & 5 Ors (2008)
It was appropriate to grant the landlord of a company in administration leave to commence proceedings for an order terminating an occupational licence of premises when the licence had been granted in breach of an alienation covenant contained in the lease for the premises.
The applicant property company (S) applied under the Insolvency Act 1986 Sch.B1 para.43 for leave to commence proceedings for an order to effect an immediate termination of an occupational licence granted by the first respondent company (R) to the second respondents (Y). R had leased premises from S under a 20-year lease which included an alienation covenant. After giving notice, R had been placed in administration and administrators appointed. R had indicated that it was insolvent and unable to pay its debts, was under pressure from creditors, and a winding-up petition had been issued. R had stated that an administration order would prevent such an outcome, referring to its occupation of premises under leases and the protection that an order would provide from landlords seeking forfeiture of the leases and from the effects of being forced to cease trading. On the same day as being placed in administration, R was sold to Y and, as part of the transaction, Y had received a licence for six months to occupy premises leased by R from S, rather than any assignment of the terms of the lease. That was in breach of the alienation covenant and neither the court nor S had been informed of the transaction. The administrators had later written to S advising it of the sale of R to Y, referring to the fact that Y might wish to continue trading from the premises and suggesting that S contact Y to ascertain their intention, without mention of the licence that had already been granted to Y. S submitted that, at the very least, it and Y could have been put in contact with each other regarding the assignment of the interest of R, instead of being presented with the new licence agreement as a "done deal" by the administrators. R submitted that the result of the deal, following the balancing exercise carried out of the various interests, was that S would still receive its rent for the period of the licence and the companies and creditors would also benefit from being able to save £25m worth of stock on the premises that would be dealt with by Y.
(1) The court had a wide discretion, though some guidance as to the approach to be taken had been given in Atlantic Computer Systems Plc, Re (1992) Ch 505 CA (Civ Div), Atlantic applied. The purpose of the administration order under the Insolvency Act 1986 Sch.B1 para.3 had been to give the administrators some time to deal with R and its property, to sell the property as a going concern, and to gain the best result for everybody with an interest in R. If granting leave to S to exercise its proprietary rights was unlikely to impede the achievement of that purpose, then leave would normally be given. The administrators in the instant case had acted in an odd way from the start. R had been sold on the very day of administration, a transaction that had to have been contemplated and negotiated for some time. The purpose of the administration was therefore concluded at that time and had been achieved very quickly, but effectively only by some form of subterfuge on S. It was astonishing that the administrators had not actually contacted S before flagrantly breaching the alienation covenant in the lease, putting S in a new contractual arrangement with a new occupant not of its choosing, altering its bargaining position to its detriment and the great advantage of Y. The balancing exercise referred to by R was not applicable, because Y had received benefits which they were not entitled to and R had not been allowed to give. There would normally be sufficient grounds for leave to be granted if "significant loss" was caused to S by a refusal but it was difficult to determine the problems for S with any certainty. There was the effect of the licence having been granted on the value of the reversion, but that was only for a short term and the problems for R and Y were likely to be more significant. However, although they might not have wanted to, given the length of the lease, Y ought to have taken out an assignment of the lease and that was what they would have to do to if they wished to benefit from the deal by the administrators. (2) The conduct of the parties might also be a material consideration in an application of the instant kind and the conduct of the administrators, in doing a deal without involving S or notifying the court of the circumstances when the administration order was granted, had been quite reprehensible.
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15 Jul 2008
Judge Simon Brown QC
LTL 30/10/2008;  EWHC 2450 (Ch)
John McGhee QC