Member Article

When a company goes into administration, a statutory moratorium takes effect to help the administrators achieve the objectives of the administration. Amongst other things this means that no legal process can be started or continued against the company without the consent of the administrators or the court.

In the recent case of Somerfield Stores v Spring (Sutton Coldfield) Limited, the tenant company had served a statutory notice on the landlord seeking to renew its tenancy under the Landlord and Tenant Act 1954.

The landlord served a counter-notice opposing renewal on the ground that it intended to re-develop the premises and the tenant applied to court for a new tenancy under the 1954 Act. The landlord company then went into administration but the tenant wanted to pursue the renewal proceedings it had issued.

The Somerfield case confirms that a tenant's application for a new tenancy under the 1954 Act is a 'legal process'. As such, it was caught by the moratorium, meaning the tenant could not continue with its renewal proceedings without the consent of the administrators or the court.

The landlord company, being in administration, no longer had the intention to redevelop the premises, but the administrators wanted to put together a redevelopment scheme with a view to selling the site to a developer at an enhanced price.

To give themselves time to work up a scheme, the administrators refused consent for the tenant to continue its proceedings. The tenant applied to the court for permission to do so.

The court balanced the rights of the administrators to conduct an orderly administration against the tenant's right to be granted a new tenancy and to have its application heard without undue delay. It gave the tenant permission to continue with its application.

Tips for tenants

A landlord's administration adds an extra complexity to lease renewals and is likely to trigger additional costs for a tenant.
The Landlord and Tenant Act 1954 sets out a strict timescale for a tenant's application for a new tenancy and if a tenant fails to meet that timescale its right to a new tenancy may be lost.
If its landlord is in administration, the tenant will need the consent of the administrators or of the court before it can apply for its new tenancy.
A tenant must allow itself enough time to secure that consent before the deadline for its application for a new tenancy under the 1954 Act expires.

 

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