Thackray Williams

Landlords of commercial property have new challenges arising from the credit crunch, most notably the impact of Companies going into administration and the growing popularity of Pre Packed Administration.

On the high street the Administration of the likes of Zavvi and Whittard have resulted in new owners (usually MBO’s) discarding the non-profit making stores and continuing to trade out of the profitable ones.  This results in a sale of the failing Company business as a going concern but with the new Company not taking on the legal obligations as an assignee but merely trading out of the failed Company’s premises as a licensee with the Administrator passing on a licence fee in lieu of rent.

Not unreasonably Landlords have objected to such illegal licences as being in flagrant disregard of the terms of the Lease originally entered into.  However, following the recent Pre Pack case of Sunberry Properties the Court of Appeal has chosen to come down on the side of the Administrators taking the view that it is in the best interest of the creditors to allow such practices notwithstanding they are in breach of the Lease.

Clearly this will lead to greater erosion of the Landlord’s rights when its Tenant goes into administration and the Landlord will be left with unenforceable covenants and no apparent remedy. 

Similarly as Tenants seek to unload surplus premises the problem commercial Landlords face is whether the incoming assignee will make a suitable Tenant to take on the responsibilities under the Lease.  Up until very recently the Landlord was secure in the knowledge that an incoming assignee could not go into occupation and start trading out of the premises without first obtaining a Licence to Assign.  However, a recent decision in the case of Alchemy Estates demonstrates how the Courts have given Tenants a potential helping hand by reversing the commonly held view that all correspondence marked “subject to licence” automatically negatived any implied granting of consent by the Landlord.  The Court took the view that by a Landlord choosing to say that “in principle it was prepared to grant its consent” this became a consent subject to the Tenant satisfying procedural conditions despite the Landlord’s solicitors specifically stating that this was precisely what was not to be inferred by this correspondence!

In future Landlords must not commit themselves in writing to providing any form of consent and must ensure that the consent is only issued by a Deed and in accordance with the terms of the Lease.  Therefore, in any such negotiations it is important to seek legal advice as early as possible to avoid any implied consent being granted.

Both cases demonstrate that in the tougher economic climate the Courts appear to be taking the view that the interest of business efficacy outweighs that of Landlords and the conducting of such and as is often the case that in tough times adhoc solutions create poor law and damage ongoing business arrangements.

For more information contact David Fearon on 020 8290 0440 or email david.fearon@thackraywilliams.com