Entitlement to a specific performance remedy survives a company’s administration.
Bristol Alliance v Bennett [18 December 2013] concerns a landlord’s entitlement to a payment from a tenant due on completion of a surrender of the tenant’s lease. The complexity for the landlord was caused by the tenant company going into administration between exchange of an agreement to surrender the lease and completion of the surrender.
A/Wear UK Ltd (in administration) was a women’s high street fashion retailer with leasehold stores in Leicester and Bristol. The company had heavy losses and it entered into agreements with its landlords, Bristol Alliance and others, to surrender those leases on a date to be notified by the landlords.
The agreements provided that on completion of the surrenders the company would pay the landlords a reverse premium, £340,000 plus VAT in the case of the Bristol lease and £210,000 plus VAT for the Leicester one. The premium was consideration for releasing the company from its lease obligations and was held by the respective landlords’ solicitors in an escrow account, to be released to the landlords when the surrender completed.
Towards the end of 2011 the landlords served notice on the company requiring completion of the surrenders. In between service of the notices and completion, the company went into administration.
Its administrators who included Mr Bennett refused to complete and the case revolved around the landlords’ entitlement to the premiums. The administrators sought the court’s directions on whether the landlords were entitled to be paid the premiums held by their solicitors. If they were not, should the landlords be allowed to bring proceedings for specific performance of the surrender agreements, which, if successful, would entitle the landlords to the premiums? As the company was in administration, no such proceedings could be brought without either the administrators’ consent (which was refused) or the court’s permission.
The High Court decided that the landlords were not entitled to be paid the premiums, because the surrenders had not been completed. The court also refused permission to bring proceedings. The landlords appealed and were successful in the Court of Appeal, thereby entitling them to the premiums.
The landlords’ entitlement to the premiums in the escrow account was only as part of the price for the surrender and was, therefore, only payable when the surrenders were completed. Since the surrenders had not completed due to the administrators’ refusal to do so, the landlords had acquired no right to the payment. However, the landlords had the contractual right to seek the court’s permission to sue for specific performance of the agreements and the Court allowed the landlords to enforce them.
The landlords were in principle entitled to specific performance (in order to compel the company to complete the surrenders) before the company entered administration and there was no reason why it should not be entitled to it afterwards. The company’s administration could not have resulted and did not result in any material change of circumstances.
An order for specific performance would entitle the landlords to the escrow money and would not thereby entitle them to money that was part of the company’s assets or, therefore, available for its creditors. So the order would not deprive the company of any assets then distributable to the creditors.