Annual Conference – Forfeiture & The Insolvent Tenant

 

Workshop Problem

In March 2009 Snooze Limited (“Snooze”) leased a warehouse on the outskirts of Coventry to Dash Limited (“Dash”) for a term of 10 years. Dash was a company which was in the business of parcel delivery. It used the warehouse to store orders purchased by customers until they could be collected by freelance drivers. The main administrative workforce operated from Dash’s registered office in the city centre.

In the lease the annual rent of £50,000 was stated to be payable in equal instalments in advance on the usual quarter days. The lease also contained express provisos for re-entry by Snooze in certain events, including if the rent due remained unpaid for a period of 21 days after the due date and if the tenant became insolvent.

The relationship between Snooze and Dash ran smoothly for a number of years. However, unknown to the landlord, during the summer of 2014 Dash ran into serious financial difficulties. When Dash failed to make its usual payment of rent on 29 September 2014, Snooze contacted Dash to inquire what had happened and to seek assurances that the rent would be paid. After some delay, Dash replied that its business was going through a difficult patch but things were sure to pick up within the next few months because of the Christmas rush.

A week or so before Christmas Snooze again contacted Dash, seeking confirmation that the outstanding rent would be paid along with the next instalment which was due that month. Dash did not respond, nor did it make any payment of rent on 25 December 2014. Early the following week Snooze heard through a third party that Dash had gone into administration on Christmas Eve.

Alarmed by the fact of Dash’s insolvency and the continued non-payment of rent, Snooze decided to take back the premises. Snooze wrote to Dash, simply stating “we consider that you are in breach of our lease, and we intend to re-enter the premises after business hours on 16 January 2015”. Snooze posted this letter by ordinary post to the tenant’s registered office on New Year’s Eve.

On 5 January 2015 the administrators wrote to Snooze, stating that that they were investigating whether it was possible to rescue the tenant’s business and in the meantime needed to retain the premises. They stated that Snooze would not be able to re-enter as planned, because:

  1. To forfeit against a company in administration, a landlord requires either the administrators’ consent or the Court’s permission – and the administrators were not currently prepared to consent.
  2. If the letter was intended as a section 146 notice, it did not contain sufficient information and was not validly served.

With the letter the administrators enclosed a cheque for £5,000, stating “this is a payment of rent, which we pay as an expense of the administration, and it should cover us until the end of the month. We will be in touch then to let you know whether we have decided to keep the premises”.

Snooze is shocked by the administrators’ attitude and has decided it is time to take some legal
advice.

Snooze would like to know whether the administrators are correct, and what it should do next.

Click here to read more.

Amanda Tipples QC
Narinder Jhittay