The Practical Lawyer

Landlord and tenant – commercial

Administrator – rent liability

If T goes into administration, can L claim post-administration rents and other lease charges as an expense of the administration (ie from the administrator)?

Prior to Goldacre [2009], the treatment of rent of leasehold premises in administration was decided on a case-by-case basis. Now, however, we have a clear High Court decision which says that rent will rank as an expense of the administration – provided the administrator used the premises for the benefit of the creditors. Thus, the administrator will be liable for the full rent even if only using a small part of the premises.

The High Court decided that this liability arose under r2.67 of the Insolvency Rules 1986, which came into force on 15 September 2003. Accordingly, there is no reason, in principle, why an L could not seek a declaration confirming that rents and other liabilities falling due since September 2003 should have ranked as administration expenses; thus, it is an important decision that affects earlier liabilities, and not just current ones.

Note that Goldacre is not restricted to rents; it refers to ‘any liability incurred while the lease is being enjoyed or retained’. On this basis, if service charges or other payments fall due during the administrator’s period of occupation then those should be payable in full. Moreover, this is probably so even where the period of services relates to a previous period, or in respect of a properly constituted request for payment on account of services to be provided in the future. The key point seems to be when, under the terms of the lease, the liability is incurred. Accordingly, it would seem that even liabilities arising for breaches of T’s repairing covenant might also rank as an expense of the administration (eg a dilapidations liability might be incurred as an ‘expense’ if, at the end of the occupation, L forfeits or accepts a surrender without releasing T). It should be noted, however, that not all commentators agree with this interpretation.

See useful commentary on Goldacre v Nortel [2009] EWHC 3389 (Ch) (access free at in [2010] EG 22 May 139.


Short-term letting – tenancy at will?

Take great care when granting short-term lettings, since otherwise there is a danger that T will acquire security of tenure under the business tenancies legislation (LTA 1954).

The dangers are well illustrated by a recent case where the landowner was awaiting planning permission for the redevelopment of his premises. In the interim he granted a three-month fixed-term tenancy to T, who, in turn, granted long sub-leases to sub-Ts. Those sub-Ts ran their businesses from the premises and made various repairs to the buildings. They then argued that L was not entitled to recover possession since they had periodic tenancies, and not tenancies at will.

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AGA – effect of disclaimer

What happens if a lease is assigned and the assignee becomes insolvent, with the liquidator then disclaiming the lease? Does the AGA entered into by the assignor remain binding (so L can enforce the AGA against the assignor)?

T had a shop lease which he assigned to T2, with T entering into an Authorised Guarantee Agreement (AGA) with L, guaranteeing T2’s performance of its lease obligations. Eventually, T2 went into liquidation, and the liquidator of the company disclaimed the lease under s178(4) Insolvency Act 1986. As the Act makes clear, such a disclaimer ‘operates so as to determine... the rights, interests and liabilities of the company in/or in respect of the property disclaimed’.

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AHA 1986 – succession

One uncertainty about the Agricultural Holdings Act 1986 is the question of whether a consensual grant of a farm tenancy before 14 November 1976 (the date of the coming into force of the Agriculture (Miscellaneous Provisions) Act 1976) will count as one of the two permitted statutory successions, in the same way as would a similarly consensual grant of a tenancy after that date.

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Virtual assignments – end of sub-lease?

The CA has made it clear that most virtual assignments will be valid (see Clarence House [2009] noted in our March issue, p19).

In Clarence House, T had sub-let the property. Both before and after the virtual assignment by T, it was the sub-T (and the sub-T alone) who was in ‘possession’ of the premises. T had parted with possession on the grant of the sub-lease and the CA took the view that it could not be said T had parted with ‘possession’ by simply making a virtual assignment.

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Virtual assignments – avoidance?

Should Ls be concerned about the possible use of virtual assignments by Ts?

The starting point, of course, is the decision (noted in our March 2010 issue, p19) in which the CA said that a virtual assignment will usually be valid. Previously, it had thought that it would amount to a breach of at least one of the usual covenants (ie not to make a declaration of trust; not to create an under-lease; not to grant an assignment; not to share or part with possession). But, in the CA’s view, a virtual assignment will not breach the standard alienation provisions found in the vast bulk of commercial leases; in particular, the CA found that ‘a covenant which forbids a parting with possession is not broken by a T who in law retains the possession, even though he allows another to use and occupy the premises’.

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SDLT – L’s costs?

Suppose T or a buyer has agreed to pay L’s costs. Should those be aggregated with the consideration for SDLT purposes?

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Break clause – personal

If a break clause is expressed to be personal to a particular T, then that break clause will only be exerciseable when the lease is vested in that T (ie it will not be exerciseable after T has assigned and is therefore the former T). Indeed, for a former T to exercise a break clause would require ‘an unambiguously clear’ wording (and it seems that there is no reported case in which that was so).

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Dilapidations – exaggerated claims

In September 2009, the RICS instructed a QC to advise on whether it is fraudulent for surveyors to exaggerate their clients’ positions when acting for Ls or Ts. The advice received was that exaggeration is only fraudulent where the degree of exaggeration is dishonest. Moreover, surveyors preparing Schedules of Dilapidations, or responding to them prior to proceedings, are not acting as expert witnesses – and can therefore act as advocates for their parties (and maintain arguments they might not necessarily believe in). However, whilst those allegations do not have to be altogether truthful, they should not set out to lie or deceive, and the surveyor should not behave without integrity.

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Short let – ‘meanwhile’ lease

As the number of empty town-centre retail units increases, there is increasing pressure on Ls to allow charities, and other social organisations, into those premises free of charge. In return, of course, L will save on rates and outgoings, as well as having the benefit of someone occupying a unit (rather than it being vacant).

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Page 42 of 54

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