England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice
		11th May 2012

MR. JUSTICE BRIGGS:

1. I must deal, first, with an application by Mr. Goldring for the administrators of Game Retail (UK) Limited (in administration) to adjourn today's application by the landlords of the property at Century House in Oxford Street over to what is agreed to be an adjourned hearing of a parallel, to use a neutral word, application concerning the question whether rent which fell due for payment on 25^th March of this year is recoverable by the landlords as an expense in the administration.
2. The present application for permission to exercise forfeiture rights was made on the 25^th April. However, the substance of the evidence in relation to it was made available in stage 1 to the administrators on 18^th April in support of an earlier application which has since been withdrawn and the evidence now before the court was supplemented so as to be complete so far as service was concerned on 25^th April. It is said by Mr. Goldring that the permission to forfeit application should be adjourned over to what I will call the "expense application" because the two are interrelated. Although in response to my question Mr. Goldring frankly said, after taking instructions, that an adjournment is not sought so as to enable the administrators to put in further evidence on the merits or otherwise of the permission to forfeit application, the result is that the permission to forfeit application is complete so far as evidential preparation is concerned. There is time to hear it today.
3. The landlords (that is, the applicants) say that it is urgent, firstly, because they have not been paid the rent which was due on 25^th March for this quarter and, as they stand, are out of money in relation to a prime retail site in Central London and, secondly, because they have confidential negotiations ongoing with another major retailer to take a new lease of the premises during which a condition has been imposed in relation to those negotiations that solicitors are instructed by, I think, slightly short of the end of this month. The agreed terms of the adjournment of the expense application is that it should be heard on the first open date after 31^st May with an estimate of one day. It is inevitable, therefore, that if I accede to Mr. Goldring's application the time limit imposed for remitting the possible new lease negotiations to solicitors will have passed before that can be heard.
4. Mr. Goldring submits that the pros and cons of giving the landlords permission to exercise forfeiture rights will be affected by the outcome of the expense application in the sense that if, which the administrators currently deny, that rent is payable as an expense in the administration, albeit some time later than when it was due, then the landlords may recover rent for that quarter and, in any event, with a higher degree of priority than if they were forced to prove for it as unsecured creditors. The evidence does not enable me to know whether there is a sufficiency to pay them as expense creditors if that rent is part of the administration expenses. The rent is currently accruing at a rate of a little over £100,000 a quarter.
5. I recognise that there is some overlap between the outcome of the expense claim and the question of permission to forfeit, but I am not by any means persuaded that that degree of overlap is sufficient to adjourn what otherwise seems to me, on the evidence, clearly to be an application for permission to forfeit which ought to be dealt with as soon as possible, in particular so as (if appropriate) to enable the confidential negotiations with a potential new tenant to proceed without the impediment currently existing, namely, that the premises are in the occupation of a licensee of the company pursuant to a business sale agreement which applied for a consent to an assignment to it on 16^th April, was told that consent would not be forthcoming on 18^th April and has not pursued its application for consent or any application that consent has been unreasonably withheld since then.
6. In my judgment, this is not a case where there is any good reason to adjourn the permission to forfeit application to the extent that the contingent right to treat the March rent as an expense - I say "contingent" because of the legal uncertainties surrounding it - is a relevant consideration. That contingency can properly be taken into account when the court comes later this morning to consider the merits of the application for permission to forfeit. So no adjournment is appropriate.

LATER:

MR. JUSTICE BRIGGS:

7. This is an application by Lazari GP Limited and Lazari Real Estates Limited, the landlords of premises at Century House, Oxford Street, for permission to commence or exercise their rights to forfeit a lease of the ground floor of those premises to Game Retail (UK) Limited, a company which is now in administration, having gone into administration on 26^th March of this year. The lease was for 10 years from 25^th June 2003 and therefore has roughly another year to run. Rent was payable on the usual quarter days, quarterly in advance, at the rate of £425,000 per annum at the last review date. That is the current rent payable.
8. The short facts are that notice of intention to appoint administrators was given to the landlords, Lazari, on 21^st March. The rent fell due on 25^th March and was not paid. Administrators were appointed on 26^th March and, on that date, wrote to the landlords saying that they intended, for the time being at any rate, without adopting the lease, to make use of the property.
9. The lease contains covenants not to part with or share occupation of the premises and a qualified covenant against assignment. By clause 22.2.3, on an application for permission to assign, the landlord is permitted to ask for an authorised guarantee agreement. The forfeiture provisions in the lease are standard form and may be triggered by arrears of rent, breach of the obligation not to part with occupation or possession and insolvency.
10. On 31^st March, a business sale agreement was signed between Game Retail (UK) Limited and a company called Baker Acquisitions Limited, so far as I can ascertain, specifically formed for the purposes of this acquisition, the sale agreement being in substance a pre-pack. It provided for completion to be deemed to have taken place at midnight on the previous day and for the buyer, Baker, to go into immediate occupation of various of Game Group's trading premises, including this property, under a licence from Game Group. The provisions of the business sale agreement, to the extent that the court has been shown them, many being redacted on grounds of supposed commercial confidentiality, include a provision that the buyer acknowledges that the grant of the licence to occupy any relevant properties might amount to a breach of the terms of the relevant lease or other relevant title document and accepts any risk in respect of that or in respect of any refusal of a third-party consent, by which I imagine, though I have not been shown the definition provisions, that includes the consent of the landlord. There is a limited obligation on the administrators to assist in the completion of any formalities for transfer of title and there is a power conferred on the buyer, under para.7.6 of I think part 4 of the first schedule, to apply at its own cost to the court in the name of the seller (in this case Game Group) for a declaration that a third-party consent is being unreasonably withheld or delayed, providing that the buyer provides security for costs to the administrators and the selling company in relation to any such application.
11. Baker, as I have said, went into some form of occupation of the property on or about 31^st March. On 2^nd April, the landlords served a s.146 notice based upon insolvency and the unlawful occupation of Baker and also referring to the arrears of rent accruing on the March quarter day. The consent to forfeit, notwithstanding the administration moratorium, was sought by the landlords on 4^th April and refused by the administrators on 11^th April. The letter of refusal did not identify any prejudice which would be caused to the achievement of the purposes of the administration if forfeiture rights were exercised by the landlord, but the letter expressed a hope that there would be a sensible commercial resolution of all outstanding matters rather than recourse to potentially expensive litigation. The landlords, being unimpressed with that response, sent a letter before action on 12^th April.
12. On 16^th April, solicitors for Baker applied in a somewhat inchoate form for consent to assignment to the landlords, inchoate in the sense that the letter provided no particulars about Baker which would enable the landlords to consider whether to grant consent. But on 18^th April the landlords responded to the effect that they would not be granting consent since it appeared that Baker was a newly formed company with no track record or other proper substance as a covenant sufficient to make it appropriate for consent to be granted. More recently, the landlords have been in confidential negotiations with a retail chain with a view to a possible new lease of the property at a higher rent than the current rent, but it has been expressed to be a condition of the continuation of those negotiations that solicitors are instructed to do the relevant conveyancing on the transaction by, I think it is, 28^th May.
13. Ms. Leahy, for the landlords, submitted that, in accordance with the settled principles laid down by the Court of Appeal in Re Atlantic Computer Systems [1992] Ch 505, in the judgment of the court given by Nicholls LJ. at pp.542544, this was a case in which, albeit that it is for the landlord in the current context to make out a case of being given leave, it was a case, nonetheless, where there was no basis for the court to think that the purpose for which the administration order was made would be in any way impeded by the immediate grant of permission to the landlords to exercise their forfeiture rights, those being proprietary rights within Nicholls LJ.'s analysis of the relevant principles so that, in accordance with stage 2 of the analysis on p.542, leave should normally be given. Accordingly, Ms. Leahy submitted that the balancing act which the court has to perform, if there would be some impeding of the purposes for which the administration order was made, simply did not arise.
14. In my judgment, Ms. Leahy's submission is correct in the present circumstances. There has been a business sale by the administrators very shortly after the commencement of the administration. It was one under which the buyer was given occupation under a licence with full risk of the consequences of that occupation being without the landlords' consent. The buyer has in mid-April made what seems to me to be a half-hearted application for consent to an assignment which was refused by 18^th April and has not since been pursued. The buyer has not sought to avail itself of its right to use the company's name for the purpose of bringing any claim that consent has been unreasonably delayed or withheld. Indeed, it seems to me obvious that no such claim could properly be brought. The consequence, as I understand it, from the limited parts of the business sale agreement which I have been shown, is that it matters not for the beneficial realisation of Game Group's property in the administration whether the landlord is or is not able to exercise its proprietary rights by seeking recovery of possession of the property because, the buyer having taken full risk of the exercise of those rights, there will be no adverse consequences for the administration. Mr. Goldring, for the administrators, has very frankly acknowledged (large parts of the agreement being redacted) that there was no provision for deferred consideration, for example, such that the amount payable under the business sale agreement could be adversely affected if possession were taken of the property as against Baker. It seems to me, therefore, that the purpose of this administration has been substantially achieved by the business sale agreement and would in no way be interfered with by the immediate permission given by this court to the landlords to pursue their proprietary rights.
15. I should add that I asked Mr. Goldring whether he could identify any continuing purpose of this particular administration which would be adversely affected by the immediate grant of permission. His submission was that, generally speaking, it was better for the court to give permission only on deferred terms, that is, after a period of time to allow for completion of confidential negotiations, for example, between the buyer and the landlords. I have been told, on instructions, that those negotiations, which may have been ongoing for purposes which have not been revealed, do not include negotiations to take an assignment of the lease, and Mr. Goldring was unable to explain why any truncated outcome to those negotiations might adversely affect the achievement of the purposes of the administration.
16. I should add that, even if, contrary to the clear impression which I have formed and have described, there was some possible impediment to the full achievement of the purposes of the administration by the court giving immediate permission, the conduct of a balancing exercise in the manner set out by Nicholls LJ., which I acknowledge incidentally is not a mechanical exercise but the exercise of judgment by the court, could only come down in favour of giving the landlords the permission which they seek. The evidence demonstrates a real prospect that the landlords would suffer loss, indeed financial loss, by reason of, for example, the delay caused by being unable to enforce their rights, in particular because of the probable adverse effect of any such delay upon their conduct of negotiations for the grant of a new lease of the premises at a higher rent to an apparently satisfactory retail chain with a good covenant. Against that, there seem to me to be no countervailing considerations such as might to alleviate any prejudice to the administration if permission were either refused or delayed.
17. I must deal, finally, with the submission by Mr. Goldring that in giving permission I should nonetheless limit it to permission to forfeit by legal proceedings rather than peaceful re-entry. He submitted that it was generally unsatisfactory to have locks changed during the night, but it does not seem to me that the court, exercising its administration jurisdiction, is particularly concerned with that, nor has the court any reason to suppose that a peaceable reentry would be anything otherwise than lawful. As far as I can see, although the court has power to impose any relevant conditions, conditions which the court should impose are not those which they think might be generally useful but conditions which would serve the purposes of the administration. I have been unable to identify any purpose of the administration which would be served by imposing the suggested condition. As Ms. Leahy pointed out, if relief from forfeiture is to be sought pursuant to the buyer's right to do so in the name of Game Group under the business sale agreement, an application for relief could be made by a separate proceedings rather than, as Mr. Goldring suggested would be more convenient, by way of counterclaim to forfeiture proceedings. There is, as it seems to me, no real indication that an application for relief will be made, not least because, thus far, the administrators have declined to pay the March rents which would be, in any event, a condition of any relief from forfeiture and because there has been no indication from Baker, the buyer, or its solicitors that any application is contemplated or threatened.
18. For all those reasons, I propose to grant the relief sought by the application.