Tenant administration and “keep open” covenants
In SHB Realisations Ltd and another v Cribbs Mall Nominee (1) Ltd and another , the tenant BHS took a 125-year lease of a store at the Cribbs Causeway Mall in Bristol in 1998 at a premium, but for a peppercorn rent. A ‘keep open’ covenant required BHS to open the store seven days per week during specific opening hours.
The store closed as a result of the tenant’s administration in 2016, thereby breaching the ‘keep open’ covenant. The landlord served notice to forfeit the lease as a result of the breach.
Some 36 months after the administration, the tenant’s administrators and its mortgagee applied for relief from forfeiture for 6 months to allow it to properly market and assign the lease unhindered by other litigation. The landlord argued that possession was required immediately, the administrators having had adequate time already to assign.
The County Court’s decision granted conditional relief from forfeiture. Although unusual in cases of a long lease, in this instance the asset was of value and the administrators were able to demonstrate that relief from forfeiture was necessary to allow the asset to be sold for the benefit of the administration.
In its decision, the court found that the tenant was in breach of the keep open covenant, albeit not wilfully, and that the asset, for which there was a market, was of a value in excess of £1m. The estate and secured creditors were able to take steps to recover that value. However, the court acknowledged that the landlord would suffer ongoing damage if it could not recover possession, being hindered in its ability to manage the Mall as it wished.
As a result, the court granted conditional relief from forfeiture, with the main condition that the administrators must have completed an assignment within 3 months.
Advice and action for landlords
Ordinarily, landlords are prevented from forfeiting leases of tenants in administration as a result of the moratorium granted to the company and its administrators to allow the business or its assets to be sold. The landlord in this case served notice to forfeit the lease because of the exceptional nature of the tenant and the property; it was the fourth-largest unit in the Mall and carried significant value.
The court is required to balance the interests of the administrators to recover value from the asset with those of the landlord who wishes to manage its property interests unencumbered. SHB here was able to recover value from the asset, but if this was not achieved within the timescale set by the court the lease would be forfeit and the landlord entitled to possession.
Where a tenant’s administration results in the breach of its lease terms, is a landlord entitled to serve notice to forfeit a lease? Under which circumstances might the court grant conditional relief from forfeiture to allow administrators to assign the lease and recover value from the asset?