A decision preventing landlords to re-enter property under certain circumstances has been reversed by the Clarence Cafe v Comchester Properties High Court decision last November.
Clarence Cafe had leased a pizzeria from Comchester Properties for £40,000 a year to the year 2000. However, it went into administration in March 1998 owing more than £26,000 in rent. Comchester then effected "peaceable re-entry" into the premises in respect of non-payment of the rent. It was that move that gave rise to the litigation.
The administrators clai-med it was in breach of the Insolvency Act moratorium, which stipulates that a creditor cannot: issue or continue proceedings, other legal process or execution; petition for the company's winding up; appoint an administrative receiver; or take steps to "enforce any security over the company's property", except with the consent of the administrator or leave of the court.
Judge Cooke held that even though the Insolvency Act 1986 creates a moratorium, or freezing mechanism, which blocks certain moves against companies that are in administration, Comchester Properties was entitled to re-possess property from its tenant, Clarence Cafe, despite the fact that Clarence was in administration and that prior court leave for such a move had not been obtained.
Dellah Gilbert, a property litigation lawyer at Lovell White Durrant who represented the successful defendants in the case says this is "very good news for landlords".
She adds that it is also a ruling which has "put to rest" an earlier High Court finding by Mr Justice Harman in the case of Exchange Travel Agency v Triton Property Trust, which raised a near identical point.
When the same point was raised in the Exchange Travel case, Judge Harman held that a right to re-entry was to be classed as a "security", and that under these circumstances what had taken place did breach the moratorium.
Judge Cooke held the opposite. He ruled that a landlord is entitled to take back property without the leave of the court if he does so by "peaceable re-entry", effectively reversing the earlier decision by Judge Harman.
However, if circumstances do not allow such re-entry on to the premises, then the landlord must still seek leave of the Court before issuing proceedings to take back the property. And in practice, such leave is seldom likely to be given unless the landlord can show that there is imminent danger of the tenant entering into liquidation.
"From the landlord's point of view, the decision is one of considerable importance," says Gilbert.
"In the absence of any Court of Appeal decision, the uncertainty surrounding the ability of landlords to repossess peaceably has now gone," she says.
"This makes matters fairer for landlords who were previously prejudiced by a tenant's administration, and prevented from mitigating any losses suffered by re-letting the premises."
However, she notes that an administration is supposed to provide a breathing space for a tenant company.
She says: "This decision deprives tenants of that protection, and makes them vulnerable to peaceable re-entry. That can obviously be a problem where the income generated for a tenant company by business carried on at a particular leased premises, is its only source of funds.
"If the lease is forfeited and the business unable to carry on, unless there is a willing purchaser of the business, there may be little alternative for the tenant other than to enter liquidation."
However, she points out that companies in administration still have the benefit of the moratorium if the landlord seeks to forfeit the lease by commencing proceedings, which is often the case.
This largely unremarked case was described by Mr Justice Cooke in his ruling as "a good example of the principle of how the law can develop".