Forfeiture

Citation

(1999), "Forfeiture", Property Management, Vol. 17 No. 4. https://doi.org/10.1108/pm.1999.11317dab.006

Forfeiture

In re Lomax Leisure Ltd [1999] 23 EG 143

In this interesting if rather complicated case the main question at issue was whether the landlords' right of re-entry was a "security" over the lessee's property for the purpose of s.10(1) of the Insolvency Act 1986 so as to disentitle the landlord from peaceably re-entering the premises during the period in which a petition seeking an administration order over the lessee company was pending.

Without going too deeply into the facts of the case, these involved a project to develop a nightclub in central London which ran into serious difficulties due to circumstances which would appear to have been largely outside its control including difficulties in connection with the title to the reversion (with consequent delays in obtaining the necessary consents), the building contractor which had been contracted to undertake the necessary works of conversion itself becoming insolvent, and the bank which had been going to lend money for the project on the security of the lease being unwilling to do so unless and until certain of its terms had been amended.

In consequence no doubt of these events there arose a cash crisis in which the lessee company owed the landlord some »116,000 in arrears of rent and one stage payment to the replacement building contractor. On 7 April 1999 one of the creditors which had advanced money to the lessee company petitioned for an administration order and one week later, on 14 April the landlord purported to forfeit the lease by peaceable re-entry on the basis both of the arrears of rent and of a number of further breaches of the covenants contained in the lease.

Section 10 of the 1986 Act provides inter alia that

during the period beginning with the presentation of a petition for an administration order and ending with the making of such an order or the dismissal of the petition ... no steps may be taken to enforce any security over the company's property ... except with the leave of the court ...

The court considered a considerable number of cases, some of which appeared to regard the landlord's right of re-entry as a "security" and others of which did not, including most recently the cases of Razzaq v. Pala [1998] BCC 66; [1997] EGLR 53; [1997] 38 EG 157, and Re Park Air Services plc, sub nom Christopher Moran Holdings Ltd v. Bairstow [1999] 1 A11 ER 673; [1999] 1 EGLR 1; [1999] 14 EG 149, before concluding that the landlord's right of re-entry was not a "security" for the purposes of s.10 of the 1986 Act.

In consequence, the landlord had validly exercised its right of re-entry; if the administration order were to be made, and subject to payment of the arrears of rent and to the other breaches (most of which were of a technical nature which had not caused the landlord to suffer any real loss or damage) being remedied, then the lessee would be likely to be granted relief from forfeiture; the company could then either complete the project in which its shareholders had already invested a great deal of money, or dispose of it to someone else who could complete it and thus retrieve some money at least for the shareholders.