Blacks and La Senza: Aggression vs Seduction?

Yesterday saw the first of what will most likely be a wave of pre-pack administrations of high street names when both Blacks Leisure and La Senza went into administration and immediately thereafter their businesses (or at least the profitable parts of it) were sold to willing buyers.  Pre-pack administrations have come in for a lot of criticism on the basis that they often, if not always, return no value to unsecured creditors or shareholders.  However, they have their merits and, in a lot of cases, genuinely achieve the best result possible overall for stakeholders.  Therefore, much to the dismay of some readers, I am not about to launch into vitriolic criticism of the use of pre-packs to save jobs and businesses with unsecureds being left high and dry.
There is, however, one common thread of both the La Senza and Blacks pre-packs which are worth highlighting and, as a landlord, preparing for: lease renegotiations.  In the case of Blacks, the official press release from JD Sports Fashions stated:

"Following the elimination of any underperforming stores and other cost reduction initiatives we believe the business can be run successfully as independent fascias within the Group."

With La Senza, less than half the retail sites leased by the group were bought out of administration with the majority of sites closing down so, it is likely, only the performing stores were part of the original deal.  However bearing in mind the official press release which stated:

"Today’s announcement represents a first step in a long-term commitment to developing the La Senza UK business, which we believe has great potential."

it seems likely that 'new' sites are on the cards.
My prediction is that in both cases landlords will be approached by the new owners to renegotiate lease terms.  What we have is a difference in approach from the new owners; one is seeking to pressure landlords whilst the other is seeking to seduce them.
In the case of Blacks the new owners have probably taken a licence to occupy all the sites and will now meet with the landlords of "underperforming sites" to seek to renegotiate the leases.  This will be the stick or 'Aggression' based approach; if the landlord does not agree the terms the site will be closed and the landlord left with the void costs, which would include empty rates liability, service charge irrecoverability and an unoccupied site which quickly becomes unattractive.
In the case of La Senza whilst landlords of transferring sites might be approached, bearing in mind the number of up front closures, I anticipate that the new owners will approach landlords of some of the closed sites and propose new terms under which they would be willing to re-open.  This is more of a 'carrot' or 'Seduction' based approach offering to relieve landlords of the void exposure.
As a landlord it is important that you are aware of what your negotiating position is in respect of any approaches.  It is worth keeping the following in mind (and get detailed legal advice in respect of them where relevant):

• an administrator has no right to disclaim or unilaterally surrender a lease or otherwise bring a lease to an end earlier than a solvent tenant (only a liquidator has that power).  Therefore rates liability in particular should not fall on a landlord simply because of the tenant going into administration although ultimately liquidation is likely).
• if the property is still being used (and this is particularly important in the case of Blacks) then the lease liabilities arising are likely to be an expense of the administration.
• due to the decision in Goldacre expect there to be significant pressure to get deals done before rent payment dates as administrators in particular will wish to ensure that they can avoid any risk of the next period's rent being payable as an expense in whole.  My view is that a challenge to Goldacre or an attempt to extend it is very likely this year.
• pre-conditions or requirements set out in the lease as things which the landlord can rely on in terms of refusing consent to an assignment apply to an assignment by a company in administration just as much as they do in non-insolvency positions.  Obviously a balance is to be achieved but if you really do not want to consent to an assignment or the proposed terms don't think you will have no choice in the matter.
• the courts will not be quick to grant consent to forfeiture.  In our experience to date courts have given administrators quite a long time to try and assign a lease so even where the proposed assignee cannot meet lease pre-conditions do not assume the courts will be on your side.

La Senza and Blacks might be the first major retailers of 2012 to go to the wall but, if the reports are to be believed, they certainly will not be the last.  Whether buyers of such portfolios use might or seduction methods to seek new lease terms we can only speculate but what La Senza and Blacks show is both approaches are being considered and pursued.  Either way, make sure you use protection!