Landlord & Tenant News

Landlords: How to Deal with an Insolvent Tenant.

2008 has seen the number of tenant insolvencies increased substantially from July following non-payment of the June Quarter’s rent.  This trend may be repeated in the New Year, we shall see in January, following the December Quarter Day and many retail tenants giving up after trading through the Christmas period. 

If your September Quarter Day rents are still owed you must act as others may be seeking to recover monies also and if the December Quarter Day rents are not paid after Christmas trading then you must ask yourself will such monies ever be forthcoming?  If the answer is no, the landlord’s remedies for rent arrears against an insolvent tenant include: -

• Distress

  Distress is a popular ‘self help’ remedy, whereby a landlord is entitled to remove a tenant’s goods from the premises and sell them to offset the rent arrears. 

  But watch out!  Where a corporate tenant is in administration the landlord will be prevented from levying distress (sending in the bailiffs) without the prior consent of the Court or the administrator.

  The tenant company will continue to be liable for rent due under the lease.  The administrator may want to use the premises and therefore ensure the rent will be paid as an administrative expense.  So a landlord must firstly find out what the administrator’s intentions are in respect of the leased premises.  If the administrator does not intend to use the premises, the landlord may need to consider accepting a surrender of the lease or forfeiting.

  An insolvent tenant company may opt to enter into a Company Voluntary Arrangement (CVA) with its creditors in an attempt to settle its debts.  If a landlord is owed rent it will be likely that it will be a party to the CVA.  If the company is a ‘small company’, for example less than 50 employees and a moratorium has been obtained, the landlord will not be able to distress without permission of the Court.  Similar rules apply to Individual Voluntary Agreements (IVA). 

  A tenant company may also go into liquidation, either voluntary or compulsory.  The liquidator administers the property of the company for the benefit of its creditors.  A landlord cannot distress once a compulsory winding up has taken place.  The sting in the tail is that if a landlord has already levied distress within three months prior to the winding up order, those goods or their proceeds of sale are potentially payable to the preferential creditors.  In a voluntary liquidation a landlord can still seek to distress but the court may order a stay.  The rules are similar for bankruptcy orders of an individual. 

• Court proceedings

  A landlord will be restricted if he wishes to issue Court proceedings against the tenant for rent arrears.  Where a tenant is in administration, permission of the administrator or the Court will be required.  If a moratorium has been obtained the landlord cannot issue proceedings.  Similarly, prior permission of the Court or the liquidator will be required in respect of a company in liquidation. 

• Forfeiture of the lease

  Forfeiture is where the landlord recovers possession of the property.  This is not a great commercial option in the current market because the property may be difficult to re-let and landlords become liable for empty rates.

  This option is more likely to benefit the tenant.

  If the tenant is in administration, the consent of the Court or the administrator will be required before a lease can be forfeited.  Under a CVA, the landlord’s ability to forfeiture depends on whether a moratorium has been obtained and also the terms of the CVA.  In compulsory liquidations, forfeiture by proceedings is not allowed without the Court’s permission although forfeiture by peaceable re-entry may be possible.  In voluntary liquidations both methods of forfeiture are allowed but the Court may order a stay. 

• Remedies against third parties

  The landlord may have rights against guarantors, subtenants or a former guarantor or former tenant.

  If there is a subtenant in the premises, provided the correct notice is served, the landlord can direct the subtenant to pay rent directly to the landlord until the arrears of the tenant are cleared. 

  In addition, the landlord may be able to draw down from a rent deposit depending on its terms. 

And Finally

Tenant insolvency can be complex and involves numerous legal technicalities.  If a tenant’s solvency is in question, a landlord must act quickly if they are to have all the options open to them.

If you require any further information or advice, please call Salena Dawson and Co. on 01953 883535 for an appointment.