Insolvent Tenant – What can the landlord do?
Statistics for the second quarter of this year show that company insolvencies reached over 6,300, the highest number since the same period in 2009. With businesses facing tight conditions and challenging markets landlords can often find rent is unpaid.
There are different types of insolvency regimes but the most common are;
· Winding-up (also known as liquidation) - this may be either a voluntary or compulsory;
· Administration - rescuing the company or securing a better deal for the creditors/controlling selling assets; or
· Company Voluntary Arrangements - legally binding agreement with creditors to settle or reduce debts over an agreed period of time.
In normal circumstances debt collection options for the landlord include;
• Commercial Rent Arrears Recovery (CRAR) - a statutory procedure which allows commercial landlords to recover rent arrears by taking control of the tenant's goods and selling them;
• Forfeiture - terminating the lease;
• Court claim for rent arrears; and
• Use of rent deposit.
Depending on the type of insolvency process and the stage of that process, the landlord may face restrictions, or be prohibited from, using the remedies above. The variations and complexity of the insolvency processes mean that it is important to seek legal advice as soon as you become aware that your tenant is in financial trouble. In some cases, the earlier you act the more options you have.
Consider Third Party Liability & Rent Deposits
Importantly, always consider whether a there is surety/guarantor or former tenant you can pursue. This may well be an easier and more successful option. Further, check the wording of the rent deposit and take advice on whether you can draw down on it.
More Detail - Restrictions when a tenant has started insolvency proceedings
Compulsory Winding Up - if a compulsory winding up is pending, the exercise of CRAR is void and other actions may be stayed by the court. Once a winding-up order has been made, leave is generally needed for enforcement action.
Voluntary winding up - the landlord can sue for rent and forfeit the lease but these actions may be stayed by the court. Use and benefits of CRAR is limited.
Where a tenant in liquidation remains in occupation, rent can be payable as an expense of the liquidation but a liquidator can unilaterally disclaim the lease if it is an "onerous contract" in order to limit this liability.
Administration - leave of the court or consent of the administrator will be needed before the landlord can take any enforcement action. However, rent will be payable as an administration expense if the property is being used for the purpose of the administration.
Company Voluntary Arrangement - the CVA itself will set out what enforcement remedies the landlord can and cannot use.
Posted on 09/06/2023 by Ortolan