Are you a landlord of an insolvent tenant? When rent arrears arise it is important to obtain professional advice as soon as possible. The best way to proceed is not always clear at first. Our commercial property litigation team acts for many landlords of commercial premises and regularly advise on rent recovery and remedies available to the landlord where rent is unpaid.
We find the following points arise in most cases:
- A formal demand from solicitors regarding rent arrears should be made as early as possible. Where a tenant has financial difficulties they will tend to pay the most pressing demands first.
- Consider forfeiture of the lease. Is this appropriate? If the landlord takes possession he will be automatically liable for the business rates on the property and be responsible for securing and maintaining it.
- If forfeiture is appropriate, is this by way of act of repossession or via Court Order? See our Forfeiture page to help you decide.
- Is there a rent guarantor? If so, would it be better to allow the lease to continue?
- What are the tenant’s reasons for non-payment? If short-term cash flow problems are the issue, a landlord might consider an instalment agreement to recoup the arrears and allow the lease to continue.
What if the tenant becomes bankrupt (or company goes into liquidation/administration)?
These are known as “acts of bankruptcy/insolvency” and they will normally trigger termination of the lease, but the lease terms must be considered.
- A liquidator has a right to affirm the lease or disclaim it. For example, if the liquidator is seeking to sell a business as a going concern it may be necessary to retain the premises. A liquidator can become liable for the rent if the lease is not disclaimed.
- In every case, a landlord should obtain advice as early as possible. Often it is an exercise in mitigating the loss caused by the insolvency.
- If premises are repossessed by the landlord due to insolvency issues, third party claims for machinery and stock on the premises often arise. It is important to obtain advice on such claims and serve appropriate Tort Notices on all third parties.
Administration
An administrator may be appointed for an insolvent company tenant under a Company Voluntary Arrangement (CVA). Where the administrator is using the premises, we can help negotiate terms with the administrator for payment for use and access and deal with any surrenders or assignments of the lease that are needed.
Rent Deposits
If the tenant has paid a rent deposit, this can be utilised against rent arrears. Advice should be obtained before doing so on the wording of the relevant clauses and how they operate in practice.
Court Proceedings
In some cases, it may be appropriate to seek a Court Order for possession of the premises rather than forfeiting the lease. Court proceedings reduce the risk of a tenant obtaining relief from forfeiture and thus enables the landlord to proceed with greater certainty when re-letting.
For any advice on rent arrears in commercial property, our property litigation team have experience and expertise and should be contacted at the earliest opportunity.
