Landlords Insolvency

Commercial Landlord and Insolvency

Landlord facing insolvency can leave the tenants in a very difficult situation.

A question often asked by tenants is if they will be thrown out of the property. The good news is that, generally, the answer is no, and your lease will still remail valid. The insolvency practitioner (IP) in an insolvency will disclaim the lease  as ‘onerous property’.

A disclaimer terminates the insolvent party’s obligations under the lease but does not end the lease.

An unusual situation arises where the tenant can lawfully remain in occupation but with a landlord who has no continuing obligations under the lease, which is less than ideal. However, if your lease is on commercial arms’ length terms and is generating an income for the insolvent party because of the rent you are paying, the superior interest will often simply be sold subject to your occupation.

If your landlord has sublet to you as in the landlord is a tenant too, then the other exception is where your landlord’s lease could be forfeited by the ultimate landlord or to simply the main landlord. This will end your lease automatically.

You can apply to the court for relief from forfeiture, although the Court is likely to expect your landlord’s arrears to be paid and for you to take a new lease of the same premises and at the same rent as your landlord’s lease. This is an unattractive deal if you only sublet part of your landlord’s premises. Hopefully the ultimate landlord ( the main landlord) will be keen to keep you and your rent in the circumstances, and will open separate negotiations with you about staying on. Finding good tenants is very difficult and so it is easier for the landlord to enter into discussions with you than having to start the whole process of marketing the property and incurring further costs.

Rent

The IP will contact you with instructions about rent payments. If your landlord has sublet to you, you would be wise to contact your ultimate landlord as well as the ultimate landlord may serve a statutory notice on you, which will enable them to take the rent direct from you.

Rent deposit

If your rent deposit is held in an account in your own name, then the account remains your property and outside the insolvency process. If the deposit is held in an account in your landlord’s name, you will need to prove that the account is held on trust for you and therefore should not disappear into the insolvency or become an asset in the insolvency as rent deposit.

Upkeep

If the landlord is insolvent, it is unlikely to be doing the repairs for which it is responsible. Whether you can recover any of the service charges you have paid, but which have not been spent on the upkeep, will depend on the circumstances.

In making any claim against the landlord, you will join the ranks of all the unsecured creditors in the insolvency.

Always take advice as soon as possible on the best course of action to protect yourself!

Next Steps

If you want to find out anything further about this topic then please feel free to call on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email vee@navigatebr.com

This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.