Insolvency of Commercial Tenant Dispute Solicitors

The prospect of a tenant in a commercial property becoming insolvent and being unable to pay their rent is a worrying one. Unfortunately, this is becoming increasingly more common, and as a commercial property landlord, it is crucial that you understand your rights, and the potential impact on you if you find yourself dealing with a tenant facing insolvency.

Commercial tenants are businesses, and even in the best of times, not all businesses succeed financially. An insolvent tenant means that you may struggle to recover rent arrears and may face issues in the event of trying to recover your property.

If you have concerns about an insolvent tenant, Lupton Fawcett’s commercial property disputes lawyers are well placed to assist you in finding the best course of action.

Our specialist landlord and tenant solicitors can offer tenancy dispute services, giving you expert advice at every step and doing everything possible to safeguard your financial interests.

We have been providing effective and proficient guidance to our clients for over a hundred years – let us use our experience to help you to find the optimal resolution available to you.

What happens when a commercial tenant becomes insolvent?

When a commercial tenant experiences difficulty in paying their rent and debts in a timely manner, they may find themselves facing insolvency, or the process of going into administration. If you are having issues with your tenant, you will have questions concerning what will happen and how your rights may be affected.

There may be a number of warning signs that a tenant is having difficulties; they may ask for changes to the way that they pay their rent, or there may be media speculation that a business or organisation is facing insolvency.

There are different types of insolvency, each with their own unique set of implications. It is important to understand what your tenant is facing and the actions available to you under the circumstances.

Here are some of the common scenarios when a commercial tenant becomes insolvent.

  • The administration seeks to rescue the business for the benefit of its creditors. Landlords must seek the permission of the court or the Administrator before taking proceedings against a tenant in administration.
  • The administrative receivership allows a landlord to pursue remedies without the permission of the court or the Administrative Receiver.
  • Voluntary liquidation allows the landlord to retain the right to pursue their chosen remedy.
  • Compulsory liquidation of the tenant prevents the landlord from taking certain actions without first seeking permission from the Court.
  • Voluntary arrangements entered into by a tenant prevent the landlord from taking any action to enforce the obligations under the lease. They can only seek to enforce the terms of the arrangement. If the tenant fails to comply with the arrangement, the business is normally required to wind up or petition for bankruptcy. There may be a moratorium against certain actions being taken whilst a voluntary arrangement (either a Company Voluntary Arrangement (CVA) or Individual Voluntary Arrangement (IVA)) is in place.
  • Bankruptcy of a tenant means that the landlord is not able to pursue certain remedies without the permission of the Court.

If you have any concerns about your commercial tenant, taking swift action is key. There are measures that you can take to protect yourself, and we are here to advise you if you need guidance concerning your rights and the actions available to you.

Safeguarding yourself against potential tenant insolvency

The saying “prevention is better than cure” is particularly pertinent when vetting potential commercial tenants before granting a lease.  It’s crucial that landlords carry out due diligence before agreeing a lease, to determine whether a potential tenant has any financial issues that should cause concern. A well-drawn up lease, an appropriate guarantor and a deposit which can be drawn against in case of default are the first lines of defence. Despite taking all the correct measures initially however, landlords can still find themselves facing issues, and recognising the signs early on is the best way to protect your interests.

If your tenant delays or fails to pay rent or service charges this should be noted and acted upon swiftly. This is often the first sign of potential insolvency issues, and it is much easier to recover payments before a tenant becomes insolvent.  If you are concerned, it is important to take preparative steps; ensure that you have the correct, current contact details for the tenant and guarantors and make sure that all of your admin is up to date. Ensuring that any issues are addressed at this stage saves time and trouble at a later date if the tenant becomes insolvent.  You may also check whether any insolvency notices have been served.

Remedies available in insolvent tenant disputes

If your tenant becomes insolvent, it’s important to fully understand what your legal rights are when considering the next steps to take. You may be able to serve notice on the tenant, terminating the lease, but if you are owed money then the remedies available to you will depend on the situation that the tenant is in. Potentially, you may be able to recover the outstanding rent using the same procedures as you would when facing any rent arrears, which include:

  • drawing down the deposit
  • claiming against the guarantor
  • using the CRAR procedure
  • issuing court proceedings.

Check your lease and make sure that you are clear what your rights are accordingly. You may want to consider making some sort of concession or deal with the tenant if it would help them to avoid insolvency, such as making a rent reduction, although care needs to be taken when considering this option as there may be implications if the tenant subsequently agrees to a  Company Voluntary Arrangement (CVA).

We recommend seeking expert legal advice before you decide what form of remedy to pursue. Insolvency disputes can be legally complex, and you don’t want to jeopardise your interests by inadvertently pursuing the wrong measures. For example, if your tenant is formally insolvent, you may be prohibited from taking enforcement action without the relevant permissions.

If they are in liquidation, your lease may be “disclaimed”, meaning that you become another unsecured creditor with a claim. You may find yourself liable for property rates in the even that you take your property back by forfeiting the lease; every implication should be carefully considered before taking any sort of action, whilst also being aware that time is of the essence. Talk to us. Our experts have the knowledge and expertise to guide you through this – we understand the legal and commercial issues to consider while keeping your best interests at the fore.

Why choose us?

At Lupton Fawcett, we understand the challenges that come with the insolvency of a tenant. Our property dispute solicitors are well-versed in this area of law; we can advise you on the best course of action to take, and the remedies available to you.

We will guide you through the process, keeping you fully briefed so that you understand your legal position throughout. We aim to help you to resolve insolvency disputes as efficiently and favourably as possible, offering you a personalised and effective service. Whatever the size of your business, we’ll be happy to help.

Contact us

Lupton Fawcett are a leading personal and commercial law firm in Yorkshire with well-established offices of highly experienced solicitors in Leeds, Sheffield and York.

We provide a personalised service, with sector specialists and extensive resources to ensure we are giving you the best solutions to your problems.

Our Commercial Property Dispute Solicitors act regularly for clients across the United Kingdom including Bradford, Birmingham, Hull, Leeds, Liverpool, London, Manchester, Sheffield, York and Nottingham.  We can support your needs wherever you live in England, Wales & Northern Ireland.

For a no obligation initial consultation please either call the office or leave your details using the contact form at the top of this page.  We’ll be happy to help

"Simon Lockley is the top dog in this field. Technically superb and realistic in advising on prospects."

Legal 500 2021

The team is extremely knowledgeable, approachable and technically excellent. It really cares about getting the best results and is a delight to work with.

Legal 500 2019

Lupton Fawcett is a good full-service firm, which provides reliably high-quality advice with a real sense of how to meet commercial clients’ needs with a personal touch.

Legal 500 2019

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