Commercial Landlord Insolvency Dispute Solicitor
When faced with the insolvency of a landlord, commercial tenants will no doubt have concerns about what this means for their business and their tenancy.
The biggest worry a tenant has at this time is usually whether they are likely to be evicted from their premises as a result of the insolvency. The outlook for the tenant is largely dependent on the type of insolvency the landlord faces, although most of the time the existing lease should remain valid.
If you have concerns about your legal position in the event of your landlord becoming insolvent, Lupton Fawcett have the experience and expertise to assist you.
A full understanding of both your position, and the position of your landlord is key when considering the options available to you in this type of dispute, and we understand that this can be daunting.
Speak to us for clear, comprehensible legal advice, and let us guide you through this challenging time.
Types of insolvency
A letter from an Insolvency Practitioner is often the first that a tenant hears about their landlord’s situation. These letters tend to be a courtesy to inform the tenant of the landlord’s position, generally advising the tenant to keep paying the rent as usual, but to a new bank account. There are different types of insolvency, and the tenant’s position will be different depending on the landlord’s situation.
The main types of insolvency include:
- Bankruptcy: a legal process where an individual or entity is unable to pay their debts and is declared bankrupt by the court.
- Individual Voluntary Arrangement (IVA): A formal and binding agreement between an individual and their creditors to repay their debts over a period of time.
- Administration: an insolvency process designed to give struggling companies the chance to restructure and recover financially.
- Compulsory Liquidation: A court-based procedure in which a company is wound up and its assets are distributed to its creditors.
- Creditors Voluntary Liquidation: A voluntary process where the shareholders of a company agree to wind up the company.
- Company Voluntary Arrangement (CVA): An agreement between an insolvent company and its creditors, allowing the company to make repayments over an agreed period of time.
What happens if a landlord goes into liquidation?
Where a commercial landlord has run into difficulty, their insolvency is initially most likely to be in the form of a CVA or administration. It is unlikely, except in extreme circumstances, that a commercial landlord will immediately go into liquidation, although it tends to follow administration more often than not.
Administration will have a lesser impact on the tenant, who should continue to pay the rent as instructed until or unless any other changes are made; if they fail to do so, they will be in breach of their lease.
It’s possible that the tenant won’t notice any real differences – the lease should remain unchanged, and even the personnel the tenant normally deals with may stay the same.
It can be more complicated where the tenant’s landlord is an intermediate landlord – where this is the case the tenant is advised to negotiate a new agreement with the superior landlord as soon as possible. Depending on the situation, creditors may reach a point where they consider whether the best solution is to break up a company and its assets in the attempt to recoup their losses. If this is the case, it is likely that the landlord’s property which is rented by the tenant will be sold off to pay the creditors. Where a new landlord takes over the tenancy, whether that be during the administration, or as a result of a sale of the previous landlord’s business, tenants may see a difference and find they are strictly held to the terms of their agreement.
Right of First Refusal
If the liquidator decides that selling the property is the best course of action, the leaseholder will be given the chance to buy the property before it is offered to a third party. This is known as the Right of First Refusal (under the Landlord and Tenant Act 1987) and gives the tenant some chance to protect themselves from some of the consequences of the landlord’s insolvency. If, as a tenant this is something that you are financially able to do it is worth giving the opportunity some serious thought. Our property dispute experts will be able to advise you on this if it is something that you are considering.
Disclaiming the Freehold
Where the property that the tenant rents from the landlord is deemed to be “onerous”, (having no value or being otherwise unsaleable) the company liquidator may decide to disclaim the freehold. This removes all responsibility or liability from the liquidator, and the property reverts to the Crown. When this occurs, the tenant usually continues occupation on the same terms as a tenant against the Crown. This also applies to subtenants, where they exist.
Risk of forfeiture
Generally, an insolvent landlord will not be able to forfeit a lease. However, where the insolvent landlord is an intermediate landlord, and they fail to pay their rent to the superior landlord, it is possible that the lease might be forfeited under certain conditions. If your landlord is an intermediate landlord, and their superior landlord forfeits their lease, as a tenant your lease will be automatically ended. Under these circumstances, you may be able to apply for relief from forfeiture from the court. This would need to be done in respect of the insolvent landlord’s lease, rather than your own, and the terms of their lease may be more onerous than the terms in your own. It’s also worth considering that if you are a subtenant in these circumstances, your right to relief may not be as strong as a tenant’s right.
Who is responsible for maintenance when a landlord becomes insolvent?
Where a commercial property reverts to the Crown, there will cease to be a landlord to take responsibility for the maintenance of the property during insolvency proceedings, which can often take a substantial amount of time to settle.
There is legislation in place (Section 24 of the Landlord and Tenant Act 1987) which offers a leaseholder the legal right to apply to the First-Tier Tribunal (FTT) for the formal appointment of a manager and receiver, in the event that the freeholder has ceased to exist. The FTT is likely to accept the nomination put forward, providing that they are an experienced property professional with the correct qualifications and experience. We recommend that legal advice is taken in these circumstances as the process can be complicated, but once a manager is in place the tenant has the peace of mind knowing that the property will be properly maintained.
How can a tenant protect themselves against an insolvent landlord?
As a commercial tenant, we would always recommend that you take every precaution to protect your financial and business interests from the point that you are considering signing a lease.
Lupton Fawcett can help you from the very beginning, ensuring that your lease is well drafted and thoroughly checked before you make that commitment. Even so, disputes can occur, and professional advice is recommended at any time where you suspect that your landlord may be about to become insolvent.
If you have a rent review in the near future, and you are at all worried about your landlord’s finances, it might be prudent to do some research and make sure that you take measures to protect yourself if your concerns are well founded.
If your rent deposit has been paid to your landlord and it has not kept legally separate from their other assets, you are at risk of losing it in the event of your landlord becoming insolvent. If your rent deposit is not in a separate account, you will need to show that the money is held in trust for you by your landlord. You may be able to persuade your landlord to make provision to protect your deposit, or to refund it.
If the landlord fails to comply with the terms of the lease, they may be in breach of the agreement, which may give you grounds to repudiate it.
How Lupton Fawcett can help with your landlord insolvency dispute
Enlisting the advice of a legal expert is key if you are concerned about the implications of your landlord’s insolvency. This area of the law can be incredibly complex and a thorough understanding of the implications of your specific circumstances, and those of your landlord are crucial before you can determine what the correct next steps to take are.
Our dedicated landlord and tenant dispute resolution team understand the challenges that you face, and if a tenancy dispute arises, we will work with you to provide an efficient, effective resolution, working hard to secure the best possible outcome.
Based in Yorkshire, we work every day with clients throughout England, Wales & Northern Ireland. We have spent over one hundred years using our legal skills to help our clients, providing a personalised service, offering transparent, straightforward advice, putting your interests first all the way.
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