Partner Katja Wigham, in our Commercial Property team, explains how an insolvent tenant can cause problems for commercial landlords.
Completion of a lease for one of our tenant clients was delayed recently. This was because the Land Registry refused to complete the landlord’s application to register the simultaneous surrender of the previous tenant’s lease by an insolvency practitioner. This was due to the existence of a registered charge that had recently been registered against the previous registered leasehold title. Landlords should preferably review the registered freehold title at regular intervals to check for any adverse entries which may impact on future negotiations with any future incoming tenants. They may also wish to consider including an absolute prohibition on tenants charging their leases.
This leads us onto various different scenarios that can apply in the case of tenant insolvency and the different remedies that are potentially available depending on whether the tenant is an individual or a company and the nature of the insolvency.
Where a tenant is in occupation of premises and paying rent and otherwise complying with its obligations in the corresponding lease and any ancillary documents, the landlord would not usually have any reason to try to change anything.
Where a tenant fails to pay rent, the position is different and landlord may need to consider the reason for the non-payment and what options may be available to the landlord. Standard options available to a landlord are:
- Exercise commercial rent arrears recovery (CRAR);
- Sue for rent by court action; and
- Forfeit the lease for non-payment of rent
If the tenant fails to pay rent because it is (or will shortly become) insolvent, the above options available to the landlord may be restricted by the Insolvency Act 1986 (as amended by the Insolvency (England and Wales) Rules 2016).
There are various insolvency regimes for use in different circumstances depending on the facts.
The corporate insolvency regimes are as follows:
- Company voluntary arrangements (CVAs);
- Administration;
- Receivership; and
- Winding up (or liquidation) which can be either voluntary or compulsory
Individual insolvency regimes are as follows:
- Individual voluntary arrangements; and
- Bankruptcy
The remedies available to the landlord will depend on whether the tenant is a company or an individual, and the restrictions to which the landlord is subject will depend on the nature of the insolvency. Leave of the court may be required depending on the circumstances.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
