Insolvent Tenant – The Landlord’s view
Following a period of increasing delays in tendering rent my corporate tenant has now defaulted and is in arrears. What are my options as a landlord?
- Enforce security – consider drawing down against any rent deposit held or lodging a claim with any guarantor (or perhaps former tenant).
- Instruct an enforcement agent to effect Commercial Rent Arrears Recovery (“CRAR”) if there are sufficient assets at the premises the sale of which would satisfy some or all of the arrears.
- Serve notice on any sub-tenant to divert sub-rent – notice can be served under Section 81 of the Tribunals, Courts and Enforcement Act 2007 so that a sub-tenant is obliged to pay rent direct to a landlord.
- Issue a County Court debt claim.
- Threaten the tenant with liquidation by serving a statutory demand.
- If the premises could be quickly and easily re-let, consider forfeiture of the lease.
How are these remedies affected if my tenant has already entered into an insolvency regime?
- Company Voluntary Arrangement (“CVA”) – it is likely that the rent due to you (both now and in the future) is specifically addressed by the CVA. A CVA will usually rank premises according to their importance to the tenant’s business and provide for the percentage (if any) of the rent which will be tendered. A landlord is prevented from taking any steps against the tenant company that the CVA specifically prohibits. A CVA will often also lay down a procedure to be followed for the surrender / forfeiture of an unwanted lease.
- Administration – the statutory moratorium imposed by paragraph 43 of Schedule B1 to the Insolvency Act 1986 (as amended) prevents the commencement or continuance of any legal process, or the exercise of a right of forfeiture, without the consent of the administrator or the permission of the court. The moratorium also prohibits any step being taken to enforce security over the tenant company’s property, although the specific terms of a rent deposit deed may mean that the deposit monies may still be drawn down.
- Receivership – you may enforce all of the remedies described above without the permission of the court or a Law of Property Act 1925 receiver, save that the terms of the floating charge under which an administrative receiver is appointed may prohibit a landlord from effecting CRAR.
- Compulsory Winding-up / Liquidation – once a liquidator has been appointed by creditors, or the court has made a winding-up order, their permission is required if a landlord wishes to effect CRAR, issue a debt claim for the rent, or forfeit the lease. A landlord also can be required to account to preferential creditors for the proceeds of a CRAR within 3 months prior to the winding-up order being made. A landlord can serve notice on a liquidator requiring them to elect whether to disclaim the lease (bringing it to an end) or lose the right to do so. Sums due under a lease rank as an unsecured debt in a liquidation.
As ever, dialogue is key. Early communication with your tenant might prevent the accrual of significant arrears, and perhaps lead to a constructive conversation around a mutually acceptable payment restructuring.