Landlord rights when a commercial tenant is insolvent.

In most cases, a tenant’s insolvency is an automatic breach of their lease agreement.

Insolvencies can pose significant problems for landlords with regards to unpaid rent.

Most insolvency situations end with the tenant vacating the premises with the landlord lodging a claim in the administration.

Landlords should make a point of attending any creditor meetings convened throughout the administration.

Often, the tenant’s affairs are rectified through a formal arrangement and their tenancy continues as normal.

If a receiver/controller is appointed, they are liable for any rent owed by the tenant, 7 days after the control day.

A controller can advise the landlord that they don’t intend on exercising any rights in relation to the property.

If notice isn’t given to the landlord, they are liable until they retire from the role or the company ceases to occupy/own the premises.

A landlord can start proceedings to gain possession or enforce compliance with the lease agreement and the receiver, has no protection under the relevant Act that would limit the landlord’s rights.

If a voluntary administrator is appointed, the administrator is liable for any debts payable under the lease agreement, for the period beginning 5 days after administration begins and if the company continues operating out of the premises.

The administrator can also give notice to not exercise the rights under the lease and if notice isn’t given, the administrator is liable for ongoing rent/monies owed under the lease.

The landlord/lessor can’t take possession of the property unless they have written consent from the administrator or leave of the court, even if the lease contains a clause that allows the landlord/lessor to immediately terminate the lease and re-enter the premises if a tenant becomes insolvent.

If a liquidator is appointed, the liquidator is not personally liable for rent during the liquidation or any of the tenant’s rental arrears, however if the liquidator decides that the tenant will still occupy the premises, rent for that period will be a cost in the winding up.

The liquidator has the right to disclaim the lease agreement and relieve the tenant of their obligations and liabilities and give the landlord the right to re-enter and take possession of the premises.

If the lease is not disclaimed, the landlord can give notice to the liquidator regarding their intentions and the liquidator then has 28 days to respond.

Regardless of what sort of practitioner is appointed, landlords can lodge a proof of debt in respect to outstanding monies, such as rental arrears at the time of appointment and any rent that becomes due after the appointment.

Future rent payable under the lease agreement can also be claimed in the administration however this can be discounted in certain circumstances. Landlords should try to counter any losses by looking for a new tenant as soon as possible where applicable and should call on their bank guarantee/security deposit.

If you want to know more about commercial or residential landlord Insurance from our trusted Finance Partner, contact us @ propertyloans@realrenta.com

Marlene Liontis & Jason Gwerder
Thursday, 11 October 2018

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