Tenant arrears and insolvency - advice for landlords

Posted: Monday, 8 December 2008 @ 09:00

If your tenant is in arrears and you are worried that they may be insolvent then you need to know what the implications might be for you as they are less straightforward than you might think.

Unfortunately, an insolvent tenant can produce a minefield of problems for a landlord and there is no real substitute for taking advice from your lawyer on your specific circumstances.

However, here are a few tips for landlords of commercial premises:

Individuals

A landlord should bear in mind that in relation to an Individual Voluntary Arrangement (IVA) - a popular alternative to bankruptcy - the arrangement requires at least a 75% vote of creditors by value of the debts owed for it to go through.  For these purposes the amount owed to a landlord includes not just any existing arrears but also all the rent due for the remainder of the term of the lease.  If this sum amounts to 26% or more of the individual's debts, then the landlord has the power to vote down the IVA and this means he could then still use the other remedies open to him.

Although bankruptcy prevents the landlord from taking legal proceedings against a tenant, one remedy available to landlords is to recover rent from a creditor who has already seized and removed goods from the premises in satisfaction of their own debt.  There is a limit of one year's rent arrears using this method, which is reduced to six months unless notice of the claim is given to the bailiff before the bankruptcy order is made.

Companies

A liquidator is not usually liable for payment of rent but if the liquidator occupies the premises for the purpose of carrying out the liquidation, then rent on the premises will be due to the landlord and such rent takes priority over the liquidator's own remuneration.

Subtenants

If an insolvent tenant has a subtenant then the landlord could serve a notice on the subtenant under section 6 of the Law of Distress Amendment Act 1908 requiring the tenant to pay the sub-rent direct to the landlord.  If the tenant is in arrears, the landlord can recover those arrears as well as future rent from the subtenant in this way.  If the landlord does not serve this notice then the sub-rent will continue to be paid to the insolvency office holder.

Further Information

For further information about this, see the Plain English Legal Advice article in our latest Ezine.

Steve Petty, Commercial Property Lawyer

This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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