Commercial Tenant Insolvency—Remedies for Landlords October 2015 You are the landlord of commercial premises. Your tenant owes rent. You now discover that your tenant is insolvent – how does this affect your ability to recover the unpaid rent? Common landlord remedies for non-payment of rent include forfeiture of the lease, issuing a money claim for the arrears, or undertaking commercial rent arrears recovery (“CRAR”). Whether a landlord can exercise these remedies against an insolvent tenant depends upon the type of insolvency to which the tenant is subject. In the case of a company tenant, this may be liquidation (voluntary or compulsory), administration, receivership (administrative or LPA), or a company voluntary arrangement (“CVA”). If the tenant is an individual, this could be bankruptcy or an individual voluntary arrangement (“IVA”). For example, most modern commercial leases contain a proviso that the landlord is entitled to forfeit the lease in the event that rent is unpaid for a specified period (commonly 14 or 21 days). This right is largely unaffected against a company tenant in voluntary liquidation or receivership. However, if a company tenant is in compulsory liquidation or administration, the landlord cannot forfeit without permission of the court or consent from the liquidator or administrator. The extent to which all of the above mentioned landlord remedies for nonpayment of rent are available against individual and company tenants in various insolvency situations is summarised in the two tables below. Timing can be crucial because the stage at which an insolvency process has reached could affect the availability of a remedy. It is therefore important for a landlord to assess any available remedies as soon as possible. The landlord should also consider whether there are any other ways to recover rent arrears i.e. from a rent deposit, a guarantor or surety, or if there is an underlease by service of notice on the sub-tenant to pay its rent to the landlord rather than the tenant.
Contact the author:
Joe Walker Solicitor: Real Estate Dispute Resolution T: +44 (0) 20 3755 5652 E: joe.walker@howardkennedy.com
Company tenants Liquidation
Administration
Receivership
CVA (prior to approval)
CVA (approved)
Liquidator is appointed to wind up a company and realise its assets for the benefit of its creditors
Administrator is appointed for the purposes of rescuing a Company
Receivers are appointed to realise security for charge holders
CVA process is supervised by a Nominee.
Company granted a moratorium on enforcement action that takes effect whilst the company is in administration
Administrative receiver may be appointed by a chargee in relation to the whole, or substantially the whole of a company's assets
Process initiated by the directors of the company, or by an administrator/liquidator, whereby proposal is put forward to settle the company’s debts to creditors.
Process can be instigated either voluntarily by the company or compulsorily by the Court
LPA receiver may be appointed by a chargee in respect of a fixed charge. Their powers derive from the Law of Property Act 1925 Forfeiture by proceedings?
Voluntary – Yes, but liquidator can apply for relief
Small companies granted a moratorium lasting initially for 28 days when the CVA proposal is being considered by creditors
Approval of the CVA proposal results in an arrangement between the company and its creditors to settle the debts of the company to those creditors.
No, unless permission is granted by the Court or administrator
Yes
Yes, unless a moratorium is in place
No, unless terms of CVA are breached
No, unless permission is granted by the Court or administrator
Yes
Yes, unless a moratorium is in place
No, unless terms of CVA are breached
No, unless permission is granted by the Court or administrator
Yes
Yes, unless a moratorium is in place
No, unless terms of CVA are breached
No, unless permission is granted by the Court or administrator
Yes
Yes, unless a moratorium is in place
No, unless terms of CVA are breached
Compulsory – No, unless permission is granted by the Court or administrator Forfeiture by peaceable reentry?
Voluntary – Yes
Money claim?
Voluntary - Yes but liquidator can apply to stay proceedings
Compulsory - Possibly, but beware of challenge
Compulsory – No, unless permission is granted by the Court or administrator CRAR?
Voluntary – Yes Compulsory – If already started before the presentation of the petition for winding-up it will be stayed, and if commenced afterwards it will be void. However, once a winding-up order has been made, the landlord can seek permission of the court to exercise CRAR
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Individual tenants Bankruptcy (pending petition)
Bankruptcy (after order made)
Bankruptcy is a process instigated by the presentation of a petition by either the insolvent individual or a creditor
Following presentation of the petition, an individual may be declared bankrupt by a court order due to insolvency.
Whilst a bankruptcy petition is pending, the Court can stay any “action, execution or other legal process” against the property or person of the debtor
Trustee in bankruptcy is appointed to realise the bankrupt’s assets for the benefit of creditors
IVA (during moratorium)
IVA (approved)
Settlement between an individual and its creditors to avoid bankruptcy. An IVA is supervised by a Nominee
Approval of the IVA proposal results in an arrangement between the individual and its creditors to settle the debts of the individual to those creditors.
The first step is that the debtor applies to the court for an interim order. This creates a moratorium lasting for 14 days whilst the debtor puts together a proposal to the creditors
After the making of a bankruptcy order, a creditor has no remedy in respect of any debt provable in the bankruptcy and needs permission from the Court to commence any action or other legal proceedings against the bankrupt
Forfeiture by proceedings?
Yes, but can be stayed by the Court
Yes, but not on the basis of rent arrears provable in the bankruptcy
No, unless permission is granted by the Court
No, unless terms of IVA are breached
Forfeiture by peaceable reentry?
Yes
Yes, but not on the basis of rent arrears provable in the bankruptcy
No, unless permission is granted by the Court
No, unless terms of IVA are breached
Money claim?
Yes, but can be stayed by the Court
No, unless permission of the Court is obtained and the rent arrears are not provable in the bankruptcy
No, unless permission is granted by the Court
No, unless permission is granted by the Court
CRAR?
Yes, but can subsequently be limited – see position after bankruptcy order made
Yes, but only for 6 months' rent due before the bankruptcy order. If CRAR was exercised between the presentation of the petition and the order, any amount recovered in excess of 6 months' rent accrued due before the order is to be held for the benefit of the creditors
No, unless permission is granted by the Court
No, unless terms of IVA are breached
If you would like more information on our services, please visit www.howardkennedy.com here you will find all our latest news, publications and events. This material is for general information only and is not intended to provide legal advice. © Howard Kennedy LLP 2015