The landlord of a commercial property going bust can have far-reaching ramifications, not least for the tenant – but what happens with a commercial landlord’s insolvency and what might it mean for a tenant’s company?
The tenant’s first understanding of the commercial landlord’s insolvency will probably come in the form of a letter from the appointed Insolvency Practitioner. Such letters are aimed at informing the tenant of the current situation and will likely advise the tenant to continue paying the rent and any service contributions as normal, but to an alternative new bank account. In practice therefore, this will enable the tenant to continue occupation under your lease.
If the landlord’s company goes in to liquidation, there may come a point when the creditors decide that the best means to recover the largest proportion of debts is to break up the company and its assets. In this case the property freehold is likely to be put up for sale.
In such a circumstance, the scenario known as the ‘Leaseholders’ Collective Right of First Refusal’ arises. This effectively means that the tenant has the right of first refusal and is given the chance to buy the property before it can be sold to a third party. This minimises the consequences of the landlord’s situation on the tenant’s business operations.
The liquidator may however decide to disclaim the freehold, for example, if the property has no value or is of a value that cannot be easily achieved. This situation essentially relieves the liquidator from responsibility and liability for the property and the property reverts to the Crown. In this situation, the tenant continues occupation of the property as a tenant against the Crown under the same terms and duration of the original lease.
A final consideration for the tenant to think about is the ongoing property maintenance requirements during the all too often drawn-out insolvency proceedings leading to liquidation or during the process of the property passing to the Crown.
The Landlord and Tenant Act 1987 (Under Section 24) provides a clause for the leaseholder in a building, where its freeholder has ceased to exist, the legal right to apply to the First-tier Tribunal (FTT) for the formal appointment of a manager and receiver. This can be a complex and long-winded process but essentially allows the tenant to propose experienced property professionals to properly maintain the building.