Due to the ongoing COVID pandemic and associated economic downturn, the number of companies facing the prospect of insolvency, or being struck off the Register of Companies, is increasing daily. Whilst the rules on striking off have been relaxed by Companies House where late delivery of accounts etc has been caused by COVID, these are only temporary measures. Indeed, the compulsory striking off process has recently resumed for companies that Companies House don’t consider are currently operating, so it may be that normal practice isn’t far away.

There is a widespread misconception that if a tenant company is removed from the register due to insolvency, or if it is dissolved or struck off, any lease that it has entered will automatically end.

Unfortunately, it's not that straightforward.

What happens to the lease?

The Companies Act 2006 (section 1012) states that when a tenant company is dissolved or struck off its interests, including any interest in leasehold property, falls to the Crown as they become bona vacantia, or ownerless property. In Scotland, the Crown is represented by the QLTR (Queen's and Lord Treasurer's Remembrancer).

The QLTR must be given an opportunity to decide whether it wants to retain the leasehold property or reject (disclaim) it. In most instances, the QLTR disclaims the property, but it can take up to one year for a decision to be made.

This causes delays for the landlord who will be eager to regain control of the unit and get a new lease place.

It should, however, allow landlord to avoid rates liability until the lease has been disclaimed.

Only once the QLTR has disclaimed the lease and issued a Notice of Disclaimer, or the lease has been irritated with the QLTR as the tenant, can the landlord re-let the property.

The effect of the Notice of Disclaimer is that the now dissolved company's interests as tenant in the property are terminated. The Notice will be published in the Edinburgh Gazette.

What about the tenant's fit out?

The position on the fit out will be governed by the terms of the lease, or any Licence(s) for Work in place.

If there are express provisions in the lease or Licence for Works that the fit out belongs to the tenant, the QLTR must be given the opportunity to decide whether they wish to retain.

If the QLTR decides to disclaim the fit out– which is likely – then there is no tenant company to claim it. The likelihood is that it would then fall into the hands of the landlord.

Why should you go through this lengthy process?

Once a company has been struck off the register or dissolved, it can still be restored to the register. This could be done by, for example, the creditors raising a court action in the local Sheriff Court or Court of Session and thereafter serving a petition to restore the company on the Registrar of Companies.   If the order restoring the company to the register is granted by the court, the creditors could then try to recover the arrears from the tenant company.  

If the company is restored to the register, where a Notice of Disclaimer has been issued, the restored tenant company cannot try to argue that the lease remains in place.