There are many enforcement options available to commercial landlords in England & Wales, to recover rent arrears due under a lease from a business tenant. Some of those options are based in contract and governed by the terms of the individual lease itself, such as a power to forfeit or damages for breach, whilst some of those options are based in statute such as the Commercial Rent Arrears Recovery regime.
A number of varying factors, such as the covenant strength of the tenant or any guarantor, residual assets held by the company, reputational risk to the tenant, will assist a landlord in determining which course of enforcement action it might want to take. However, if the tenant business is failing, resulting in the non-payment of arrears and there is a concern it is about to, or has already, fallen into one of the many insolvency processes available – what options if any, are available to the landlord to recover its losses?
Options and Limitations in popular insolvency processes
Administration: where an application to court to appoint an administrator has been filed or a notice of intention to appoint has been filed at court – a statutory moratorium takes automatic effect which prohibits the instigation of court proceedings and prevents the continuing of existing proceedings. It also prevents the enforcing of security over company property, repossession of property on hire purchase, forfeiture, the passing of a resolution to wind up and the making of a winding up order against the company. In addition on the appointment of an administrator an administrative receiver cannot be appointed. Action can only be taken or proceeded with consent of the administrators or leave of the court.
Administrative receivership: there is no statutory moratorium and as such no restrictions or stays are imposed.
Compulsory liquidation: where a winding up petition has been presented to court – there is a prohibition on appointing an administrator by the company or directors (although they can be appointed otherwise). Once a winding up order has been made there is an automatic prohibition on commencing or proceeding with, any action against the company or its property, except with leave of the court.
Members' voluntary liquidation (i.e. solvent winding up) and Creditors' voluntary liquidation: there are no imposed restrictions or stays.
Company voluntary arrangement (CVA): No statutory restrictions. Although, where a CVA has been proposed you will find that the CVA itself imposes restrictions on the self-help remedies that creditors can take. These are entirely governed by the terms of the CVA contract.
Options and Optimism?
It is the route into insolvency and the insolvency regime itself that will affect a landlord's recovery right.
All is not therefore lost for landlords in the case of a tenant insolvency, which very much depends on the route a tenant takes in restructuring or ending its business. But it is important for commercial landlords to ensure any action taken does not prove to be wasted money (and result in a pyric victory), where little if anything can be recovered against its overall losses.
Furthermore, if a tenant does enter into insolvency it is worth seeing what happens on the ground. If the insolvency practitioner appointed allows the company to use the premises after appointment you will be able to recover the rent, insurance and service charges for the period while the insolvent tenant is in occupation.
Some other practical options may to draw down on any rent deposit to reduce the arrears, investigating whether you have the benefit of a guarantee and whether there are any sums which you owe to the tenant that you can use to offset your losses.
If you are a commercial landlord or tenant dealing with lease arrears or you are concerned about the risk an insolvency process may cause to you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.
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