Once a tenant becomes insolvent a landlord's recovery options become more limited but there are important steps a landlord should be taking.
1. Check the terms of any rent deposit agreement
Check the terms of the arrangement to find out how the deposit is held and when it is available for use.
2. Find out the tenant's status
What type of insolvency process is it? If a tenant has entered administration, a statutory moratorium prevents the commencement or continuation of proceedings without the consent of the court or the administrator.
3. Don't forget the hypothec
In Scotland, Landlord's enjoy a unique right of hypothec. This is a right in security over a tenant's moveable property within the leased premises. A landlord can recover up to the value of any pre-insolvency unpaid rent.
The right is to rank in the sale of the moveable property. It only applies to property that belongs to the tenant so any items that are leased or on hire purchase are not covered.
You should notify the insolvency practitioner of your exercise of the hypothec as soon as possible, and try to take a note of what moveable property is in the premises. We previously discussed hypothec here.
4. Check if the property remains in use by the tenant
If a property remains in use by the insolvent tenant during administration or liquidation, the rent that falls due during that period may qualify as an expense of the administration or liquidation. Insolvency expenses rank above holders of floating charges or unsecured creditors.
5. Keep the lease in place until a new tenant is found
If recovery seems unlikely through the above methods a landlord may still want to keep a lease in place during insolvency proceedings so as not to incur liability for business rates. The length of the lease is at the landlord's discretion as an insolvency practitioner cannot unilaterally terminate the lease.
However, due to a recent decision, the existence of the lease may not be enough to stop the landlord from becoming liable for water rates, see our blog on this here.