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Insolvency Issues in Property - What Landlords Need to Know

on Tuesday, 10 July 2018.

The law surrounding insolvency in England and Wales is complex. It is governed, in the main, by the Insolvency Act 1986 (as amended), and, in 6 April 2017, the Insolvency (England and Wales) Rules 2016, were brought into force.

These two pieces of legislation apply to the vast majority of insolvencies in this jurisdiction. However, specialist insolvency legislation applies to certain sectors, industries and business types (including financial institutions, limited liability partnerships and charitable incorporated organisations), so when dealing with any insolvency situation, it is important to identify exactly which pieces of legislation are relevant.

Additionally, it is important to identify, at an early stage, both the type of insolvency process in place or being considered by an insolvent tenant, and the stage that the particular insolvency has reached. This is because different insolvency processes bring with them varying rights, restrictions and measures.

Common landlord remedies for the non-payment of rent include forfeiture, issuing a money claim for arrears, and exercising Commercial Rent Arrears Recovery (CRAR). However, where a tenant is insolvent or approaching insolvency, it is possible that some, if not all, of those remedies are no longer legally available, due to the insolvency process the tenant is subject to or proposing. For example, in all administrations, and in certain company voluntary arrangements, a moratorium applies which prevents any legal process or action being commenced or continued against the insolvent party.

Further, even if a remedy is legally available, a landlord will want to consider, from a commercial point of view, whether exercising such a remedy is beneficial. A key factor, particularly when a landlord is considering taking back possession of a property is the state of the rental market at the time, and whether the landlord will be able to readily re-let the property. Prematurely ending a lease or taking back possession without a ready tenant could result in a landlord waiving its rights to the benefit of any third-party covenants (such as former tenants or guarantors), and also potentially becoming liable for business rates if the property sits empty for an extended period of time.

Given the above, it is vital that landlords of insolvent tenants:

  • stay alert to the signs of financial distress in their tenants;
  • recognise the significance of any insolvency notices and proposals served on them; and
  • take specialist legal advice at an early stage to properly understand the options available to them.

Here at VWV, we have a specialist team of insolvency lawyers who are experienced in dealing with landlord and tenant issues in distressed situations.

For more information, please contact Ambuja Bose in our Commercial Litigation team on 0207 665 0990 should you need assistance.

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