With the current increasing number of tenant insolvencies, it is useful to revisit a landlord's rights and remedies when their company tenant goes bust.
Distress
The landlord has the right to instruct a certificated bailiff to take walking possession of the tenant's goods which can be removed and sold at auction unless the tenant pays the arrears.
A summary is set out below of the right to distress depending on the type of Insolvency;
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Voluntary Liquidation There is no fetter on the landlord's right to distrain but the liquidator may apply to stay the distraint.
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Compulsory Liquidation To be a successful distraint, it needs to be commenced prior to the presentation of the Winding Up Petition.
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Administration The Landlord either has to have permission of the Court or the consent of the Administrator.
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Company Voluntary Arrangement (CVA) - Small and medium companies Generally an application is made for a moratorium at the same time so distraint is not normally allowed.
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Company Voluntary Arrangement (CVA) - Large companies A landlord is allowed to distrain unless an application for an Administration Order was made at the same time.
Whilst distress will ultimately be replaced by the new commercial rent arrears recovery system it has not been brought into force yet and therefore distress still remains a very useful remedy for the landlord.
Forfeiture
If arrears of rent are owing and the lease contains a forfeiture clause and the landlord does not waive the right to forfeit the lease, the Landlord has the right to forfeit the lease, re-enter the property and lock the tenant out and treat the lease as being at an end.
A summary is set out below of the right to forfeiture depending on the type of Insolvency;
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Voluntary liquidation The Landlord is allowed to forfeit by peaceable re-entry although the liquidator may apply to restrain.
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Compulsory liquidation The Landlord may be entitled to forfeit the lease by peaceable re-entry.
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Administration The Landlord either has to have the permission of the Court or the consent of the Administrator.
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Company Voluntary Arrangement (CVA) - Small and medium companies The Landlord is not allowed to forfeit without permission of the Court in circumstances where an application for a moratorium was made.
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Company Voluntary Arrangement (CVA) - Large companies The Landlord is entitled to forfeit unless an application for an Administration Order was made at the same time.
Please note that the Landlord's right to distrain and forfeit are mutually exclusive. If a Landlord has exercised his right to distrain for arrears for one quarter's rent he cannot then forfeit for the same arrears of rent. The Landlord has to wait until a further quarter's rent falls due before exercising his right to distrain. As set out above, the right to forfeit can be waived and is waived if the Landlord distrains. However for non-payment of rent, a new cause of action arises each time arrears fall due giving the Landlord a further right to forfeit.
Please note that the tenant has a right to claim relief from forfeiture from the court (which if granted re-vests the lease back to the tenant) but when the breach is for non-payment of rent, to be entitled to relief the tenant has to pay off all the arrears.
At the same time as assessing what rights the Landlord has to distrain or forfeit, the Landlord should take steps to assess whether money may be forthcoming from other avenues such as guarantors, rent deposits, previous tenants (if possible). It is also possible for a Landlord to demand rent from the insolvent tenant's sub-tenant (if applicable) until the arrears are cleared by following the procedure under The Law of Distress Amendment Act 1908.
For further information please contact Liz Shaw on 0114 266 6660 or email [email protected].
