How does Administration Affect Tenants?
If the landlord of your commercial premises has gone into administration, you’ll likely hear of the matter by a letter from an insolvency practitioner. You should realise this IP has full power over the running of the company, in addition to a detailed knowledge of the law. With that in mind, he/she will be well placed to advise you on the specifics of your situation.
Maintaining the existing terms of your lease agreement is a sensible first step. Although the administrator may have no intention of moving you out of the property, breaching the covenant of the lease would give them a very good excuse to do so if that suited their goals. Once you’ve heard, you should find time to read the fine print of your lease, with the assistance of your lawyer if you have one, to ensure that you are fully au fait with your expected obligations.
In certain situations, tenants will make a specific arrangement with landlords in ways that modify the terms of the original lease. One example of this might be if you have negotiated monthly rent payments for example, as opposed to quarterly. If there are any such agreements, it is your responsibility to inform all parties and provide copies of any relevant documentation or correspondence.
If there are plans to sell the property, you will likely hear of this early on but it’s worth raising the point with the IP at your first point of contact just to check. The administrator’s primary responsibility is to the creditors of the insolvent company so if that means selling assets, (of which your rented premises may be one), then that is what will happen.
Understand your Rights
Examine your lease for details about what your responsibilities may be in terms of showing round prospective buyers. Is there a stipulation to allow for sale signage next to what may be your own sales boards, for example.
Assuming you have used the services of a third party tenancy deposit scheme, your deposit money should be 100% safe. If you opted to dispense with the services of such a safeguard, and the landlord simply banked the money, then you will have more trouble recouping it. You will be rendered an unsecured creditor and hence subject to waiting in line until it’s been ascertained what monies are available to be paid.
Again, this will depend on how this was set up initially. Although the Commonhold and Leasehold Reform Act 2002 Section 156 suggests that service charge funds should be maintained in a separate trust account, this has never been enacted into law. In most cases this money gets lumped along with the landlord’s other debts and, as tenants, you are therefore in the position of an unsecured creditor.
If it is outside the terms of your lease to maintain the property yourself, then you need to be careful about attempting any repairs, since doing so could offer a breach of covenant. Your best course of action is an open discussion with the insolvency practitioner about what needs doing,
If you would like to talk to someone about administration and whether it’s suitable for your company, call us on 08000 746 757 or use the live chat function below.