How Commercial Tenancy Affected by Liquidation?
If your company goes into Creditors’ Voluntary Liquidation, it will be up to the liquidator (insolvency practitioner) to decide on what happens to the lease for any building you may rent. In most cases, the liquidator will ‘disclaim’ the lease, meaning it revert to the landlord. Ending the contract between tenant and landlord will limit any accrued expenses by the insolvent company.
In what Situations Might the Liquidator Decide not to Disclaim the Lease?
One situation in which this might not happen will be if the liquidator ascertains that the lease has monetary value. Given the liquidators are not, themselves, experts at valuing assets he would use an agent to make this assessment. That agent would consider the following factors related to the valuation of a commercial lease:
- What premium is paid to the lease, if any
- Whether the tenant is responsible for repairs, and what state the building is in
- How much of the lease remains
- When the next rent review is due
- Whether there are rent arrears
- Whether the insolvent company has made any improvements to the building
After considering these factors, the insolvency practitioner may consider ‘assigning the lease’ which is essentially selling it to another party for a fee. Since it’s the IP’s responsibility to recoup the most amount of money possible for the creditors of the insolvent company, this rare situation may be warranted in the case of an expensive lease with a long time left to run.
Is it Within the Insolvency Practitioner’s Right to use the Property While he/she Sells the Assets Within it?
When business premises contain valuable assets, such as equipment, it is going to take some time for a liquidator to dispose of these in the most efficient way for the insolvent company, and so he/she may retain use of the premises. In this instance, the liquidator would expect to pay market rent for the period of continued occupation. At the conclusion of insolvency proceedings, the lease will likely be disclaimed.
If the Company Lease has been Forfeited Already, can a Liquidator Regain Access for the Tenant?
If, during the period leading up to insolvency, the landlord has already regained possession of the property for reasons such as failure to pay rent, it is within the liquidator’s right to apply to the court for ‘relief from forfeiture ‘which will give them permission to use the premises for the period of the company liquidation. Again, this would entail paying market rents during this period.
What does it mean for Tenants when a Liquidator Disclaims a Property Lease?
Effectively it means the end of your tenancy, as the insolvency practitioner has now legally removed your rights to this property. There can be benefits since it means you will no longer be paying bills or rates, but equally, you will lose your privileges to enter the premises and remove anything within the building unless you have express permission.