The Evening Standard reported the failed chains use more than four million square feet of space in the UK. This comprises around 300 shops. It is an income generated for landlords of around £73.8 million per year.
We are all seeing the face of the high street changing, with many shops being left standing empty. It can be a very worrying time for landlords.
Liquidation is the process of winding a company up when it has ceased trading. Its assets will be realised and distributed to creditors, with any surplus assets distributed to those entitled to it. If the business is renting the premises, the liquidator may continue to use the premises whilst it manages the liquidation process, the liquidator is liable for any rent that will be due during this transitional period.
How can landlords protect themselves?
Understand the viability of the business before you accept them as tenants. Keep in touch with the tenants and an eye on the business and sector it is in.
Commercial landlords should ensure they receive a rent deposit equal to at least six months as well as guarantor or surety to the lease.
Indicators that a company is struggling could be persistently paying rent late, requests to vary payment schedules, redundancies, sublet or assign requests.
If you find that your tenant has gone bust then it would be worth finding out the procedure that they will be undertaking – administration, compulsory liquidation, voluntary liquidation, receivership or voluntary arrangement. Each of these will have a different impact on you as a landlord so it is important to find out and make contact as soon as possible.
Try to secure a guarantor or new tenant as soon as possible to avoid the costs of liability of rates for the property.
The role of the liquidator
When a company goes into liquidation the liquidator will ascertain if the lease is of any value to the company.
Whilst the liquidator is using the property they must pay the rent to the landlord. Once the liquidator has finished with the property they will free it up for the landlord to sell or re-lease.
The liquidator is the only person who can bring a lease to an end. They use a disclaimer which ends all the tenants’ rights, interests and liabilities under the lease. There is no negotiation on this forced end to a lease. This is obviously a difficult scenario for the landlord as all income for the property is immediately ended.
If there is a sub-tenant any lease with them will remain in existence so far as it is necessary to support the subtenant’s right to remain in occupation for the term of the sublease. If they wish to move out they can. The sub-tenant can stay provided they comply with the headlease terms and pay headlease rent, even if they are only occupying a portion of the premises.
The sub-tenant is not bound by the terms of the headlease as the covenants are not directly enforceable between the subtenant and the landlord, therefore the sub-tenant doesn’t have to make good the premises under the repair covenant in the headlease. However, the landlord can request that this is carried out and if not evict them; however the sub-tenant will have a right to apply for relief from forfeiture. Since the terms of the headlease and the sublease are not directly enforceable between the landlord and the sub-tenant, this leaves the parties in an unsatisfactory position without any certainty on the covenants. Landlords in these circumstances should seek to make an order to vest the disclaimed property in the sub-tenant in order to bridge the gap between the disclaimed headlease and the sublease. This will ensure the headlease covenants are enforceable by either party and therefore, providing some comfort.
If you are still receiving rent, even if it not the full amount you may be better off keeping the tenants on. If they sell the business the new owner might want to continue in the premises and take on the new lease.
If they have not paid rent for between 14 and 28 days then you can seek to regain possession by forfeiture, which is the procedure by which a landlord can terminate a lease. This can be achieved by peaceably re-enter which does not necessary require a court order.