Business insolvencies reach a 13-year high in England and Wales
The number of company insolvencies reached a 13-year high across England and Wales recently, according to the Office for National Statistics. Restaurants are particularly suffering – with closure rates faster than during the Covid pandemic. (Source: Mazars). For landlords, this can often mean significant unpaid rent and the challenge of quickly finding a replacement tenant, so it is vital to know your rights and options should a tenant become insolvent.
What are a landlord’s options?
The remedies available to recover unpaid rent depend largely on the method of insolvency that the tenant uses and the stage they’re at, and also if your tenant is a company or an individual. This article focuses on commercial tenants. Some potential remedies include:
Use of rent deposit deed
permission from the administrators or the court prior to the drawdown of the deposit may be required.
Commercial rent arrears recovery (CRAR)
there could even be an option to cease certain goods of the tenant at the premises and sell them at auction.
The complexity of insolvency proceedings makes it crucial to seek specialist legal advice as soon as you are made aware of the tenant getting into trouble to explore your options. Equally as important is ensuring any leases are drafted to expand the number of remedies available to the landlord and that they can be exercised at the earliest opportunity.
Forfeiture
this is a process whereby a landlord exercises its right to terminate a lease. It is common practice in modern leases for a clause to allow the landlord to forfeit the lease if the tenant accrues arrears or becomes insolvent, but depending on the method and stage of the insolvency proceedings, permission from the court, administrator, or liquidator may be required.
Court claim for rent arrears
Although rent is treated as an unsecured debt which is behind secured creditors, unpaid rents can sometimes be recovered ahead of other creditors, depending on the circumstances. Alternatively, in a voluntary liquidation, the tenant may negotiate a deal with its creditors, which could result in some of the outstanding rent being paid.