A recent Victorian Court of Appeal case has highlighted that a
tenant with a lease is not always secure. In Willmott Forest
Ltd (In Liquidation) the Court confirmed that the liquidators
of that company were entitled to terminate leases in order to
facilitate the sale of the property and the liquidation of the
company leaving the tenants out on the street with only a right for
damages along with all the other creditors of the failed company.
The case highlights the potential vulnerability of tenants when
their landlords go into liquidation.
The practical considerations from this case are that in order to
better protect themselves tenants needs to:
Be satisfied that the landlord is financially sound;
Ensure their leases are not uncommercial or significantly below
Be satisfied that the lease does not contain financial
obligations on the landlord which are disproportionate to the rent
Avoid over capitalising on leased property. For example where a
property requires significant capital investment rather than
negotiating a low rent and the tenant pays for the capital
improvements, a more prudent course might be to have the landlord
pay for the capital improvements and the tenant then pay a market
Take incentives as upfront payments or contributions to fit out
works at the start of the lease rather than as rent abatements
throughout the term of the lease.
In addition tenants should take the usual precautions of
registering their leases with the Titles Office to gain the benefit
of indefeasibility though, as the Willmott Forest Ltd case shows,
this is not absolute.
The law however is not entirely in favour of liquidators.
Tenant's can resist attempts by liquidators to disclaim their
leases where the benefit to the liquidator and the company's
creditors is disproportionate to the detriment suffered by the
As a tenant, your best protection is for your lease to be an
asset which adds value to the property rather than a liability. As
an asset, it is in the liquidator's interest to retain the
lease. A tenant is most exposed where the lease makes the property
unsaleable or significantly reduces its value.
If you find yourself in the position where your landlord goes
into liquidation, you need to seek legal advice as to your rights
if the liquidator attempts to disclaim your lease.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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