In a recent NSW decision a landlord was prevented from
recovering future rent and outgoings from a tenant who had been
placed into voluntary administration.
In January 2009, the tenant was placed in voluntary
administration and, at the second meeting of creditors in March
2009, the creditors voted in favour of a deed of company
arrangement (DOCA) to enable the tenant to continue trading. The
landlord did not attend this meeting or vote in favour of the
The tenant remained in occupation of the premises but did not
pay rent or outgoings after the DOCA was signed. The tenant claimed
that its liability for future rent and outgoings was extinguished
by the DOCA.
The landlord argued that the DOCA did not bar its claims for
future rent and outgoings because:
the right to future rent and outgoings had not arisen when the
tenant entered voluntary administration;
the right to rent was protected from the DOCA under the
Corporations Act; and
it would be unfair to deprive the landlord of future rent and
outgoings where the tenant continues to use and occupy the premises
after the DOCA took effect.
The Court held that the landlord's entitlement to rent and
outgoings arose when the lease was entered into and so it had been
dealt with by the DOCA. Further, the Court held that the
Corporations Act only preserved a landlord's right (if any) to
recover possession of the premises after the administration ends.
It did not protect the landlord's right to rent and other
payments under the lease.
Consequently, the tenant was entitled to remain in occupation of
the premises without paying any further rent or outgoings to the
Why The Decision Is Important
This decision is a timely reminder to landlords to:
ensure that your lease provides that the appointment of an
administrator, liquidator, receiver and/or manager to a tenant is a
breach of the lease;
include in a proof of debt for an insolvent tenant all arrears
owed by the tenant and all future rent and other lease payments
under the lease; and
seek legal advice before voting in favour of a DOCA.
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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