UK: What Should I Do If My Tenant Has Gone Into Administration?

Last Updated: 26 July 2013
Article by Michael Parker

This is the fifth in a series of blogs giving advice to a landlord facing a tenant in administration. The issues are relatively straightforward:-

  1. As we have discussed previously, if the tenant assets have been pre-packed, you will be faced with a third party.  If they are going to stay for a relatively short space of time then all you can do is get someone down there to the site, even if it is just to take a photographic record of the state of the place so if they cause any damage you can go after them.  You might also be able to agree with them what, if anything, they are allowed to take away as tenant items, rather than landlord's fixtures and fittings.  At the same time, you can extract any information that is available that you might not have had e.g. lift maintenance records, building maintenance information etc.
  2. Either the administrator or the buyer will tell you very quickly if they want to stay on and, if so, whether it is going to be on the existing lease terms or if they are seeking some concession.  At this point, the lease provisions apply again.  So effectively, the administrator is making a licence to assign application and you can look at that application on the same basis as any other. Depending on what provisions were put in the lease, you can look for collateral advantages e.g. guarantors or deposits or, if it suits you, you might be able to refuse consent altogether.  As we have previously discussed, if it is a good location let at current market rent and the buyer wants to stay, there is no reason why you cannot say that it is on the basis he pays off all the arrears of rent. In which case you will be one of the few landlordds in this situation who dodge a bullet.
  3. Good agent advice is now essential because most buyers will try it. This is safe in the knowledge that the landlord will be facing an uncertain period and might want to keep at least some continuity of rent flowing.  If that is the market your property is in, you are probably better off to bite the bullet and keep the new guys in on the best terms you can achieve.
  4. If the buyer does not want the property either at all or only after a very short period of occupation, the administrator will want to tidy up his act and might well offer a surrender of the lease.  Think carefully before you accept it and make absolutely sure that no one can assert that there has been some sort of act which is evidence of an informal surrender.  Surprisingly in such a legalistic arena, it is still possible to effect a surrender of the lease in a very casual way and you do not want to have the property back on your hands before you are ready for it by carelessness.

    The reason I say that is the dreaded empty property rates.  Rates are a whole new ball game but in very crude terms, the occupation obligation carries with it an obligation to pay rates.  If you accept a surrender of the lease there is no more occupation, that means the obligation for the business rates defaults back to the owner – you. You can get three months' empty rates relief on retail (six months on industrial), but after that you will be liable for full property rates, notwithstanding the fact that you might not be earning anything out of it.  That is a serious burden. 
  5. A little advertised fact which is a small way of benefit for the landlord is that an administrator does not have the power to get rid of a lease simply because he does not want it.  If he is not occupying it either directly or by a proxy, he does not have to pay the rent but the failed company is still potentially the occupier and the person liable for the rates.  Obviously there is no money in the pot to pay those rates but, as the landlord, you do not care as long as the invoice does not come to you.  So if the property is empty and you have no way of seeing it occupied in the short term, you may want to decline any offers of surrender from the administrator so as to dodge the rates liability. 
  6. Normally a simple administration would not take more than 12 months to be concluded and once the administrator has decided he does not see more to be done, the company will be put into liquidation (conveniently the same firm of accountants are likely to get that gig as well as the administration).  A liquidator does have the ability to disclaim and at that stage the rates come back to your door. But that might be some way down the road so do not precipitate it if you do not have to.  If the buyer is in on a short term deal, try and badger the administrator into making an ad hoc arrangement to pay something for occupation during that first quarter.
  7. If the administrator says he does not want the building then do check on the next rent day whether there is any argument to say he is in occupation and, therefore, on the hook.  One other small benefit for a landlord is that any occupation, no matter how small a part of the leased premises, will count as occupation of the whole thing, so be alert for any occupation on that next quarter day.  Take particular care if there are third party interests which may be a benefit for you e.g. subtenants of the whole or part, guarantors, previous tenants who may have a continuing liability under the lease.  Take care before you inadvertently remove any claims by dealings with the administrator.

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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Michael Parker
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