UK: Commercial Leases And The Disclaimer Process - A Brief Guide

Last Updated: 29 October 2008
Article by Kenny Friday

One of the effects of the current economic climate has been a marked increase in the number of tenants going into liquidation. Consequently, many landlords have found themselves on the receiving end of a notice of disclaimer from liquidators relating to their property.

What follows is a brief guide to the disclaimer process in the context of leasehold premises and company tenants.

Power to Disclaim

According to s.178 of the Insolvency Act 1986 ("IA"), a liquidator has the power, without the leave of the court, to disclaim 'onerous property'. 'Onerous property' includes property that 'may give rise to a liability to pay money or perform any other onerous act'. As a lease imposes liabilities on a tenant, including the payment of rent and the performance of covenants, it can clearly be classified as onerous property.

By giving the prescribed notice, a liquidator can disclaim onerous property even though he may have taken possession of it, endeavoured to sell it or exercised any other rights of ownership.

The Disclaimer Procedure

Liquidators must follow a strict procedure when disclaiming a property. First, a notice of disclaimer, and a copy, must be filed with the court in the prescribed form. This must contain enough detail to make the property easily identifiable and it must be signed by the liquidator. The court will then ensure that both the notice and the copy are sealed and endorsed with the date of filing and will return the copy to the liquidator to serve.

Within seven days of the notice to disclaim being returned by the court, the liquidator must send or give copies of the notice to every person who, to his knowledge:-

  • claims under the company as underlessee or mortgagee;

  • claims an interest in the disclaimed property;

  • is under any liability in respect of the property, not being a liability discharged by the disclaimer; or

  • if the disclaimer is of an unprofitable contract, is a party to the contract or has an interest under it.

A failure by the liquidator to serve notice on a person whom he is aware of will invalidate the disclaimer. In addition, the liquidator must immediately send a copy of the notice to anyone who they subsequently learn has a relevant interest in the property, otherwise the notice will be invalidated. The exceptions to this are if the liquidator knows that the person has already been made aware of the disclaimer, or the court (on the liquidator's application) orders that compliance is not required.

The disclaimer comes into effect once the notice has been served on all parties claiming under the company as underlessee or mortgagee, and if no application for a vesting order has been made within 14 days of the date upon which the last notice of disclaimer was served.

Notice to Elect

If a person interested in a lease is aware that a tenant has gone into liquidation and wants to establish the liquidator's intentions concerning the lease, they can bring the matter to a head by serving a notice to elect. This forces a liquidator to decide whether or not to disclaim the specified property. If a notice to elect is served on a liquidator (or his predecessor), and a notice of disclaimer is not served within 28 days (beginning on the day the application is made) or such longer period as the court may allow, then a notice of disclaimer cannot be served in respect of that lease.

The notice must be delivered to the liquidator personally or by registered post and must be made in the form known as 'notice to elect' or a substantially similar form.

What is the effect of a disclaimer of a lease?

An effective disclaimer will, from its effective date, determine the rights, interests and liabilities of the tenant company in relation to the lease. However, it does not (except so far as is necessary for the purpose of releasing the company from any liability) affect the rights and liabilities of any other person.

The rights and obligations of both the tenant and the landlord under the lease will, therefore, be terminated immediately. Consequently, the insolvent tenant will no longer be required to pay rent, which is an obvious disadvantage to the landlord, although there may be a surety for the insolvent tenant. In the current depressed market, even if the landlord is able to find a new tenant to occupy the property, they are unlikely to receive an equivalent rent to that previously paid by the insolvent tenant.

As regards third parties, the House of Lords in Hindcastle Ltd v Barbara Attenborough Associates [1997] AC 70 firmly established that the effect of a disclaimer was to release the insolvent tenant but not others who had liabilities in respect of the lease.

It is essential to appreciate, therefore, that if no application for a vesting order is made and a landlord does not choose to take possession, then despite the lease having been disclaimed and the tenant's obligations having been brought to an end, third parties with an interest in the lease could potentially remain financially exposed.

The implications of disclaimer are different for the various parties, but some common examples are as follows:

  • Original Tenant / Assignee(s) – if the original tenant is not the insolvent tenant then they will continue to be liable under the lease, and will lose any right of indemnity they have against the insolvent tenant. The position is the same for an assignee of the lease.

  • Subtenant – a subtenant's rights against the insolvent tenant end if the lease is disclaimed. If the subtenant continues to perform the insolvent tenant's obligations under the disclaimed lease, then the landlord cannot eject the subtenant from the property.

  • Guarantor for the Insolvent Tenant – the guarantor will continue to be liable even though the tenant has been released from their liabilities and will lose any right of indemnity they have against the insolvent tenant. Additionally, depending on the terms of the guarantee, it is also possible that the landlord could require the guarantor to take on a lease of the premises.

  • Mortgagee – A legal charge will survive a disclaimer but in order to prevent the security being forfeited, the mortgagee should pay the insolvent tenant's rent and continue to perform its obligations under the lease.

Right to compensation

Following the disclaimer of a lease, any person suffering loss or damage as a result may claim in the winding up for such loss or damage.


For the foreseeable future then, it seems that the disclaimer procedure will certainly continue to provide an attractive solution for liquidators looking to dispose of onerous leases. This will leave landlords to pursue alternative parties to recover arrears and will force third parties to pay out for liabilities that they may ultimately be unable to recover from the insolvent tenant.

Although the process of disclaiming a lease is, itself, relatively straightforward, the implications for third parties are not always so clear and the matter can quickly become complicated, particularly if a number of parties are involved.

In such situations, all parties that have, or may have had, an interest in the leasehold property will need to give careful consideration to their possible exposure. Additionally, prompt decisions will need to be made about what action, should be taken to minimise any potential liability.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.