With administrations and liquidations on the rise, companies may well-find that they occupy premises under a sub-lease where their immediate landlord has become insolvent and we look at their rights and how the position differs north and south of the border.
A sub-tenant may lease either all or only part of the premises let under the head-lease. In the former case it is unlikely that an administrator will have much interest in the premises and, as they are not occupying, they are unlikely be paying the rent to the head-landlord. In England, a head-landlord may serve a rent diversion notice on the sub-tenant requiring the sub-tenant to pay the rent directly to it. This right does not exist in Scotland, and accordingly, the head-landlord and the sub-tenant would have to come to an arrangement for direct payment of rent with the consent of the administrator.
If the sub-lease is only of part of the premises let under the head-lease, the administrator may be continuing the business of the insolvent company from the part they occupy. In which case, they will probably continue to pay the rent and there is no immediate problem for the sub-tenant. If, however, the administrator does not pay the rent then the sub-tenant is in the same position as mentioned before.
Where the administrator is not paying rent then the head-landlord may seek the consent of the court or the administrator to terminate the lease. In England and Wales a sub-tenant has statutory protection ("relief") against forfeiture. The court has a wide discretion whether to order relief taking into account the circumstances of the breach and the actions of the sub-tenant in attempting to remedy it. The court also has a wide discretion as to the terms on which relief is granted. Where the sub-tenant is willing to pay the rent then it is likely relief will be granted. No such right of relief exists in Scotland, however, in practice the head-landlord may well be willing to enter into a lease directly with the sub-tenant, particularly where the sub-lease is of the whole of the premises let.
As a sub-tenant, where your landlord becomes insolvent the best course of action is to have an early discussion with the administrator/liquidator and the head-landlord to reach agreement regarding your continuing occupation, payment of rent and the grant of a new lease.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
