Commercial landlords alerted to tighter restrictions on reclaiming rent arrears from insolvent tenants

Nov 12 2008 by Aaron Boland, Liverpool Daily Post

SINCE the recession in the early 1990s commercial landlords have faced tighter restrictions in recovering rent arrears and dealing with insolvent tenants.

Before 1996, a landlord was able to recover any rent arrears from either the original tenant, a current tenant who had taken over the lease, or a guarantor. The original tenant could be pursued for up to six years.

Since the Landlord and Tenant (Covenants) Act 1995 a landlord can only seek recovery of the arrears from a previous tenant or guarantor if they have entered into an authorised guarantee agreement.

A notice needs to be served on the former tenant or guarantor within six months of the arrears falling due. If the notice is not served within time then the landlord loses the right to recover against anyone other than the current tenant.

Following the Insolvency Act 2000 there has been an increasing use of Company Voluntary Arrangements (CVA). If a tenant enters into a CVA the landlord is bound by its terms.

A small company can now file for a CVA moratorium which will stop any creditor taking enforcement action. This means a landlord cannot take any action in respect of rent arrears during the moratorium, which could be for 28 days or longer.

The Enterprise Act 2002 created an emphasis on trying to rescue an insolvent company. In the early 1990s the receiver’s role was more often to recover assets.

Currently, although a landlord can try and put pressure on an administrator, he cannot forfeit a lease without getting permission from a court to take any action against a company in administration.

The insolvency regime is now more geared to a rescue culture favouring the tenant, and the landlord faces greater restrictions on its ability to recover arrears.

The key message is that commercial landlords need to be aware of all options and take action promptly.