Where does tenant administration leave landlords of commercial property?
The recent administrations of brands such as the Body Shop and Ted Baker have been widely reported in the news. Coverage typically focuses on the impact closures will have on consumers and the high street. Still, it is important to note that commercial property landlords will also be affected as their tenants go into administration, which is when commercial property solicitors tend to get involved.
The impact tenant administration has on landlords of commercial property will depend upon how the relevant administrator wishes to deal with the property in question.
What happens if the administrator continues to trade from the property?
In some cases, the administrator may continue to trade from the property or permit a third party to do so. Should this happen, the rent payable is likely to be treated as an expense of the tenant administration if the property continues to be used “for the benefit of the administration”. This means the rent will be paid in preference to other claims, save for those of secured creditors, which would be of significant benefit to the landlord.
What happens if the administrator does not use the property?
The administrator does not have to continue to use the property for the benefit of the administration. In these circumstances, rent will still accrue and will be an unsecured claim forming part of the general distribution process.
Unlike liquidators, who have the ability to disclaim onerous leases, administrators cannot unilaterally determine leases. Should the administrator not wish to retain the commercial property, it would therefore need to agree on a surrender deal with the landlord which of course the landlord does not have to accept.
How should landlords respond to tenant administration?
Should the landlord wish to determine the lease in circumstances where the administrator wishes to retain the commercial property, it can be difficult to remove the tenant once it has entered into administration. This is because the company in question benefits from a moratorium which prevents steps from being taken against the company unless either the court or the administrator consents. This would include forfeiture.
Administrators often look to sell the company’s assets to a third party which results in a request for landlord’s consent to assignment of the lease or perhaps negotiating a new direct lease with the purchaser.
At GA Solicitors we are experienced in acting for landlords and tenants of commercial property and are well placed to assist the parties in such circumstances. If you are navigating your options in the event of an administration, get in touch with our specialist commercial property solicitors today.
Call us on 01752 203500 or email me directly at david.stone@GAsolicitors.com
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