Landlord advice when a tenant goes into liquidation

When a tenant goes into liquidation it means their business has failed, and there’s no chance of it being rescued or restructured. A licensed insolvency practitioner (IP) is appointed to act as liquidator, and the company is eventually wound up.

There are two forms of insolvent liquidation in the UK – Creditors’ Voluntary Liquidation (CVL) and compulsory liquidation – the type of liquidation that a tenant enters affects how you can seek repayment.

Due to the coronavirus pandemic there are also restrictions on landlord debt enforcement, and these will remain in place until 31st March 2021. Real Business Rescue can provide further updated information on your rights of enforcement as a landlord, guiding you towards your best options if your tenant has gone into liquidation.

Claiming repayment for rent arrears

The liquidator may decide to disclaim, or terminate, the lease, but if it remains in place, rent payments are still due. When considering whether you’d recover unpaid rent, it depends where the debt is placed in the statutory order for repayment in insolvency.

It’s worthwhile considering that the liquidator may move into the property to carry out the liquidation process, in which case unpaid rent becomes an expense of the procedure and lies second in line for repayment.

If, on the other hand, the building isn’t used as a base by the liquidator, unpaid rental payments fall into the category of unsecured debts, which are placed at the bottom of the hierarchy under insolvency law.

Forfeiting the lease and asset seizure

Under normal circumstances, if your tenant enters Creditors’ Voluntary Liquidation your right to forfeit the lease remains. In the case of compulsory liquidation, however, you would need to seek permission from the court before commencing forfeiture proceedings.

The government introduced a coronavirus-related moratorium on lease forfeiture, however, and this expires on 31st March 2021. Restrictions on aggressive debt collection methods and Commercial Rent Arrears Recovery (CRAR), also apply until this date.

Commercial Rent Arrears Recovery legislation gives landlords the right to seize a tenant’s assets to recover their debt, usually using bailiff services. You would need to provide the tenant with 7 days’ notice of your intention. Also known as ‘distress’ or ‘distraint,’ depending on the type of business your tenant runs, asset seizure may cover some or all of the unpaid rent owed to you.

The ‘ripple effect’ when a tenant business fails

As a landlord, you’re exposed to a ‘knock on’ effect if one or more of your tenants enters insolvency and has to close down. If their rental payments covered the mortgage on your property, problems can materialise very quickly.

This is particularly so in the case of large liquidations and administrations where a landlord operates a considerable portfolio of commercial properties. If a company or business group fails, as in the case of BHS, and more recently, Debenhams and Arcadia, a commercial landlord suddenly faces the prospect of many empty regional properties.

Naturally, this causes significant problems with regard to cash flow. The liquid nature of property makes it difficult to access emergency cash using the asset, and mortgage arrears may continue to grow.

When a tenant goes into liquidation, it also severely compounds issues created by the general growth of online shopping and the movement towards working from home that was taking place even before the coronavirus pandemic took hold.

Professional insolvency help for landlords

It’s crucial to seek specialist advice before taking action if your tenant has gone into liquidation. Real Business Rescue are insolvency specialists with extensive experience of helping landlords deal with a failed tenant business.

We can provide the professional guidance you need, whilst always taking into account any legislation that has been extended or brought in to deal with the effects of coronavirus. Please contact one of the team to arrange a free same-day consultation in complete confidence – we operate a wide network of offices throughout the UK.