I spoke with a landlord last week, who had been having problems with failing tenant businesses across his portfolio. He was having particular problems with tenants falling into administration, which prevented him from taking any action against the tenant, reoccupying or reletting the property or receiving any rents from the tenant company.
“So James” the client said to me “how can it be right that the administrators can come in, use the property for a few months for their business, and not even pay me the rent?”
Of course, my client knows that the usual position where a tenant goes into administration is that there is temporary prohibition during the administration, which prevents the usual landlord remedies such as distress and right of re-renty from being operable. Rent, service charge and other sums due under the lease typically rank as unsecured claims (falling to the back of the queue) in the event of any distribution once the administration runs its course.
However, in the event that the property is being used for the benefit of the tenant’s creditors, the situation is different and the sums payable under the lease rank as an expense of the administration – payable ahead of most other claims.
“I thought you told me that when they‘re still trading from the property, I should be able to claim the rent?” said the client.
He’s sort of right.
The use of the property must coincide with the rent payment dates under the lease in order for this to be the case. So, if the tenant went into administration just before a quarter day in a typical lease, then on that quarter day, the whole of that quarter’s rent would become payable, even if the company ceased to use the property the following day. Or, if the administration took place the day after the quarter date, then there would be no rent to pay for the remainder of that quarter. A nightmare scenario for any Landlord!
“But that’s not fair” said my client. He’s right again, but it is the current legal position.
“If only I could choose that the rent will be paid weekly rather than quarterly if the tenant goes into administration?” said my client to me. Ah – he’s quick. “Let’s discuss that further shall we” I said …