Disclaimer: what does this mean for a landlord?

In the circumstances of tenant liquidation, a liquidator can disclaim the lease; this is a renunciation of the liability of the liquidator (i.e. the tenant in liquidation) and applies in respect of ‘onerous property’ – a lease of premises that ‘may give rise to a liability to pay money or perform any other onerous act’ – the vast majority of commercial leases

Following the disclaimer, no further rent is payable even if the liquidator is in possession, or trying to sell the lease, (to recover sums owed prior to the disclaimer, the landlord is able to claim for unpaid rent as an unsecured creditor in the liquidation)

It is open to a landlord to recover possession of the premises following a disclaimer of the lease, (subject to the rights of third parties for example – a sub tenant’s right to occupy is unaffected) in order to mitigate his losses. Although he is under no obligation to do so and care needs to be taken before exercising such a right – not only will the landlord be liable for business rates in respect of the premises but by taking possession he may adversely affect his rights against a former tenant or guarantor

In order to disclaim, there are detailed notice provisions that a liquidator must follow. Alternatively, a landlord can serve a notice to elect on the liquidator to force a decision; failure to disclaim within 28 days prevents the liquidator from doing so

Third parties rights are unaffected by a disclaimer; for example, the landlord’s rights under a guarantee (however, as explained above, these rights can be adversely affected by the taking of possession)

Third parties affected by the disclaimer can apply for a vesting order; in other words, a Court order that the disclaimed lease vests in their name (belongs to them). Sub tenants and mortgagors are usually preferred to former tenants and guarantors
If the liquidator does not disclaim the lease the rent will continue to fall due and will be treated as an expense of the liquidation and be paid to the landlord

The first step always for a landlord faced with an insolvent tenant is to seek legal advice

Anthony Best
Prince Evans Solicitors LLP