What happens if my landlord becomes insolvent?
With commercial landlords facing insolvency – is this bad news for commercial tenants?
Last week saw the first of what is predicted to be many retail landlord administrations. Intu, the owner of a number of shopping centres across the country, including the Trafford Centre and Lakeside, collapsed into administration on Friday 26th June after failing to reach an agreement over its debt with lenders. It is understood that there is a range of asset managers lining up to take over the running of the shopping centre portfolio.
Throughout the Covid-19 pandemic there has been a lot of focus on the problems for tenants who find themselves unable to pay their rents and the risks of widescale insolvencies that may arise. At last week’s June quarter day landlords received only 14% of the £2.5bn that was owed. If tenants are unable to pay their rents then that inevitably has a knock-on effect on landlords. Whilst tenants have been granted a moratorium against forfeiture and debt actions for non-payment of rent, landlords have no such luxuries when it comes to their loan repayments to lenders.
So, whilst tenants may (just) be able to ride out the pandemic, can the same be said for landlords, and what happens to the tenant if the landlord does fall into insolvency?
Firstly, it is important to note that just because a landlord may have gone into administration or entered into a creditors’ voluntary arrangement (CVA), that does not mean a liquidation of the landlord will inevitably follow. In fact, given the strong asset base of most landlords, a liquidation, certainly in the short term, is unlikely. So, looking at the likely impact of landlord CVAs and administration:
Landlords who enter into a Creditors’ voluntary arrangement
Since the tenant will be a debtor rather than creditor of the landlord, the tenant will not take part in the CVA arrangement. The tenant may not even be aware of it until the landlord, being supervised by an insolvency practitioner under the CVA, takes a firmer approach to lease compliance. This is likely to make it harder for tenants to win concessions from landlords, even in the current circumstances.
Landlords in Administration
A landlord in administration will be in the hands of administrators. If they continue to trade the company whilst a buyer is found to preserve jobs and pay creditors then, again, the tenant is unlikely to notice any real difference. There will be no changes to the tenant’s lease and there may not even be any changes to landlord personnel with whom the tenant deals.
However, tenants may again notice a change in approach from any new landlord (whether during the administration or following a sale of the landlord’s business). Administrators and new owners are likely to take a very hard-line approach to enforcement of lease covenants that go directly to the income stream. This means that tenants are likely to be held very strictly to terms dealing with rent reviews, insurance, service charges and dilapidations.
In both cases though, it is important to note that nothing about the tenant’s lease is changed by the insolvency process. A landlord can therefore only hold the tenant to the terms set out in the lease.
If you are in any way affected by the insolvency of either landlords or tenants please contact Stewart Gregory, Partner in Commercial Property email@example.com t. 01273 766930 or Richard Ludlow Partner in Restructuring & Insolvency e. firstname.lastname@example.org t. 01732 441695