An Insolvent Tenant? Your Options

Whilst in the current marketplace it may be a relief to have a property let with a regular income, the position can rapidly change when faced with an insolvent tenant. The remedies as a landlord include:-

• A Statutory Demand with the threat of a wind up Petition if no payment is received;
• Court proceedings to obtain an enforceable Judgment;
• Section 6 Notice in cases where it is possible to recover rent from a sub-tenant directly;
• Distraint if it is possible to remove tenant’s possessions and sell to recover a sum equivalent to the rent outstanding

Taking the right approach to the circumstances is key and will not necessarily be the same action for each case. For example, if it is your desire to obtain possession of the premises from the tenant, this aim could be waived if a landlord inadvertently demands further rent.

If the insolvent tenant is an individual, there are two possibilities; namely an individual voluntary arrangement (IVA) or bankruptcy.

If the insolvent tenant is a company, there are more options: receivership, administration, liquidation or a company voluntary arrangement (CVA). The option being pursued will often dictate the strength of the landlord’s position and further the ability to recover the sums outstanding; for example, if the company is in administration the aim is to try and preserve it as a going concern. To permit time to explore the viability of doing so, a moratorium is imposed which prevents individual creditors pursuing enforcement action and therefore a landlord will be unable to pursue steps to recover premises or rent that have arisen. However, if during this period of time the administrator needs to continue to use the premises then the "rent" for this period should be paid to the landlord ahead of any other recoveries once the administration draws to a close.

If unsuccessful at recovering unpaid rent, reviewing the rent deposits as well as any guarantees that have been given are important.

Being prepared to act quickly is important to protect your position and therefore being alert to a tenant that begins paying late, has requested changes to payment terms or indeed whose cheques have been dishonoured should all be risk assessed and where possible a credit search or company search undertaken. Thereafter, if a problem arises it is important to obtain advice to ensure that the right option for your circumstances is pursued without prejudicing your position.

An insolvent Tenant? Your Options
Franklins Solicitors LLP