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29-10-2013

The British Property Federation (BPF) is calling for landlords to take bigger deposits from tenants complaining that if the appointment of the Insolvency Practitioner is just after the quarter day then there is a 3 month 'free run' for the administrators. (See Insolvency News article here.)

 

This raises an interesting point of the balance of negotiating power at the commencement of a lease as against the effects of insolvency.

Landlords can have large votes and a great deal of sway in insolvencies, including valuing their future claims. A long lease with quarterly rental payment dates increases the size of those claims in any insolvency.

The effect of insolvency could be mitigated, with arguable benefits to the company in financial difficulties, if the lease were granted on a monthly basis in the first place. Any administrator would only have one month post admin as a ‘free run’ before having to pay for usage in full even if only using a small part of premises.  

Landlords employ a huge amount of clout at the inception to grant leases which are very favourable to them.

The insolvency of a tenant company is one situation where it can cause some loss to landlords - as it does to all creditors - but cases have shown that sensible negotiations can then ensue to ensure a fair result for a broader range of creditors, as well as saving jobs.

Frances Coulson (fcoulson@moonbeever.com) and Graham McPhie (gmcphie@moonbeever.com)

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information.

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