Switch on the news, or open the papers, and you cannot fail to see the number of big high street names entering into administration or considering Company Voluntary Arrangements (CVAs).
For every Maplin, Carpetright and Toys R Us that makes the news, there will be a similar number of small businesses in the same position.
And behind every one of them is a landlord facing uncertainty.
When a company enters administration, a moratorium is imposed, preventing any proceedings being brought against the company without the permission of the Court or consent of the administrator. This would apply to any forfeiture proceedings, which a landlord could bring for non-payment of rent (although the landlord may be happy not to take back an empty property on which he would have to pay rates and insurance.) If the administrator uses the premises for the benefit of the business or the administration, he/she will be responsible for the rent and other outgoings under the lease whilst in occupation. This has obvious benefits for the landlord – rental income is maintained and the landlord is not faced with rates and insurance costs, which will be paid by the Administrator as a cost of the Administration. If the administrator does not continue to use the premises, the rent and other outgoings are no longer an expense of the Administration, and the landlord will then rank (as he would do under a CVA) as just another unsecured creditor.
There may be other avenues open to the landlord. If the lease was granted before 1996 (and there are still 25 year leases from the 1990s which will not have yet expired) the landlord can pursue the original tenant, who will still be liable for the rent and any breaches of the lease, regardless of how many times the lease has changed hands since it was granted.
Alternatively there may be a guarantor who can be pursued.
Our advice for landlords? Make sure you really know your tenants and their businesses, look out for signs that an administration or CVA is imminent – and seek professional advice early in the proceedings.
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