Surrenders of Tenancies from Liquidators / Administrators – an overview
Given the current economic climate it is a fact of life that landlords are now frequently having to deal with the consequences of insolvent tenants.
Once a tenant becomes insolvent a landlord’s options for taking action may well be limited. For example once a tenant has been placed into administration a landlord cannot forfeit without a court order or the administrators’ consent. So in practice a surrender is often the only real option where the landlord wants to have control and to regain its premises.
Landlords are often put under pressure to accept a surrender quickly and without any due diligence. The current trend appears to be for administrators to ask the landlord either to pay the costs of a deed of surrender or to accept a surrender by operation of law without instructing solicitors.
However, it is not always a simple case of countersigning the offer letter presented by the administrators.
In this article we highlight some practical steps to be considered when taking surrenders from tenants’ administrators and/or liquidators in an attempt to minimise the possibility of issues arising on or after completion.
Transfer of Undertakings (Protection of Employment) Regulations (TUPE)
In certain circumstances there may be TUPE complications. This could occur where a tenant has engaged a firm to supply services to its premises, for example cleaning. It may also arise in connection with employees where a landlord accepts a surrender of a lease and quickly grants a new lease to a new tenant who carries on the same business as the old tenant. If there is a risk that a surrender may effect a transfer of employment contracts then the landlord should be looking for an appropriate indemnity, where possible, from any incoming tenant.
Items left in the Premises
Who owns items/equipment left in the premises? The landlord may want to clear the premises after a surrender. Items that are not fixed can be cleared (ensuring no damage caused by such removal), but unless the owner can be identified thought must be given to whether a notice issued pursuant to the Torts (Interference with Goods) Act 1977 should be placed on the unit.
But what about fixed items? A new tenant may be relying on certain items of equipment remaining at the premises during the term of its new lease. However, matters could be delayed if the equipment does not belong to the landlord or the position is uncertain. In that case further investigation needs to be made. The risk of a retention of title claim arising should fade with time, but it is not unknown for such claims to be made even after a year or more of the onset of insolvency.
State and Condition of the Premises
More often than not the premises will be surrendered “as seen” and, in the case of a back to back surrender and new letting, let in the same state. Usually, the landlord will need to assess the state and condition of the premises and should be careful to ensure that any right of entry exercised is not construed as accepting a surrender at that time. If the new tenant requires items to be removed by the landlord then a schedule should ideally be agreed, the landlord’s obligations documented and appropriate arrangements made after surrender and before completion of the new lease or otherwise access arranged with the administrators’/liquidators’ consent before surrender.
Keys and Deeds (and Land Registry Requirements)
Do you know where these are? Fairly basic stuff, but probably for that reason these questions can remain unanswered until a late stage in the process and may cause a last minute hitch.
The need for the keys is obvious.
As for the deeds, if the lease is registered at the Land Registry or noted against the landlord’s title then the leasehold title will need to be closed and/or the notice removed. The Land Registry will require appropriate documentary evidence to establish the fact of the surrender and the appointment of the administrators/liquidators. The Registry’s requirements must be strictly adhered to.
The application should be accompanied by a statutory declaration or the surrender deed (if there is one). You will also need a sealed or certified copy of the notice of appointment of the administrators/liquidator. The Land Registry Practice Guide 26 contains the relevant guidance.
The Land Registry’s identity requirements must also be considered as it is usual for the tenant to be unrepresented when surrendering their registered lease to the landlord. The tenant should supply identity evidence as a condition of completion.
Different considerations apply depending upon the nature of any charges affecting the lease and whether the lease is registered or unregistered. Briefly, in registered conveyancing the register is conclusive. Therefore if a charge has not been registered against the registered leasehold title, the landlord will take free from it if the surrender is made for valuable consideration (and that includes the release of a liability). If the lease is unregistered then the usual search of the charges register at Companies House should be made for details of any charges which may exist and a release or letter of non-crystallisation obtained as appropriate. Ensure that a request for any release or letter of non-crystallisation is made early so that they can be approved in good time for completion.
A landlord should check its likely rates liability if it is to take the premises back from administrators/liquidator before it has a new tenant lined up. It may prove worthwhile not accepting a surrender in the short term, if possible. For that reason a landlord needs to take care to avoid a surrender being inadvertently implied from the landlord’s actions. If the landlord intends to access the premises for any reason before surrender it should ensure that its actions are clearly notified to the administrators/liquidator so that they cannot be construed as acceptance of a surrender.
Arrears and the Extent of the Tenant’s Release
Usually , administrators/liquidators will require a full and final release of the tenant for all breaches of the lease. This will mean that the landlord gives up its rights to claim in the administration/liquidation for arrears of rents owed. Such a claim is unlikely to be worth much, but the landlord should consider whether or not, in the case of an administration, the rent could in fact be claimed from the administrators as an expense of the administration. If so the surrender should exclude this from the release, if possible.
When a landlord has to deal with an insolvent tenant, there will often be a lack of information, a need for urgency and a view to be taken on certain risks. Yet landlords would be well advised to take a measured approach, where possible, and to take some time to identify issues such as those mentioned above.