Coping with Tenants in Administration

In today’s current economic climate landlords are frequently finding themselves in a situation whereby their tenants are threatening to go into or have already gone into administration.

Administration is a procedure put in place to allow a company some time and space to trade out of its financial difficulties with a view to its rescue.  An administrator will be appointed to manage the company’s affairs and to formulate and then act on a plan for operating the business.

Will Rent be Paid During the Administration?

If a tenant company continues to operate from the premises during the administration, case law indicates that rent must continue to be paid as an expense of running the administration.  Administration expenses are paid before the claims of floating charge holders, preferential creditors and other secured creditors.  If the rent is already in arrears a letter to the administrator should be sent advising of the rent outstanding since the start of the administration. 

It is important to note that if the administrator does not want the company to trade from your premises then he is unlikely to pay the rent as an expense of the administration and any rent owed will be an unsecured debt.  The reality then may be that, the landlord will recover very little or none of the rent owed. 

A further option in a market where re-letting premises may prove difficult, may be to retain an insolvent tenant rather than having to bear the liability for empty rates.

Once an administrator is in place, all legal processes against the company are frozen.  This will affect your ability to take enforcement action against the insolvent tenant.

For further advice on how to protect your position if you anticipate a tenant going into administration or any other insolvency procedure, contact Daniel Stern 

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