logo

Warning Signs for Landlords Concerning Tenant Solvency

Published: 9th December 2009

In this market, it is crucial that landlords are fully informed about their tenant's financial situation. Once an event of insolvency occurs, the landlord often has very restricted rights and pre-emptive action before the tenant enters into an insolvency regime may be advantageous for a landlord.

What are the warning signs of a tenant going into insolvency?

  • An obvious warning sign that a tenant is about to become insolvent is if a company tenant changes its registered office address to that of an accountant or an insolvency practitioner. This is normally a certain indicator that the tenant is about to enter into some form of insolvency arrangement, be that a CVA, administration or liquidation. We recommend that the free information supplied on Companies House website is checked on a regular basis to ascertain details of the tenant's registered office.

  • A company tenant's failure to supply accounts to Companies House. Companies House has strict requirements for accounts to be filed. Failure to file these accounts is often an indication that a tenant is about to enter into an insolvency situation. We recommend that the tenant's details are regularly checked at Companies House. Failure to supply accounting records will be listed on the first page.

  • Increasingly late payments of rent. This is a very obvious indicator that a tenant is struggling and could shortly be entering into an insolvency situation.

  • Attempts by the tenant to renegotiate terms of the lease, including attempts to pay a reduced rent or to pay rent by monthly instalments instead of quarterly instalments.

  • Suggestions by the tenant of "restructuring". We recommend that the landlord should monitor the situation very carefully to ascertain whether or not the tenant is going into an insolvency situation.

  • The tenant ceasing to trade - although this sounds very obvious, unless premises are checked on a regular basis this is sometimes not known to landlords. We recommend that landlords inspect their premises on a regular basis to ascertain if the tenant has ceased to trade. If a tenant has ceased to trade, then it is likely that an insolvency situation could ensue.

  • A new occupier is at the premises - a tenant who is concerned about becoming insolvent, will often attempt to assign its lease. Tenants who face imminent insolvency will sometimes allow an unlawful occupier into the premises without lawfully assigning the lease, to avoid paying costs.

What Next?
If you are concerned about a tenant becoming insolvent, it is important to seek legal advice quickly. Once a tenant has gone into administration, there is a statutory moratorium on virtually all remedies available to a landlord to secure payment of rent without the consent of the Court or the consent of the administrator.

It is also difficult to pursue tenants who have entered into CVAs or IVAs and once a tenant enters into liquidation or bankruptcy, the prospects of recovering arrears of rent become very limited indeed.

If you are aware that a tenant is becoming insolvent, but you act before the tenant enters into an insolvency regime, you may retain your ability to forfeit, to distrain or to pursue any other remedy currently available to a landlord. Obviously in this difficult market, it is crucial to weigh up the benefits of getting the premises back at an early stage, against the liability for void business rates you will face if a new tenant is not found.

If you require any advice or would like to talk through these complex issues, please contact Simon Murphy on 0161 214 0538, who will be willing to give you a steer.