Landlords of the high street – will your tenant pay their rent to you before Christmas day?

What can you do to protect your position?

The provisions of your lease and any other documentation you have in place will provide a structure and legal avenues for you to consider.

Getting good legal advice on the options available to you early and before taking any steps is very important, as taking one step can affect another and the situation may require a strategy to be put into place to seek to achieve the best outcomes. Even demanding the rent once it has become due can affect your options. Silence is often advised as the best tactic to deploy.

However, it may be that having a discussion with your tenant as to how you may be able to help could produce better financial outcomes. If the position looks currently bleak but with real future prospects, even suggesting that they may wish to seek advice from an Insolvency Practitioner regarding a Company Voluntary Arrangement (“CVA”) could be more beneficial.

What is a CVA and how can that help me?

Current trends are suggesting that CVAs are on the rise, and landlords are voicing concerns that they are being used as a tool by tenants that are not really about to fall over but are simply looking to reduce their rent.

Whilst this may be accurate in some cases, there will be those that legitimately need help to continue.

If a tenant, with good insolvency advice, believes with support that it can continue to trade out of the financial difficulties it is currently facing by putting in place good strategies for improvements and/or diversification and puts forward a reasonable CVA plan for approval, Landlords should assess what the alternatives look like.

CVAs are a binding legal contract between a debtor and its creditors. It requires 75%+ of liquidated debts to approve it, as typically debts are compromised and creditors offered a % in the £ in full and final settlement. The Tenants continue to trade and occupy your premises and therefore continue to have an ongoing commitment to paying you rent (whether or not on a reduced rate), and the dividends received in a CVA are usually far more favourable than in the event of liquidation.

Could this be better for you than loosing all your rent, having an empty property, and the incumbent additional liabilities and losses this may create for you?

Although the arrangement is legally binding in relation to liquidated claims, Landlords still retain other rights and may, therefore, be happy to enter into the CVA in relation to current rent and service charge arrears, reach an agreement to vary the ongoing rent for a period to help the Tenant get back on its feet and; in the event that there is further breach, review whether under the Lease, Rent Deposit or any AGA in place.

What if the Tenant went into Administration or Liquidation?

If the tenant becomes insolvent and you do not have a Rent Deposit Deed or an AGA you may not get anything.

If an Administration Order is put into place, a moratorium will be invoked and you will be unable to do anything without the Administrator’s agreement, although your rent will feature as an Administrative expense.

What is important in the CVA process is that all your debts are liquidated (crystalised) as the % vote that you will hold is dependent on this. Unliquidated claims (which include future or estimated dilapidations claims) are generally only admitted in at £1. Therefore, keeping on top of inspections and dilapidations is equally as important as the rent and service charges.