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What landlords can expect if a tenant goes into administration


2018 was a particularly challenging year for high street businesses caught in a perfect storm of increasing internet competition, reined-in consumer spending and increasing costs. Conditions do not look set to improve in the short-term and the last couple of months has already seen HMV and Patisserie Valerie entering into administration. 

Whilst these tough conditions do provide opportunities for canny investors to pick-up good retails assets at a discount, I am increasingly being contacted for advice from my landlord clients about the effect of a tenant’s administration and what options are open to a landlord. Often, a landlord will want to try and retain the tenant despite its administration but sometimes its preferred outcome would be to end the tenancy and source a new tenant. This note sets out the various possibilities open to a landlord faced with a tenant in administration. 



As soon as a tenant enters into administration a moratorium comes into effect. This prevents a landlord from carrying out the following actions without either leave of the court or the consent of the administrators: 

This moratorium will last until the end of the administration. An administration will automatically end after 12 months, unless it is extended. However, administrators are likely to want to conclude the administration more swiftly than this.  

A Landlord’s Options

These are limited due to the moratorium. 

If a landlord wants to try and end the lease, it could approach the administrators and ask whether they will agree to surrender the lease. The administrators are under no obligation to do so but may consider this if they see no merit in continuing to trade from a location. 

If the administrators continue to pay rent, then the court is very unlikely to give a landlord leave to forfeit the lease and, in our view, there is no point in making an application. However, if the administrators cease to pay rent, then the court would be much more likely to give a landlord leave to forfeit and an application to court could be made. 

If administrators cease paying rent, it nevertheless continues to be contractually payable under the lease. However, the landlord will be an unsecured creditor in respect of these arrears and may be unlikely to see much of these when the administrators’ final distributions are made. However, a landlord can be entitled to be paid the rent as an administration expense if the administrators are using the property for the benefit of the administration. Crucially, this can be the case if goods are stored within the property even if it has not remained open for trading. It is potentially important to have rent recognised as an administration expense as these are paid to a landlord ahead of payments to unsecured creditors. We can liaise with a tenant’s administrators on your behalf with a view to ensuring that any rents payable during the administration are classed as administration expenses. 


Following the end of the administration, a landlord is likely to be forced with one of the following five outcomes. 


The administrators are only likely to place the company into liquidation if they expect to make distributions to unsecured creditors. This is perhaps the best result for a landlord who wants to re-let the property and get the existing tenant out. Liquidation will be a forfeiture event under the lease and a landlord can now take immediate steps to forfeit the lease, as the moratorium will have ended.  Alternatively, a liquidator may agree to disclaim the Lease.

Creditors Voluntary Agreement (“CVA”)

The administrators could move to put a CVA in place. In order to do so, 75% (by value) of the unsecured creditors of the company would need to vote for the CVA. All landlords of the tenant will have a vote, even if there are no current arrears of rent, on the basis of the tenant’s contingent future liability. If the CVA is voted through, a landlord will be bound by its terms for its duration. This could result in a landlord being entitled only to a reduced rent, if this is a term of the CVA. A landlord can challenge the terms of a CVA in court, on the basis that it has been unfairly prejudiced. However, the chances of success are likely to be remote and it is likely be a disproportionately costly exercise for a landlord to challenge the terms of the CVA. You can find out more about CVAs by reading my recent blog post on this topic.

Sale out of administration
The administrators could sell the company out of administration. A buyer is likely to want to assign the lease from the existing tenant to a new company. A lease will usually prevent a landlord from unreasonably withholding consent to an application from the administrators to assign the lease. If a landlord wanted to withhold consent to an assignment application, we would have to look at the facts at the time, such as the covenant strength of the proposed assignee and what it is offering in the way of security, to ascertain if a landlord could reasonably withhold its consent to this application. 

Return to the directors
This would involve the tenant company coming out of administration and being returned to the control of its directors. This is highly unlikely to happen, but if it did, a landlord could allege that a forfeiture event had occurred, due to the appointment of the administrator.

Dissolution of Company
If it appears to the administrators that there is going to be no return to creditors, the administrators will simply look to dissolve the company. If this occurs all assets of the company vest in the Crown. If you become aware of the administrators looking to dissolve a tenant company, we would advise that you seek to ensure that the Lease is dealt with by the administrators prior to dissolution. If it is not, then you will need to deal with the treasury solicitors.

If you would like to talk through the issues raised in this blog, please contact our Real Estate Team to discuss your options.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.