Latimer Hinks Insolvent Tenants Seminar


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Presentation by Mark Gardner of Latimer Hinks Solicitors regarding the detailed legal issues involved in landlord and tenant arrangements during insolvency.

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  • Me – WMG - Partner Commercial Litigation at Latimer Hinks – 20 years qualified Deal with whole range of commercial contentious issues including bankruptcy/winding up petition/insolvency commercial rent arrears. Concentrate today on rent arrears – very topical given the current economic climate and the balancing act between recovering rent swiftly and efficiently and the fear of pushing the tenant too far and losing them. My remit is to recap the hopefully fairly familiar territory of some of the current remedies available to landlords of commercial premises. Glad to know not going to dwell on the procedural steps involved as hopefully they will again be fairly familiar. Decision has to be taken about what the aim of landlord is – possession or recovery of money or both. Can affect the way in which matters proceed. E.g. if issue an initial letter of demand as a precursor to Court proceedings that could amount to a waiver of right to forfeit if wanted to go down that route. On the other hand that could be all that is needed to obtain payment. Maybe all the landlord wants to do at present. Steps maybe in part governed by the terms of the Lease & more importantly what it says about landlord being able to recover his costs.
  • Instruction of bailiffs. Landlord self help remedies. Swift and efficient – element of surprise – no warning to Tenant and very limited cost to Landlord. Distraint – can presently recover sums which are not only pure rent but also sums reserved as rent under the lease e.g. service charges, insurance. Forfeiture – can be self help and for arrears of rent no need for Section 146 Notice – do need a Clause in Lease permitting forfeiture however– Tenant can apply for relief from forfeiture through Courts as can other interested parties. Landlord can also undertake forfeiture through the Courts – the issue of proceedings amounts to the act of forfeiture and Court later confirms that to be the case and makes a possession order – court rules do provide for relief from forfeiture upon payment of outstanding sums and costs. Distraint and forfeiture can be a wake up call for Tenant. If claim forfeiture by way of proceedings can bring a claim against tenant and guarantors in same proceedings for arrears/mesne profits – that is a sum usually equivalent to the rent while the T remains in occupation of the premises after the tenancy has ended.
  • Either as a stand alone remedy or alternatively as a follow on from judgment. If following on from judgment can rely upon a “nulla bona” return from High Court Enforcement Officer/bailiff upon which to base the petition. Can also serve a Statutory Demand as the foundation for a petition – both without a judgment (in case of undisputed debt as would hope to be the situation with Landlord and Tenant relationship) or after judgment. In case of limited company can simply send a letter of demand. E.g. large insurance company who on the hook for rent on premises – agents not having much success – faxed letter of demand to Financial Director and said present petition in 48 hours. Financial Director on phone ten minutes later – payment next day of all arrears and paid on nail thereafter. The winding up/bankruptcy or insolvency of the Tenant may trigger provisions under personal guarantees or AGA compelling Guarantors to take a lease on the same terms as the current Lease. This may happen on disclaimer by Insolvency Practitioner or on forfeiture. Action under the insolvency regime maybe used not only against Tenant but also Personal Guarantors or Guarantors under AGA.
  • Does L want to sue simply for the debt and nothing else or does it want to seek possession also. If want to sue solely for the debt an initial letter of claim or demand which allows 7 days for payment is generally required before court proceedings if arguments about costs are to be avoided. The court forms would have to be prepared and sent to the court and assuming the proceedings are not defended by the tenant then the timeframe is around 18 days from the date the court takes the issue fee and processes the claim form Secure judgment at that 18 day point by way of a paper exercise Take proceedings against T, any guarantor under PG or AGA (authorised guarantee agreement – form of guarantee to the landlord entered into by the tenant on assignment confirming the tenant will remain liable on the covenants under the lease after the assignment but not on any subsequent assignment) Sliding scale of Court fees and various nominal recoverable costs on issue. Opportunity to apply for early judgment at informal hearing based on the paperwork before trial if L feels there is no defence to matter despite what T may say. Word of caution – follow throughout this talk – read the documentation and ensure understand its terms and that figures calculated in accordance with it. One case (admittedly concerning the terms of surrender of a Lease) currently involved in Landlord believes wants £60,000.00 including interest – simply wrong – proceeded on wrong basis – not read or understood the document and in reality client owes £3,000.00. May need to use the Courts if Landlord & Tenant arrangement ended by forfeiture or effluxion of time. Once obtained judgment what options open to landlord?
  • Attends and seizes goods. Not only the leased premises but also any other premises owned by the debtor (which includes not only T but also if judgment obtained against them Guarantors and parties under AGA) to seize goods. Enables wider use of bailiff powers than available by self help (assuming still landlord and tenant relationship) because can go against these other parties for example guarantors and also other premises.
  • Can enable debt to be secured over other assets – most commonly houses or commercial property within the ownership of the T or guarantors but whether worth it in current climate who knows. Can ultimately seek to force a sale through Courts of the T’s/ guarantors property – difficult even before current climate can also extend to securities – government stock - shares - unit trusts - monies in Court
  • Obtain Order against employer of working debtor to pay monies out of wages until debt cleared. Can be of use if Guarantors etc have alternative sources of funds via employment or if one of parties to lease (e.g. H & W tenancy) is employed independently outside the business.
  • Against Tenant and Guarantors (corporate or individual in both cases). Order compelling attendance before Court to answer questions as to their financial position. Can give information as to lines of enforcement and require production of management accounts, bank statements and other financial documents etc.
  • Order from Court ordering a third party not to pay money to debtor which is owed by third party to debtor but to pay it to Landlord. Can be against bank or deposit taking institution but also against Tenant’s customer who has not been paying Tenant
  • Never done it. Someone previously worked with threatened it Circumstances usually be after judgment and where E.g. a) D receiving rents regularly or from numerous Tenants. b) Foreign debts owed to D – cannot be subject of third party debt Orders. c) Future debts – cannot to be subject of third party debt Orders. d) Life interest in land or trust funds. e) periodical payments under insurance and pension policies. to dispose of insurance policy by sale or surrender. Usually have to be a substantial sum due to costs involved
  • Few words on them specifically as I have been mentioning them throughout this talk. Some points already alluded to. These are as you will appreciate the means by which the L can strengthen its position – personal guarantees usually provided by the T or assignee and AGA being provided by T on the first assignment agreeing to be bound by the covenants in the lease even after the first assignment but not subsequent assignments Hopefully can claim arrears of rent, dilapidations, rectification of defects, damages, costs etc if the document is appropriately worded. Hopefully also the document will oblige Guarantors to take a Lease in the same terms as original Lease on forfeiture or apply to vest Lease in own names in case of disclaimer of the lease by an insolvency practitioner. Ordinarily probably in the past just give rise to claim for damages while Landlord found alternative Tenant to “mitigate” his losses (usually at increased rent). Now Landlord probably not so interested in damages as unlikely to get premises leased on same favourable terms and be ongoing problem. Landlord may now be seeking an Order for specific performance from the Court to compel the Guarantors to honour their obligations as well as damages and costs .
  • There are various terms used in the case of insolvent tenants and confusingly terms are often incorrectly used which can have disastrous consequences for L The rights of L vary depending which type of insolvency process the T or any guarantor is involved in Too long and complicated to deal with in the available time and is probably a talk in its own right BUT there are some nasties contained within the insolvency legislation which can come as a surprise to L For example in some instances if the L has levied distraint in 3 months preceding the insolvency process then if there are insufficient assets in the insolvency administration to cover the preferential debts the L can be forced to pay such sums into the insolvency – put it simply T = Andy bankrupt, L = Mark & I am the Trustee in bankruptcy - the person who is dealing with Andy’s affairs in the insolvency. If Mark has levied and recovered by distraint his rent in 3 months prior to the bankruptcy and is thus feeling quite happy with himself for acting swiftly he has to pay it to me. BUT what if he has spent it/does not have it anymore? I can take action to recover it from Mark including ultimately making Mark bankrupt and/or getting an order to sell Mark’s investment property. So in this example not only does Mark not get his rent but he also looses his property! L also need to take notice of voluntary arrangements that are put forward by T- aside from the fact that they probably amount to a breach of the terms of the lease – do they affect the L rights? I have seen instances where the whole terms of the lease were sought to be varied – leaving aside issues about whether that can happen and the ensuing argument – L needs to be alert to the effect upon the recoverability of the rent arrears that already exist and also future rent in the event of default There are also 2 types of administration order – 1 for companies under the Insolvency Act – 1 for individuals under the court – the effect of each is different but again can have repercussions for an unwary L In short whenever insolvency appears L needs to sit up and take notice – its strict rights in respect of existing arrears could be fettered L also needs to take the appropriate advice and also if necessary attend any creditors meeting in person or by a representative – which can usually be arranged FOC
  • L currently has the self help remedies of distraint and forfeiture against the T as well as the court recovery and enforcement procedures together with the insolvency remedies of bankruptcy/liquidation against T and any guarantors Hopefully that short review of the existing rights will have refreshed a few memories.
  • Latimer Hinks Insolvent Tenants Seminar

    1. 1. Mark Gardner Partner Latimer Hinks Solicitors
    2. 2. Current Options
    3. 3. Rent Day Self Help Remedies Winding up and/or Bankruptcy Proceedings Proceedings for Rent Arrears Court Action Against Tenant and / or Guarantors Forfeiture and Rent Arrears/Damages Action/Decision? Time stipulated under lease before forfeiture, distraint or interest can be claimed.
    4. 4. Distress/Forfeiture <ul><li>Distress </li></ul><ul><ul><li>Instruction to bailiffs </li></ul></ul><ul><ul><li>Landlord self-help remedies </li></ul></ul><ul><ul><li>Swift and efficient, element of surprise, no warning to tenant </li></ul></ul><ul><ul><li>Limited cost to Landlord </li></ul></ul><ul><li>Forfeiture </li></ul><ul><ul><li>can be self help </li></ul></ul><ul><ul><li>can go through Courts </li></ul></ul><ul><li>Distraint and forfeiture can be a wake up call for tenants </li></ul>
    5. 5. Winding Up/Bankruptcy <ul><li>To be used as a stand alone remedy or as follow on from judgment </li></ul><ul><li>Can rely upon “nulla bona” return </li></ul><ul><li>Can serve Statutory Demand as foundation for a petition </li></ul><ul><li>For limited companies can simply send a letter of demand </li></ul><ul><li>Winding up/bankruptcy or insolvency may trigger provisions under Personal Guarantees/AGA </li></ul><ul><li>Action under insolvency can be used against Tenant and Personal Guarantors under AGA </li></ul>
    6. 6. Court Proceedings <ul><li>Does Landlord want to sue for debt and/or possession? </li></ul><ul><li>Sue Tenant, any Guarantor under PG or AGA </li></ul><ul><li>Sliding scale of Court fees + nominal recoverable costs on issue unless lease provides for greater sums </li></ul><ul><li>Opportunity to apply for early judgment at informal hearing </li></ul><ul><li>Caution – read and understand documentation terms and figures </li></ul><ul><li>judgment received – what options are open to the Landlord? </li></ul>
    7. 7. High Court Enforcement Officer/County Court Bailiff <ul><li>Attends and seizes goods </li></ul><ul><li>Not only leased premises but also any other premises owned by debtor (who can be Tenant and/or the Guarantors) </li></ul><ul><li>Enables wider use of bailiff powers than is available through self help remedies </li></ul>
    8. 8. Charging Order <ul><li>Can enable debt to be secured over other assets </li></ul><ul><li>Can ultimately seek to force a sale of assets through Courts </li></ul><ul><li>Can also extend to securities e.g: </li></ul><ul><ul><li>Government stock </li></ul></ul><ul><ul><li>Shares </li></ul></ul><ul><ul><li>Unit trusts </li></ul></ul><ul><ul><li>Monies in Court </li></ul></ul>
    9. 9. Attachment of Earnings <ul><li>Obtain order against employer of working debtor to pay monies directly to Landlord </li></ul><ul><li>Can be of use if Guarantors etc have alternative sources of funds via employment </li></ul>
    10. 10. Oral Examination <ul><li>Against Tenant and Guarantors (corporate or individuals) </li></ul><ul><li>Order compelling attendance before Court </li></ul><ul><li>Can require production of: </li></ul><ul><ul><li>Management accounts </li></ul></ul><ul><ul><li>Bank statements </li></ul></ul><ul><ul><li>Other financial documents </li></ul></ul>
    11. 11. Third Party Debt Order <ul><li>Formerly known as Garnishee Order </li></ul><ul><li>Order from Court instructing third party to pay money to Landlord </li></ul><ul><li>Order from Court can be against bank or deposit taking institution as well as Tenant’s customer </li></ul>
    12. 12. Appointment of Receiver by Way of Equitable Execution <ul><li>Can be used: </li></ul><ul><ul><li>If Debtor is receiving rents regularly from Tenants </li></ul></ul><ul><ul><li>If foreign debts are owed to Debtor </li></ul></ul><ul><ul><li>For future debts </li></ul></ul><ul><ul><li>For life interest in land or trust funds </li></ul></ul><ul><ul><li>For periodical payments under insurance and pension policies </li></ul></ul><ul><ul><li>To dispose of insurance policy by sale or surrender </li></ul></ul>
    13. 13. Personal Guarantors/Authorised Guarantee Agreement <ul><li>A means to strengthen the Landlords position </li></ul><ul><li>Can claim arrears of rent, dilapidations, rectification of defects, damages, costs etc </li></ul><ul><li>Will oblige Guarantors to take lease in same terms as original lease </li></ul><ul><li>Basis for an order for specific performance </li></ul>
    14. 14. Insolvent Tenants <ul><li>Bankruptcy? </li></ul><ul><li>Compulsory winding up? </li></ul><ul><li>CVL’s (creditors voluntary liquidation)? </li></ul><ul><li>Receivers? </li></ul><ul><li>Voluntary arrangements? </li></ul><ul><li>Administration orders? </li></ul><ul><li>What about members voluntary liquidation? </li></ul>
    15. 15. Summary <ul><li>Against tenant </li></ul><ul><ul><li>Self help remedies or distraint and forfeiture </li></ul></ul><ul><li>In addition, against Tenant and Guarantors </li></ul><ul><ul><li>Court recovery and enforcement procedures </li></ul></ul><ul><ul><li>Insolvency remedies </li></ul></ul>