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The implications of a party being in financial difficulties is frequently looked at from a view point of the landlord (and whether the landlord can then take steps to retake possession of the property or otherwise pursue the tenant for arrears, a rent or breaches of covenant).  The position of a tenant, where its landlord is in financial difficulties, is one which seems to arise (and be considered) less often.

A tenant with the protection of part 2 of the Landlord and Tenant Act 1954 may have been in negotiations with its landlord for the grant of a new lease and may even have agreed terms.  Negotiations may then become bogged down and the tenant may struggle to have the Landlord progress the completion of the new lease.

The tenant might consider the possibility of serving a section 26 notice on the landlord with a view to trying to inject some momentum into the lease renewal.  The service of a section 26 notice will give rise to a requirement on the part of the tenant to commence legal proceedings in order to protect its rights under part 2 of the Landlord and Tenant Act 1954.  If however the tenant were to find, having served a section 26 notice, that the landlord had entered administration, it would be prevented from commencing court proceedings without  either permission of the court or the administrator. 

A similar position applies in liquidation and whilst the administrator or liquidator cannot abuse the moratorium on legal proceedings which is conferred on them as part of the “insolvency” process, the fact is that a tenant, particularly if it has left issuing 54 Act proceedings until the last minute, may find that its prevented from issuing proceedings or simply runs out of time because of the complications caused by the Landlord’s insolvency.

A frustrating situation (the inability to secure the grant of a new lease) might then become both frustrating and serious since the tenant will have lost its 54 Act rights.

The point (in addition to a reminder of the need to have eyes in the back of your head) is to keep a close eye on the status of a landlord company and to issue proceedings to protect 54 Act rights well within the prescribed timeframe.

If you wish to discuss any of the issues raised in this blog, please email me.