Tenant insolvency

When a commercial tenant becomes insolvent, the consequences for a landlord can be severe and often immediate. Rent goes unpaid, the premises may be left vacant or damaged, and the landlord faces a set of legal constraints that can make it difficult to take the steps they would normally take in response to a breach. Understanding those constraints, and the options that remain available, is essential to protecting the landlord’s position.

What is tenant insolvency?

Tenant insolvency arises when a commercial tenant becomes unable to pay its debts and enters a formal insolvency process. The most common forms of insolvency that landlords encounter in a commercial property context are:

Administration – where an administrator is appointed to manage the tenant’s affairs with a view to rescuing the business, achieving a better result for creditors than winding up, or realising assets for distribution;
Liquidation (compulsory or voluntary) – where the tenant company is wound up and its assets distributed to creditors;
Company Voluntary Arrangement (CVA) – a binding agreement between the tenant and its creditors (including the landlord) to vary the tenant’s obligations, often including a reduction in rent or the compromise of arrears;
Receivership – where a receiver is appointed, typically by a secured creditor, to realise assets in satisfaction of a debt; and
Individual voluntary arrangement (IVA) or bankruptcy – where the tenant is an individual rather than a company.
Restructuring plan (Part 26A) – a court-sanctioned compromise between the company and its creditors under Part 26A of the Companies Act 2006, used increasingly by larger tenants to restructure their liabilities (often including rent reductions and the compromise of arrears across a portfolio); unlike a CVA, the court can sanction the plan even where one or more classes of creditor (which may include landlords) have voted against it, through a process known as ‘cross-class cram down’.

Each insolvency process has different implications for the landlord, and the rights and resolutions available will depend on which process the tenant has entered and at what stage.

You will find answers to common questions concerning tenant insolvency in the FAQs at the bottom of this page.

What does a tenant insolvency solicitor do?

Our property disputes solicitors work alongside our insolvency team, to advise commercial landlords on all aspects of tenant insolvency, from the moment an insolvency event is notified or suspected, through to the recovery of the premises and the pursuit of any available claims.

We advise on the immediate steps to take to protect a landlord’s position, the constraints that insolvency legislation imposes on the exercise of landlord remedies, and the options available for recovering the premises, pursuing rent arrears and managing ongoing liabilities. The team’s ethos is simple: solve the problem.

Why choose B P Collins as your tenant insolvency solicitors?

With over 60 years of experience in dispute resolution, we’re consistently ranked by Chambers UK and The Legal 500 for the strength of our property disputes practice. Our solicitors have extensive experience advising commercial landlords on all aspects of tenant insolvency and its resolution.

As with most disputes, early advice can frequently result in a swift outcome, avoiding unnecessary escalation and protecting your position before it becomes more difficult to assert.

Contact our tenant insolvency solicitors today

For further information or advice on a prospective tenant insolvency, please contact our specialist solicitors. Our teams are based in London, Thame and Gerrards Cross, and can be contacted on 01753 889995 or at enquiries@bpcollins.co.uk.

Tenant insolvency FAQs

Can a landlord forfeit a commercial lease when a tenant enters administration?

No, not without the court’s permission. Once a tenant enters administration, a statutory moratorium prevents a landlord from forfeiting the lease without the administrator’s consent or the court’s permission. This applies regardless of whether rent is being paid and regardless of what other breaches may have occurred before or after the appointment.

The moratorium can cause significant practical difficulty for landlords, particularly where the premises are being used by the administrator to trade the business, or where the tenant has vacated and left the premises empty. In some cases, a landlord may be able to apply to court for permission to forfeit, but the threshold is not straightforward, and the court will consider the interests of all creditors.

Landlords should take legal advice as soon as they become aware that their tenant has entered administration.

What happens to rent during an administration?

Rent due after the date of the administrator’s appointment is treated as an expense of the administration and ranks ahead of most other creditor claims. If the administrator continues to use the premises, the landlord should be paid rent for that period as a priority expense. However, rent arrears that existed before the administration are typically treated as unsecured claims and often result in little or no recovery. Landlords should distinguish carefully between pre-appointment arrears (likely to be largely irrecoverable) and post-appointment rent (which should be paid as a priority expense).

What is a CVA and how does it affect a landlord's rights?

A Company Voluntary Arrangement (CVA) is a statutory procedure that allows a company to reach a binding agreement with its creditors to compromise or vary its debts and obligations. CVAs have been used extensively by retail and leisure tenants as a mechanism for reducing their rent obligations, closing unprofitable sites, and restructuring their property portfolios.

A CVA that is approved by the requisite majority of creditors binds all unsecured creditors, including landlords. This can result in reduced rent, compromised arrears, or changes to lease obligations.

The landlord’s ability to challenge a CVA is limited. Strict time limits apply, so early legal advice is essential.

Can a liquidator disclaim a commercial lease and what are the consequences for the landlord?

Yes. A liquidator can disclaim a lease if it is considered ‘onerous property’ (for example, a commercial lease with ongoing rent obligations that exceed the value of any benefit).

Disclaimer ends the insolvent tenant's future liability under the lease, but it does not necessarily affect the rights of guarantors, former tenants, or subtenants. Landlords should review any available security and consider their options promptly following disclaimer.

What can a landlord recover from a guarantor when a tenant becomes insolvent?

Often, yes. A landlord may be able to recover unpaid rent and other lease liabilities from a third party (a guarantor), depending on the terms of the guarantee. Many guarantees are drafted to survive the insolvency of the principal tenant, but some contain limitations or carve-outs that may reduce the landlord’s recovery.

Where an authorised guarantee agreement (AGA) exists, a former tenant may also remain liable. Strict deadlines apply to preserve these rights, including the service of a section 17 notice within six months of the sum becoming due. Missing that deadline extinguishes the claim against the former tenant for that payment. Landlords should review their lease and any AGAs as soon as a tenant enters insolvency to ensure that these notices are served in time.

What is the effect of a rent deposit when a tenant becomes insolvent?

Where the landlord holds a rent deposit, the ability to draw on it following the tenant’s insolvency will depend on how the deposit is held and the terms of the rent deposit deed. If the deposit is held in a trust account in the tenant’s name, there is a risk that it may be claimed as an asset of the estate. If it is held in the landlord’s own account on trust for the tenant, the position is generally more secure for the landlord, but the terms of the deed need to be examined carefully.

Landlords should review the terms of the deposit deed at the earliest opportunity when a tenant’s financial position deteriorates. Taking action before a formal insolvency process begins may provide greater flexibility than acting afterwards.

What practical steps can a landlord take to monitor a tenant’s financial health and anticipate insolvency?

Common warning signs include persistent late rent payments, requests for payment concessions, worsening company accounts, late Companies House filings and changes to directors or registered office details.

Landlords should also monitor the London Gazette and the Insolvency Service register for insolvency notices. Early action can help protect rent deposits, preserve claims against guarantors, and improve recovery prospects before formal insolvency restrictions take effect.

Can a restructuring plan reduce my rent or write off arrears even if I vote against it?

Potentially, yes. This is the feature that most distinguishes a restructuring plan under Part 26A of the Companies Act 2006 from a CVA. Creditors vote in separate classes, and the court can sanction the plan even where an entire class has voted against it.

The court can only do this if certain conditions are met: in broad terms, the dissenting class must be no worse off than they would be in the relevant alternative (usually administration or liquidation), and the plan must have been approved by at least one class with a genuine economic interest in that alternative. The court also retains an overall discretion whether to sanction the plan.

For a landlord, the consequences can be significant: a restructuring plan can reduce your rent, compromise arrears, or vary lease terms across a portfolio, and can do so even over your objection. Because the outcome turns on how the creditor classes are formed and on the comparison with the alternative, it is important to take advice early if a tenant proposes, or is rumoured to be proposing, a restructuring plan.

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