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Thursday, 22 December 2011

Merry Christmas!

Digging the Dirt has been going for just over a year now.

They say time speeds up as you get older and the pedal certainly seems to have been stuck to the floor since I first posted last December.

When I started this blog it was frankly a bit of an experiment which I thought would last about a month.

So, one year on, I have not only surprised myself by keeping it going but I have also been very pleasantly surprised that some people have even wanted to read it – and I don’t just mean the Ukranian web-crawling robots who add to the page count, but hey, they’re welcome too!

I have also been very grateful for the support of all those I have “met” on twitter who have re-tweeted my posts and to those who have commented on my posts, either on this website or, as tends to happen more often, on twitter or linkedin, where these posts are often shared.

Somebody, rather churlishly perhaps, suggested a year ago on linkedin (when I rashly, or brashly, announced I had started a property law blog) that I wouldn’t have anything to write about. It hit a nerve at the time because it was what I was thinking too.

Instead, it has turned out to be quite an eventful year; “events, dear boy” being rather more welcome for bloggers than they are for prime ministers.

However, I’ll resist the temptation now to segue into a tedious year-end round-up of notable highlights in the world of commercial property and environmental law; you can be your own judge of them.

In the real world 2011 has been a very challenging year for a great many people, and every indication suggests that 2012 could be even more so.

If FDR’s wisdom of 1933 applies equally today, and the only thing we have to fear is fear itself, then the media are certainly fighting a fierce insurgency on behalf of that unseen enemy.

Time spent reading the financial pages rounded off with an hour in front of Newsnight can leave you shell-shocked, although the real frontline of this war exists in lives drifting further and further from the zone any of our politicians are able to influence.

Nobody knows anything anyway, except perhaps this:

“A bank is a place where they lend you an umbrella in fair weather and ask for it back again when it begins to rain.”

And even the authorship of that gem is in dispute (it was either Mark Twain or Robert Frost).

Anyway, that’s more than enough from me for one year.

I wish you a Very Merry Christmas and a Happy and Prosperous New Year.


Wednesday, 21 December 2011

Community Infrastructure Levy: The Spike in the Cost of Planning

Community Infrastructure Levy (CIL) is a new index-linked development tax payable on development authorised by planning permission in England and Wales.

It will apply to most developments over a threshold of 100 square metres and will be payable within 60 days from the commencement of development unless the council has agreed to payment by instalments or there has been a default.

In November I wrote about CIL asking Is the price of Planning About to Go Through the Roof? and also in an earlier post, Don’t Forget the Price Tag.

Clifford Chance (CC) has now produced a useful guide to CIL – Issues of Concern and Implications for Transactions which gives an overview of how CIL will work and how it will co-exist in some cases with Section 106 agreements.

The first local authority out of the starting blocks is Newark & Sherwood District Council, whose CIL came into force on 1 December 2011.

Others will follow in the coming months as CIL gathers pace.

CIL is going to be a major feature of the development process and therefore needs to be understood by everyone involved in property development.

In local authority areas where it is introduced, CIL will be payable on most forms of development, replacing many of the tariff-type payments currently made under Section 106 agreements towards things like road improvements, environmental and educational projects.

CC say that although it is optional for councils to implement CIL, they will in practice be forced to do so because changes to Section 106 rules will ultimately prevent them pooling contributions for larger-scale infrastructure projects except through CIL.

However, for the time being Section 106 agreements will still be required for affordable housing and other site specific matters, although in October the government launched a consultation on various details, including whether to allow CIL receipts to be used to provide affordable housing, which is not currently allowed by CIL regulations. That consultation ends on 30 December 2011.

In London, from an expected date of around 1 April 2012, the Mayor will be able to charge his own CIL as a contribution towards Crossrail on top of any CIL charged by a London borough.

The CC note gives a brief indication of some of the CIL rates likely to be charged.

Generally, councils will set their own CIL rates based on the amount of infrastructure they think will be necessary to support development in their area. CIL will be payable on the net additional amount of floor space created by new development and varied rates can be set for different types of development and in different zones.

CC recommends that developers think about providing in Section 106 Agreements that payments are credited towards CIL to minimise the risk of double-charging as and when CIL is implemented.

Anyone can assume liability for CIL, but where no one does or there is a default, the liability rests with the owners based on the value of their relative interests (“owners” are freeholders and tenants who have more than 7 years left to run on their lease at the time the development is first permitted).

Transaction documents, such as development agreements and contracts conditional on planning, will need to deal with the assumption of CIL liability.

If you’re buying property, be aware of the fact that any unpaid CIL liability could pass to you. Standard pre-contract enquiries will need to be developed to deal with this over time.

With leases, the potential exists for one party to incur CIL liability where the development has been carried out by the other. This is something for both parties to think about now when negotiating new leases.

If you are in the business of developing property, follow the progress of CIL in your area to make sure you don’t get caught out.

Tuesday, 20 December 2011

Government FITs Slash Subject to Urgent Judicial Review

Judicial review proceedings start today on the government’s decision to slash Feed-in-Tariffs, the subsidy for solar panels, before the end of its consultation.

The case is being brought by SolarCentury, HomeSun and Friends of the Earth (FoE), following the government’s decision to reduce the tariff for smaller installations by more than 50 per cent.

The Department of Energy and Climate Change (DECC) says that under the proposals, the new (lower) subsidy would apply to all new solar installations with an eligibility date on or after 12 December 2011. However, the consultation doesn’t end until 23 December 2011.

The high court had ruled on 5 December that there was no need for an immediate review of the situation but Mr Justice Mitting, sitting last Thursday, said given the "economic risk" for companies there was a need for urgency.

DECC said it would be defending its position.

The Guardian reports FoE’s executive director, Andy Atkins:

"We're delighted the high court has given the go-ahead to our legal challenge. We believe government plans to abruptly slash solar subsidies are not only unfair, but illegal...These proposals have already had a disastrous impact on the solar industry - fledgling clean businesses have had the rug pulled from under their feet and a shadow hangs over thousands of jobs."

The government has argued that subsidies should be cut back because the price of solar equipment was falling rapidly and householders did not need such generous subsidies to convince them to put panels on their roofs to generate their own energy.

Similar subsidies are being cut in solar giant, Germany (which this year abandoned nuclear energy) and Spain following a huge decline in costs triggered mainly by low cost manufacturing competition from China.

However, look at what is now happening to the solar industry in Germany. The Guardian reports:

“Germany, which has been at the forefront of the European solar boom, has seen its local renewable companies badly hit. On Tuesday Berlin-based Solon, the first German solar company to list on the stock exchange, said it would file for insolvency while local market leader, SMA Solar, said last month it would lay off 1,000 temporary workers by the end of this year.”

Many people too are against the subsidy because they believe it comes at the expense of higher energy bills for everyone else.

The judicial review hearing is set for today and tomorrow.

UPDATE 20/12/11 
greenwise report that Sam Grodzinski QC, appearing for HomeSun Holdings Ltd, told the court, in a poetic moment, that Chris Huhne's plans to cut the FIT  for solar installations are like Macbeth as he plots to kill King Duncan: "If it were done when 'tis done, then 'twere well it were done quickly." (!)

Quoting the Scottish Play is generally not for the superstitious. 

UPDATE 4/1/12

The court found against the government. See my 2012 post Solar in Limbo as Government Appeals Lost FITs Case for an update.

Monday, 19 December 2011

Contracts with the Public Sector: Beware Ultra Vires

Private organisations and individuals can get caught out when entering into contracts with public bodies, such as local authorities or government organisations.

Public organisations are usually created by statute. If those organisations do something which goes beyond their statutory powers, then they are said to act ultra vires.

A recent case is a reminder of how a public sector organisation can claim a contract is not binding if the organisation has acted outside its powers.

In Charles Terence Estates Ltd –v- Cornwall Council [2011] EWHC 2542 (QB) a local authority was able to defend itself in litigation brought against it by a private company by claiming that, because the local authority has acted outside its powers when entering into the contract, the contract was not binding.

The case concerned two local authorities who had entered into a contract with a company to provide housing, which was let to the councils to provide homes for those in need.

I won’t go into all the details of this case, which concerned the rent payable by the councils under leases of the houses. The essential point is that the court decided the councils had breached their fiduciary duties to taxpayers to ensure that the expenditure was reasonable. 

And because the councils did not consider the proper rent payable, they acted outside their powers (ultra vires) so the leases were void and the company could not recover the unpaid rent from them. 

Basically, the councils were able to rely on their own unlawful acts to defeat the company’s claim.

This seems very unfair as it places the burden on one side of the deal to make sure the other side is acting lawfully so it can't escape its obligations, or profit from its own mistake.

So if you are entering into contracts with a public organisation, how can you make sure the contract will be binding? 

There is a certification process under the Local Government (Contracts) Act 1997 which provides some comfort for certain types of contract, which are deemed lawful, or intra vires.  It applies to contracts with local authorities that last for at least five years and are for the provision or making available of services for the purposes of, or in connection with, the discharge by the local authority of any of its functions. 

If a contract falls outside that protection, then you must check carefully that the public body is acting within its powers. That might entail taking advice from public law specialists familiar with the relevant statutory rules.

The public body may include in the contract a statement or warranty that it is acting within its powers, but that won’t be worth much if the whole contract is subsequently ruled invalid because the public body in fact acted ultra vires.

There could be a lot more contracts between the public and private sectors in the coming years, so we might see more cases like the one mentioned above.

Wednesday, 14 December 2011

S.H.O.P.P.I.N.G. – The Portas Review & Landlords

The Portas Review – An independent review into the future of our high streets – led by TV shops expert, Mary Portas, was released this week and has been widely reported and commented on elsewhere.

The section headed “Defining landlords’ roles and responsibilities” makes recommendations on how landlords can play their part in trying to revitalise the high street.

The Review wants to encourage what it calls a “contract of care” between landlords and their commercial tenants by promoting the adoption of the Code for Leasing Business Premises and supporting the use of lease structures other than upwards only rent reviews, especially for small businesses.

Anyone who has been involved in lease negotiations will know of their often adversarial, point-scoring nature. Portas wants to see a new relationship between landlords and business tenants:

 “...with landlords feeling like they have a stake in the success of their tenants’ business and a shared aspiration – essentially, supporting them to thrive.”

One way it suggests this might be achieved is by greater use of turnover-based rent reviews that give landlords a stake in the success of the tenant’s business.

The review also advocates monthly rather than quarterly rents.

“In today’s retail environment it is essential for landlords and retailers to understand each others’ needs inside out, and we have long supported the use of the Leasing Code. In reality however, only a fraction of new leases are signed with upwards only rent reviews. In fact with average lease lengths now at under six years, very few have any kind of rent review at all.”

Where the BPF and Portas disagree is on the issue of empty properties.

Portas sees one of the big problems of the high street is the ownership of property by a diverse set of landlords, from private holders to overseas investors, large corporations, and banks.

“Sometimes, these landlords are ‘absent’ and frankly have no interest in or knowledge of local needs. They would rather leave a unit empty for years than consider discounting its rent. This has led to the high vacancy rates we see today, but also the dog-eared and down-at-heel buildings that blight the character of our high streets.”

The Review favours a stick rather than a carrot solution to this problem and wants to explore further disincentives to landlords leaving units vacant, such as:

·         Removal of empty property rate relief unless the landlord is actively investing in the property.
·         Financial penalties for landlords with a large portion of their portfolio left vacant.
·         Educate landlords on their responsibility to maintain and promote their units.
·         Use the Community Right to Buy in the Localism Act to force banks to sell properties they can’t actively manage.
·         Give local authorities more scope to use Compulsory Purchase and Empty Shop Management Orders where landlords are deemed “negligent”.
·         Introduce a public register of high street landlords.

Pretty radical stuff some of this.

It flies in the face of the BPF’s campaign to abolish empty property rates. Here’s Liz Peace again:

 “Policy on empty shops has become muddled and fails to differentiate between owners who can’t or won’t bring a property back into use. No landlord would deliberately leave a property empty – the government’s existing, damaging tax on empty shops means it makes no economic sense and simply sucks investment from high streets. ESMOs therefore need to be carefully constructed so they only affect those that won’t bring an empty back into use, and not those that can’t.”

The Guardian gives a snapshot of other, more general, expert reaction to the Review.

More alarming is this report from the Telegraph that one of the UK's largest property companies has drawn up a confidential list of struggling retailers amid fears that more than 5,500 shops in Britain could be handed back to landlords or closed within months.

The bigger picture, beyond legal structures, remains what do people want from their high streets in an age of internet and out-of-town shopping?

Answers on a postcard bought while browsing in your friendly local independent bookshop please.

Tuesday, 13 December 2011

Battersea Power Station: White Elephant & Flying Pigs

Battersea Power Station is once again the graveyard of broken dreams.

The Guardian reports the 40-acre site in south west London, valued at £500m in October, will be put up for sale after a high court judge placed four subsidiaries of Battersea's holding company into administration on Monday. They failed to repay £324m of debt owed to Lloyds Banking Group and Ireland's National Management Asset Agency. The holding company’s owner is the Irish property firm, Real Estate Opportunities.

Administrators Ernst & Young have taken control of the Grade II* listed red-brick building. Built in the 1930s and decommissioned in 1983, it’s the largest brick building in Europe.

Last year REO won planning permission for a £5.5bn redevelopment that would have created 3,400 homes and 15,000 jobs, but it struggled to come up with investment.

The Guardian says this could trigger a bidding war.

However, the Battersea Power Station Community Group, which had opposed the Irish company's plans, called for the power station to be returned to the public sector, with repairs to be funded by the Heritage Lottery Fund.

When you look at the success of the former Bankside power station, now the Tate Modern, it’s a persuasive argument.

The building is in a very poor condition though, and is on English Heritage’s Building’s at Risk register.

There have been so many false dawns over the years for this great structure that Pink Floyd were being more prescient than they probably realised when they featured a pig flying over it on the cover of their 1977 album, Animals.

So were the Beatles when they featured the building in their 1965 movie, Help.

Debt Balloon Slowly Deflates, But Refinancing a Challenge

The property industry faces a debt refinancing challenge in spite of debt held against UK commercial property falling again during the first half of 2011.

The UK Commercial Property Lending Market mid-year report by De Montfort University was published at the end of last week and (as an alternative to forking out £420 for a copy of the report!) here is a headline summary from the British Property Federation (BPF).

The report reveals that the value of outstanding, on-balance-sheet debt fell from £208.4bn to £201.3bn in the six months to June 2011, a reduction of 3.4%.

However, the bad news is that around a half of this debt, in a range of £85bn-£114bn, could not be refinanced on current market terms and that one quarter was secured on a loan-to-value ratio of more than 100%.

The deepening Eurozone crisis and the lack of growth in the UK economy has exacerbated the ongoing lack of liquidity and increasing costs of capital in the property lending market.

The BPF is keen to encourage new debt buyers into the market and advocates the reform of the real estate investment trust regime to allow the creation of mortgage REITs.

The wider paradox remains though that, in an age of unprecedented low interest rates, companies (and individuals) are reducing, not increasing, debt.

The world of economics has turned upside down.

Friday, 9 December 2011

Leases: How to Avoid the “Term” Trap

Don’t get caught out by sloppy drafting when it comes to defining the term of a lease.

By “term” I mean the duration of the lease.

If it’s unclear how long the term is to last, the lease will be void for uncertainty where it is granted to a company or organisation.

If the lease was granted to an individual, the court might turn it into a tenancy for life at common law.

That’s what happened in the recent case Berrisford v Mexfield Housing Co-operative Ltd (Rev 1) (2011).

An occupancy agreement between a housing association and one of its members was expressed to be "from month to month until determined". The methods of termination were unclear so the agreement was not capable of being a tenancy. As a result, it was treated as a tenancy for life at common law taking effect under legislation as a 90 year lease determinable either on the tenant's death or in accordance with its express provisions (which gave the tenant the right to terminate it, but only allowed the landlord to do so in certain situations.)

That is not an outcome which either party had intended.

Another way you can get caught out by careless drafting is when you want to exclude the lease from the security of tenure provisions of the Landlord and Tenant Act 1954, which give business tenants rights to renew their lease at the end of the term.

A lease of business premises can only be excluded from security of tenure when it has been granted for a term certain.

So make sure that is what the definition of “term” says (for example “commencing on 1 December 2011 and ending on 30 November 2012”). Avoid any words which include any extension to that term, for example “and any agreed or statutory continuation or renewal of this lease”, either in the definition of “term” or anywhere else in the lease.

In the old days (when all of this was fields etc) you had to get a court order before completion to exclude a lease from security of tenure, and the eagle-eyed court clerks would usually reject the application if they saw any words that purported to extend the term beyond the contractual expiry date. Hugely annoying if you had forgotten to strike out the offending words (and likely to provoke much use anglo-saxon from irate clients), but at least it gave you the chance to get it right before completion.

Those court orders were abolished nearly 10 years ago. Now, to exclude a lease, the landlord just has to serve a notice, which must be acknowledged before completion by a declaration from the tenant. If you get the drafting wrong there is no court clerk to tell you and you run the risk of granting security of tenure when you didn’t mean to.

The consequences of getting it wrong now are likely to be more serious that a bit of verbals.

Wednesday, 7 December 2011

The Great British Property Scandal

This week Channel 4 is highlighting the lack of affordable housing in Britain in The Great British Property Scandal, presented by George Clarke.

The “scandal” being that whilst there are some 2 million families desperately in need of affordable homes, there are 1 million properties lying empty; 350,000 of them – equivalent to a city the size of Leeds - on a long term basis.

This is the legacy of failed housing policies stretching back over 30 years.

The gravity of the situation revealed by the statistics is starkly clear; what to do about it perhaps less so.

We need to try and bring these empty properties back into use, but with little government funding available, the programme suggests the establishment of a cheap loan bank to be accessible by people willing to refurbish empty, run-down old properties in order to rent them at affordable rates.

There was also a suggestion in the programme that people should be able to claim homes that had lain empty for over two years, but no detail. 

Could such schemes tackle this problem on the grand scale needed?

Or is the only way of really providing affordable homes in the numbers required a return to full-scale nationalised council housing (which isn’t going to happen)?

Whilst they may not have all the answers, the programme makers are running a good campaign to bring this issue to a wider audience and I wish them well; if you want to support the campaign go to their website, where they also tell you how you can report empty properties in your area.

There have been some encouraging noises from the Housing Minister (he even signed the petition!). 

Let's hope there's some action.

Photo by underclassrising via Flickr

Tuesday, 6 December 2011

Your Tenant Stops Paying - Time For a Heart to Heart?

“We’re all in this together.”


How might that work in a landlord and tenant context?

My previous post – What Can You Do if Your Tenant Stops Paying or Goes Bust? – looked at the various legal remedies available to a landlord if its tenant stops paying the rent; either when the tenant is solvent or when it is insolvent.

I prefaced my remarks with “if you can’t reach an amicable solution” and, following some comments I have received on the post, I thought I’d look at some ways in which it might be possible for an amicable solution to be reached to help you keep your tenant and an income stream.

What you might be willing to offer will depend on your evaluation of the tenant’s financial situation.

Some possible concessions

·         Accept the rent monthly rather than quarterly. This often helps tenants manage their cash flow better and avoids the dreaded quarter day, which has forced so many retail tenants, in particular, into insolvency. Having said that, you could argue there’s nothing to stop tenants setting up their own account into which they make monthly payments and from which they could then pay the rent to the landlord quarterly.

·         Suspend the rent temporarily, to start collecting it again at a later date. This could be either a rent holiday or a rent deferral depending on the circumstances. If it is a rent holiday, you are basically letting the tenant off paying the rent for a particular period. If it is a deferral, you would be postponing the right to collect the rent until a later date, when it would be added to the ongoing rental liability. Circumstances will dictate how realistic a proposal this is, and the likelihood of the tenant ever being able to pay again.

·         Reduce the rent. Perhaps the current rent was set during the boom years and it might make financial sense for you to receive a lesser amount rather than nothing at all.

·         Defer a rent review or forego it altogether; or following a review, implement it by stepped increases rather than all at once.

·         Spread the cost of extraordinary items forming part of the service charge over as long a period as realistically possible and adhere to the principles set out in the new RICS Service Charge Code.

·         If your property is mortgaged, discuss with the mortgagee whether there are ways of helping the tenant which they would be willing to accept. They might have other ideas of their own, as it may well be in the bank’s interest to try and keep a tenant in the property.

“What’s in it for me?”

That’s a fair question. After all, you are not obliged to agree anything (although commercially it might make sense to do so). It’s a negotiation, so there may be a quid pro quo.

Perhaps the tenant will agree to give up a break clause, for example, or even extend the term. That might sound bonkers where the tenant is in difficulty, but it will test their long term view of their business.

Is the tenant able to offer any additional security in return for a reduced rent? A rent deposit is not going to be a likely option if the tenant is genuinely in financial difficulty, but they might be able to offer a guarantor.

How are concessions documented?

If it’s a simple matter, such as payment of rent monthly rather than quarterly, you might be able to do this by just entering into a straightforward side letter. The benefit of the letter should be made personal to the current tenant, so if the tenant assigns its lease to someone else, rent would be payable quarterly again unless a similar letter were given to the new tenant.

Other, more complex, concessions might require a more formal concession agreement, which again would make personal concessions to the current tenant, but would not vary the lease permanently for future tenants. You might also want to make the concessions conditional on the tenant complying with all its other obligations in the lease, so the concession can be withdrawn if it doesn’t.

As a landlord you are unlikely to want to vary the lease permanently (unless the tenant is giving up a break right), as what you are dealing with are concessions made to a particular tenant to reflect a particular set of circumstances. You will probably want anyone taking an assignment of the lease in future to adhere to the terms of the original lease.

The negotiations

Before entering into any discussions you should take advice on how best to handle any negotiations and ultimately how to document any concessions, because it is vital to avoid inadvertently waiving the right to collect any unpaid rent or any breaches of the tenant’s covenants.

You should make it clear from the outset that all discussions are on a “without prejudice” basis and are subject to entering into a side letter or concession agreement on satisfactory terms.

Of course if it turns out the tenant is simply stalling for time or negotiating in bad faith, you might ultimately have to resort to the remedies I discussed in my previous post.

The bigger picture

The case for considering concessions can seem compelling, but there is always a different view, especially when looking at the bigger picture of property investment.

Back in June in my post – Is it Time to Scrap Quarterly Rent Payments? – I noted the caution being expressed by the British Property Federation (BPF). The BPF’s director of policy Ian Fletcher was quoted in the Guardian:

"Landlords have been very flexible during the recession and saved some significant retailers from insolvency as a result...Concessions on existing leases ultimately have a cost to someone, in this case pensioners' savings in property. That is why our members feel it is better to offer help to those in need, rather than healthy businesses trying to exploit an opportunity to change their terms of trade."

However, landlords are usually pragmatic enough to accept that getting some of the money they are owed and having the property occupied is better that getting nothing and having an empty property (which soon becomes a liability because of ballooning business rates).

If concessions are given at all, they are happening on a case-by-case basis, rather than there being a wholesale change in the investment model.

Friday, 2 December 2011

What Can You Do if Your Tenant Stops Paying or Goes Bust?

These are hard times, and the light at the end of the tunnel seems to be getting dimmer and further away.

If you’re a landlord, what can you do if your tenant stops paying the rent or even goes bust?

If your tenant is still solvent but stops paying the rent (maybe it has a cash flow problem for example), most leases will give you the following options (if you can’t reach an amicable solution - and for more on that see my later post - Time For a Heart to Heart?):

·         Forfeit the lease. There’s not much point in doing this straight away unless you have someone else lined up to take the premises; after all you don’t want to end up paying empty rates. It’ll give you the premises back but it won’t give you the money you are owed. Of course, if the situation cannot be resolved, you might have to resort to this eventually, either by going to court or by “peaceable re-entry”.

·         Levy “distress” against your tenant’s goods. This is a self-help remedy that allows you (or more likely a certificated bailiff acting on your behalf) to enter the premises and seize your tenant’s goods without any legal process whatsoever, provided some  basic conditions are satisfied, and retain them until the rent arrears are paid or the seized goods are sold to off-set the rent arrears. Even the bailiff’s statutory fees are payable by the tenant. For more details here’s a post I wrote earlier this year.

·         Sue your tenant for the unpaid rent. This will only be worth doing if you think the tenant actually has the money. Or you could present the tenant with a statutory demand or winding up petition to persuade the tenant to pay or run the risk of being wound up.

You might be able to call on additional security given by your tenant when the lease was granted, such as a rent deposit or guarantee, or pursue former tenants under original tenant liability (if the lease is pre 1996) or under an authorised guarantee agreement.

What if your tenant has gone bust?

Here it gets more complicated and your advisors will need to look at the options with you carefully.

Generally speaking, the insolvency rules will often stop you taking action without the permission of the court or the consent of the insolvency practitioner.

Depending on what type of insolvency it is, you may find yourself dealing with a receiver, an administrator, a liquidator or a trustee in bankruptcy. There are different rules for each type.

Most leases will give you the right to forfeit the lease if your tenant is insolvent, but how much freedom you have to do so will be governed by the insolvency rules, again depending on what type of insolvency it is.

Perhaps your tenant has a guarantor.

Good news if the guarantor has some money; however, a recent case has shown you can’t always assume a guarantor will be dependable.

Did the guarantor clearly understand the implications (and risks) of a guarantee?

In Beardsley Theobalds Retirement Benefit Scheme v Yardley [2011] EWHC 1380 a director misled the landlord into believing that a former director of the tenant company remained on the board and was prepared to give a guarantee. The former director apparently signed the guarantee without a clear understanding of what it entailed.

The court decided that since the landlord knew of the tenant’s financial difficulties, it was only entitled to rely upon the guarantee where it had satisfied the following:

·         that the guarantor had provided the guarantee willingly;
·         an acknowledgement had been obtained from the guarantor that it had agreed to act as guarantor; and
·         it had evidence the guarantor understood the risks associated with entering into the guarantee.

These tests hadn’t been satisfied and so the Landlord wasn’t entitled to enforce the guarantee.

Take care when accepting guarantees.

Of course, the grimness of the age means it’s not just tenants who are biting the dust; landlords are too.

That’s something I looked at earlier in the year in my post What Happens if Your Landlord Goes Bust?