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THE IMPLICATIONS OF DISCLAIMER
General implications of disclaimer
for a landlord
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| Implications of disclaimer on a subtenant |
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| Vesting Orders |
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"Disclaimer"
- A procedure by which a liquidator or trustee-in-bankruptcy,
in winding-up an insolvent estate, can divest the
estate of certain continuing obligations. It is
not available to receivers or administrators.
- It applies to "onerous property", namely
any unprofitable contract or other property which
is unsaleable or not readily saleable or which may
give rise to liability to pay money or do onerous
acts. This will include most leases, depending on
the particular circumstances.
- A disclaimer must disclaim the whole of an interest.
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General implications of disclaimer for a landlord
A disclaimer terminates the rights, interests and liabilities
of the debtor in relation to the property disclaimed as from
the date of disclaimer. A person sustaining loss as a consequence
of the disclaimer may claim for such loss in the bankruptcy
or liquidation.
Disclaimer of a lease ends the tenant's right to remain in
the premises and the landlord may (but is not obliged to)
retake possession by way of mitigation of loss. If the landlord
does demand possession and re-enter this will affect his rights
against others including, for example, any former tenant,
guarantor or subtenant. A landlord in these circumstances
must therefore act cautiously to preserve his rights against
other parties.
Implications of disclaimer on a subtenant
Whilst the tenant's interest in the premises is ended
by the disclaimer, this does not affect the interests of other
parties, including subtenants. A subtenant's interest continues
and, if it occupies the premises for business purposes, it
could be entitled to claim the protection of the Landlord
and Tenant Act 1954 against the landlord.
Case law suggests that, following disclaimer of the tenant's
lease, the subtenant holds the premises on the same terms
and subject to the same rights and obligations as would be
applicable if the tenant's interest had continued, although
the exact interaction between the headlease and sublease terms
is unclear.
If the subtenant is reluctant to comply with the headlease
covenants, the landlord may wish to take enforcement steps
against the subtenant. It is not open to a subtenant to walk
away (if the landlord does not forfeit), but it is unclear
whether the landlord can directly enforce all of the covenants
in the sublease.
Of course, once the situation arises, a landlord should try
to negotiate with its subtenant to try to agree arrangements
to regularise the relationship, possibly through the grant
of a new lease.
Vesting Orders
If a lawful (i.e. authorised) subtenant wishes to remain
in occupation of premises, it should comply with the obligations
of the disclaimed lease and it can apply for that lease to
be vested in it. Other parties can also apply for a vesting
order, such as a mortgagee. In that event, the Court has discretion
as to whom the vesting order should be granted, although a
subtenant or mortgagee will generally be preferred, followed
by a guarantor or former tenant and finally the landlord.
For further information or advice please contact propertylitigation@charlesrussell.co.uk
These notes represent only an outline summary
of relevant principles and detailed advice should always be
sought in particular cases.
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