Nowadays we are becoming ever more familiar with the sight of empty units in our high streets and shopping centres, but have we ever considered the impacts this has on the landlords who previously rented the units out?
Considering we are only half way through the year we have already seen 1,200 high street shops being forced to close, including, Past Times, Game, La Senza and Peacocks. Next on the cards looks to be Clinton’s, pardon the pun.
Pre-Pack
Although there is no official insolvency arrangements it is very possible that a “pre-pack” has already been arranged. This is a form of administration that means the most profitable parts of the company are sold and are normally arranged before administration actually occurs. This means that all that is left of the business are the “unprofitable” stores which are usually disclaimed once the company has gone into liquidation.
This unfortunately means that landlords cannot forfeit or terminate leases because there is a law that protects tenants that are insolvent. Landlords cannot even sue for rent arrears because the law means the tenants have an authorized period of delay of payment.
This of course, leaves landlords very vulnerable especially in this economic climate and even more so as pre-packs have no compulsory notification action prior to it happening. However, there are a number of ways in which landlords can protect themselves from these pre-packs and make sure they still get the money that is owed to them.
Protection
One of these remedies is to take early action when it comes to rent arrears. This means that rent can be claimed before the moratorium (authorised time in which the payment is delayed) comes into play.
Another good way of ensuring protection is through a deposit. This means if a tenant breaches contract (non-payment) the landlord can take the rent owed from the deposit. Landlords can also protect themselves by pre –planning and this includes having a good landlord insurance policy to fall back on.
Steve Gill who is from the Evershed’s Nottingham real estate team has said, “Landlords must ensure they obtain a healthy rent deposit and guarantee covenant, whilst ensuring that the drafting of the rent deposit deed and any guarantee provisions are worded correctly.”
Landlords of commercial properties need to be aware of early signs the business operating in their property is in administration. Some of these signs are, missed rent payments, poor trading figures and request for concessionary rent payments.