Just Letting
Tenant
insolvency
If properties are sub-let, the lease can be cancelled if the
tenant declares insolvency
T
here are cases that differ from commercial
property management to residential letting,
in that there tends to be more sub-leases in
commercial property than in residential rentals.
It often happens that one company will rent
a whole building and then sub-let portions of the
space they have signed for. It must be remembered
in these cases that the entity responsible for the rent
is the company that signed the original lease with
the landlord.
But what happens in cases where the company
holding the lease goes bankrupt?
Most commercial leases will be held by a juristic
person (a company or a close corporation). If the
company were to go under, the liquidator steps in
and performs the duties of the tenant, and must
collect rent from sub-lets as well as paying rental to
the landlord.
If the business going under applies for business
rescue, then they will be protected and have time to
unwind to sort out their financial problems. This can
include cancelling the lease.
What many landlords don’t realise is that, if the
liquidator cancels the lease, the landlord joins the line
of creditors with concurrent claims against the first
tenant for the loss in rent. However, if the lease stays
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Issue 7 2015
in place, then all rights and obligations regarding that
lease, and the insolvent tenant stay in place.
Furthermore, the landlord cannot force the
liquidator to fulfil the contractual obligations of the
lease, such as paying the rent or maintaining the
property.
“The landlord cannot force
the liquidator to fulfil the
contractual obligations of the
lease, such as paying the rent
or maintaining the property.”
It makes sense then that the liquidator will cancel
the lease, as this reduces the burden on the liquidator
to get payments out to the creditors.
The sub-tenant does not have any more rights
to the property than the tenant and in cases where
the main tenant is declared insolvent, the lease can
be cancelled with no repercussions on either the
landlord or liquidator’s part. Once the main lease is
cancelled, so too, is the sub-tenant’s lease.
Just Property Magazine