As the recession claims more business victims, landlords should beware of falling prey to a sudden loss of income on their properties.

That’s the advice of Adams and Remers who say that, under the Insolvency Act 1986, a Liquidator of a company in liquidation is entitled to disclaim ‘onerous property’ such as a lease. Once effective, the disclaimer puts an end to the failed company’s liability for that property. “As the economic gloom deepens, an increasing number of firms are going into liquidation, either on a voluntary or compulsory basis,” says Darren Stone, insolvency solicitor at Adams and Remers. “Alongside this, we are seeing a growing number of disclaimers being issued by Liquidators enabling the liquidated company to walk away from a property with no future liability.”

According to Adams and Remers, a possible recourse for landlords facing a disclaimed property would be to claim for their loss as an unsecured creditor in the Liquidation. “But,” says Darren Stone, “it’s fair to say that landlords are then lining up with other unsecured creditors and may receive little by way of a dividend payment.”

Landlords may find that they are able to recover by claiming against third parties who may have a liability. These can include a guarantor for the insolvent tenant, the original tenant where the original tenant is not the insolvent tenant, any tenant between the original tenant and the insolvent tenant, the guarantor for the original tenant or subsequent tenant, a subtenant or a mortgagee.

“As the law currently stands, the right to disclaim an onerous property like a lease is very heavily weighted in favour of the Liquidator,” says Darren Stone. “But landlords can overcome at least some of the risks involved by taking sound legal advice before they grant a new lease and should take advice immediately when a current tenant becomes insolvent.”

To find out more about steps landlords can take to protect their leaseholds, contact Darren and his team.

This article first appeared in Estate Agency Times, March 2009.