PCI knows insolvency – november 2019
Nov 15 2019
Landlord’s Rights
Are you, or any of your clients, a landlord that has had a corporate tenant enter into external administration?
How much is a landlord able to claim?
Subject to the terms of the lease, if the lease is terminated by the landlord, they may only claim in the external administration for the unpaid rent up to the date of termination.
However, if the tenant terminates or the liquidator of the tenant disclaims the lease, the landlord may claim outstanding rent payable and seek to claim lost future rent until the expiry of the lease as a contingent liability.
The sum will be contingent on the landlord finding a new tenant during the length of the lease subject to its terms.
Security Bonds
It is common for tenants to be required to pay the landlord a security bond or have a bank guarantee/deposit in place that covers such a bond. This is usual practice to ensure that the landlord is protected in the event of a tenant’s default or make good issues by the tenant.
In the event of an external administrator being appointed, any security bond is an asset of the company which may be recovered. However, ordinarily, the landlord would make a claim against the bond for the make good of a premises or outstanding rent.
Where there is a shortfall to the landlord from the bond, the landlord may claim the balance as an unsecured debt unless it has a security interest registered on the Personal Property Securities Register in respect of any other company asset.
In most circumstances where a bank guarantee is provided to a landlord, the tenant takes a loan with a bank for the same value as the monies deposited in a bank account securing against a potential claim, together with a personal guarantee given by the director.
Consequently, should there be any claim by the landlord to the bank guarantee the funds in the bank account would be used to repay the loan to the bank.
Voluntary Administration
In the case of Voluntary Administrations that occur pursuant to the provisions in Part 5.3A of the Corporations Act 2001, a landlord is not able to charge the Administrator for rent for five (5) business days during a moratorium period.
However, the company continues to incur the liability for unpaid rent for the moratorium period.
Thereafter, the Administrator is required to pay rent pursuant to the terms of the lease or at a negotiated rate with the landlord until their occupation of the premises is complete.
Further, landlords are not permitted to take possession of property until one of the following occurs:
- a Deed of Company Arrangement is executed; or
- an appointment of a Liquidator by creditor resolution or court; or
- the Administration comes to an end and control is returned to the directors; or
- a Court has determined otherwise.
Court or Creditors’ Voluntary Liquidation
A Liquidator may negotiate a rental amount during the period he is in effective control of the premises. If a Liquidator has completed their occupation of the company’s premises, the Liquidator may disclaim the lease and the landlord may claim in the liquidation for pre appointment outstanding rent and future loss of rent under the lease terms. There is no moratorium period for liquidations.
In the event the tenant has no outstanding rent to the landlord, the landlord may issue a notice pursuant to the relevant Australian States’ legislation to the tenant before taking control of the premises.
Should there be arrears of rent, the landlord may take control of the premises, subject to the terms of the lease and whether a specific amount of time has passed, being 1 to 3 months, which varies from state to state.
All material contained in this newsletter is written by way of general comment. No material should be accepted as authoritative advice and any reader wishing to act upon the material should first contact our office for properly considered professional advice which will consider your own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein. Liability limited by a Scheme approved under Professional Standards Legislation.