15th January 2020

Dilapidations Week: Insolvency and dilapidations

Insolvency will continue to be a concern in 2020, with few sectors left unscathed. With ongoing and new tenant administrations expected, it will be important for landlords to fully understand the legal rights and remedies available to them.

It’s often assumed that dilapidations cannot be claimed (or recovered) in full when a business goes into administration.

In fact, where a disrepair arises as a result of the decisions or actions of the administrators, (for example removing assets to sell them), the repair costs can potentially be claimed as an “expense of the administration”. This means these costs could be paid before the administrators are paid themselves.

What can landlords (and surveyors) do?

Landlords will often not know about the administration until it has happened. With an inability to enforce any rights under any lease, they may suffer the actions of the administrators; including the installation of a new tenant, and potentially the prospect of the lease being assigned to that newly installed tenant.

Considering this interference with the landlords’ rights, and that administrations do not tend to conclude quickly (Patisserie Valerie’s lasted nine months and Jack Wills’ began in August 2019 and is ongoing at the time of writing), it is important for landlords to record the condition of the property as soon as they are informed that administrators have been appointed. The exercise should be repeated when rights are granted to a third party (usually under license to occupy) and again when the lease and/or administration ends.

What about using deposits to settle dilapidations/rent?

Cash flow is important, so you may want to draw on the deposit in the first instance. Tactically, however, it can be better to wait, since administrators must pay the rent if they retain the property, and may face liability for repairs. If you can wait, it might be worth doing so.

Administrators are not required to “top up” any deposit during the administration (as shown in the case of London Bridge Entertainment Partners (LLP) 2019). By waiting, you can maximise your return.

To discuss your insolvency related queries, please get in touch with a member of Thrings’ Insolvency team. Our wider Property Litigation team is on hand to help with other property related disputes.

Related Articles