Commercial property and insolvency experts are predicting that this years first quarter rent deadline could produce a rash of insolvencies.

Neil Harrold, a licensed insolvency practitioner and partner at Newcastle based Hay & Kilner Solicitors, believes the deadline may have been a busy day for insolvency practitioners.

"The last 6 months has seen the largest downturn in the global economy for more than a generation" said Harrold.

"The time around the last rent quarter day in December saw the demise of many retailers, including Woolworths and Zavvi. Since that time conditions have worsened across virtually all sectors of the economy and for many businesses today's rent quarter day could be the straw that breaks the camel's back."

Nicola Tiffen, Commercial Property partner at Hay & Kilner, urges both landlords and tenants to assess their options calmly:

"It is in the interests of both landlord and tenant to discuss any problems openly so that trust may be maintained. A landlord faced with a struggling tenant may still be prepared to agree a temporary concession, such as allowing rent to be paid monthly rather than quarterly. Forcing the tenant out of business in the current economic climate may well leave the landlord with no rental income at all, as well as a hefty liability for empty business property rates."

If the tenant goes into a formal insolvency procedure, such as administration or proposes a company voluntary arrangement (CVA), then professional advice should be taken immediately, as this is likely to affect the landlord's rights, including the ability to forfeit the lease or to levy distress, even if the landlord has not consented to any variations in the lease conditions. It is important to note that administration creates a statutory moratorium on creditors enforcing their rights without the consent of the administrator or the permission of the Court. On a worst case scenario a creditor who acts in breach of the moratorium could be held in contempt of Court and imprisoned or fined.

Harrold recommends that a landlord who is confronted with a tenant in administration should act quickly to establish a dialogue with the administrator as to the plans for the insolvent tenant, including whether ongoing trading is planned and whether there is a potential purchaser for the business, either under a "pre-pack" administration or otherwise.

"Finding out whether any further occupation is going to be temporary or long-term will assist the landlord in planning for the future, including the strategy it should take in negotiating with a purchaser of the business who may want to take on the premises.

"The golden rule is that each case should be judged on its own merits. That includes checking the lease to see if any other parties, such as a predecessor tenant or guarantor, can be held responsible for payment of the rent and whether recourse can be had to a rent deposit. The landlord should also consider the likely timescale for re-letting the property and whether it would still attract the same rent as at present."

Neil Harrold can be contacted at Hay & Kilner Solicitors on 0191 232 8345 or email neil.harrold@hay-kilner.co.uk

Nicola Tiffen can be contacted at Hay & Kilner Solicitors on 0191 232 8345 or email nicola.tiffen@hay-kilner.co.uk

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