Landlord wins appeal over money owed by insolvent tenant

A landlord company has won its appeal to be paid money owed by a commercial tenant which had gone into administration before completing the surrender of its lease.

The case involved a retail group that leased several properties.  It got into financial difficulty and began proceedings to surrender the leases.

Money was held in escrow – the system in which a firm’s money or assets are held by a third party to be paid out to another company once certain conditions have been fulfilled. In this case, the escrow money would be payable to the landlord once the surrender of the lease was complete.

However, before the surrender took place, the retailer went into administration. The administrators refused to complete the surrender of the lease or pay the money owed because they felt to do so would be to the detriment of other creditors.

The landlord claimed that the escrow money was no longer a part of the retailer’s assets because it was due to be paid once the surrender of the lease had been completed.

The High Court ruled in favour of the administrators stating that the landlord was only entitled to the escrow money once the surrender of the lease had been completed, which it hadn’t.

However, the landlord won the case in the Court of Appeal. It ruled that the landlord had followed the correct procedure in serving notice for the surrender of the lease and was not responsible for the retailer going into administration.

As the escrow money was intended to be paid to the landlord before the retailer went into administration, it could not be included in the retailer’s total assets.

It would promote the interests of creditors over that of the interests of landlords when there is no sound reason to do so.

Please contact Matthew Melling if you would like more information about the issues raised in this article.