Tenant default and insolvency

Transcription

1 Tenant default and insolvency Issues for the Landlord Kevin Murphy Chantrey Vellacott DFK Rebecca Ebdon BrookStreet des Roches LLP 25 March 2009

2 Contents 1. Introduction Finding out that your tenant has financial difficulties Corporate insolvency: an overview Administration Pre-pack business sale Administration trading Close down and wind up CVAs Receivership Liquidation Landlord s notice of a tenant s insolvency Getting the rent paid The usual options Court proceedings for recovery Statutory demands and winding up Distress Rent diversion from subtenants Rent deposit Guarantee Claim against former tenants and their guarantors The effect of corporate insolvency Administration CVAs Receivership Liquidation Getting rid of the tenant Is it really the best option? Cost of getting the tenant out Direct costs of empty properties: empty property rates Indirect consequences of empty properties The usual option: forfeiture Standard provisions Procedure Waiver Relief Use of other remedies The effect of corporate insolvency Administration CVAs Receivership Liquidation Lease disclaimer Landlord s notice to elect Practical effect of a disclaimer: former tenants and guarantors The position of subtenants Vesting orders Surrenders Other issues in a difficult market A tenants market : using the Lease Code Length of term and break clauses Rent and rent reviews Other clauses Leasing companies Landlord s distraint Trespass Conclusion... 19

3 Tenant default and insolvency: issues for the landlord 1. Introduction In the current market, with property values falling, it is more important than ever that the rental income stream is persevered. If this income stops, because the tenant can no longer pay, the consequences for a landlord relying on this income can be catastrophic. However, the reality is that more and more tenants are becoming insolvent, so for many landlords it is becoming a case of damage limitation. Landlords need to be aware of the options which are open to them when a tenant stops paying, so that they can mitigate their position and reduce their losses as far as possible. It is also important that tenants are aware of the landlord s options so that they can anticipate the steps their landlord may take and try to reach a negotiated arrangement before their position becomes irrecoverable. The purpose of this seminar is, therefore, to look at the remedies which are usually available to a landlord when his corporate tenant defaults, and to consider how different types of corporate insolvency will affect the availability of each of these remedies. We will start with a practical look at the early action that a landlord and tenant can take to try and mitigate a tenant s financial difficulties. We ll then give a brief overview of the four different types of corporate insolvency, to ensure that you know what their purpose is, how the landlord will find out about the insolvency and who the landlord may be dealing with in place of the tenant. We will then move on to the all important question of whether and how the landlord can actually get the rent paid if the tenant stops paying: we will begin by describing the landlord s usual recovery options and the advantages and disadvantages of each of these before talking about how these remedies are limited when your tenant is insolvent. The other key issue for the landlord of an insolvent tenant is whether he can terminate the lease and get the tenant out of the property. We will explain how forfeiture works and when this is available, again followed by a summary as to how corporate insolvency limits this remedy. We will also look at a liquidator s right to disclaim a lease and consider how this can be used to the landlord s advantage, and what practical steps a landlord should take to ensure that he does not jeopardise his other recovery options. Finally, we will conclude with a brief look at some of the other issues that landlords may face in a difficult market, after which there will time for questions. 2. Finding out that your tenant has financial difficulties In an ideal world, a landlord will find out that his tenant has financial difficulties before the tenant actually becomes insolvent. Landlords are not finding it easy to relet at the moment, so unless they know that they have plenty of other tenants who would be happy to take the property they would be advised to hold on to their current tenant, even if this means making some concessions. An empty property comes with its own problems, as we ll be looking at later when we consider how to get the tenant out. If a tenant is having cash flow problems it may simply require a change in the payment pattern: so a tenant who is currently paying quarterly in advance may be able to continue trading if it is able to pay monthly in advance. Another tenant may need a few months at a reduced rent, or may need to delay one or more of its payments. All of these options are generally better for a landlord than having no tenant at all. Furthermore this may be a good opportunity for the landlord to renegotiate other terms of the lease that he is not happy with, or to finalise outstanding rent reviews. For example, he may agree to make rent concessions but only if a tenant s break right is removed. The key is openness at an early stage: tenants will often find that their landlord is prepared to negotiate if they approach him and make their position clear and show a willingness to provide financial information so that their landlord can see how their compromise proposal will actually work. This may make the difference between a few months where things are a bit tight, and the end of the tenant s business. -1-

4 However, the reality is that landlords do not always get this opportunity to try and reach a negotiated arrangement in order to mitigate their losses. For some tenants insolvency will hit suddenly (for example, with the loss of a major contract), others do not admit that they are having problems until it s too late, and others will become insolvent even if mitigating steps are taken. 3. Corporate insolvency: an overview It is important to have an understanding of the different types of insolvency and how each of them works, so that you know what you can and cannot do. As will become apparent during this seminar, you won t know what remedies can be used against an insolvent tenant until you know what type of insolvency it is in. The four types of insolvency that we will be looking at are: administration, CVAs, receivership and liquidation. 3.1 Administration This is a procedure that has become more widely used since the Enterprise Act, and has replaced administrative receivership as the most common rescue route. The process is commenced either by the company, its lenders or, in rare cases, by its creditors. The purpose of the process is to create a period of protection for the company, both before and during the appointment of an administrator, in order to allow the administrator to deal with the assets of the company in the most appropriate way. The period of protection is known as a moratorium and it restricts the action which can be taken against the company while it is in place. This moratorium commences at the filing of the first form or application in the process and continues until either the administration order is discharged or, in the event that an administrator is not appointed, ten days after the filing of the notice of intention to appoint administrators, or the dismissal by the Court of the administration application. Note that the administrator, a licensed insolvency practitioner, is accountable to the creditors of the company, to whom he owes his primary duties. Clearly there will be other influential relationships in most cases the administrator will have been chosen either by the directors, or the company s bankers, so will have their interests in mind too, but he remains ultimately responsible to all of the creditors, including the landlord. The process can be initiated immediately, by the filing of the Notice of Appointment of Administrators, or within ten working days of the filing of a Notice of Intention to Appoint Administrators. The filing of this latter notice begins the moratorium, perhaps whilst negotiations are ongoing or proposals are being formulated. Once the Notice of Appointment has been lodged the administration commences. In a small number of cases, including situations where a creditor applies for an administration order, this will be dealt with by the Court at a hearing rather than by filing forms. The application for an administration order is made on the basis that the appointment of an administrator is likely to achieve one of three statutory purposes: rescuing the company as a going concern achieving a better result for all of the creditors than would have been achieved by liquidation; or obtaining property for one or more preferential creditors. The first thing to note is that, other than in exceptional circumstances (or where the administration was commenced prior to the Enterprise Act), an administration order cannot last for more than 12 months. It is also worth noting that administration is an interim measure and will be followed by either the discharge of the administration order and the return of the company to good health (rare), a creditors voluntary arrangement ( CVA ), Liquidation, or dissolution and striking off. An administration is likely to go in one of three directions, generally linked to the statutory purpose for which the administrator was appointed. The three most common scenarios are: pre-pack business sale; administration trading and close down and wind up. The level of the landlord s involvement with the administration process will vary depending on the proposals that are put forward by the administrator, and the way in which the matter proceeds. -2-

5 3.1.1 Pre-pack business sale In this scenario a sale of the business has been agreed, most usually during the moratorium period prior to the appointment of an administrator, which will take effect immediately after appointment. In this case a landlord will find that either: his premises are key to the business going forward; they are not needed; or they are needed only for a short period and will then be vacated. Given the time constraints, it is unusual for the administrators to enter into any discussions with the landlord prior to concluding a sale. The sale may include a licence to the purchaser to occupy the premises pending either removal of the assets from the premises, pending a short period of occupation, or pending it obtaining landlord s licence to assign. In circumstances where a licence has not been granted, the first point to note is that case law supports the administrator allowing the purchaser of the business into occupation, despite it technically being in breach of the terms of the lease (which almost invariably it will be). The second point to note is that, again, technically, it would be for the administrator of the tenant to make the application to the landlord for licence to assign. In practice, if the administrator has disposed of the business, apart from any deferred consideration, he has no ongoing financial interest in the assignment of the lease so would leave it to the purchaser/occupier to negotiate direct Administration trading It is an increasingly rare event that administrators trade a business themselves when appointed. One of the main reasons for this is that due to the wide range of financing options available in this market, there are hardly ever circumstances where the business has sufficient funding to enable the administrators to trade. However, in larger retail administrations, such as Zavvi and Woolworths, bank funding did allow trading. In this scenario the landlord will be dealing with the administrators rather than a purchaser or third party. If the administrator wishes to trade from the premises then the rent due during the period of the administration will be an expense of the administration, and will be payable come what may, whether or not the administrator makes a trading profit. In the event that the administrator does not wish to use the premises, the rent accruing due will simply be an unsecured claim against the company, usually dealt with at the liquidation stage (see paragraph 3.4 below on liquidations) Close down and wind up In the event that the administrator is not able to complete a pre-pack sale, or trade the business and sell it, he or she will usually close down the business and dispose of its component assets. To the extent that the lease has any value, then the administrator is likely to engage the landlord and push for the swift disposal of the lease. If a disposal is achieved any outstanding rent, whether pre or post appointment, will generally be discharged to enable an assignment to be completed. In the event that a sale or assignment is not possible, then the administrator would normally handle the matter in the same way as if it were a liquidator, and propose a formal or informal surrender of the lease. 3.2 CVAs A CVA, or creditors voluntary arrangement, is a contract between a debtor company and its creditors, under a statutory scheme, whereby the company agrees terms for the repayment of accrued debts. The proposals for an arrangement could provide for any number of remedies for the company s problems. For instance, they could provide for no payments to be made to creditors for a short period, to allow for an asset to be sold and for the net proceeds to be divided between the creditors pro rata. Alternatively, the company could restructure, and agree to pay y,000 per month plus X% of net profits into an arrangement for a period of, say, 5 years, and the creditors agree to accept their pro rata share of that sum in full and final settlement of their claims against the company. There are a number of key points that you should be aware of: -3-

6 An arrangement will be binding on all creditors if it is approved by 75% of more in value of those attending and voting at the creditors meeting (whether in person or by proxy) provided that, on a second vote, there are not 50% or more of the creditors voting against the arrangement, when you discount the debts of any connected party. Once the arrangement is binding creditors cannot commence proceedings for the recovery of the debts that are or should have been included in the arrangement. A CVA is proposed by a company, assisted by the nominee, who is usually the proposed supervisor of the arrangement. Once approved, the supervisor will do just that: supervise. It will be a hand holding role with some overseeing, and any ongoing landlord and tenant discussions will be direct with the tenant. 3.3 Receivership There are two likely situations where a landlord will encounter a receiver : either when an administrative receiver is appointed or a Law of Property Act ( LPA ) receiver is appointed. Since the passing of the Enterprise Act, which amended the Insolvency Act to allow (amongst other things) the commencement of administration by the filing of notices, the circumstances in which an administrative receiver can be appointed are now rare. Where a company has granted a fixed and floating charge debenture to its bankers or other funders, and the charge is dated before 15 September 2003, then the lender can appoint an administrative receiver. The administrative receiver s role is to realise the charged assets for the benefit of the lender. You can therefore see that the primary duty is different from the administrator, who owes his duty to all creditors. The likely scenarios here are that either the administrative receiver will pre-pack or trade the business, or shut it down and dispose of the charged assets. However, in contrast to administration, he does not have the benefit of a moratorium. An LPA Receiver is again appointed by a charge holder. His role is relates solely to a particular charged property, and he has duties defined by the Law of Property Act, possibly amended by the terms of the charge under which he is appointed. His or her usual role is to either collect the rent from any tenant (subtenant if the premises are leasehold) or to dispose of the property (if the terms of his appointment allow). 3.4 Liquidation There are two forms of insolvent liquidation compulsory liquidation, or creditors voluntary liquidation. The consequences of both are to all intents and purposes the same. The appointment is for the purpose of winding up the affairs of the company and disposing of its assets. It is rare that a liquidator would trade a business. If there are leasehold premises then these will either be sold (subject to landlord s licence to assign) or be surrendered or disclaimed (there will be more on this later). The landlord s claim for rent would then simply be a claim in the liquidation, ranking equally with other creditors in the event that a dividend is paid. 3.5 Landlord s notice of a tenant s insolvency The point at which a landlord receives notice of an insolvency procedure will depend very much on the circumstances. In a liquidation the directors of the company prepare a list of the company s creditors for the liquidator and the creditor should receive notice of the convening of the meeting to wind up the company (voluntary liquidation) or notice from the Official Receiver that it has been wound up (compulsory liquidation). This is, however, reliant upon the directors including the landlord on the list of creditors. In relation to a CVA, the landlord should receive a copy of the proposals and the notice of the creditors meeting in the region of ten days before the meeting. In relation to administration, the amount of notice is likely to depend upon how key the premises are to the administration. If the property is not key, or there has been a prepack that is not entirely reliant on the property, then the landlord is likely to receive notice with all the other creditors, immediately after the appointment (and sale, if it was a pre- -4-

7 pack) has taken place. If the premises are key, then it is likely that some prior notice may be given to allow the landlord and the debtor company/administrator to liaise and discuss the possible outcomes. 4. Getting the rent paid The main concern for a landlord is usually that he receives the rent and other sums due under the lease. If tenants stop paying, this will obviously cause financial problems for the landlord. It is therefore very important that a landlord understands the various options open to him. The good news is that a landlord has far more remedies available to him than most other unsecured creditors. However, there are advantages and disadvantages to all of these, and times when they simply won t be available. 4.1 The usual options Court proceedings for recovery a) How does it work? Where the tenant owes any sum under the lease as a debt, the landlord can simply start court proceedings against him for the recovery of the sum due. b) Advantages and disadvantages This remedy can be very useful where the tenant is still solvent as just the threat of court action will often be enough to prompt payment. However, actually issuing proceedings and attending the hearing, combined with subsequent enforcement action, is time consuming and costly. Where the tenant does not have any money this remedy is not really much use as the landlord will not ultimately be able to get the money he is owed. Even where the tenant is not yet formally insolvent, a landlord should think carefully before issuing proceedings, to ensure that he does not end up wasting time and money on a tenant who cannot afford to pay Statutory demands and winding up a) How does it work? Where a tenant owes at least 750 the landlord can serve a statutory demand on him. A statutory demand is a simple form which sets out how much the tenant is required to pay, together with interest, and is accompanied by warnings which inform the tenant of when he must pay and the consequences of his failing to do so. If the tenant does not pay by the specified date the landlord is entitled to commence proceedings for winding-up. b) Advantages and disadvantages As with court proceedings, issuing a statutory demand can be an excellent threat to prompt payment where the tenant can afford to pay. Drawing up a statutory demand does not take long, so this part of the remedy is relatively inexpensive. However, if the tenant cannot afford to pay, the threat of winding-up is not going to force him to do so. The actual winding up procedure is lengthy and expensive and once the tenant is in liquidation the landlord will simply rank as an unsecured creditor and will be unlikely to recover the rent in full. This can be very a good option where a tenant wishes to continue trading and the threat is enough, but the landlord needs to consider whether he actually wants to force his own tenant into insolvency. Furthermore, the time and cost of actually following through with the winding-up procedure makes it less valuable where a tenant has few assets, particularly where the amount owed is relatively small. -5-

8 4.1.3 Distress a) How does it work? Distress is a common law right for the landlord to enter the tenant s premises and to take away goods up to the value of the debt owed. Distress can, in some circumstances, be carried out by a landlord personally. However, a landlord is always advised to use the services of a certificated bailiff: the rules with regards to entry onto the premises are very technical and can easily be broken, making the entry unlawful (with the consequence that the landlord is liable in damages to the tenant). By way of a few examples, there are rules about when and how it can be done: distress cannot be carried out on Sundays and it must be done between sunrise and sunset. It is not permissible to break down an outside door, though inner doors may be broken (and it is acceptable to open an outside door from the outside, but not by reaching inside). Entry through an open (or partly open) window is fine, but a window cannot be opened to enable access. There are rules about what can be taken: the landlord cannot take personal items, perishables or things which are in actual use (for example, a computer which someone is working at). Nor can he take items belonging to someone else, unless they are in the reputed ownership of the tenant (so he could not take clothes from a laundry, though he can take machinery which the tenant holds under a leasing arrangement). And there are rules about holding and selling the goods: they cannot be sold for a specified period after they have been seized, during which time they must be correctly impounded. When the landlord comes to sell the goods, he must obtain the best price for them and then return any surplus to the tenant. Hopefully this taster will be enough to put any landlord off trying to do it himself! b) Advantages and disadvantages Where the tenant cannot afford to pay, meaning that the threat of enforcement action will not be enough to prompt payment, distress can be an effective and relatively quick remedy. However, it will only be worthwhile where the tenant actually has distrainable goods at the premises up to the value of the rent owed. The landlord should also consider what he is trying to achieve before he makes use of this remedy: if all he wants is to get back the rent that the tenant currently owes, distress will be suitable. However, if he wishes to keep the tenant in the property and maintain an ongoing relationship it may not be appropriate as seizing the tenant s goods may be enough to push it into insolvency. c) New procedure: Commercial Rent Arrears Recovery (CRAR) You should be aware that as part of a general review of the enforcement of civil judgments, the remedy of distress will be modified and replaced with a new procedure for the recovery of commercial rent arrears. These changes will be brought into effect by the Tribunals, Courts and Enforcement Act This act has received Royal Assent but there is currently no date specified for when it will be brought into force, though the Ministry of Justice has informally advised that it will be implemented in April The basic principles will be the same, but the remedy will be more restricted, in particular with regards to the sums recoverable. Currently any sums reserved as rent in the lease can be recovered through distress, but the legislation specifically restricts rent to amounts payable in respect of occupation and use of the property (so excluding, for example, service charge and insurance rent). In addition, the remedy will require that an advance notice is served on the tenant, warning him of the landlord s intentions. It is likely that the practical -6-

9 effect of this advance notice procedure will simply be to give the tenant the time he needs to remove his goods to alternative premises; the proposals are not, therefore, generally welcomed by landlords Rent diversion from subtenants a) How does it work? This remedy forms a part of the law of distress. Where distress would usually be available against a tenant and there is a subtenant in occupation of the property, the landlord can serve a notice on the subtenant requiring that the subtenant pay his rent straight to the landlord until the arrears are paid off. In the event that the subtenant fails to comply with the notice the landlord is able to distrain directly against him. b) Advantages and disadvantages Where there is a solvent subtenant at the property this is a very good remedy: the notice is relatively quick and easy to prepare and serve and the subtenant will almost certainly be happy to comply without further action being required. Where there is a subtenant of the whole premises, who has a sublease for a term almost equivalent to the head-lease term, this can provide a complete remedy. Obviously, where there is no subtenant this remedy is not available. Its value will also be reduced where the subtenant has a lease of only part of the property, or for a term expiring long before the head-lease term, as the amount that can be claimed from the subtenant will not cover the full amount of the head-lease rent due. c) New procedure: Commercial Rent Arrears Recovery (CRAR) As this remedy forms a part of the law of distress, it is also being replaced by the new Tribunals, Courts and Enforcement Act The remedy will remain broadly as it is at the moment, subject to the same restriction on the definition of rent Rent deposit a) How does it work? A rent deposit can be structured in a number of different ways, but all of them involve the tenant depositing a specified sum of money (for example, 12 months rent) into a bank account which the landlord can then call upon in the event that the tenant fails to pay the rent due. The rent deposit deed will specify the circumstances in which the landlord is able to draw against the money, but non-payment of rent will almost certainly be included. The way in which the rent deposit is structured can have implications when it comes to tenant insolvency, so it is worth being aware of the main structures that you are likely to see: i) Held in an account in the landlord s name but expressly on trust for the tenant: the money does not actually become the landlord s property because it is held on trust for the tenant. The tenant is beneficially entitled to the money, but subject to the terms of the trust, so that he can only recover the money if the conditions of the trust are satisfied. ii) iii) Held by the landlord on behalf of the tenant with a charge in favour of the landlord: this is historically the most common form of rent deposit relationship. However, it is a risky structure from the tenant s perspective as the landlord has effective control over the money and it can be regarded as part of his property. Held in an account in the tenant s name but charged in favour of the landlord: landlord s have historically been uncomfortable with this structure as the money is within the tenant s control. However, with -7-

10 iv) suitable protective measures, such as proper registration and assignment of the account to the landlord, it can be an effective structure. Held in an account in the landlord s name as a part of the landlord s general funds: many institutional landlords require this arrangement so as to lessen the burden of administering numerous separate rent deposit accounts, but tenants are less keen on it, for obvious reasons. b) Advantages and disadvantages A rent deposit can provide an excellent source of ready funds, but they tend only to be put in place for tenants with a weak financial status, or for new businesses without a proven track record. Unfortunately, at the moment, it is not only these kinds of tenants which are getting into difficulties it s unlikely that stores such as Wittards, Woolworths or MFI would have been asked for rent deposits on their high street stores. Furthermore, even when a rent deposit has been provided, it is unlikely to cover more than about a year s rent: whilst it will provide a good short-term solution it will not cover the rent up until the end of the term Guarantee a) How does it work? It is not uncommon for a tenant which is part of a group of companies to provide a guarantee from a parent or sister company. Alternatively the landlord may be able to obtain a personal guarantee from one of the directors, or a from the company s bank. Whoever gives the guarantee, its scope and extent will depends upon its terms. However, in a standard parent company guarantee you would expect a guarantee that the tenant will pay the rent due together with a covenant to indemnify the landlord in the event that the tenant does not pay. This means that the guarantor has a primary responsibility to pay the rent due: usually all that is required is that the landlord notifies him of the amount of his liability and he is under an obligation to pay that sum. In the event that the guarantor fails to pay, a debt claim can be made against him, or he can be served with a statutory demand. Note that bank guarantees, or personal guarantees from directors, will usually be more limited and may only cover unpaid sums up to a specified amount or for a specified period. b) Advantages and disadvantages A guarantee is usually a fairly attractive option for a tenant as it avoids the cash flow issues that can be associated with a rent deposit. A bank guarantee does not generally have this advantage as the tenant may well be required to make a deposit at the bank. Where the guarantor is in a position to pay, it is also a very good option for the landlord. Where the guarantee is from a group company, the rent will be usually be guaranteed right through until the end of the lease term. In addition, most guarantees include a provision that in the event that the lease is forfeit or disclaimed, the guarantor can be required to take a replacement lease or to pay a specified amount of rent in lieu. However, the issue with group company guarantees (and, to an extent, directors guarantees) is that when the tenant company is in financial difficulties there is a good chance that the guarantor is also in difficulties. Whilst this will not always be the case it is certainly a risk and means that having a guarantee will not always be as helpful as it at first appears Claim against former tenants and their guarantors a) How does it work? Where the lease has been assigned by the original tenant there may well be a right to pursue one or more previous tenants, and possibly their guarantors, for -8-

11 rent owed by the current tenant. Exactly how this right works depends on whether the lease is a new lease (granted on or after 1 January 1996) or an old lease (granted before this date). i) Old leases The original tenant, to whom the lease was granted, remains liable in respect of all of the lease covenants, including payment of rent, for the entire duration of the term. It is likely that if the original tenant had a guarantor, this original guarantor will also remain liable throughout the duration of the term (depending on the wording of the guarantee). It is likely that any subsequent assignees of the lease (and often their guarantors) will also remain liable throughout the whole term, provided that the landlord has obtained direct covenants to this effect from them. The provision of such covenants is standard practice in respect of old leases: they will usually be contained within the licence to assign. This remedy is potentially very unfair to former tenants, but is extremely useful to landlords who could have a whole chain of solvent former tenants to call upon. ii) iii) New leases The Landlord and Tenant (Covenants) Act 1995 changed these rules so that a tenant can, as a basic principle, only be held liable for breaches occurring while the lease was vested in him. This means that he cannot be held liable for payment of a subsequent tenant s unpaid rent. However, to somewhat mitigate this reversal for the landlord, the tenant s release is subject to the ability for the landlord to require that the outgoing tenant enters into an authorised guarantee agreement (or AGA ) under which he guarantees the performance of the incoming tenant s covenants. The AGA will almost always last only until a further assignment of the lease, so the landlord will never have a whole succession of past tenants he can call upon in the way he may under an old lease. Note that an AGA will not always have been provided by an outgoing tenant because it can only be required where assignment is conditional upon landlord s consent and where the provision of an AGA is a specified condition; however, it is very common for this requirement to be included, so AGAs are not uncommon. There is a lack of clarity as to whether an outgoing tenant s guarantor in a new lease can be required to guarantee the tenant s performance under an AGA; some leases do provide for this but whether or not it is enforceable remains to be tested. Procedure Regardless of whether the lease is old or new, the procedure is the same. The landlord serves a default notice on the former tenant or guarantor requiring that he pay the amount due. It is essential that the notice is served within six months of the date on which the sum became due, or the landlord will lose the right to recover rent in this way. Where there is an ongoing non-payment situation the landlord needs to remain alert to this and to ensure that he serves the relevant notices following each rent date. If the former tenant or guarantor fails to pay despite having been served with a default notice, a debt claim can be issued or a statutory demand served in an attempt to prompt payment. b) Advantages and disadvantages Where there is a solvent former tenant or guarantor this is an excellent remedy. The landlord can continue to pursue the former tenant right through until the end of the term, provided that he remembers to serve all required -9-

12 notices. Of course, where the former tenant no longer exists, or is itself insolvent, the remedy will not be available. The other thing to be aware of is that serving a notice requiring the payment of a fixed charge entitles the former tenant or guarantor to call for an overriding lease within 12 months of payment being made. This acts as a head-lease, on basically the same terms as the existing lease, slotted in above the existing lease; the former tenant becomes the direct landlord of the defaulting tenant and can, consequently, decide what enforcement action to take against him: this gives the former tenant some control over the premises which he is now being required to pay rent for. If the landlord does not want a direct relationship with the former tenant or guarantor he should think carefully before serving a default notice on him. 4.2 The effect of corporate insolvency Administration The moratorium: once the tenant has gone into administration, the moratorium kicks in and protects the company, and the premises, from any form of action by the landlord to recover outstanding rent. You will recall that this can apply pre appointment, or from the time of appointment, depending on the procedure that is used. The moratorium means that no proceedings can be commenced, no windingup can be commenced, and no distress can be proceeded with, without the consent of the administrator or the permission of the Court. Claiming against subtenants: the position with regards to subtenants is not entirely clear. There have been arguments put forward that serving a rent diversion notice on a subtenant is tantamount to enforcing security, and therefore falls foul of the statutory moratorium. However, this is by no means certain and the preferred view is that the landlord retains the right to serve a notice and recover the arrears from a sub-tenant without being in breach of the moratorium. Legal advice should always be taken on this point before any action is taken. Claiming under a rent deposit: whether or not a rent deposit remains available depends on the way in which it has been structured. Where the rent deposit is simply held as a part of the landlord s general funds, it will certainly remain available to the landlord. Where the deposit is held by the landlord but on trust for the tenant, the deed should have been drafted to make it clear that the tenant is only entitled to the money if the conditions of the trust are satisfied. One of the conditions should be that the tenant is solvent and, so long as this is included, the money will not be available as a part of the tenant s general funds and the landlord will still be able to enforce. Where the deposit is either handed over to the landlord with an obligation to repay, or remains with the tenant but with a charge in favour of the landlord, the statutory moratorium will, on its face, prevent the landlord from drawing down under the rent deposit, as this is an enforcement of his security. However, it appears (though this has not been thoroughly tested) that the Financial Collateral Arrangements Regulations will have the effect of taking the rent deposit outside of the moratorium. This means that the landlord will still be able to draw down under it. Where there is an administration in place, legal advice should always be sought before taking any enforcement action in respect of the rent deposit. Guarantors and former tenants: guarantors and former tenants will be unaffected by the tenant s administration, so a claim against them will still be available. Pre pack sales: Note that if there has been a pre-pack sale, the landlord will receive his rent via the administrator and will negotiate to agree an assignment. If the premises are no longer required by the administrator, then he will no doubt be keen to bring the accruing liability to an end and hand back the premises to the landlord. The only situation that is not four-square with this scenario is when the administrator requires the premises for a short term, possibly whilst stock is being -10-

13 disposed of, or for a short period of trading. In those circumstances, and they will depend very much on the facts, if the landlord wishes to take back the premises urgently (possibly for a new tenant) then he should ask the administrator to consent to either the surrender of the premises/peaceable re-entry, or to consent to the issue of forfeiture proceedings. The overriding principle in dealing with the claims of interested parties, be they lessors of equipment, suppliers of stock, or landlords, is that the administrator must act promptly and fairly, and balance the benefit to the creditors as a whole against the cost to the individual party, so landlords should not be afraid to ask for this. Administration expenses: an additional point to note here is that in the event that the administrator wishes to continue using the premises then he is required to pay rent, and that rent will be an expense of the administration, so will rank ahead of most claims against the estate. This is particularly important where an administrator uses, for example, a retail unit to dispose of the stock contained in it, and then closes it there is no hope of recovering pre-appointment arrears (which there would be if the administrator wished to assign the premises) and at the very least the landlord should recover his ongoing rent from the administrator CVAs In the event that the creditors of a company approve a voluntary arrangement by the necessary majority then the landlord s rights are compromised in the same way that those of the other creditors are; if the meeting resolves that creditors will accept 50% of historic debts, paid over 3 years then at the conclusion of the arrangement, once the payments have been made, the arrears of rent are written off. Whilst that is the more draconian consequence from a landlord s point of view, this does generally only relate to historic arrears (though the CVA can cover payments due in the future this will depend on the terms of the particular CVA). Assuming that the CVA does not cover future sums then, during the continuance of the arrangement, the tenant must make payments in accordance with the terms of the lease. Breach of the terms of the lease will enable the landlord to commence proceedings, or take such enforcement measures as it sees fit. The only exception to the above is in relation to a small company CVA. The company can apply for a small company moratorium where it fulfils two out of three of the following: Turnover no greater than 6.5m Assets on balance sheet of no more than 2.36m; or No more than 50 employees in the financial year prior to the filing of the moratorium. The implications of the moratorium are the same as those in an administration order, and cover the period from the application for the moratorium to the approval, or rejection, of the CVA. Note that while a CVA will not usually release former tenants or guarantors of the tenant, the terms of the CVA and the guarantee need to be checked as there may be a release under these Receivership In relation to a tenant in receivership, there are no restrictions upon the landlord seeking to enforce its remedies, there are no special protections for assets at the premises, and there is no special right to receive rent from the receiver. Receivers have long been aware of the risk of a landlord distraining against assets on the premises and this was, historically, a motivating factor to apply for an administration order. As a general rule, therefore, all recovery options remain fully open to the landlord. The only qualification to this is with regards to rent deposits in an administrative receivership. Where the rent deposit deed has been structured so that the landlord has a fixed charge over the money in the deposit account, the priorities of the -11-

14 landlord and the bank which has appointed the administrative receiver may have been altered by the terms of the rent deposit deed. This should be checked carefully before any action is taken Liquidation With regards to rent accruing after the appointment of the liquidator, the only circumstances where this will be payable by the liquidator is where there has been an exceptional case of the liquidator trading the business from the premises. In those circumstances the rent would again be an expense payment, payable ahead of creditors claims and liquidators fees. Rent arising prior to the liquidation of a company will be an unsecured claim in the liquidation, as follows: Arrears of rent and/or service charge as at the date of liquidation, which will be admitted in full; Rent falling due for payment prior to the liquidation date, but covering a period after the date of liquidation, again will be admitted in full; Dilapidations and rent must be estimated, and the landlord has a duty to mitigate its loss. The amount that might then be receivable is discounted by the yield rate on gilt-edged securities for the period from the date of the disclaimer to the end of the lease. During a voluntary winding up, the landlord can still take the usual actions (distraint and suing for rent) against the tenant without the leave of the court. However, another creditor may apply for an order to restrain any action, so the landlord may be limited in this way. As a part of a compulsory winding up, the landlord can be required to account to preferential creditors for any distress levied in the three months before the windingup order is made. If the landlord began distress before the winding-up petition was presented, the landlord can continue the distress but the company or another creditor can apply to the court for this to be stayed. Once the winding-up order has been made, leave is required in order to continue with the distress. If the landlord wishes to begin distress once the winding-up order has been made, the landlord must seek the leave of the court in order to do so. The position is similar with regards to suing for rent (though it is unlikely that there would be any point in doing so during a compulsory winding-up): once the petition has been presented the landlord does not need the leave of the court to begin an action though another creditor can apply to have it stayed. Once the winding-up order has been made, leave is needed to either begin or continue an action. The landlord s rights in respect of any rent deposit and as against third parties remain unaffected, provided that the documents governing these relationships do not contain any get-out clauses in the event of liquidation. 5. Getting rid of the tenant 5.1 Is it really the best option? Before deciding to take action, such as forfeiture, to get the tenant out of the property, the landlord needs to think carefully about whether he actually wants the tenant to leave. In a rising market a landlord will generally have no problems quickly re-letting the property, possibly at a higher rent; however, in the current climate there may not be a replacement tenant for some time to come. If there is a prospective tenant, it may be necessary to offer generous and lease terms and incentives so as to persuade the new tenant to take a lease. There are various reasons why it may be better to leave a tenant in the property, even when he is not paying rent and has no reasonable prospect of doing so Cost of getting the tenant out For a start, there may be costs associated with actually getting the tenant out. It will usually be necessary to instruct solicitors to ensure that the correct procedure is -12-

15 followed. Depending on the particular circumstances, leave of the court may be required or it may be necessary to serve notices on the tenant. The property will need to be secured, which will involve changing the locks or using security guards to ensure that the tenant cannot get back in. An insolvent tenant will often be keen to get rid of the property, in which case these costs will not apply, but where the tenant does not want to leave these steps will be necessary Direct costs of empty properties: empty property rates There are then the direct costs associated with an empty property. These include ongoing security costs (to prevent squatters moving in), insurance costs, and repair costs. However, the most significant additional cost is likely to relate to business rates. While a tenant has a lease of a property, he is the person responsible for paying business rates. He will be billed directly and in the event that he fails to pay, the local authority is simply an unsecured creditor of the tenant: it cannot pursue the landlord for any rates that the tenant has failed to pay. However, if the lease comes to an end, business rates liability passes to the landlord. There is some limited relief available while the property is empty, but this has been significantly reduced since April Prior to April 2008 most commercial properties had complete relief from rates for the first three months while they were empty, and were liable for 50% of the rates thereafter. Industrial properties and warehouses had complete relief throughout the empty period. However, this has now changed. For most commercial properties there is now a three month exemption, after which rates are payable in full. Industrial properties and warehouse have a six months exemption, after which rates are payable in full. The combination of this increase in rates liability, together with an increase in the time that it is taking to re-let properties, means that empty property rates liability can be a substantial burden for landlords. Unless there is a realistic prospect of quickly re-letting a property, a landlord will be better off keeping a tenant in place (even if he is not trading or occupying) so that the tenant is liable for payment of the rates Indirect consequences of empty properties Finally, there are the indirect effects of empty properties. This is less apparent with office space, but in a shopping centre several empty shops will lead to a generally run down feel and tend to put off visitors. This will lead to a downturn in the business of nearby shops, potentially meaning more empty properties. Having a tenant in and trading, even if he is not paying any rent, may actually help to keep the other tenants solvent. Of course, many insolvent tenants will not be in position to continue trading so leaving the lease in place will not always assist. In addition, if the tenant leaves, the landlord will need to think about what to do with any of the tenant s possessions which remain on the premises. Hopefully the tenant will just come and collect them and take them away, but if he fails to do so the landlord becomes an involuntary bailee of the goods, which means that he has certain obligations in respect of them. Most well-drafted leases contain an express provision which allows the landlord to store or dispose of the goods after a specified period the landlord should always ensure that he complies with the leases terms or he may be liable to a damages claim in respect of the goods. 5.2 The usual option: forfeiture Forfeiture is the landlord s right to re-enter the premises and determine the lease when the tenant has breached a covenant or a particular event has occurred. The right to forfeit is not automatic: it must be expressly permitted in the lease. -13-

16 5.2.1 Standard provisions The vast majority of commercial leases do contain forfeiture provisions. Whilst the specific terms must always be checked, a standard clause will provide that the landlord may forfeit the lease where: the rent is 21 days in arrears, whether demanded or not; there is a breach of any lease covenant; or when specified insolvency events occur, such as the presentation of a petition for winding-up or for an administration order, the appointment of a receiver or the creation of a voluntary arrangement Procedure The procedure is slightly different depending on the breach for which the landlord is forfeiting. Where the tenant owes rent to the landlord he has the choice of forfeiting either by court proceedings or by peaceable re-entry. Where the landlord is forfeiting for a breach of any other covenant the landlord must first serve a notice on the tenant, specifying the breach and requiring it to be remedied (with additional requirements where the breach is of a repairing covenant). If the tenant does not comply with the requirement the landlord may then proceed to forfeit either by court proceedings or by peaceable re-entry. Forfeiture by peaceable re-entry is usually done by changing the locks at the property, or otherwise preventing the tenant from getting back in; it is not possible to forfeit forcibly so it is generally not possible if the tenant is on the premises. Where the landlord decides to forfeit by court proceedings he will need the court to issue a write of possession which he then serves on the tenant. Service of the writ has the same effect as re-entry: at this point the lease is forfeit Waiver A landlord is unable to forfeit the lease if he has waived the right to do so. This can easily be done unintentionally by a landlord who is unfamiliar with the rules. Put simply, a waiver will be implied whenever the landlord, knowing that a breach has occurred, does some act which recognises the continued existence of the lease. The landlord s motive is irrelevant, so the fact that he did not intend to waive his right to forfeit does not preserve it. The most common waiver of a right to forfeit occurs when a demand for rent is sent, or a payment of rent is accepted, after the landlord s right to forfeit has arisen. If a landlord has decided that he wishes to forfeit a lease he should ensure that his accounts department and any managing agent are instructed not do anything which is consistent with the tenant having a lease of the property. The use of some other remedy can in itself act a waiver of the right to forfeit. For example, you can only distrain against the goods of a tenant, so the very act of distress is sufficient to waive the right to forfeit. The best advice is that where the landlord has decided to forfeit he should avoid all communication with tenant up until the forfeiture has taken place Relief The other thing to be aware of when forfeiting the lease is that the landlord may be able to get relief from forfeiture. The rules with regards to how long the tenant has to apply and when relief will be granted varies depending on the event that triggered forfeiture and the way in which the lease is forfeit. However, in general terms if the tenant either pays the full amount of rent due, plus costs, or remedies the breach that he has committed, relief will be granted. When the lease is forfeit any subtenant s lease will also come to an end. However, the subtenant also has a right to apply for relief from forfeiture. Grant of relief is at the discretion of the court but will usually be forthcoming if the subtenant agrees to comply with all of the terms of the headlease. -14-

17 5.2.5 Use of other remedies Just because the lease has been forfeit, this doesn t prevent the landlord from claiming any rent that was due prior to the forfeiture taking place. In addition, where rent is payable quarterly in advance and the lease is forfeit midway through a rent period then, subject to anything in the lease to the contrary, the landlord is entitled to recover rent due for the whole of that period (not just that part for which the lease continued). However, in the same way that the use of some remedies for recovery of rent will waive the right to forfeit, once the lease has been forfeit some remedies for recovery of rent are no longer available to the landlord. Distress will be unavailable, as it is only possible to distrain against a tenant. Consequently, it will not be possible to require that a subtenant pay the rent directly to the landlord, as this remedy attaches to the right to distrain. It will be possible to claim against former tenants and guarantors for rent due prior to the date of the forfeiture but, as the lease has now come to an end, they will not be liable for any rent that would have accrued after this date had the lease been ongoing. It will also be possible to issue court proceedings for the recovery of a debt, or to serve a statutory demand on the tenant, but these remedies are of little use if the tenant is insolvent and cannot pay. In addition the rent deposit should still be available, unless very poor drafting means that it ceases to be available once the lease comes to an end. Where there is a third party guarantor it will still be possible to claim for rent due prior to the date of the forfeiture. In addition, many guarantees include a requirement that in the event of forfeiture, and if required by the landlord, the guarantee takes a new lease of the premises for the remainder of the term under the forfeit lease, or makes a payment (of, for example, six months rent) in lieu of this. This has the effect of extending the guarantor s liability beyond the tenant s obligations under the lease: in effect the guarantor can be held liable for the whole of the lease term regardless of whether the lease has been forfeit. However, a well advised tenant will often negotiate for the removal of this wording, so it will always be a case of checking the relevant documents. 5.3 The effect of corporate insolvency Administration As already mentioned, administrators have a duty to act fairly, and must properly consider any claims, including for outstanding rent. In the event that the landlord is unhappy with the consideration that is given by the administrator, or the decision made, it may decide to forfeit the lease. However, because the moratorium applies, in order to so it must seek the administrator s consent to commence proceedings or, failing that, seek the Court s consent to such an application. The Court will then apply the balancing test and decide whether or not the interests of the single creditor, the landlord, should be allowed to outweigh the interests of the creditors as a whole CVAs In relation to arrears covered by the CVA, the landlord cannot take any enforcement action. However, he retains the right to forfeit in respect of arrears arising after approval of the CVA. The right to forfeit will also be affected by any small company moratorium pending the holding of the CVA meeting. However, it is rare that these moratoria are used Receivership As indicated above, receivership gives no protection and the landlord is free to exercise its right of forfeiture. -15-

18 5.3.4 Liquidation Practically, the landlord is unlikely to encounter the need for forfeiture postliquidation. In the event that the lease has a value, the liquidator will try to dispose of this and deal with arrears as part of the assignment. In the event that it is of little or no value, then a liquidator acting reasonably would not hinder a landlord s efforts to re-enter. However, if the liquidator does not, for some reason, want the landlord to re-enter there may be issues with him doing so. In a voluntary winding-up, the landlord can generally forfeit the lease without leave, but subject to the right of other creditors to apply to the court to prevent this (it is unclear whether they would be able to prevent forfeiture by peaceable re-entry, though the preferred view is that they would). In a compulsory winding-up, once the petition has been presented the landlord does not need the leave of the court to forfeit, though another creditor can apply to have the landlord s action stayed. Once the winding-up order has been made, leave is needed to either begin or continue a forfeiture. In a liquidation there is also the option of the lease being disclaimed: we will be looking at this in more detail now. 5.4 Lease disclaimer A liquidator is able to disclaim the whole of an insolvent tenant s liability under a lease, thereby ending all of the tenant s rights, interests and liabilities. He does so by filing a notice at the court and then serving this on the landlord and other interested persons such as any subtenant, guarantor or former tenant. This right to disclaim continues even if the liquidator has obtained relief from forfeiture: for example he may wish to keep the property while he sells off all of the tenants goods which are stored there, and then disclaim Landlord s notice to elect Generally speaking a disclaimer can take place at any time. However, the landlord is able to force a decision by serving a notice to elect on the liquidator. This gives the liquidator 28 days to disclaim, or he loses his right to do so. The liquidator is able to extend this time limit by application to the court, but the court may impose conditions on the liquidator, such as an obligation that he personally meets the rent and other costs Practical effect of a disclaimer: former tenants and guarantors The disclaimer itself does not affect the rights and liabilities of any other person, except so far as is necessary for the purposes of releasing the tenant from liability. This means that former tenants and guarantors remain bound, not only in respect of any period prior to the disclaimer, but also going forward. In addition the landlord will often have reserved the right to require that a former tenant or a guarantor takes a new lease of the property on all the same terms as the disclaimed lease. However, in order to ensure that the former tenant and guarantor remain bound, the landlord needs to be careful not to take back possession of the disclaimed property. He will do this if, for example, he accepts the keys and secures the property. If the landlord takes back possession the lease is treated as if it had been surrendered and all third party liabilities and obligations fall away at the point of disclaimer The position of subtenants The position of subtenants is somewhat complicated and can appear contradictory. However, in summary the position appears to be that the sublease no longer exists but that the subtenant s interest in the disclaimed property continues. He has a collection of rights which can be assigned and which constitute good title. He can remain in possession for the term of the sublease but if he wishes to do so he must pay the headlease rent and comply with the headlease covenants. There are no provisions to deal with the situation where he has a sublease of part only; presumably he must pay and comply in respect of the whole of the property. -16-

19 The terms of the headlease are not directly enforceable against the subtenant (so the landlord cannot, for example, claim damages for breach of a repair covenant, unless the subtenant has directly covenanted with the landlord to observe the terms of the headlease) but the landlord can still forfeit for a breach of any of the headlease terms (so he could forfeit the lease for breach of a repair covenant, bringing the sublease rights to an end). The subtenant has no ongoing obligation under the terms of the sublease as from the date of the disclaimer, so if he wishes to leave the property he is able to so: he has only a right to possession, but no obligation to pay rent or comply with any covenants if he chooses not to continue in occupation Vesting orders The fact that the terms of the headlease and sublease are not directly enforceable between a landlord and tenant is very unsatisfactory, but the court has the power to making an order vesting the disclaimed property in another entitled party (such as the subtenant or a guarantor). The landlord can require that a subtenant takes a vesting order: if he declines to accept it then his right to remain in possession will cease. The usual order is that the lease vests on the same terms as those affecting the insolvent tenant at the time of winding-up (so the party in which the lease is vested becomes liable for all pre-existing breaches). Exceptionally the court will order that the lease vests on the terms to which the party would have been subject had the lease been assigned at the time of winding up (so no past liability). The subtenant can apply for a vesting order of a part of a property but this will be made on the basis that the subtenant is subject to the same obligations as the tenant of a whole: there are no provisions for apportioning rent or for dealing with whether or not the subtenant s lease is contracted out. 5.5 Surrenders Where both the landlord and the tenant (or the relevant insolvency practitioner) are happy for the lease to come to an end, a surrender is the easiest way to do this. A surrender can be done formally or by operation of law. A surrender by operation of law will occur if a tenant gives up possession and returns the keys and the landlord accepts this (note that merely leaving the key for the landlord is not sufficient). This means that if a landlord does not want the lease to come to an end he must be very careful not to take back possession of the property in this way. A surrender brings the lease to an end, which means that the liability of any guarantors or former tenants also comes to an end: it will still be possible to claim against them for unpaid rent due at the date of the surrender, but they will not have any ongoing liability. Subleases are unaffected by a surrender: the subtenant becomes the immediate tenant of the head landlord on the terms of the sublease. If there are no guarantors or former tenants who are worth pursuing, but there is a subtenant of the whole of the property on equivalent terms the landlord may be happy to accept a surrender of the lease so that he has a direct relationship with the subtenant. If there is no subtenant but there are solvent former tenants he may prefer the lease to continue so he can continue to claim against them. 6. Other issues in a difficult market 6.1 A tenants market : using the Lease Code Landlords need to be aware that it is currently a tenants market, and that this means they may need to make more concessions than usual in order to get tenants in. Many tenants are taking a more aggressive stance to lease negotiations than would have been the case a year or two ago: and they are often getting what they ask for as it is better for the landlord to have a tenant in and paying some kind of rent than to have an empty property. In particular landlords may well find that that they cannot insist on the full repairing and insuring leases that have been the norm. Tenants are increasingly making reference to -17-

20 the Code for Leasing Business Premises in England and Wales 2007 (the Lease Code ) so it is well worth being aware of this and understanding what it covers. Issues which are particularly relevant in the current market include: Length of term and break clauses Shorter term fixed leases or longer leases with tenant break rights are becoming more usual. Tenants are unwilling to guess what their business needs may be in the future and do not want to find that they are committed to long leases. The Lease Code provides that the only pre-conditions to exercise of the break should be that the tenant is up to date with the main rent, gives up occupation and leaves behind no continuing subleases. Disputes about the state of the premises and whether or not vacant possession has been provided should be settled later, with a damages claim against the tenant if necessary. This is very different from many landlords traditional negotiating start point: that the tenant should not be in breach of any lease covenants, that all sums should be fully paid up to date, and that vacant possession should be given Rent and rent reviews One of the implications of a falling market is obviously that tenants expect to pay a lower rent. However, this is just one way in which tenants are reducing their liability. Some tenants are demanding all-inclusive rents, so that they know exactly how much they will be paying and can budget accordingly. For retail properties turnover rents have always been popular, but in the past these have come with a floor, or minimum level below which the rent will not drop. Tenants are increasingly demanding a turnover rent without a floor, so that in the event that they are making no money, they do not have to pay any rent. The Lease Code recommends that landlords offer alternatives to traditional upwards only rent reviews, for example upward/downward reviews to open market rent, or indexed linked reviews. Some tenants are even demanding, and getting, relatively long leases with no rent reviews at all Other clauses Other provisions which the Lease Code deals with, and which landlords should be aware that tenants may now be demanding, include: Alienation: allow assignment of the whole and do not include specific circumstances for refusal, nor require the provision of an AGA unless the proposed assignee is of lower financial standing. Where subletting is allowed from a contracted out lease, the sublease should not have to be on the same terms. A sublease rent should not have to be more than the market rent at the time of the subletting. Alterations: internal, non-structural alterations should be permitted without consent. Tenants should only have to reinstate at the end of the term where reasonable to do so and only after six months written notice from the landlord. Insurance: rent suspension should apply whenever the property is damaged other than through the fault of the tenant. Landlords should provide terrorism insurance if tenants want this. If the whole building is destroyed by an uninsured risk, tenants should have the option of terminating the lease if the landlord won t rebuild at his own cost. 6.2 Leasing companies Many tenants do not own the plant and machinery at their premises; instead they lease it or use it on a hire-purchase basis. General speaking, in the event of tenant default, landlords are in a better position than the leasing company which owns the plant or machinery. However, leasing companies are now insisting on better terms for themselves, including getting the landlord to sign up to various provisions at the start of the finance agreement -18-