What happens to a lease when the tenant's liquidator disclaims?
What happens to a lease when the tenant's liquidator disclaims?

The following Property guidance note provides comprehensive and up to date legal information covering:

  • What happens to a lease when the tenant's liquidator disclaims?
  • Effect of disclaimer on tenant and former tenants and guarantors
  • Vesting orders
  • Subtenants
  • Disclaimer and vacant possession

This Practice Note covers what happens to a lease on disclaimer and the effect of disclaimer on the tenants, guarantors and former tenants, vesting orders, the position of any subtenants, and disclaimer and vacant possession.

Effect of disclaimer on tenant and former tenants and guarantors

A liquidator or trustee in bankruptcy has power to disclaim onerous property and contracts. Where a tenant has become insolvent it is highly likely that a lease of its business premises will represent onerous property, and that rent arrears are among the tenant's outstanding debts and obligations. If the tenant's is the only covenant available to the landlord in respect of the lease, disclaimer will end the lease and with it all future liability for rent, leaving the landlord with no recourse except as an unsecured creditor for rent and other sums that have previously fallen due. Disclaimer terminates the rights, interests and liabilities of the tenant from the date of disclaimer. It destroys a tenant's right to remain at the premises and the landlord may (but is not obliged to) retake possession by way of mitigation of loss.

The result is different if there are other covenants available to the landlord—whether guarantors or former tenants who remain liable to perform the tenant covenants of the tenancy. In those cases, disclaimer of the lease by the