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 Disputes practice 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 tenants, guarantors and former tenants, applications for 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 the 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 by the liquidator or trustee in bankruptcy terminates the rights, interests and liabilities of the tenant under the lease from the date of disclaimer. The landlord is likely to be an unsecured creditor in respect of any rent and other sums due under the lease up to the point of disclaimer. Disclaimer terminates 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 parties which remain liable to perform the tenant covenants of the tenancy, such as guarantors or former tenants. In those cases, disclaimer of the lease by the tenant's liquidator or

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