Peter Levaggi, Joint Head of Property Litigation Group, Charles Russell LLP

Peter Levaggi, Joint Head of Property Litigation Group, Charles Russell LLP Roger Elford, Joint Head of Group, Charles Russell LLP II JORDANS

CONTENTS Foreword Preface Table of Cases Table of Statutes Table of Statutory Instruments Table of Abbreviations v vii xxi xxxix xlv xlvii Chapter 1 Introduction 1 Property insolvency - overview 1 A brief history 1 Modern property insolvency 2 Human rights 3 Insolvency - overview 4 Immediate considerations and signs that a tenant may be or may become insolvent 4 Pre-insolvency action by directors 6 When is a company insolvent? 7 Determining the insolvency of an individual debtor 8 Voluntary arrangements 8 Individual voluntary arrangements (IVAs) 8 Secured creditors 10 The effect of approval of the IVA 11 Level of voting rights 11 Implementation of the IVA 12 Default by the debtor 12 Company voluntary arrangements (CVAs) 13 The effect of the approval of the voluntary arrangement 14 Challenging voluntary arrangements 14 Material irregularity 15 Time-limited for challenge 16 The courfs power on making a finding of unfair prejudice or material irregularity 16 Variation of voluntary arrangement 17 Administrative receivership 17 Administrations 18 Administration order 19

x Appointment of administratör by holder of qualifying floating charge out of court 19 Appointment of administratör by company or its directors 20 The status of the administratör 22 The effect of administration 22 The duration of the administration 23 Bankruptcy and individual insolvency 24 Debtor's petition 24 Creditor's petition ZJ The bankruptcy petition 26 Action following making of bankruptcy order 26 Liquidation 2/ Voluntary liquidation 28 Compulsory winding up by the court 28 Effect of presentation of a winding-up petition 29 Partnerships and limited liability partnerships 30 Parti Tenanfs Insolvency Chapter 2 Liability for Rent and Other Obligations Under a Lease 33 Receiverships - rent and liabilities " Where the receiver has use for the property (or there is value) 34 Where the receiver has no use for the property (and there is no value) 35 Where the landlord appoints a receiver 35 Is a receiver personally liable to pay rent? 36 Voluntary arrangements - rent and liabilities 37 Landlord's position prior to the creditors' meeting 39 Rent arrears and other obligations due prior to VA 40 Future rent - the landlord's position in relation to rent and obligations falling due post-va meeting 41 Where the landlord has additional security över the tenanfs property 43 Liabilities where VA is not approved 44 Where the lease has been guaranteed 44 Liquidation - rent and liabilities 44 Rent prior to commencement of liquidation 46 Quantification and procedure of landlord's claim - proof of debt 46 Unliquidated claims 48 Interest 49 Rent falling due after the commencement of the liquidation 49 Rent and other obligations arising which have fallen due after the commencement of liquidation 49 Liquidation expenses 49 The liquidation expense principle - the old law 50 No discretion - the new law 51

Contents xi Rent not yet fallen due 53 Rent following disclaimer 54 Administration - rent and other liabilities 54 Pre-administration rent arrears and other liabilities 54 Post-administration rents and liabilities 54 Rent - expense of administration 54 Old-style administration expenses governed by IA 1986, s 19 55 New-style administration expenses governed by IR 1986, r 2.67 57 Administration expenses - the practical position 60 The administratörs position 60 The landlord's position 61 Pay or forfeit 62 Liquidation/administration set-off 62 Chapter 3 Distress for Rent and Commercial Rent Arrears Recovery 65 Distress (prior to CRAR) 66 The reform of distress and replacement with commercial rent arrears recovery (CRAR) 68 CRAR and insolvency 69 Unification of distress and execution - the new procedure for taking control of goods 71 The effect of insolvency on distress/crar - remedies 73 General remedies available with or without insolvency 73 Distress/CRAR and insolvency 74 Receivership and distress/crar 74 Receivership and distress contrasted with court execution 74 Fixed charges, receivership and CRAR 75 Voluntary arrangements and distress/crar 76 Individual voluntary arrangements - moratorium 77 Small company - moratorium 78 Compulsory liquidation and distress/crar 78 Where distress/crar is commenced and completed prior to the petition 79 Where distress/crar is commenced prior to winding-up petition but not completed 79 Where distress/crar commenced in the period after winding-up petition but before winding-up order 80 Where distress/crar is commenced after winding-up order 82 Voluntary liquidation 83 Administration 84 Effect of moratorium 85 When will the court's permission be granted? 85 The status of the distress if no application to continue the distress is made 86 Bankruptcy 87 Bankruptcy restrictions which apply to both distress and CRAR 88

xii Distress and CRAR v execution 89 Chapter 4 Forfeiture (and Possession) V1 Overview The status of the tenant 92 Status of sublicence to occupy granted by an administratör or liquidator Termination of the contractual interest and common law right to occupy Termination of licence 96 Residential licence "' Termination of tenancy on a contractual basis 97 Statutory protection yo Which statutory code applies? 98 Business tenancies "" Conditions for protection 99 Security of tenure 1UU Cesser of business use 1UU Business tenanfs right to apply for a new tenancy 101 Assignment of statutory business tenancy 102 Residential tenancies *"3 Rent Act 1977 1 3 Qualification 103 Grounds for possession 104 Housing Act 1988 1 4 Qualification 105 Grounds for possession 106 Forfeiture 1 7 Forfeiture of statutory protected tenancies 107 When can the landlord forfeit? 1 7 Forfeiture clause 107 Insolvency event as a condition allowing forfeiture 108 Standard forfeiture clause 109 Waiver 11 Acts of waiver HO Restrictions on forfeiture 111 Warning notice under the Law of Property Act 1925, s 146 Hl Remediable/irremediable breach H2 Bankruptcy/liquidation exceptions to s 146 H3 Other exceptions to s 146 114 Dilapidations claims 114 Long residential leases 115 Insolvency restrictions 115 Receivership 115 Individual voluntary arrangements 115 Company voluntary arrangements 116 The terms of the arrangement and forfeiture 11^

Contents xiii Administration 118 When will an administratör give permission to forfeit? 119 Voluntary liquidation 122 Compulsory liquidation 123 Between winding-up petition and order 123 After winding-up order 123 Prospect of landlord obtaining the court's permission to issue forfeiture proceedings 123 Bankruptcy 124 Relief from forfeiture 125 Who can apply for relief? 126 Courfs discretion 127 Relief and non-payment of rent 128 Terms of relief 129 Insolvency and relief 129 Forfeiture - effect 130 How does forfeiture take place? 130 Effect of forfeiture 131 Chapter 5 Third Party Liability 133 Surety of existing tenant 134 Release of guarantor 135 Forfeiture 135 Changes to the terms of the lease 136 Other forms of release 136 Death of surety 137 Bankruptcy of the guarantor 137 The position of a guarantor on the disclaimer of the lease 138 Other liabilities of the guarantor 138 Liability to landlord's successors in title 138 Dissolution of the tenant 139 Administration - particular guarantor problems 139 Original tenant liability 139 Old tenancies 140 Thesl7notice 141 Non-release of original tenant 141 Voluntary arrangement of tenant 141 Variations to the lease agreed by the landlord and subsequent assignees 142 Liability for reviewed rent 142 Original tenant liability during continuation tenancy 143 New leases '43 Leases created on or after 1 January 1996 143 Intermediate assignee '44 Old tenancy '44 New tenancy '45

xi v Sureties of original tenant or intermediate assignee 145 Old tenancy I 45 New tenancy 15 Subtenants l46 Law of Distress Amendment Act 1908 146 Tribunals, Courts and Enforcement Act 2007 147 The effect of voluntary arrangements on the liability of guarantors and other sureties 14' Overview of arrangements 148 Schemes of arrangement 14 Voluntary arrangements 149 Effect on third party liability 15 Powerhouse 152 Did the CVA release the guarantees? 153 Unfair Prejudice 154 Practical considerations for landlords 155 Chapter 6 Leasehold Security - Rent Deposits and Other Forms of Security 157 Introduction 157 How the deposit is held 158 Administrative or other form of LPA/fixed charge receivership 160 Voluntary liquidation l"0 Compulsory liquidation 160 Administration 160 Voluntary arrangements 161 Financial collateral arrangements and bank guarantees 161 Chapter 7 Disclaimer 163 Onerous property 163 'Unsaleable or not readily saleable' 163 Property giving rise to a liability 164 Disclaimer in liquidation (IA 1986, s 178) 164 Procedure in liquidation 165 Notice to elect (IA 1986, s 178(5)) 165 Disclaimer and third parties 166 Guarantors and former tenants 166 Obligation to take new lease 169 Subtenants 170 Subtenancies of part 171 Mortgagees 171 Parties who have acquired rights under other contracts 171 Deposits and retentions 172 Vesting orders 172 Time-limits 173 Guarantors and other third party sureties 173 The landlord 174

Contents xv Subtenants with an underlease of the whole of the property demised by the disclaimed lease 174 Subtenants with an underlease of part only of the property demised by the disclaimed lease 175 Purchasers of leases 175 Original tenants and previous assignees 176 The effect of the vesting order 176 The landlord's claim following disclaimer 177 Other claims following disclaimer 178 Bona vacantia and Crown disclaimer 178 Disclaimer and bankruptcy (IA 1986, s 315) 179 Distinguishing characteristics of disclaimer in bankruptcy cases 179 Effect of trustee's disclaimer 179 Where permission of court is required 180 Chapter 8 Insolvency Sale of Tenancy - Assignments, Valuations and 'Pre-packs' 181 Assignments 181 Insolvent tenant's application for licence: can the landlord be compelled to accept an unsuitable assignee simply because it might be in the best interests of creditors? 182 Valuations 183 Can the lease be sold without prior court or creditor or landlord approval? 184 'Pre-packs' 185 Landlord's remedies in relation to a pre-pack 187 Part 2 Freeholder/Landlord Insolvency Chapter 9 Landlord's Covenants and Insolvency 191 Tenant's proof in landlord's liquidation 192 Tenant's proof in administration 193 Voluntary arrangements 193 Receivership 194 Bankruptcy 194 Set-off 194 Injunctive relief 195 Insolvency restrictions 195 Chapter 10 Freehold Covenants and Insolvency 197 The burden in common law 197 The burden in equity - restrictive covenants 198 The benefit 1" Insolvency restrictions and enforcement of freehold covenants 200

xvj Chapter 11 Disclaimer of Freehold - Escheat 203 Chapter 12 Developer/Construction Insolvency zu/ Termination 208 No express termination clause 208 Express termination clause wy Waiver 210 Termination and moratoria 210 Effect of termination on subcontracts 21 Liabilities, post-insolvency 211 Completion of the works 212 Chapter 13 Insolvency Sale of Freehold * lj Administration Z1J Liquidations 214 Receivership 215 Representations, liabilities and warranties of title 216 Part 3 Mortgagees and Receivers Chapter 14 Overview of Mortgages and the Position of the Mortgagor 221 Legal mortgages 221 Equitable mortgages 222 The position of the mortgagor 222 The right of redemption 222 The terms of the mortgage 223 Undue influence 223 Chapter 15 Interaction Between the Rights of Mortgagees and Formål Insolvency Regimes 225 Bankruptcy 225 Voluntary arrangements (company and individual) 225 Administration 227 The effect of the moratorium 227 Sale of mortgaged property by the administratör 227 Liquidation 228 Creditors' voluntary liquidation 228 Compulsory liquidation 228 Chapter 16 Mortgagees' Remedies 229 Suing under the covenant to repay 229

Contents xvii Entry into possession 229 The right to possession - the restrictions 230 Statutory restrictions on the right to possession in respect of residential property 230 Vacant property 230 Administration of Justice Acts 230 Exceptions to AJA 1970 and AJA 1973 231 Mortgages repayable on demand 231 Mortgages regulated by Consumer Credit Act 1974 and Consumer Credit Act 2006 231 Reasonable period for repayment 232 Costs of an application for a possession order 232 The status of the mortgagee in possession 232 Rights of the mortgagee 234 Right to enforce leasehold covenants 234 Mortgagee's right to carry on business 235 Agricultural land 235 Mortgagee's right to grant and surrender leases 235 The mortgagee's power of sale and other remedies 237 The statutory power of sale (LPA 1925, s 101) 237 When the power of sale arises 238 Exercise of the power of sale 239 Duty to act in good faith 240 Duty to obtain best price 240 Contracting out of mortgagees' duties 241 Mortgagees' duties post-cuckmere 241 No duty to enhance the value of the mortgaged property 241 Mortgagee's liability for failure to märket the property correctly 243 Is there an obligation to sell a portfolio of properties individually? 244 Time-limit for challenging the mortgagee's conduct of sale 245 Sale to mortgagee 245 The proceeds of sale 246 Chapter 17 Receivers 247 LPA receivers 247 Fixed charge receivers 248 The agency and duties of the receiver 248 Position of third parties dealing with a receiver 249 Remuneration of the receiver 249 Termination of receivership 250 Duties of receivers when managing the mortgagors business 250 Costs awards against receivers and third parties 250 Cases where the receiver acts as agent of the mortgagee 251 Application of receipts by the receiver 2:>2 Administrative receivers Liability (if any) to mortgagor of third parties instructed by receiver -^~ 253 The abolition of administrative receivership 2>4

xviii Foreclosure 254 Limitation periods applicable to the enforcement of mortgages 255 Limitation period for actions to recover land 255 Limitation period for actions to recover mortgage monies where the mortgagee faces a shortfall 256 Claims for interest 257 Part 4 Property Assets and Personal Insolvency Chapter 18 Personal Insolvency 261 Introduction 261 The effect of bankruptcy 261 The matrimonial home 262 Official Receiver's and trustees' inquiries 262 The bankrupt's interest 262 The quantification of the bankrupfs beneficial interest in the property 263 Enforcement of the trustee's interest 265 Applications for an order for possession and sale 267 Charges under IA 1986, s 313 267 Orders for possession and sale 268 Human Rights and IA 1986, s 335A 271 Improving a party's share and equitable accounting 272 Improvements to the property 273 Equitable accounting 273 Mortgage payments and occupational rent 274 Mortgage contributions by the non-bankrupt spouse/partner 274 Mortgage contributions by the bankrupt 275 Equity of exoneration 276 Bankruptcy and commercial leases 277 Residential tenancies 278 After-acquired property (IA 1986, section 307) 279 Contracts for the sale of land 279 Secured creditors 280 Chapter 19 Ancillary Relief and Bankruptcy 281 Property adjustment orders 281 Insolvency Act 1986, s 284 282

Contents xix Transactions at an undervalue and Hill and Bangham v Haines 282 The Appeal 284 Part 5 Property Taxation and Insolvency Chapter 20 Tax 289 Introduction 289 An overview of taxes 290 Corporation tax 290 Income tax 291 Capital gains tax 292 Value added tax 293 Stamp Duty Land Tax 293 Other taxes 294 Liability for tax 295 Liquidators and administratörs 295 Value added tax 296 Sale of property 297 VAT 298 Option to tax 298 Liability to VAT 299 Transfer of going concern 299 Surrender of a lease 301 Råtes 302 Part 6 Appendices Appendix 1 The Options for Landlords with Insolvent Tenants 307 Appendix 2 Notice under Section 146 of the Law of Property Act 1925 311 Appendix 3 Notice of Disclaimer 313 Appendix 4 Notice to Elect - Liquidation 315 Appendix 5 Notice of Disclaimer under Section 178 of the Insolvency Act 1986 317 Appendix 6 Notice of Intended Disclaimer to Interested Party 319

xx Appendix 7 Notice to Elect - Bankruptcy 321 Appendix 8 Notice of Disclaimer under Section 315 of the Insolvency Act 1986 323 Appendix 9 Proof of Debt - General Form 325 Appendix 10 Witness Statement 327 Appendix 11 Application Notice 329 Appendix 12 Licence to Occupy 331 Appendix 13 Deed of Appointment of Receiver Under Law of Property Act 1925 341 Appendix 14 Written Acceptance of Appointment by Receiver 343 Appendix 15 Deed of Indemnity to Receivers 345 Index 347