What happens if your landlord is a company and it goes into liquidation? Surely your rights as a tenant under the lease are protected, right? Maybe not. The High Court has held that, even if your lease is registered, a liquidator has the power to disclaim your lease.
The relevant case was Willmott Growers Group Inc v Willmott Forests Limited (receivers and managers appointed) (in liquidation) [2013] HCA 51. The decision considered the power given to liquidators to relieve a company from any onerous obligations to enable a prompt, orderly and beneficial administration of the company liquidation (see section 568 of the Corporations Act 2001 (Cth)).
What does this mean for you if you’re a tenant? First, the notion of ‘beneficial’ does not extend to you. The High Court’s ruling that a liquidator may disclaim a lease means that, if a liquidator chooses to do so, your interest in the property as a tenant is extinguished – that is, it comes to an end. The result is that you could be treated quite unfairly and you may be unable to protect yourself from the risk of a landlord becoming insolvent.
Without going into the legal maxims and jargon that explain how the High Court came to this decision, there are a couple of practical tips to keep in mind going forward:
(a) this risk needs to be considered if you are considering entering into a long-term lease. Always do your due diligence to assess the risk of a company landlord going into liquidation;
(b) you may experience some difficulty with your financier(s) if there are any concerns in this regard, particularly where a business is heavily reliant on long-term leases;
(c) there may be the possibility for tenants to protect some of their interests by including a clause in the lease stating that title in any property, fixtures or fittings brought onto the premises by the tenant – such as tenant’s fixtures – will not pass to the landlord until the landlord has paid to the tenant the market value of that property, fixtures or fittings. You should speak to your solicitor about this when preparing or reviewing a proposed lease; and
(d) ultimately, it may be that in most cases a liquidator will prefer to retain the lease and deal with the land on a ‘subject to lease’ basis as the value of the land is often closely connected with the ability of the vendor to give immediate and secured return on investment for a potential purchaser.
The above is not intended as legal advice. You should obtain legal advice in relation to your own specific circumstances.
