Tenant insolvency: Can Landlords Stop Worrying Now?

The Government recently released the insolvency statistics for the 2nd quarter of 2015. The headline figures for England and Wales, as quoted by the Insolvency Service, were:-

Companies

• Total company insolvencies in England and Wales decreased and were at the lowest level since the 4th quarter of 2007.
• This decrease was mainly driven by a decrease in compulsory liquidations, which fell to the lowest level since the 4th quarter of 2013.

People

• The total number of people who became insolvent in England and Wales decreased for the fourth successive quarter, to the lowest level since the 3rd quarter of 2005.
• The number of bankruptcies, debt relief orders and individual voluntary arrangements all decreased for the fourth consecutive quarter.
• The number of individual voluntary arrangements was at the lowest level since the 1st quarter of 2006.

While the figures are generally promising, landlords should not assume that the risk of tenant insolvency is no longer a major issue. Great care should still be taken when assessing a prospective tenant’s financial position, and landlords should continue to insist on additional security (such as a rent deposit or guarantee) where appropriate. If a guarantee is being offered, landlords should check the guarantor’s financial position just as carefully.

When a tenant becomes insolvent, it is important for landlords to know where they stand. It is also vital to know what action they can take against an insolvent tenant, as there are restrictions on what a landlord can do depending on the type of insolvency.

Landlords should also be aware of what to do to protect their position as best they can before a tenant becomes insolvent. Frequently landlords and other creditors will not receive any warning of a tenant’s insolvency until it has happened, by when it may be too late to take proactive steps.

If there are any signs that a tenant may be in financial difficulty or heading that way, gather as much information as possible, such as:-

• Obtain a credit report (check first if the tenant’s permission is needed).
• See what news and information are available on-line.
• Check any public registers eg Companies House. We can help you with this.

For more information, please contact Jon Mowbray, partner in IBB’s Real Estate Dispute Resolution team on 01895 207988 or jon.mowbray@ibblaw.co.uk.