Liquidators right to disclaim lease

Tenants make sure you protect your things

Commercial leases are usually more favourable to landlords than to tenants. There is always a clause in there that says if the tenant is placed into liquidation, it is a breach of the lease. What a lot of tenants do not consider when signing up to a lease, is what happens to them and their lease if the landlord is placed into liquidation.

A liquidator may disclaim a lease despite the existence of what the tenant thought was a ‘binding agreement’. What does this mean? In practical terms, if a liquidator had a buyer for the property who wanted vacant possession, the liquidator may end the lease, kick the tenant out and sell the property to that buyer. This seems unfair, but a liquidator is appointed to realise the assets of the landlord for the benefit of its creditors, they are not there for the tenant.

A tenant can apply to the court to set aside a liquidator’s disclaimer, but the court will do so where the prejudice to the tenant is grossly out of proportion to the prejudice the landlord’s creditors would face if the disclaimer were set aside.

It is like looking into a ‘crystal ball’ to see if you as a tenant may face this problem, but thought should be given to how much investment you make into the premises in terms of fitouts and how you may be able to protect that investment.

If you would like to discuss further, please call 3310 8716 or email us!