Commercial Leases And The Disclaimer Process - A Brief Guide

One of the effects of the current economic climate has been a

marked increase in the number of tenants going into liquidation.

Consequently, many landlords have found themselves on the receiving

end of a notice of disclaimer from liquidators relating to their

property.

What follows is a brief guide to the disclaimer process in the

context of leasehold premises and company tenants.

Power to Disclaim

According to s.178 of the Insolvency Act 1986 ("IA"),

a liquidator has the power, without the leave of the court, to

disclaim 'onerous property'. 'Onerous property'

includes property that 'may give rise to a liability to pay

money or perform any other onerous act'. As a lease imposes

liabilities on a tenant, including the payment of rent and the

performance of covenants, it can clearly be classified as onerous

property.

By giving the prescribed notice, a liquidator can disclaim

onerous property even though he may have taken possession of it,

endeavoured to sell it or exercised any other rights of

ownership.

The Disclaimer Procedure

Liquidators must follow a strict procedure when disclaiming a

property. First, a notice of disclaimer, and a copy, must be filed

with the court in the prescribed form. This must contain enough

detail to make the property easily identifiable and it must be

signed by the liquidator. The court will then ensure that both the

notice and the copy are sealed and endorsed with the date of filing

and will return the copy to the liquidator to serve.

Within seven days of the notice to disclaim being returned by

the court, the liquidator must send or give copies of the notice to

every person who, to his knowledge:-

claims under the company as underlessee or mortgagee;

claims an interest in the disclaimed property;

is under any liability in respect of the property, not being a

liability discharged by the disclaimer; or

if the disclaimer is of an unprofitable contract, is a party to

the contract or has an interest under it.

A failure by the liquidator to serve notice on a person whom he

is aware of will invalidate the disclaimer. In addition, the

liquidator must immediately send a copy of the notice to anyone who

they subsequently learn has a relevant interest in the property,

otherwise the notice will be invalidated. The exceptions to this

are if the liquidator knows that the person has already been made

aware of the disclaimer, or the court (on the liquidator's

application) orders that compliance is not required.

The disclaimer...