Tue 02 Sep 2014

Corporate tenant struck off - what happens to the lease?

Sadly, over the last few years, many companies have floundered in the face of the economic downturn. In the worst cases, this resulted in them being removed from the register following insolvency. Companies can also be struck off the register for failure to comply with registration requirements, such as submission of annual returns or accounts.

The question is, what happens to a lease, if the tenant was a company and has been struck off or dissolved and therefore removed from the register. The landlord needs certainty, to ensure that it is then free to let the property to someone else.

A case last month has made it clear that if the appropriate disclaimer is obtained from the Crown's representative, this ends the lease.

Property of dissolved companies goes to the Crown as bona vacantia

S1012 of the Companies Act 2006 ("Act") says that when a company is dissolved, all of its property and rights (including lease rights) are deemed to be bona vacantia - which means ownerless property - and these fall to the Crown.  In Scotland, the representative of the Crown for these purposes is called the Queen's and Lord Treasurer's Remembrancer (or "QLTR").

QLTR disclaimer terminates the lease

In terms of S1013 of the Act, the QLTR is entitled to reject the property - called disclaiming it. The effect of such a disclaimer is (by virtue of S1020 of the Act) to terminate the interest of the dissolved company in the property (which includes any interest as tenant under a lease).

So far so clear I hear you say. The non existent company's property interests are terminated if the QLTR issues the appropriate disclaimer.

What if the company is restored to the register?

Yes, but it is possible for a dissolved company to be restored to the register.  If such restoration occurs, S1032 of the Act says that the "general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register".  On the face of it, this general deeming of things being as they were conflicts with S1020, which treats as at an end the interest of the dissolved company in any of its property in respect of which the QLTR has issued a disclaimer.

It is important to know which provision trumps the other, so that those dealing with property in which a dissolved company has had an interest can be certain that any rights that they've acquired since the company's demise can't be swept away if the company is restored to the register.

ELB Securities Ltd v Alan Love & Prestwick Hotels Ltd

In this case:

·  ELB was landlord under a lease of property in Buchanan Street, Glasgow. Prestwick Hotels had been the tenant, before they were struck off  in June 2013 due to persistent failure to lodge accounts with the register.

·  After Prestwick Hotels' dissolution, ELB applied to the QLTR for a disclaimer of the Crown's interest as tenant under the lease - and the disclaimer was issued in July 2013.

·  In October 2013 Prestwick Hotels was restored to the register.

·  As it considered that the lease was at an end (by virtue of the operation of S1020), ELB applied to the court for a declarator to that effect. Prestwick Hotels disagreed - arguing that S1032 trumped S1020, so that the pre-dissolution situation had been reinstated, and they remained tenant under the lease.

·  The Sheriff agreed with Prestwick Hotels, but this was overturned by the Sheriff Principal who decided in favour of ELB.

The Sheriff Principal was clear that:

·  Parliament could not have intended that the rights of other parties should be in limbo for the 6 year period during which it was possible to apply to court for restoration of a company to the register.

·  General rules of statutory interpretation included the favouring of a meaning that would not produce an absurd result. The court agreed that it would be absurd if the general provision about the restored company being deemed to have continued in existence as if it had not been dissolved or struck off could trump the more specific provision about property rights being terminated by a Crown disclaimer.

·  He went on to note that the interpretation put forward by Prestwick Hotels was a "recipe for commercial chaos" - as any new tenant could be deprived of its rights at any time up to 5 or 6 years after the original tenant had been struck off, it there was restoration of the original tenant to the register.

Certainty is good

This decision will be welcomed by property owners whose tenants have been dissolved or struck off, as it gives them a certain route to be able to demonstrate to potential buyers or new tenants that the existing lease has ended.


If you would like to discuss these issues further, please contact us.

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