Can a landlord be forced to accept a rental deposit?

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In Part 2 of a blog series, we look at whether a landlord can be forced to accept a lease withdrawal and what the consequences are.

This point was recently discussed in the context of a scheme of arrangement where the Court concluded that a landlord cannot be compelled to accept a lease withdrawal as it affects the landlord’s property rights and therefore falls outside the scope of the agreement.

At the beginning of this year we published a blog in which we summarized the conclusions from the challenge of the landlord to the Debenhams Curriculum vitae. In short, the court found that a CVA cannot change a landlord’s right to forfeit because it is a property right. A landlord therefore retains expiry rights from the rental agreement and can exercise these (if there is a reason for expiry) if his tenant enters into a CVA. For more details and to read this post in full, click Here.

More recently is the case of Instant Loans is considering whether a regulatory agreement could oblige the landlord to accept the handover of their lease.

Outside of bankruptcy, a lease can only be abandoned amicably, meaning a landlord cannot be forced or obliged to agree to an assignment agreement and there may be good reasons why a landlord will not accept an assignment. For example, if a landlord repossesses a property, the responsibility for paying the business rates goes back to the landlord. In addition, there are environmental risks and tenant liabilities that can fall on the landlord after the property has been returned.

By doing Instant Loans In the case where the terms would actually require landlords to accept a surrender, whether or not they consented, the Court concluded that a system of agreements cannot oblige landlords to accept a surrender if so Could have consequences that a landlord would otherwise not be willing to accept – e.g. responsibility for paying business fees, environmental liabilities, etc.

The court concluded that unilateral termination of a lease significantly changes the landlord’s ownership of the property. This is outside the scope of a regulatory scheme that can only treat the rights between the parties as debtors and creditors, but not rights that exist between the parties as landlords and tenants. As such, a regulatory scheme cannot require a landlord to accept and repossess a handover.

The decision recognizes that there is no substantial difference between a system of agreements and a CVA. Accordingly, we expect the conclusions in Instant Loans also apply to CVAs, so that a CVA proposed by a tenant cannot oblige a landlord to accept a waiver of the lease.

Continue reading:

Part 1 of this blog series looked at the question: does a voluntary agreement by a company permanently change the terms of a lease? To read this in full, click Here.

The third part, which will be published later this week, looks at: What are the consequences of withdrawing money from a rental deposit if the tenant company is in the administration?

© Copyright 2021 Squire Patton Boggs (US) LLPNational Law Review, Volume IX, Number 336

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