I assigned my shop lease to a tenant over five years ago. The landlord has now demanded rent from me because that tenant is insolvent. Can it do this?

This is a problem that an increasing number of retailers are facing as the number of businesses failing because of the recession rises.

Paul Tonkin, a lawyer in Lovells’ real estate practice, says that the answer to this question will depend, in part, on when your lease was granted.

“If it was granted before January 1, 1996, you will remain liable under the lease for the whole term, even if you have assigned it,” he says. The landlord can therefore require you to pay the rent.

However, if the lease was granted on or after January 1, 1996, you will only remain liable if you entered into what’s known as an Authorised Guarantee Agreement (AGA) when you assigned the lease. Tonkin warns that the landlord may have required this as a condition of the assignment.

He continues: “In either case, the landlord is only able to recover the rent from you if it has served the correct form of notice on you within six months of the rent falling due.”

Tonkin concludes that if you are required to pay the rent, you are then entitled to ask the landlord for an overriding lease of the premises. This is a new lease that sits in between the landlord and the existing lease, enabling you to deal directly with the insolvent tenant and take back some control over the premises.

 

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