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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 26069
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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, i have a complicated situation i am trying to unravel and

Resolved Question:

Hi, i have a complicated situation i am trying to unravel and hope you can assist me to make a decision.
I am looking at buying a piece of land. The land has a barn on it but the barn is not included in the sale as it is is owned by a company who have a verbal lease over the land.
Mr A Purchased the land and obtained planning permission to erect and run a fish farm. He then leased the land to his company, FISH, who erected the barn and established the fish farm. Mr A has now gone bankrupt privately and his company, FISH has gone into liquidation. The Receivers are selling the land with no paperwork, lease, information or anything that may assist us, simply stating the lease is governed by the Landlord Act 1954.
The assets remaining on site are minimal, the barn is the the largest, but is now 10 years old and damaged. The majority of the fish farming equipment has been removed, there are tanks etc, but all are stagnant and damaged.
The liquidator is still claiming to be in possession of the verbal lease as no notice has been given by him or served by the receivers.
How do we terminate this lease and what are the consequences if we buy the site.
Submitted: 2 years ago.
Category: Law
Expert:  Joshua replied 2 years ago.
Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

For the avoidance of any doubt to ensure I understand the position correctly, the land itself is owned by a private individual who has been made bankrupt. Before he was made bankrupt he at least part of his land to a limited company also controlled by him which is now subsequently also been liquidated and struck from the company register. Do I understand all of that correctly?

Customer:

Yes, but the Limited company has not been struck from the register as it is still in liquidation. There are over £600,000 of debts altogether.

Joshua :

Thank you. Is the land being sold at auction or by private treaty (i.e. by offer in the usual way)

Customer:

Its at auction next week

Joshua :

Thanks. Finally is it your understanding that there was never a formal lease document entered into but rather just a verbal tenancy between the owner and his limited company?

Customer:

The receivers, or mortgagees are selling it subject to the lease of occupation that the liquidator claims to be in existence under the 1954 act. However it is only verbal. There is no paperwork relating to any lease.

Joshua :

thank you. the position here from what you say is that if you simply go ahead and purchase the land on the basis of your understanding as things stand is that there is an unknown quantity with regards ***** ***** status of the company in liquidation's tenancy over part of the land. There may or may not be a formal lease document and even if there is not, the may or may not be an implied lease with security of tenure under part two of the 1954 act. It is for the receiver to evidence the existence of a tenancy right. He can do so either by production of the lease document or by producing evidence of payment of rent by the company to the bankrupted owner. If you can show either of these things, he has the basis to claim a lease of the land for the benefit of the company with protection from part two of the 1954 act if the use of the land was for business purposes and there is not a written lease document which excludes security of part two of the act. As to what this means...

Joshua :

ideally, you would make contact with the receiver and ask him to advise the basis upon which a tenancy is claimed on behalf of the company. Does he have a written lease document and if so can you have sight of it. If not, does he have evidence of rent payments made by the company and if so what was the amounts and members the last payment made. The receiver does not have to provide you with this information but he may be willing to. You can also inspect companies house documents to see whether there is any reference to a lease of the land. You can also inspect the land registry title for the land itself - any lease granted for more than seven years hsould be registered against the title. If you are unable to confirm the position...

Customer:

The receivers requested sight of the lease 4 years ago..... it has never been produced. There is nothing registered on the land registry title document (other than bankruptcy notices and mortgage charges)

Joshua :

if you are not able to confirm the position which may be the reality, you will need to consider the potential risk of acquiring the land without clarity in respect of the tenancy that may or may not exist. If the receiver were not able to produce any written lease and cannot show any evidence of payment of rent then it should be a relatively simple matter of delivering a notice to quit to the receiver giving 30 days notice and then taking control of the land. Equally, if a written lease does exist, the overwhelming majority of standard commercial leases contain forfeiture provisions both for non-payment of rent for 28 days or more and in the event the lesee becomes insolvent. finally, if there is no written lease studies evidence of payment of rent, then you could consider servicing a s146 notice of forfeiture to the insolvent company receiver which gives notice that unless rent is paid up to date, you will seek forfeiture of the lease in court.

Joshua :

It is also worth remembering that commercial lease is generally represent a liability to a receiver rather than an asset assuming a rack rent is charged. In that sense a receiver of an insolvent company will often be very keen to give up a lease rather than seek to maintain it. however, the concern here given the relationship between the bankrupt and insolvent company might be that the bankrupted individual may have granted a lease on very attractive terms - i.e. with a low peyment of rent. That situation is likely to be the most significant risk because if a low rent lease was granted, the worst-case scenario might be that the rent is paid up to date and then sold to a third party who could continue the going concern of the fish farm paying only a small amount of rent to you.

Customer:

The fish farm is no longer a going concern and hasn't been for a 4 years. It would need a vast investment to set it back up as a going concern.

Joshua :

Accordingly, if purchasing at auction, and you are not able to clarify the terms of the lease either by sight of the lease document nor by evidence of payment of rent, it becomes a question of assessing risk and benefit. You cannot be sure of what you are buying in that you cannot guarantee that you will have use or a commercial rent of the land in question. This greatly impacts the value of the land because by definition it becomes a to some extent a roll of the dice. This is often why land is sold at auction and where there is no information, you need to decide what you are prepared to risk financially on the investment.

Joshua :

it is potentially quite possible using the above techniques to forfeit any lease that does exist but the worry is that rent payable under the lease is low and the receiver may pay up and then seek to sell the lease. If you can try to find out if any rent has ever been paid that will help you a great deal in assessing how significant the risk might be

Joshua :

you can also factor in the value of any assets on the land and therefore how likely any third party may be to want to buy that land given the investment that may be required to bring it into use.

Customer:

So if the liquidator has no lease, we are in a better position to evict him form the land?

Joshua :

with auctions, as I'm sure you are well aware, it is frequently not possible to tie up all fully assess risks of what is being purchased. Where this is the case, this fact should be fully reflected in the price that is paid for the land at auction. All you can do in such situations is calculate the maximum you might be willing to risk in the hope that the above case scenario does not turn out to be the case which is distinctly possible. If the auction bids go higher than your calculations on risk and return then walk away.

Customer:

Thank you. can you tell me, if the company has been in liquidation for the last 4 years, should the liquidators have been paying rent to the landowner?

Joshua :

With reference to your last post, remember as above that in order to evidence a lease, the receiver must produce either a written lease document or evidence of rent payments to the bankrupt individual. If you cannot evidence either of these things, he will not be able to evidence a lease. In either event in order not to be at risk of forfeiture on your part of any lease that he may be able to show as above, he would need to be able to bring rent payments up to date, and where there is a written lease, there may be a clause that automatically forfeits the lease upon insolvency. If the receiver is not in a position to bring rent payments up to date on any lease he can evidence, then you may seek forfeiture of that lease. Failure to pay rent, means any lease is likely to be subject to forfeiture

Customer:

Thats great. One more question relating to the barn. The comany, FISH, ordered the barn and had it erected 10 years ago. It was never paid for. The suppliers of the barn served a winding up notice before the 6 year annivesary of the debt, but it was given after the 6 years. There is no claim to title on the land registry, does the barn owner simply become a creditor of FISH or do they have a claim on the barn?

Joshua :

The barn supplier has a claim against FISH not you. As the barn has been built on the land it will belong to the landowner (you if you buy) even if there is a valid lease. It is unlikely any claim brought after 6 years would be successful against FISH in any event as it is beyond the limitation period set by law.

Joshua :

Have I been able to help you with all your questions on the above?

Customer:

You have been a great help, it has clarified a lot of points we were unsure of. Can you confirm for me one last time, that without a written lease or proof of payment, FISH or the liquidators do not hold a lease under the 1954 Landlords Act?

Joshua :

Sure. Could you just give me one moment - I have had to take a phone call.

Customer:

sure no problem

Joshua :

Sorry about that...

Customer:

Its fine :)

Joshua :

if the receiver can evidence a lease as above, that lease will have protection under part two of the Landlord and Tenant Act if he can show that land was used for business and rent was paid and there was no clause in any written lease that excludes part II Landlord and Tenant Act.

Joshua :

so it is not true to say that without a written lease, the liquidator cannot hold a lease without part II 1954 protection. Protection applies automatically unless of course I do know these exists or there is a provision in a valid provision in a written lease excluding part II protection.

Joshua :

Does the above answer all your questions or is there anything I can clarify or help you with any further?

Customer:

Really sorry, could you just re-read that, it doesn't quite make sense?

Joshua :

Certainly - I'll try to put it another way.

Joshua :

I hope from the above you are clear on what the liquidator needs to do in order to evidence a lease. if he can evidence a lease on the above terms, that lease will enjoy security of tenure under part II landlord and tenant act unless there is a clause in a written lease document excluding part II protection.

Joshua :

That said, part two protection or not, rent must still be paid up to date and failure to pay rent will mean that you can seek forfeiture of the lease.

Joshua :

Has the above answered your questions satisfactorily?

Customer:

That makes sense! Thank you. You have been fantastic. Is there a way i can save your details in caase i want to ask any further questions if we do buy the site?

Joshua :

Yes certainly. You can ask for me by name in the first line of any future question or reach me through my profile on the below link:

Joshua :

http://www.justanswer.co.uk/law/expert-joshua/

Joshua :

I am glad I was able to help.

Joshua :

If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with please reply back to me though

Customer:

Will do. Thank you again.

Joshua :

Best wishes

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