A recent landlord and tenant issue that our office dealt with raises a few important issues for landlords. The landlord rented an industrial shed to a company that conducted a paper and cardboard recycling business. After a few months of non payment of rent the landlord received notice that the tenant company was in liquidation. The liquidator advised the landlord that prior to entering into liquidation the tenant sold the business to another company. The landlord was faced with several problems. Firstly, the cardboard, paper and machinery remained in the shed. Secondly they received notice from their insurer there would be no insurance cover for the building (which consisted of a number of industrial sheds with other tenants) where recycling is conducted. No other insurer would accept the risk. Thirdly, the representative of the new company (who incidentally was also the representative of the tenant company in liquidation) would not remove the recycling materials before the insurance cover ceased.
The landlord had the very real risk that if there was a fire or damage to the premises after the insurance cover ceased, not only would they lose their building, but also expose themselves to claims from other tenants and third parties.
While the tenant was in breach of the lease for non payment of rent and in liquidation quick action was required to ensure that the lease was validly terminated. Where a company enters into liquidation a liquidator is required to disclaim or affirm contracts with third parties. In this case the lease. To clear any rights that the liquidator may have as tenant standing in the shoes of the company notice of disclaiming the lease was quickly obtained. This was the easy part.
With the insurance deadline looming the landlord had a dilemma. While the liquidator said that the tenant had sold the business to a new company the landlord had no conclusive proof of whether the liquidator was going to try and recover the property as a transaction to defeat creditors, whether there had been a valid sale to the new company or whether third parties owned or had an interest in the stock and machinery. Removing the recycling material and disposing of it exposed the landlord to claims for compensation by all these parties.
A very practical method was used to resolve the problem. The landlord told the representative of the new company who claimed ownership of the stock they would lock the gate and have the recycling material removed. The landlord saw this as a lesser risk than having an uninsured property. Prior to the deadline the new company removed the recycling stock. The machinery remains and the landlord will negotiate with whoever can show they have a right to the machinery and provide the landlord with costs and an indemnity.