Corporate Tenant Struck Off – What Happens to the Lease?
Unfortunately, over the last few years, and following the coronavirus pandemic many companies have floundered in the face of the economic downturn. In the worst cases, this resulted in them being removed from the companies 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 that often arises is, what happens to a lease, if the corporate tenant struck off the register 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.
Once the corporate tenant is struck off the register or becomes insolvent, its assets become ‘bona vacantia’ (meaning ‘ownerless goods’) and automatically pass to the Crown. The company’s bank account will be frozen and any credit balance will be transferred to the Crown. Where a Residents’ Management Company (RMC) has a freehold interest in land this will also pass to the Crown. However, the Crown does not assume any liabilities of the dissolved company and so will not maintain the common parts of any land, insure it or pay rent.
The Bona Vacantia division of the Crown is administered by the Treasury Solicitor’s department. As the Crown do not take on the liabilities of companies they often disclaim the land (i.e. give up rights to) if they consider it is onerous or valueless property. This is often the case with common parts on estates or blocks of flats.
Nothing on the Title Registers of the property changes when property becomes bona vacantia so the Land Registry will still show the dissolved company as the Registered Proprietor (owner).
It is important to note, though perhaps obvious, that action cannot be taken against a corporate tenant struck off of the register, as the company no longer exists.
Disclaimer by the treasury solicitor
If assets are disclaimed by the Crown then they are treated as if they never belonged to the Crown at all. The effect of disclaimer on freehold property is that the freehold interest that once belonged to the dissolved company extinguishes and the land itself reverts to the Crown as part of the Crown Estate. This is a process called Escheat.
The effect of a disclaimer by the Crown on leases is that the lease is extinguished but remains subject to the provisions for disclaimer set out in the Companies Act. In practical terms the vesting of a leasehold estate is less likely as the landlord could have taken action to recover the property prior to the company being dissolved. If the landlord did not forfeit the lease until after the company was dissolved, then the lease would vest in the Crown and they would have had the right to apply for relief from forfeiture. If they took no action, the lease could be terminated by the landlord.
Restoration of the company
A member (shareholder) of a struck off or dissolved company or a creditor (such a landlord) of a struck off or dissolved company can apply for a company restoration within 6 years of a company dissolution (longer in certain cases) to restore a struck off company to the register. A landlord could apply for a the restoration of a corporate tenant struck off the register, though this can be timely and costly.
It is possible for a dissolved company to be restored to the register. If such restoration occurs, S1032 of the Companies Act 2006 provides 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”.
An application for administrative restoration of the company to the register must be made by a former director or member of the company within 6 years of the dissolution and can only be applied for if the company was struck off under s1000 of the Companies Act 2006 i.e. if It was struck off for failure to carry on business.
There will usually be penalties to be paid to Companies House for late filing and late accounts. The penalties vary depending on the length of time the documentation has been outstanding.
The effect of administrative restoration is as if the company has never been dissolved.
Repayment of funds on restoration
If a dissolved company is restored to the register then the Treasury Solicitor will refund any cash balances belonging to the dissolved company collected on dissolution as well as the proceeds of sale of any assets sold when the company was dissolved.
The Legal Department of the Government has published guidance on the restoration of companies.
If you are a landlord and your corporate tenant has been struck off the register, or become insolvent you can complete our enquiry form and a member of team will contact you.
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