This document was created in June 2000

Your views are sought on the proposal that landlords should not be able to effect peaceable re-entry (without consent or the leave of the court) whilst a company or individual is the subject of a statutory moratorium in an insolvency procedure.

The current position of landlords in the insolvency landscape is arguably unique.   As the law stands, a landlord’s right of peaceable re-entry does not constitute as security interest under the Insolvency Act 1986.   This is not always been understood to be the case.

1. Until 1997, the right of peaceable re-entry was considered by the courts to be a security interest for the purposes of the Insolvency Act and accordingly a landlord was not permitted to peaceably re-enter the premises of a tenant subject to an administration order unless the administrator or court consented.   However the decision in the case Razzaq-v-Pala   (1997 1 WLR 1336; 1998 BCC 66.) was that the right of peaceable re-entry was not a security interest for the purposes of S383(2) of the Insolvency Act nor did it constitute a remedy against the property or person of the bankrupt and that, therefore, there was no constraint on the landlord exercising his right of peaceable re-entry.   Whilst that case dealt with the issue in the context of a bankruptcy, it seems likely that the courts would take the same view in relation to corporate insolvencies and to the proposed company voluntary arrangement (CVA) moratorium contained in the current Insolvency Bill.   A similar principle applies to the individual voluntary arrangement procedure whilst an interim order is in force or pending.

2. The point has been made that unless the decision in Razzaq-v-Pala is reversed, business rescues attempted via a CVA moratorium (as set out in the Insolvency Bill) could be prejudiced as could those being attempted by the administration or individual voluntary arrangement procedures.   The soon to be published report of the Review of Company Rescue and Business Reconstruction Mechanisms recommends that the right of peaceable re-entry should be made subject to any insolvency stay of action and an amendment to that effect has been put down for consideration at Committee Stage in the House of Lords.

3. It could be argued that there is no need to legislate to prevent landlords from effecting peaceable re-entry as steps can be taken to prevent that from happening.   For instance a landlord cannot effect peaceable re-entry if there is someone present on the premises at the time who opposes re-entry.   But 24 hour cover may well involve incurring costs that a business can ill afford.   Additionally, a landlord who wishes to forfeit a lease by way of peaceable re-entry (other than for arrears of rent) must first issue a notice under Section 146 of The Law and Property Act and the tenant then has the right to apply to the court for relief from forfeiture.   As we understand it such a relief is usually granted where the breaches are capable of remedy within a reasonable period although that, too, may involve costs the tenant cannot readily afford.   Additionally, forfeiture is not a means of recovering outstanding rent but a long standing right designed to allow a landlord to protect his interest in his property where there has been some act or omission on the part of the tenant.   Whilst other creditors can decline to offer further credit during a moratorium, if a landlord is unable to exercise his right to forfeiture where rent is not forthcoming, he may become an unwilling and involuntary creditor.   They would, however, not be alone in that regard.   The owners of leased assets are currently unable to take action under their agreements (without leave of the court) whilst a moratorium is in existence.

However we do recognise that where exercised, this self help remedy can deprive a company of its trading premises and wreck its business.

4. On balance therefore the Government takes the view that, in relation to peaceable re-entry, landlords should be brought within the ambit of the statutory moratoria in insolvency proceedings.   Your views are sought on the proposal that landlords should not be able to effect peaceable re-entry without consent or the leave of the court whilst a company or individual is the subject of a statutory moratorium ie that proposed in the Insolvency Bill in relation to CVAs and that currently available in corporate and individual insolvency procedures.

Any comment you may have would be welcome.   In order that this issue can be determined in the context of the current proposed legislation on insolvency such comments are needed by no later than 7 July 2000.   Please send any comments to Philip Nicholls at The Insolvency Service, 21 Bloomsbury Street, London WC1B 3QW (e-mail: Philip.Nicholls@insolvency.gsi.gov.uk )