Adding to my colleague Brian Conroy’s recent articles on Examinership: https://thoughtleadership.leman.ie/post/102g2k6/examining-examiners-costs-and-expenses and https://thoughtleadership.leman.ie/post/102g24j/administration-examinership-and-the-coronavirus - it is worthwhile to also look at the effects of an examinership process on the real estate portfolio of a company.
What are the benefits of examinership?
It is essentially protects a company from creditors for up to 100 days and allows a company the possibility of restructuring its debt. The examiner, at the conclusion of the examinership, provides their plan to save the company (a scheme of arrangement) and the company's creditors vote on its approval. Ultimately, it will involve creditors taking a discount on their existing debts and if they agree, it will be brought before the court for its endorsement.
What about rents before and during the examinership?
The examiner will treat any rent arrears incurred prior to the examinership as an unsecured debt and will therefore be discounted in line with other debts in the scheme of arrangement. In relation to rent payments due during the examinership period, landlords will often contact the examiner at the outset of the examinership to confirm that their rent will be certified by the examiner as an expense of the examinership (i.e. so it is paid in full). If the landlord fails to do so it runs the risk that the rent during the examinership will also be discounted under the scheme of arrangement.
How are the leases affected?
The appointment of an examiner does not of itself alter pre-existing lease arrangements, which remain binding on the tenant. If, as part of the scheme of arrangement, the tenant company wishes to continue its lease of a premises, the landlord's agreement will be needed to alter the terms. However, leases can be repudiated and disclaimed by the company, in particular those leases which are unsustainable. The simple fact that a company in examinership can repudiate a lease allows greater latitude to bring the landlord to the negotiating table and agree market level rents.
How can the lease be repudiated?
This is at the discretion of the Courts. The Court will take into account various factors, such as the terms of the proposed investment into the company, whether the existing lease contains onerous terms, the engagement between the company and the landlord etc.. A landlord can also object in Court to the application for repudiation. If the landlord's application to prevent the repudiation fails, they can seek that the loss of the rent under lease be included in the scheme of arrangement.
What should a landlord do when a tenant enters examinership?
A practical approach needs to be taken with the examiner with a possible eye to amending the terms of the lease. Depending on the circumstances, it may be in the landlord's interest to temporarily reduce the rent or agree a rent based on the tenant’s turnover - just to retain the tenant in situ. By having the tenant remain, the property will at least be occupied, secured and repaired (in accordance with the repair clauses in the lease).
Although examinership may not be a pleasant experience for either a landlord or tenant, the ultimate aim is to rescue the tenant’s business and return it to profitability and in the long run that can only benefit both parties.
Leman Solicitors have extensive experience in dealing with a wide range of Property law issues. Please do not hesitate Andrew or the team on 01 6393000 or visit www.leman.ie for more.