Could SpongeBob solve lease issue?

[Jay Gatsby]

Dear All,
I am looking for some advice. My situation isn't too complicated. Two years ago I decided I lost my "mojo" for my business. It was doing okay, but after 15 years I'd had enough. It is a mail order company selling various hardware, and I just got fed up dealing with complaints about Parcel Force deliveries and dented boxes (this is the shortened version). Furthermore, some other external headwinds started to emerge that made me finally decide that it was time to do something else. The drop in the pound was a big factor, as I imported my stock from Europe.

I have sold all the remaining stock and paid all creditors. VAT is all paid and there are no employees. However, there is 2 years left on the lease for a tiny office that I entered the business in to. I had to have an office because my family was growing and I needed somewhere quiet to get away to.

I am currently in dispute with the landlord, who is a large multinational. They have behaved very poorly with regards to the service charge, breaching the lease by issuing the new budget after the new accounting period started, slapping a 25% increase on. I am being bullied, effectively. I asked them to let me go, but they're having none of it.

There is just enough cash left to pay for the remaining 2 years of the lease, but this would mean not paying myself, and my family would suffer. My idea is to pay myself what is left and use the SpongeBob plan to kill the lease with the business. Is this acceptable?

I am a good person. I have run the business prudently at all times, and have been a good debtor (to all creditors) and tenant to the landlord. However, the landlord's behaviour has been disgraceful and I feel no sense of goodwill towards them.

As it stands I regard the landlord as a debtor. The rent account is up to date and they are holding a deposit. I didn't sign a personal guarantee.

What should I do? I worked hard over 17 years and feel I am entitled to have what's left so I have a little bit of cash (about £12000) with which to live on while I start my next venture.

 

[Mr D]

Is your business a limited company?

Is there a break clause in the lease remaining?

 

[obscure]

There is just enough cash left to pay for the remaining 2 years of the lease, but this would mean not paying myself, and my family would suffer. My idea is to pay myself what is left and use the SpongeBob plan to kill the lease with the business. Is this acceptable?

No it isn't acceptable or legal. You can't pay yourself (or a creditor) in preference over another creditor. Doing so could result in the courts deciding to pierce the corporate vale (make you personally liable for the companies debts) which would invalidate the whole purpose of Spongebob.

As it stands I regard the landlord as a debtor. The rent account is up to date and they are holding a deposit. I didn't sign a personal guarantee.

What should I do? I worked hard over 17 years and feel I am entitled to have what's left so I have a little bit of cash (about £12000) with which to live on while I start my next venture.

What you think and what the courts think are two different things. Sorry if you think this sounds harsh but the reality is that you were happy to enter into this legal agreement when it suited you and now that it no longer suits you you want to kick it to the curb.

If you believe your landlord has actually breached your agreement in some way you have the right to seek redress in the courts. What you don't have the right to do is stop paying money owed under a legally binding agreement in a tit for tat to get back at them or because you think you deserve some money. Doing so would put the company on the wrong side of a lawsuit and.... given the point above about you potentially being made personally liable that could impact on you and your family.

Before you do anything stupid, go and see a lawyer. Give them the details of your landlords behaviour and see if they think you have a case. If you do that might be a bargaining chip that could be used to help negotiate an exit. Alternatively try looking for someone else to take over the lease.

 

[Lisa Thomas]

The landlord will likely object to the dissolution.

They could Liquidate the Company and the Liquidator will then pursue you for the repayment of the funds you will have taken.

If the landlords are in the wrong then use some of the funds to dispute it with them properly through Solicitors and perhaps reach a settlement.

 

[Chris Ashdown]

Just because you vacate the building does not mean you have to pay all the remaining term of the lease in one go, you can continue paying monthly which would ease your transition to new working opportunities

Has the landlord done anything that is against the original contract, if not you are likely to lose any action they may bring

You may be able to sub let the office if the landlord agrees, maybe to a new startup

 

[Jay Gatsby]

Hi All, the landlord truly has been poor. They issued the first year accounts for the service charge 22.5 months after the period end, and was well over budget. They effectively hid the information from me. Had I had this information I would have exercised the 3 year break option, but this opportunity has now expired. Under the lease I should have received the accounts within a timeframe set by the RICS code which is 4 months.

Employing a litigation lawyer would cost thousands.

 

[Jay Gatsby]

So yes, they did break the lease terms in quite dramatic style.

 

[Mr D]

8

Hi All, the landlord truly has been poor. They issued the first year accounts for the service charge 22.5 months after the period end, and was well over budget. They effectively hid the information from me. Had I had this information I would have exercised the 3 year break option, but this opportunity has now expired. Under the lease I should have received the accounts within a timeframe set by the RICS code which is 4 months.

Employing a litigation lawyer would cost thousands.

Your choice then is to pay the landlord.

 

[Lisa Thomas]

[QUOTE="Employing a litigation lawyer would cost thousands.[/QUOTE]

But the Company has £12,000?

 

[UK Contractor Accountant]

[QUOTE="Employing a litigation lawyer would cost thousands.

But the Company has £12,000?[/QUOTE]that's by they bye!

 

[Lisa Thomas]

I don't believe it is - OP is implying the Company cannot afford the legal costs of dealing with the landlords claim properly, yet is sitting on £12k that they want to keep for themselves...

 

[Mr D]

I don't believe it is - OP is implying the Company cannot afford the legal costs of dealing with the landlords claim properly, yet is sitting on £12k that they want to keep for themselves...

Preferring all other creditors except the landlord.
How does an IP usually view that kind of action when investigating?

 

[UK Contractor Accountant]

Preferring all other creditors except the landlord.
How does an IP usually view that kind of action when investigating?

i think its the death penalty.

Nobody knows you intend to close down (apart from yourself) the company is solvent so pay yourself a well earned year end bonus and take it from there.

 

[Jay Gatsby]

If I begin litigation the billing will be £350 per hour + VAT, pre-litigation. This money will disappear very quickly. At litigation stage the business will run out money and go insolvent. I would prefer to do this than give the money to landlord, who has deceived me regarding the service charge. If I win, I will get the litigation money back, assuming that the business doesn't run out of money before the ruling. A very difficult position to be in.

 

[Mr D]

If I begin litigation the billing will be £350 per hour + VAT, pre-litigation. This money will disappear very quickly. At litigation stage the business will run out money and go insolvent. I would prefer to do this than give the money to landlord, who has deceived me regarding the service charge. If I win, I will get the litigation money back, assuming that the business doesn't run out of money before the ruling. A very difficult position to be in.

So what do you want to do?

 

[Jay Gatsby]

I just don't know. I'll have to keep thinking about it, but the comments on here have been very good in terms of stimulating my thoughts processes. I hope to have greater clarity soon.

 

[Chris Ashdown]

Did the lease expressly state "Under the lease I should have received the accounts within a timeframe set by the RICS code which is 4 months." or is it a suggestion that they should do that

 

[Jay Gatsby]

The lease states that the service charge is to charged in "accordance with the principles of good estate management and the RICS code for service charges". The RICS code states 4 months to produce the service charge accounts. This is why I am being treated unfairly. I should have had the accounts before the break clause exercise date to assess the manager's performance. It's so unfair.

 

[UK Contractor Accountant]

Detailed statements of actual expenditure, together with accounting policies and explanatory text, should be issued within four months of the service charge year-end.

Mandatory vs good practice provisions
Sections within professional statements that use the word ‘must’ set mandatory professional, behavioral, competence and/or technical requirements, from which members must not depart.

Sections within professional statements that use the word ‘should’ constitute areas of good practice. RICS recognises that there may be exceptional circumstances in which it is appropriate for a member to depart from these provisions – in such situations RICS may require the member to justify their decisions and actions

 

[Mr D]

The lease states that the service charge is to charged in "accordance with the principles of good estate management and the RICS code for service charges". The RICS code states 4 months to produce the service charge accounts. This is why I am being treated unfairly. I should have had the accounts before the break clause exercise date to assess the manager's performance. It's so unfair.

Fair matters to you. It does not appear to apply in business contracts agreed by you.
Pay the landlord or spend money to dispute matters. Those appear to be your options, claiming it's so unfair may make you feel better but does not change the facts.

 

[Jay Gatsby]

Yes, I agree. It appears that fairness and the law are not always in harmony

 

[Mr D]

Yes, I agree. It appears that fairness and the law are not always in harmony

Is it fair to sign a contract then refuse to pay it?

 

[Alan R Price]

If the company has £12,000 in the bank, it's worth taking formal legal advice from a specialist property solicitor. You do not need to enter into litigation just because you seek advice; and at least you will get an informed view. You do not need to pay £350 a hour. I can recommend a very good property lawyer who will not be nearly that expensive, if you ping me a PM.

The Spongebob Plan is not appropriate, in my view (and I helped formulate it, back in the mists of time), because the company has a material amount of funds. It's really intended for situations where there is no money left, and it could come back to bite you on the bum if you ignore the landlord's claim. The best way, in my view, would be to find out the true legal position and then try to do a deal with the landlords. If they have acted improperly, they will know this and are likely to be amenable to settling, galling as it might be to have to give them anything.

 

[Lisa Thomas]

Preferring all other creditors except the landlord.
How does an IP usually view that kind of action when investigating?

It's classed an illegal preference under the Insolvency Act

http://www.legislation.gov.uk/ukpga/1986/45/section/239

IP can pursue the creditor or the Directors for repayment.

Creditors can argue good faith etc so it's easier to pursue Directors when the entity preferred was a connected party. Depends on circumstances, amounts involved, whether the Company was insolvent at the time etc.

There is often a deal that can be done depending on the circumstances and comparing with the risks and costs of taking it all the way to Court.

The transactions are also disclosed to the Insolvency Services who decide whether a fine or disqualification are relevant.

 

[Mpg]

Could the OP not pay himself that £12k as a PAYE salary

 

[Mr D]

Could the OP not pay himself that £12k as a PAYE salary

Still be a preference?

 

[Lisa Thomas]

It's still a preference as it would be a lump sum and the taxes would not have been deducted and declared in accordance with RTI.

It would likely be classed as misfeasance as an attempt to try and take the entire funds and retrospectively declare it as a wage.

 

[Spongebob]

What you could do is to stick the 12 grand somewhere safe and then follow the Spongebob Plan. If the landlord begins winding up proceedings simply pay them the money. My guess is that they won't actually do anything. Do they know that the company has 12 grand kicking about?

In the meantime when is the company's next Confirmation Statement due? This is the new shortcut to getting a company dissolved.

Simply don't submit the Confirmation Statement. Companies House will warn you that the company will be dissolved in a couple of months unless you submit it. Ignore them.

Two months later the company will be dissolved.

The 12 grand will then become the property of the Crown. Technically. If the Treasury Solicitor comes looking for it write him a cheque. It is highly unlikely that he will.

I don't see that you have anything to lose and potentially much to gain. You might consider that it is worth a punt.