Landlord in Administration owes outstanding invoices, hold back rent?

[lukeh1101]

Good Afternoon,

We have been awaiting payment on a couple of invoices for a few months, one for the full invoice amount and another for just the VAT element.
As they did not pay on time (as well as maintainance issues with the property) we held back rent but have now found that the landlord's company has gone into administration.

Administrators have now passed on the management of the properties to a local commercial property consultants who have asked for the rent to be paid. We know that rent should not be held back usually but we didn't see why we should pay them when they are refusing to pay us. There has been no issue with the product we sold, they even came back to us for more, hence the second invoice.

Does anyone have any advice?

Thanks

 

[kulture]

Pay the rent before you get kicked out? Explain the situation to the administrators, but it is unlikely that you will ever see the invoice money, but you must keep up with the rent otherwise they may have cause to break the lease (which might be in their advantage to give them an empty building to sell)

 

[lukeh1101]

Buildings aren't selling in our area. We aren't afraid that they will kick us out because the building is custom made for us and no-one else would pick this over several other buildings in the area.
We don't see why we should pay them when there is outstanding invoices, incomplete maintainence work (which is likely to not get done due to the company going insolvent). The way we see it is that we are giving them money to pay back other people when we are owed money. Why is our money any less important?

Would you loan out to the company but knowing you will never get your money back?

 

[bigeasy]

Hi Luke, I totally see where you are coming from, and on a moral level I agree with you 100%, if I were in your shoes I'd be doing the same thing and asking the same questions. Unfortunately from a legal standpoint I think you'll still have to pay the rent and hope you get something back from the administrators.
Have you tried speaking to the administrators directly to explain the situation? They might be sympathetic to your cause.

 

[Alan R Price]

Luke

I agree with you totally that it seems logical that you can hold back the rent, however there will usually be something in the lease that says specifically that you cannot withhold rent in the case of a dispute with the landlord; and rent arrears in themselves are sufficient grounds to forfeit the lease. If I were the administrator (I am an insolvency practitioner) I would be pursuing payment on threat of forfeiting the lease.

I take on board the point that the premises have been custom-built however the administrator has a very big stick to wield. After all, it's no skin off his nose if you have to stop trading. I do however suggest you take specialist legal advice to see if there is a loophole you can exploit. It's too important to rely on free advice given in an Internet forum.

 

[Doodle-Noodle]

Can't youi get something retrospectively from the landlord to confirm that rent was paid (their unsettled invoice in lieu of rent?) - obviously, I know nothing about L&T but it seems really unfair that you should be suffering financial loss.
If the landlord apportioned your unpaid invoice to cover your rent, it would probably be no skin off their nose at this time. Can this be done?

 

[lukeh1101]

Hi all, thanks for the replys.
I've done a little research and it seems there is legislation in place for those who are debtors and creditors of the same company going into administration.

From what I've found it is called insolvency set-off and legislated under Rule 4.90 of the Insolvency Rules 1986.

INSOLVENCY SET-OFF
Rule 4.90 of the Insolvency Rules 1986 (the Rules) provides for automatic set-off in a liquidation where there have been 'mutual credits, debits or other mutual dealings' (the mutuality requirement).
The requirement for mutuality means that debits and credits can only be set-off between two parties who beneficially own cross-claims against each other. Insolvency set-off does not, for example, produce a global set-off between two corporate groups.
In addition to the requirement for mutuality, the other key characteristic of insolvency set-off is that it is mandatory. Parties cannot contract out of the operation of the insolvency set-off rules and, to the extent that a contractual right of set-off and insolvency set-off are inconsistent, the latter will prevail.

We have informed the administrators and commercial property agents of this and I will update the post should anyone else face a similar situation.

Thanks to everyone who has helped!

 

[Alan R Price]

I don't believe you have any right of set-off. On the one hand you have a claim for unpaid invoices and on the other you owe rent. The two contracts (i.e. one for supply and the other a lease) are totally different in nature and there is therefore no mutuality of dealing. Furthermore re the point I made previously about the contractual terms of the lease - have you checked this out? Even if there were an ostensible right of set-off, this would be over-ridden by any provision in the lease prohibiting set-off.

Set-off is a complicated issue and you could be jeopardising your position if you fail to pay the rent.

 

[lukeh1101]

I have been unable to find any precedent that disregards mutual dealings as differing in nature. "Mutuality does not require that the claims should arise at the same time, nor that there should be any connection between them. Moreover, it is irrelevant that the claims be of a different nature".

Im sure you know more about this than me, but im unable to reason with paying this amount when I see no precedent set or legal reasoning telling me I am wrong by off setting these amount to get an overall balance due.

I have looked through our contract and there is no mention of any term against set-off deduction.

 

[Alan R Price]

Luke

I think the important point is that there must have been "dealings" between the parties. Where the parties have been used to supplying each other, there is a clear pattern of dealing, so mutual debits and credits occur and the obligation to set-off is obvious. In your case however, there has been no pattern of dealing where you have previously set off invoices against rent, which I believe is where your problem arises.

Still, the law is confusing and apparently contradictory, so it might be worth a go; but be prepared to take some specialist legal advice at some stage: if I were the administrator I would be arguing against set-off and pursuing the rent! I can recommend a good insolvency solicitor if you need one.

 

[Alan R Price]

Is that an observation or an instruction, Sam?