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Reinier W.L. Russell, LL.M.
Reinier W.L. Russell, LL.M.
managing partner

Reinier Russell advises national and international businesses on all facets of their day-to-day business operations. He has a broad range of specializations in questions regarding businesses, personnel, real estate, and government. He has been a lawyer since 1990. In addition, Reinier is certified as a mediator.
 

@: reinier.russell@russell.nl
t: +31 20 301 55 55


What to do when a lessee goes bankrupt?

Publishing date: 25 November 2020

Landlords have several options to receive rent if their tenant goes bankrupt

   Nederlandse versie

When a lessee goes bankrupt, the lessor can give notice of termination, collect a bank guarantee, or start looking for a new lessee. However, if the receiver finds a new lessee, the lessor often has to agree to the substitution. How does this work in practice?
 

Giving notice of termination

If the lessee is bankrupt, you as a lessor are still entitled to payment of the rent. The rent after the bankruptcy is a bankrupt’s estate. Its payment takes precedence over the claims of other creditors. However, if the company is (almost) devoid of assets, this is of little use to you. After all, he who has the right to be the first to get a share of nothing still gets nothing.

The lessor does not need to be stuck with a bankrupt tenant who is unable to pay the rent.  He has the right to give notice of termination due to bankruptcy with 3 months’ notice; normally, this would be at least one year. The receiver has the same right. Especially if the lessee is in a place for which other lessees can easily be found, termination is an attractive option for the lessor as it is an opportunity to agree a higher rent with a new tenant. However, there is a catch when it comes to retail space and the hospitality industry.
 

Substitution

The receiver of the bankruptcy may make use of the arrangement for substitution if the company can make a relaunch. In the event of substitution, the lessee sells his business or the entire chain to a third party, including the current leases. However, the permission of the lessor is required for this. If the lessor does not give this permission, the lessee can take legal action. A request for substitution can still be made during the notice period and even during the eviction procedure.

In event of a request for substitution, the court will weigh the interests of the lessee/receiver and the lessor against each other. This regards questions, such as, for example:

  • Does the new lessee offer sufficient guarantees for the rent to be continued to be paid?
  • Will the existing debts also be taken over by the new lessee?
  • Will the rent be reduced in the event of substitution?
  • Has the lessor already found a new lessee?
     

Obligations of a receiver

A curator is not allowed to anticipate substitution to accelerate a relaunch. Nor is he allowed to sublet the building to collect money for the bankrupt’s estate. If he admits a new lessee to the building without the lessor’s permission, the receiver may be liable for the damage the landlord suffers as a result, such as rent that cannot be collected.
 

Collecting a bank guarantee

Many lease agreements come with a bank guarantee. Usually, this amounts to the rent for 3 months. If you have a bank guarantee, see if you can collect it. Whether this is possible will depend on the conditions. Many banks have included in the standard conditions of the guarantee that it can only be collected if the lessee offers a counter-guarantee. In the event of bankruptcy, however, such a counter-guarantee is missing. So, when concluding a bank guarantee, make sure that it really offers a guarantee.
 

More information?

Is your lessee bankrupt and would you like to know what your options are? Do you have to deal with a request for substitution? Or do you have any other questions regarding leasing or letting of business premises, or about real estate law in general? The specialists at Russell Advocaten will gladly provide advice. Please contact us:
 

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