In recent times many sub tenants have found themselves in the anxiety inducing situation that a liquidator has disclaimed the superior tenant’s head-lease.  Once this happens, the insolvent tenant neither has any rights nor obligations to the disclaimed property. But where does this leave you? Will this mean you are thrown out on your ear simply because your immediate landlord has gone bust?

Thankfully most probably not; provided you can meet the terms of the head lease that is! Whilst your insolvent landlord is no longer your landlord, and your sublease does not technically continue, your interest in the disclaimed property survives and you may remain in occupation for the term of the sublease. This has been described as a collection of property rights in the disclaimed property. Furthermore you can probably even still sell your interest to another.

As stated above, the existence of these rights is on the proviso that you comply with the terms of the head lease and not the sub-tenancy. This could work to your favour if the head lease terms are friendlier than those under the sublease. Of course this could also work against you and you may need help from a solicitor to review, advise  and re-negotiate the position, certainly on the point of whether, it is sensible to apply for a vesting order which if granted means that the property will vest in you under the terms of the head lease. You should also seek advice if a Landlord has made an application requiring you to make an election to accept a vesting order or whether it would make more commercial sense to give up your rights in the Property e.g. possibly if there is a significant dilapidations claim under the head lease. Strictly speaking, the terms of the head lease are not directly enforceable between you and the head landlord but in practice this becomes a technicality as the landlord can re-enter the property for breach of the head lease terms despite the fact that the head lease has been disclaimed or that you have applied for a vesting order.

The landlord’s right to re-enter the property is also subject to your right to apply to court to get the property back (relief from forfeiture) but in order to succeed the terms are likely to be onerous and you will probably have to agree to honouring the terms of the head lease anyway including paying any outstanding rent due and remedying any breaches of covenant.

In conclusion it is wise to seek advice on your rights and liabilities under a sub-lease as soon as you become aware that a head lease is or is about to be disclaimed by a liquidator.