WHAT CAN A COMMERCIAL SUB-TENANT DO IF A LIQUIDATOR DISCLAIMS THE HEADLEASE FROM WHICH THE SUB-LEASE WAS CREATED?

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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.

Settlement Agreements and Compromise Agreements – What you need to know

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A Settlement Agreement can be used to end a worker’s employment amicably in a way that avoids disadvantaging either the employer or the employee. It was introduced in the UK in July 2013 and took the place of the old Compromise Agreement. The two are quite similar in that both are legally binding and usually entail the employee receiving a financial settlement and an agreed form of reference. From the employer’s perspective these agreements allow them to terminate the worker’s employment without worrying about facing a tribunal.

The key difference between a Settlement Agreement and a Compromise Agreement is that the latter provided a limited degree of protection in some respects. This was because, while the principle of “without prejudice” applied it only did so to pre-termination discussions relating to existing employment disputes. Without prejudice is a legal principle preventing discussions from being brought up in court. It helps to facilitate open discussion without either party worrying their words being used against them later in court. A weakness of the Compromise Agreement was that only existing disputes were covered, which tended either to hamper discussions between employers and employees or to cause issues later in tribunals.

The Settlement Agreement introduced the concept of “confidential” pre-termination discussions, which prevents talks from being used as evidence in unfair dismissal claims, even in cases where an existing dispute does not exist. However, it should be noted that confidentiality does not apply in all cases. If an employee is fired for an unfair reason, such as whistleblowing, trade union membership or asserting their statutory rights as a result of entering into a Settlement Agreement, then the circumstances can be brought up at tribunal. Also excluded are cases brought under discrimination, harassment, victimisation or breach of contract. In addition, if a tribunal considers that improper behaviour by one of the parties has taken place it might also allow the previous discussions to be heard at tribunal. Examples of improper behaviour would include bullying and intimidation, physical assault or putting undue pressure on a party, such as pressurising an employee to make a decision on an offer. ACAS, the employment conciliation body, recommends that employees be given 10 calendar days to consider offers, unless the parties mutually decide to fast-track discussions.

In order to be legally binding the Settlement Agreement must satisfy certain conditions. Details of the specific complaint or proceedings must be included and the document must state that applicable statutory conditions have been met. If all relevant parts are not included the agreement will not be valid – further information about the parts that must be included in the Settlement Agreement can be found here. Where an employee is a senior member of the company, such as a director, shareholder or office holder, a Settlement Agreement – Director should be used. This contains additional clauses dealing with directorships, shareholdings and bonus/commission payments together with confidentiality and restrictive covenants.