Landlords typically have a number of obligations to fulfil, such as maintaining, repairing and providing insurance for the property the tenants inhabit. If the landlord is a company at risk of insolvency, however, or an individual nearing bankruptcy, then it is not safe for leaseholders to assume that these obligations will be met or that the freehold interest will necessarily pass to them. Leaseholders need to be aware of what they must do in such a situation in order to acquire the freehold interest from the landlord.
When the landlord is in administration or receivership
In the case of an insolvent company as the landlord, it may enter into administration or receivership. In administration, an agent is appointed to act on the landlord’s behalf, and a claim for freehold can take place as usual, but the initial notice to purchase will be served on the agent. Similarly, for receivership, the leaseholders’ initial notice to purchase is served on the receiver. Both of these representatives are legally bound under the Leasehold Reform, Housing and Urban Development Act 1993 to respond to the notice as the landlord, and should serve a counter-notice in order for the sale of the freehold to proceed.
When the landlord faces liquidation and dissolution
In the case of a liquidation, the appointed liquidator is to dispense with the company’s assets prudently, including the freehold interest in the property. Until dissolution, however, the company maintains its role as the landlord. The liquidator may then choose to either sell the freehold or to disclaim it. Choosing to sell, the liquidator may be legally bound under the Landlord and Tenant Act 1987 to offer the freehold to the leaseholders through the leaseholders’ right of first refusal.
If the liquidator disclaims the freehold, the freehold interest will revert to the Crown Estate as bona vacantia. In this scenario, the leaseholders will not need to serve legal notice since the Crown is not subject to the Leasehold Reform Acts in a way that makes it possible for the leaseholders to serve a notice of claim. Instead, they should submit an enquiry to the treasury solicitor, who acts on behalf of the Crown, in order to undertake a negotiation of the terms of the sale of the freehold. The freehold will usually be sold at the open market value.
An individual landlord who is bankrupt
If the owner of the property is an individual in bankruptcy, a trustee in bankruptcy will be appointed. In this case, the leaseholders’ initial notice should be served on the trustee. The trustee is also legally bound under 1993 Act to respond on behalf of the landlord and should serve a counter-notice in order to move the sale of the freehold along.