Commercial Property Leases on the Death of a Tenant

Else Solicitors have recently had a number of requests for advice from clients who have found themselves responsible for the Tenant’s Covenants in a Lease after the death of a friend or family member. Our Trainee Solicitor Lakhvir Singh explains this often misunderstood area of the law.

When a Tenant who is an individual has passed away, their Personal Representatives and Beneficiaries may be surprised to learn that the Tenant’s obligations under the Lease pass to their estate. This includes obligations to pay Rent and Service Charges, or to repair a Property. In effect, the deceased Tenant’s Personal Representatives become the Tenant and the Landlord may have a claim against them for any arrears or damage to the Property, for example.

However, the terms of an individual Lease need to be considered in each circumstance. Some Leases may allow for the automatic surrender or break of a Lease on the death of a Tenant, whilst others may allow for a Lease to be assigned to a new Tenant, with the consent of the Landlord and if the Landlord receives certain guarantees or is happy with the financial standing of the proposed new Tenant.

We have acted for Personal Representatives administering a Will where the deceased was named as a Tenant under a Lease of commercial premises. As the Personal Representatives and beneficiaries were unable or unwilling to carry on the deceased’s business from the premises, we stepped in to help them assign the Lease to a new Tenant. As a result, the estate will no longer be responsible for the Tenant’s liabilities and can be wound up.

But what happens on the death of a Director of a company when that company is a Tenant under a commercial Lease? If there is more than one Director, the remaining Directors will continue to be bound by the Lease. However, the situation is more complex where the deceased was a sole Director and Shareholder of the Tenant company and the business has ceased trading on their death.

Depending on the date the Company was incorporated and the content of its articles of association, it may be possible for the Personal Representatives to appoint a new company director, who can then deal with the Landlord and the Lease. One option for them to bring the Tenant’s obligations to an end may be to wind up the company. Many commercial Leases state that a Lease is forfeit (i.e. terminated on the grounds of a Tenant’s breach) on the Tenant company ceasing to exist. The Landlord may however have claims against the Company should there be arrears of rent which accrued prior to the winding up, or if there have been other breaches of Tenant covenants, such as the Tenant’s obligation to keep the Property in good repair and condition.

If the Company’s articles mean the Personal Representatives do not have authority to appoint a new Director, the situation is more complex and may require an application to Court.

Else is here to help

The death of a Tenant under a commercial Lease can present a number of issues, and Else is here to help you resolve them.

Kathryn Caple is a partner and head of the firm’s Wills and Probate team. She can assist with the administration of estates and advise personal representatives on how to deal with the deceased’s outstanding liabilities. She can also help you ensure that you have an up to date Will in place, setting out how you would like your business interests to be carried on after your death.

Ian Meadows is a dispute resolution solicitor, with particular expertise in Landlord and Tenant disputes. He is a member of the Property Litigation Association and acts for both Landlords and Tenants where claims have arisen for arrears and breach of covenants under commercial Leases.

Caroline Major is an associate solicitor and head of the firm’s commercial property team. She acts for both Landlords and Tenants in the grant of new Leases. She can also assist with the assignment of existing Leases, and acts for Landlords, outgoing Tenants and incoming Tenants in these situations.

If you would like to speak to one of our team of experts, please call us on 01283 526200.

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