Interest rates also impact on deals in the market, and we have seen a slowdown in transactions as investors evaluate the impact of interest rates on the cost and availability of debt.
Leaders Romans Group’s Corporate Sales team works with a variety of clients across the leisure and other sectors to advise and put into practice the best strategy for disposing of, or repurposing a property asset which is underperforming.
Since the pandemic we have seen scenarios in which a business’ profits are unable to service the debt on the property which then falls foul of the covenant with the lender. This may result in the sale (or part sale) of the property, but other options are available.
This article looks at liquidation – both voluntary and involuntary – and its impact on the building and its various stakeholders.
Voluntary liquidation takes place when the shareholders of a company decide to put the company into administration, but are unable to pay the creditors in full, meaning that the company is insolvent. The Gov.uk webpage Liquidate Your Limited Company describes this in more detail.
The rights and responsibilities of lenders and borrowers who use property as collateral or security for a loan, and the process for the lender taking back the asset (if necessary), is detailed in the Law of Property Act 1925 (LPA). The Act sets out options for lenders to take to recover the loan and LPA receivers can be appointed to deal with the case.
Owners of a hotel or catering business will undoubtedly be concerned about the property’s future and that of any permanent occupiers or employees. The property is secured, repaired and insured as necessary before it changes hands. At this point a property specialist such as LRG oversees the disposal strategy ensuring minimal financial loss.
In the case of insolvency, the mortgagee may become entitled to exercise the statutory power of sale. This occurs if mortgage payments are overdue; there has been default in repayment of a loan for three months after a notice requiring it; interest remains unpaid for two months after becoming due, or there is another breach of the Act, a Law of Property Act (LPA). In this case, a receiver is appointed by a lender, who has a fixed charge over property under the statutory power given to that lender in Section 109 of the Law of Property Act 1925. A receiver's powers are limited to collecting rent and safeguarding the property, which includesmaking repairs and insuring it.
The LPA details the rights and responsibilities of lenders and borrowers. For instances in which the terms of the loan have been breached, the Act sets out options for lenders to take to recover the loan and LPA receivers may be appointed to deal with the case.
Depending on the timing and circumstances, sometimes there are also planning permissions to pursue, new leases to be negotiated and tenancy agreements to observe, all of which can improve the resalable value of the property. Other responsibilities may include settling business rates and overseeing maintenance and repairs.
When LRG is appointed to manage the disposal of the property asset, we always hope to do with the utmost consideration towards owners and occupiers, with the intention of securing the best possible result.
In addition to the financial and procedural side of the process, we believe it is important to work with the property owner to protect all those impacted. Mostly this will concern employees, whose future involvement in the property will depend on the nature of the disposal. In some circumstances, we will be able to sell a property on (repurposed or otherwise) and staff associated with it will be retained. Often this will be a high priority for the owner and we will do our best to facilitate it.
The forced sale of a business understandably creates a very difficult position for the owner, and so in our role in selling the property assets, we - and we would hope, others in our sector- aim to create the best circumstances for the owner and other stakeholders, while also meeting the legal requirements.
