Landlord’s preferred claim in bankruptcy

When a tenant business goes bankrupt, the landlord is one creditor among many, but the Act gives it a ranked claim for part of the rent. You meet this as the landlord, or as a buyer who wants the lease. See whether a landlord can refuse to assign a lease.

How section 136 treats it

Section 136(1) applies “subject to the rights of secured creditors” and lists claims in priority order; paragraphs (a) to (e), including administration costs and certain wages, come before the lessor. Paragraph (f) covers arrears for a period of three months immediately preceding the bankruptcy and accelerated rent for a period not exceeding three months following it, if the lease entitles the landlord to it. Any payment on account of accelerated rent is credited against the amount the trustee owes for occupation rent. Under section 136(3), the landlord ranks as an unsecured creditor for the balance of its claim.

What to check or ask

• Whether the lease provides for accelerated rent.
• What the realization from the property on the premises is likely to be.
• How the landlord will treat any assignment; see landlord consent.