By June Stacey Marks — Courtroom Strategist | High-Stakes Commercial & Constitutional Litigation

When a tenant collapses into liquidation or enters business rescue, landlords are often left navigating a difficult intersection of insolvency law, common-law rights, and commercial reality. Rent arrears, unpaid utilities, and abandoned assets collide with statutory moratoria, hypothecs, and the strategic moves of liquidators and business rescue practitioners.

This article explores the core issues landlords face, the key differences between liquidation and business rescue, and how to strategically protect your position.

THE LANDLORD’S HYPOTHEC — OLD LAW, REAL LEVERAGE

The landlord’s tacit hypothec is one of the few common-law securities that continues to play a meaningful role in modern commercial practice. It automatically attaches to the movable property of the tenant found on the leased premises, securing arrear rental and certain ancillary charges.

In Liquidation

• The hypothec crystallises immediately upon the granting of the liquidation order.

• The landlord becomes a secured creditor in respect of up to three months’ rental arrears preceding liquidation.

• This secured position is subject to any prior perfected security, most commonly banks’ notarial bonds or other security instruments.

In practice, this means the landlord’s secured position is often limited both by the three-month cap and by banks outranking the hypothec through earlier perfected security. The result: while the hypothec is legally powerful, its practical value depends on timing and existing security structures.



In Business Rescue

In contrast, the statutory moratorium under sections 133 and 134 of the Companies Act suspends the landlord’s ability to enforce the hypothec. The landlord cannot attach assets during rescue proceedings and must engage through the business rescue practitioner.

Furthermore, if a bank holds security over the tenant’s movables, the bank’s perfected rights will generally trump the landlord’s claim in both liquidation and business rescue contexts.

RETAINING THE TENANT’S ASSETS — TIMING IS EVERYTHING

Many landlords instinctively want to retain the tenant’s property on the premises until arrears are settled. But the law draws a sharp line between what can and can’t be done depending on timing:

• Before liquidation, if the landlord has lawfully perfected its hypothec, it strengthens its secured position.

• After liquidation, control passes to the liquidator, and the landlord must prove its claim in accordance with insolvency procedures.

• In business rescue, retaining assets without court sanction can breach the moratorium. Pre-commencement lawful retention may survive, but new unilateral action is risky and potentially unlawful.

Key takeaway: Strategic timing of attachment or lawful retention can materially alter the landlord’s bargaining power.

LEASE CONTINUATION: LIQUIDATOR VS PRACTITIONER

The continuation or cancellation of the lease plays a decisive role in determining both the landlord’s financial recovery and control of the premises.

In Liquidation

Section 37 of the Insolvency Act gives the liquidator the discretion to either continue or cancel the lease:

• If the lease is continued, the liquidated estate is liable for post-liquidation rent as an administration expense.

• If the lease is cancelled, the landlord becomes an unsecured creditor for pre-liquidation arrears but regains possession of the premises.



In Business Rescue

The position is reversed: leases continue automatically unless the practitioner cancels them. Landlords must keep supplying premises and services during the rescue process — even if pre-commencement arrears remain unpaid. This shifts the power dynamic significantly.

ELECTRICITY AND POST-COMMENCEMENT FINANCE

Electricity and other utilities supplied after business rescue commences qualify as post-commencement financeunder section 135 of the Companies Act. This gives landlords a crucial strategic lever:

• These expenses rank ahead of unsecured pre-commencement claims,

• They must be treated as critical operating expenses by the practitioner,

• Non-payment can justify strong intervention — because without power, there’s no business to rescue.

Properly invoicing and categorising utility charges as post-commencement finance ensures landlords protect their priority status.

THE LEASE IN THE BUSINESS RESCUE PLAN — A MAKE-OR-BREAK CLAUSE

The business rescue plan often determines the landlord’s ultimate position. A vague or poorly drafted plan can result in:

• Lease extensions on unfavourable terms,

• Pre-commencement arrears being treated as unsecured,

• Banks and PCF providers leapfrogging the landlord’s claims.

If the lease is integral to the tenant’s operations, the landlord must scrutinise the plan carefully, engage early, and insist on clear treatment of lease rights and obligations.

KEY DIFFERENCES AT A GLANCE

CONCLUSION: STRATEGY, NOT SURPRISE

Landlords occupy a legally complex and commercially significant position when tenants enter liquidation or business rescue. By understanding:

• the scope and limitations of the hypothec,

• the impact of secured creditors, and

• the mechanics of lease continuation,

landlords can move from being passive bystanders to strategic actors who protect their position and maximise recovery.

Early engagement, precise legal action, and careful reading of the rescue plan are essential. In this game, timing and strategy determine who wins.