Leases and Liquidators


Leases disclaimed by liquidators

You might well think that if you had a lease from a lessor that your position as a tenant was secure and attached to the land rather than it be determined on the financial state of your landlord. Not so. As demonstrated in the Willmott Forestry case. A lease is a contract but it also creates an interest inland. A liquidator of a company can disclaim contracts, which is a state that the contract has no legal obligation on the liquidator even though it had was a valid obligation of the company before it went into liquidation.

In this case, various persons had taken leases of land for forestry purposes and to minimise their taxes. Eventually, it became impossible for these leases and the forestry on them to be conducted economically. A liquidator was appointed of the landlord company and the liquidator sort to disclaim i.e. get rid of the leases so that he could sell the land and recover money to pay the debts of the company. The tenants sought to have it found that the leases could not be disclaimed and that the leases (which they had paid for and paid rent) were valid. They said that the leases created an interest in land which was greater than and in addition to the contracts.

However, the court found that because the leases as contracts could be disclaimed and that this could not happen without the correlative rights as lessees being brought to an end. Essentially the rights as lessees went with the contractual rights which could be disclaimed.

The leases were disclaimed and their only rights after the disclaimer were to prove for their losses as unsecured creditors in the liquidation of the company. These rights were much less valuable than those that they had as lessees.