The recent news of Pizza Hut going into administration is a reminder of the pressures continuing to be faced in the hospitality and retail sectors. Rising food and energy costs, along with a 6.7% increase in the national minimum wage over the past year, has significantly increased operating expenses for casual dining businesses like Pizza Hut. 

With Pizza Hut proposing to close 68 restaurants and 11 delivery sites in the UK and other popular hospitality and retail chains such as Claire’s Accessories and Gusto in administration, what does this mean for commercial landlords?

When a tenant goes into administration landlords can find themselves in a difficult position. Some of the key issues landlords may face are as follows:

• Administration gives a tenant business a lot of protection under a moratorium such as putting a pause on creditor actions, restricting third parties from enforcing their rights against the company and preventing alternative insolvency procedures from commencing.
• Administrators may not pay the ongoing rent under a lease, leaving landlords without a rental income and positioned as an unsecured creditor should they need to claim for any rent arrears.
• Administrators may decide to offer the landlord a surrender of the lease even if this is not in the landlord’s interests. Whether a landlord wants to take back the premises will depend on the particular circumstances and market conditions. Many landlords may not want to accept a surrender until it has a new tenant lined up to avoid having empty premises and business rates to pay. Dilapidation claims are also uncertain.
• Another difficult situation for landlords arises where a tenant enters administration but continues to trade from the particular site and the administrators offer the rent. If landlords in fact want to take the premises back and preserve a right to forfeit the lease in this situation, they need to take care not to “waive” any right to forfeit the lease.

To avoid being caught off guard, commercial landlords should consider seeking legal advice as soon as they suspect a tenant is struggling financially. Early advice can help landlords understand their options and prepare for potential outcomes, reducing stress, cost and uncertainty.