The British Property Foundation (BPF) has today (25 October) warned landlords over “increasing manipulation of the insolvency system”, with particular focus on pre-pack administrations.
The BPF has issued a statement to landlords advising them to “take extra security from tenants, including guarantees from parent companies and extra deposits of up to three month’s rent.”
Ian Fletcher, director of policy at the BPF, said: “Over the past 10 years landlords have become ever more flexible with tenants, and so we take this step reluctantly given that it will add to the costs of renting a property, particularly for start-ups, and can only have a negative impact on economic growth.
“However, there have been some horrendous examples of small landlords and pensioners losing their savings via dubious pre-packs, while the owners of the companies that use them to strategically restructure their businesses lose nothing, and gain a competitive advantage over their competitors.”
Insolvency law currently states that if a business is placed into administration immediately following rent quarter day, then it can continue to use the property for free for up to three months without paying any rent.
As a result, the BPF is urging landlords to secure three month’s rent as an extra deposit, given “the widespread use of the tactical timing of insolvencies and the losses that this creates.”
Fletcher added: “Unfortunately, government policy on this issue is one of dither and delay. First, they were going to tighten regulation, then they weren’t, then they asked the insolvency profession to implement the most minor of changes to self-regulation, and now they are having a review.
“While we very much welcome Teresa Graham’s Review we can’t stand by and watch smaller landlords and pensioners being robbed of their savings. Hopefully the Graham Review will lead to quick actions instead of more words.”