Electricity utilities: avoiding disconnection when a tenant enters administration
Scenario:
Your tenant is not performing well financially. It leases a shop premises from you and the store does not generate much turnover compared to its other stores across the country. The tenant company appoints administrators to attempt to save its business as a going concern.
The administrators will often terminate the tenant’s contract with the electricity provider to prevent ongoing charges accruing against the insolvent estate.
What happens if nobody pays the utilities company?
If the utilities company is not paid, or the administrator vacates the premises, they are likely to:
- Attempt to recover outstanding sums from the property owner (i.e. the landlord) arguing that a deemed statutory contract has arisen
- Take steps to disconnect the supply if payment is not made. This is unwelcome as re-connection can take time and is expensive.
How does a landlord avoid disconnection in this scenario?
A deemed statutory contract with the electricity supplier may arise with the landlord, if the premises are no longer occupied by the tenant but the premises are still receiving a supply. The landlord may challenge this, but the utility company may then disconnect the supply as leverage.
To prevent disconnection the landlord may have little choice but to assume responsibility for the supply going forward from a point in time, whilst not accepting responsibility for arrears. The landlord should enter into a supply contract on the best tariff available to avoid being bound by a deemed contract on onerous terms.
It is possible to assume responsibility for the utility charges whilst still leaving the lease in place as rates mitigation. Care should be taken to ensure that there is no unnecessary equipment using the electricity at the premises from the point responsibility has been accepted - see our recent article on accessing the premises in these situations.
