Disclaiming Demystified

Can a Scottish liquidator disclaim a lease? The short answer is “no”.

The long answer is “kind of”. This post explores whether a liquidator can disclaim a lease in the same way that an English or Welsh Insolvency practitioner can, and if not, what they can do.

Disclaiming in Scotland

Sections 178-180 of the Insolvency Act 1986 provide the powers to liquidators to disclaim onerous property or a lease. However, these sections only apply to England and Wales and do not apply to Scotland. Therefore, unlike their counterparts south of the border, a liquidator cannot disclaim a lease in the same way.

What can they do?

A liquidator has the choice whether to adopt a lease, and they can abandon it if they wish to do so (Asphaltic Limestone Concrete Co Ltd v Glasgow Corporation 1907 SC 463). If the liquidator does not disclose their intention to adopt the lease within a reasonable period of time, they will be held to have abandoned it (Crown Estate Commissioners v Liquidators of Highland Engineering Ltd 1975 SLT 58). If a liquidator chooses to abandon a lease, the landlord's remedy is to seek damages for any loss he or she has incurred. That claim will be a claim in the liquidation. The effect of abandonment of a lease by a liquidator is not to actually bring the lease to an end. Only the landlord can do that (P&O Property Holdings Ltd v City of Glasgow Council 2000 SLT 444). The Landlord can do that either by terminating the Lease in accordance with its contractual terms (e.g. irritancy) or, if need be, by applying to the Court under Section 186 of the 1986 Act.

Summary

So, to summarise, a Scottish liquidator cannot disclaim a lease. However, they can abandon it. This does not terminate the lease (only the landlord can do this). However, it means that they do not make any payments under the lease, and instead, the landlord can make their claim for damages for loss of rent as an ordinary creditor in the liquidation.