Commercial tenant insolvent — secure rights, avoid losses, act correctly

Bad debt losses on commercial real estate

Bad debt losses on commercial properties is a particularly important issue that affects many companies: how do you react correctly if your commercial tenant becomes insolvent? We at Deutsche Pfandverwertung will show you how to regain possession of your property quickly. We also explain how you should proceed if goods with your pledge of rights are in the property and there is a risk that they will rapidly lose value.

As publicly appointed, sworn auctioneers (auctioneers) and certified reorganization and restructuring consultants, we are very familiar with the Insolvency Code and its implementation by the insolvency administration. Today, we will provide you with valuable practical tips that will help you to free up your blocked property as quickly as possible by involving an auctioneer — and to make optimum use of your statutory landlord’s lien in order to realize at least part of your rent claims.

Important information on insolvency avoidance and setback period

In the event that your commercial tenant has already paid his rent irregularly or late before filing for insolvency — and this is often the case in practice — reclaims may be made in the insolvency proceedings.

In such cases, the insolvency administrator is legally obliged to check whether he must reclaim rent payments as part of the so-called insolvency challenge. This applies in particular to payments made from the point in time at which you were aware that your tenant was in payment difficulties or at risk of insolvency — for example due to late or deferred payments.

Important to know:
The insolvency administrator can contest and reclaim payments received up to ten years before the opening of proceedings — provided there is a so-called intent to disadvantage the debtor.
If this is not the case, the contestation periods are shorter — usually three to four years, depending on the circumstances.

The following principle applies: the insolvency administrator is obliged to treat all creditors equally. He may not give preference to individual creditors — even if the payments were initially legally effective.

This recovery takes place regardless of whether you as a creditor have behaved cooperatively or obstructively towards the administrator.

What does this mean for you in concrete terms? Even correctly collected rents can be contested and reclaimed retrospectively.

We have published a blog post on this complex topic, which we have linked below. It explains the legal background, typical case constellations and provides information on how you can protect yourself at an early stage in the future.

If your commercial tenant is insolvent, you and the insolvency administrator have completely opposing interests. While the insolvency administrator is legally obliged to reorganize or restructure your debtor, you are concerned with minimizing your losses and making your property usable again as quickly as possible. One thing is clear: for you as a landlord, insolvency is the exception, but for the administrator it is daily routine. He knows the typical arguments used by creditors and knows how to cleverly undermine your supposedly strong legal position. But don’t worry: your situation is better than it first appears — if you proceed strategically. Remain objective, invoke your legal rights and become uncomfortable if you have to. After all, your money is at stake here.

We will now explain step by step how to do this.

It is important for you to know the right contacts directly:

Insolvency administrator: Initially, your most important contact is the provisional insolvency administrator appointed by the insolvency court. From now on, he will take over communication — no longer your tenant. Later, the actual insolvency administrator will be appointed by the court.
Creditors’ meeting: If a creditors’ meeting has been set up, you can also actively use this to represent your interests.
Insolvency court: If no creditors’ meeting has been convened, contact the competent insolvency court directly with your concerns or complaints.

First step: contact the insolvency administrator

Act quickly: As soon as you find out about the insolvency — regardless of whether the proceedings are ongoing or just an application — contact the insolvency administrator immediately. From this point on, he or she will be your main point of contact. We will be happy to provide you with suitable sample letters to make your correspondence easier.

Ending a tenancy with legal certainty — your options:

The timing and nature of your termination depends heavily on the status of the proceedings. There are various scenarios:

Termination by the insolvency administrator: The simplest case: The insolvency administrator terminates the contract with three months’ notice to the end of the month.
Termination without notice and assertion of a landlord’s lien by you as the landlord: New rent arrears that arise after filing for insolvency and amount to at least two months’ rent entitle you to terminate the contract without notice.
Release from the insolvency estate: If the tenancy is released from the insolvency estate, you may also terminate without notice due to older rent debts. We also provide you with a sample letter for this purpose.
Proceedings rejected for lack of assets: If insolvency proceedings are not opened, the regular tenancy law comes into force again and you can terminate without notice due to payment arrears.

Communication with the insolvency administrator — how to proceed strategically:

Make it clear to the insolvency administrator that you have no interest in continuing the tenancy with the insolvent company or a company in the same sector. This will prevent the insolvency administrator from using your property for lengthy and uncertain restructuring projects. This is also plausible and comprehensible in court.

Refuse to negotiate contracts with new prospective tenants presented by the administrator from the same sector. This is completely legitimate and your right — many landlords do not want to rent to companies from the same sector again after insolvency. Practical tip: Protect yourself in future by including a clear industry exclusion clause in your rental agreements.

If the insolvency administrator signals that he wants to restructure or sell on the company, including the inventory, you should be particularly vigilant — especially when it comes to perishable or value-reducing goods such as seasonal items, technical consumer goods, IT-controlled machines or vehicles. Why is this crucial? Time is money — these items lose value quickly. Every day counts!

For the insolvency administrator, the liquidation of assets is just one of many tasks — and in view of the current high level of stress, it is not always carried out with the necessary depth or proximity to the market.

Although the administrator is entitled to sell assets by private treaty and as part of his overriding insolvency strategy, this does not necessarily mean that the best possible economic proceeds will be achieved.

In practice, an insolvency administrator can only manage a limited number of proceedings each year — and therefore does not always have in-depth market knowledge of specific product groups or sectors.

For him, the focus is on making the overall package as attractive as possible for potential buyers of the company — even if this does not correspond to the optimum proceeds from the sale of individual assets in individual cases.

The administrator can commission third parties with the liquidation, which incurs additional costs. Quite a few insolvency administrators also have legally independent liquidation companies that are related to the administrator. As in any commercially oriented business, the same applies here: Profit lies in purchasing. If the administrator does not have specific experience with sensitive assets or uses their own liquidation company, this can quickly lead to a conflict of interest.

Important note:
As a creditor with a statutory pledge of rights, you enjoy special protection. The insolvency administrator is not authorized to sell the inventory below market value without further ado just to enable a quick restructuring. Such a step would be a clear breach of his duty to realize the best possible value for the benefit of all creditors.

The clean and legally compliant solution:
Appointment of a publicly appointed, sworn auctioneer.

Your central lines of argumentation vis-à-vis the insolvency administrator — and, if necessary, the insolvency court:

Market access and experience:A publicly appointed auctioneer has excellent contacts to suitable buyers — even in the area of rapidly depreciating consumer goods.
Time factor:It is able to achieve realistic market prices at short notice — a decisive advantage for perishable or seasonal goods.
Safeguarding your rights:protected by your legal pledge of rights, we ensure that the insolvency estate is sold in the best possible way by an independent body, the publicly appointed auctioneer.
Avoidance of conflicts of interest:If the administrator works with its own collecting society, an objective balance of interests cannot be guaranteed. The involvement of an independent auctioneer creates transparency and trust.
Show initiative: If the insolvency administrator does not respond or refuses an external liquidation, you have the right to apply to the insolvency court for the appointment of an independent auctioneer — especially when it comes to highly time-sensitive goods.

We are happy to provide you with sample letters for this purpose.

Further practical tips: How to classify receivables correctly

A common mistake: receivables are classified incorrectly — with expensive consequences. The following therefore applies:

Rent arrears thatbefore you must register them in the insolvency table — they are simple insolvency claims.
Residuesafter However, arrearsafter the application is filed are deemed to be debts of the estate — and must be serviced by the administrator as a matter of priority.

Conclusion: Your right — and act with a clear strategy:

The insolvency of a commercial tenant presents you with considerable challenges — that is undisputed. But you are not defenceless. On the contrary — you have clear rights and tried-and-tested instruments to regain possession of your property and safeguard your economic interests.

Our concrete roadmap for you:

Communicate at an early stage -with the administrator and, if necessary, with the insolvency court.
Terminate the rental agreement if legally possible and strategically sensible.
Actively secure and enforce pledges of rights.
Insist on professional recycling -especially for seasonal or depreciating goods.
Contact us at Deutsche Pfandverwertung.
Plan new lettings strategically -ideally with a clear exclusion concept for high-risk tenants.

Insolvent commercial tenant — how do I secure my property and my landlord’s lien?

If you find yourself in a similar situation: Don’t let yourself be put under pressure. Stay calm — and above all: act in accordance with the law. Self-help or rash action can not only be legally ineffective, but in the worst case can be detrimental or even give rise to liability. Stick to the legal channels provided — this will protect your claims and avoid risks later on.

Insolvenzanfechtung — effektive Strategien für absonderungsberechtigte Gläubiger

Please contact us if you have a specific case for a public auction: To the contact form

We have provided an explanatory video to provide information about the assignment: To the explanatory video for clients

Information on the auction process: To the explanatory video for bidders

Contact us — together for a successful result!

Further articles on the topic

Pledge of rights — everything you need to know explained. A pledge of rights can relate to things, i.e. physical objects, as well as to rights of any kind, such as company shares, patents, securities, IP rights, domains, licenses or trademark rights.