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Payment of Lease to Dissolved Company

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A new client sole trader entered a lease for £25k with a Limited Company for a licenced bar. The lease expires in Oct 2020 and currently payments towards the £25k are made monthly. The client has sent me all his paperwork including the lease document, on checking the details of the Limited Company I've found it has been dissolved in Companies House by the Directors in June 2019 on a DS01. No accounts have been prepared since June 2017. The client took out lease in Oct 2017 and therefore there is no mention of the £25k in the accounts.

I've asked the client who they are paying and the answer was one of the Directors personally not the Company. My thinking is that the payments are now Bona Vacantia from June 2019 unless the Director purchased the lease from the Company. Prior to June 2019 there is potentially tax avoidence if payments have always been made to the Director. As there are no filed accounts after June 2017 it isn't possible to know this from Co House.

I'm not sure how to approach this and would appreciate any guidence. My initial thoughts are the client should approach the Director and ask if he has purchased the lease or one of his other companies own it now and get copies of the transfer as proof. Then get the lease document redone in the new lessors name and make sure future payments go to the correct place. If the lease hasn't been transferred and is still an asset of the limited company I'm stuck - do I report it to the Duchy of Lancaster send the details, advise the client not to make any further payments to the Ex Director and save the lease payments until this is resolved? The Dissolved Companies address is an accountants office but it would appear they no longer act for the Director. 

Thank you for any guidence.

Replies (10)

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By paul.benny
02nd Sep 2019 13:18

What are your client's intentions at the end of the lease? I might approach more cautiously if the client wants to remain in the premises beyond the end of the current term.

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By lesley.barnes
02nd Sep 2019 14:17

Honest opinion as an accountant not a solicitor. Although the documentation says "lease" I think the agreement should read asset purchase agreement and goodwill. I would classify the lease as a loan because that is the way it seems to be working. The premises don't belong to the "lessor"they are rented from the local council. All the client got from the seller was a bar, taps, glass wear and some bar stools. These were shown as £8k in the balance sheet written down to £6k prior to sale at Co House. The stock was purchased separately. The seating and tables are in a communal food court and don't belong to the client but to the local council. The client will continue to trade in the same place once he's paid off the "lease"

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By paul.benny
02nd Sep 2019 15:05

That's somewhat different. Was this document drawn up by a lawyer? And did your client take legal advice? I'm guessing that the answer to both is no.

The concern that I now have is whether your client has the right to occupy and trade from their premises. Do they have a lease/license from the local authority?

Where I'm coming from is trying to ensure that your client's position is secure before you decide what to do about the seller/lessor. My guess is that the seller put the asset sale through the company and treated the 'goodwill' as something s/he personally owned and therefore didn't need to book through the company.

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By lesley.barnes
02nd Sep 2019 15:29

Thanks for your help Paul - the client has a licence in his name from the council to sell alcohol from the premises. I've asked for copies of his lease with the council - I know he pays rent and utilities to them. The answer to the all important questions is no - he didn't get a lawyer to look over the paperwork, there is nothing on the paperwork to suggest a lawyer drew it up possibly the seller used an online site to download a generic document. It certainly written in legal terms. No he didn't have an accountant do due diligence either if he had they would almost certainly been advised against the purchase. I've no idea what went through the company and what didn't because there were no accounts in Co House reflecting the sale.

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Replying to lesley.barnes:
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By paul.benny
02nd Sep 2019 16:30

Slight misunderstanding - in property law, a license is permission to occupy land which doesn't give the full rights of a lease. The alcohol license doesn't itself grant any property rights.

If your client is paying rent to the council, that itself may give some basic tenancy rights - hopefully there is a proper tenancy agreement. If not, legal advice looks essential to protect the business.

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By lesley.barnes
02nd Sep 2019 16:52

Thanks Paul - the client is looking through his paperwork as we speak. He is certain he must have signed an agreement with the council. If he can't find it he will be able to contact the council and get a copy.

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Hallerud at Easter
By DJKL
02nd Sep 2019 20:51

Are the payments to the now defunct company in effect a lease premium payable to the former tenant which your client is paying up in instalments?

Are the payments to the council the ongoing rentals- in effect has the council signed up a new lease or licence with your client, the old tenant in effect surrendering its rights under the previous agreement?

If something like the above is the case the old company tenant was an idiot giving entry to your client without full payment, unless it held some form of security to ensure it would be paid, and an even bigger idiot allowing itself to be struck off.

Follow the legal documents.

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Lisa Thomas
By Insolvency Practitioner
03rd Sep 2019 09:12

I would suggest client speaks to a Solicitor asap.

The Director might be collecting the rental monies illegally - I suspect the funds belong to Bona Vacantia.

They might be able to give guidance so client should speak to them:

https://www.gov.uk/government/organisations/bona-vacantia

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By lesley.barnes
03rd Sep 2019 09:41

Thanks DJKL - the paperwork from the council will be key in this I think. Paraphrasing the "lease" document simply says the buyer will pay the seller £25k and the seller will transfer all fixed and movable assets to the buyer along with the warranties on the transfer date. There is no list of the assets or a valuation and no mention of when that transfer date is or was. It goes on to say that if the buyer fails to pay the seller the monthly payment then the beneficial ownership of the assets will revert to the seller.
The seller got the better deal usually the businesses in these little units close down and the council re-lets them. They never make any money - think shipping containers with the side cut off . The seller moved a 10 min walk away, set up with a new limited company in a better located more upmarket food court in direct competition with my client.

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Replying to lesley.barnes:
Hallerud at Easter
By DJKL
03rd Sep 2019 10:28

So it sounds like they possibly merely bought the equipment, plant and I presume goodwill , to be paid in installments, but the party to be paid no longer exists.

If the lease/licence with the council is a distinct standalone agreement then not convinced your client's tenure is at risk, the agreement with them sounds like it may be being fully observed.

Maybe your client should start paying the installments into a new bank account and advise the director of the former company that he/she needs to restore that company before the funds will be released to it, in this way one is demonstrating ability and willingness to pay and meet the requirements of the agreement, which has been thwarted by no fault of your client's- this is one step removed from paying the funds into joint DR because given company does not exist I doubt a joint DR with it is currently possible.

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