The Liquidator's Power to Disclaim — IA 1986 s.178
A liquidator may disclaim 'onerous property' (including leases with above-market obligations) within 12 months of appointment or knowledge. Written notice must be filed at court and given to the landlord and guarantors. On disclaimer, the company's obligations end and the landlord's future rent claim becomes an unsecured proof. Administrators have equivalent powers under Sch.B1 para.83.
Effect on Undertenants and the Vesting Order (s.181)
Disclaimer does not automatically evict subtenants. Any person with an interest in or liability under the disclaimed property (undertenants; mortgagees; guarantors; former tenants) may apply to court for a vesting order within 3 months of becoming aware of the disclaimer. The court vests the disclaimed lease in the applicant on terms that the applicant assumes the company's obligations — giving the landlord a solvent direct tenant.
Guarantor Liability — Warnford Investments Ltd v Duckworth [1979]
Disclaimer does not release the guarantor. Per Warnford, the lease is treated as continuing for guarantee purposes. The guarantor remains liable for all obligations under the disclaimed lease for the remainder of the contractual term. A guarantor who pays may prove in the liquidation as an unsecured creditor and apply for a vesting order to take over the lease.
Former Tenant Liability and the Landlord's Unsecured Proof
Old tenancies (pre-1 January 1996): original tenant retains privity of contract liability; default notice must be served within 12 months. New tenancies (LTCA 1995): outgoing tenant automatically released on assignment; AGA guarantees the immediate assignee only. The landlord's proof in the liquidation is an unsecured claim for accrued rent plus future rent loss (less mitigation duty); recovery in practice is often minimal.