Lease to beat the Banks

It's been tried before, the bank will just go to court and try to get the leave invaldated. If the lease was done to frustrate a reposession, they might be fraud. Plus many commercial mortgages have clauses requiring the banks approval for a lease, for exactly this reason.

Even if they left the lease in place, the rent would go to the bank once they reposse, so little to be gained.

There was a case here once, just before the developer went bust, they leased the property to a company they controlled for a peppercorn rent, and the case spent years in court

It is unlikely to have much impact. What you describe, a lease arranged on terms well below market level, in circumstances where the lessor knew or ought to know that the property was about to be repossessed would be tantamount to a fraud and would be a clear attempt to frustrate the repossession - the courts would simply set any such lease aside.

Liquidators, receivers, etc can set aside "onerous contracts" - i.e. contracts which stop them from realising the value of the assets they have taken. So, yeah, they can terminate a lease. Plus, if the lease has been granted on below-market terms in an attempt to defeat the liquidator (and the creditors), that's a fraudulent preference which lead to you being made personally liable for the debts that were supposed to be satisfied out of the proceeds of the asset involved.

So, don't do this.

well, no. evicting a commercial tenant is a lot easier than evicting a private one. Besides, if the new purchaser thought the lease was fraudulent why would they have bought the property? I think you are trying to find loopholes and "clever" strategies that just don't work.

sounds like some of the tricks that a few people tried here over the years in an attempt to foil the banks and receivers .... in essence just delaying the inevitable, loosing case after case .. inventing legal arguments that have no basis in law - and usually as 'lay litigants'.

"Fraudulent preference" is a technical term in liquidation/bankruptcy practice. Basically, it's an arrangement entered into by the debtor for the purpose of depriving creditors of what they are entitled to for the benefit either of other creditors who should come lower down in the pecking order or of himself.

The person entitled to complain about this is the person defrauded - the creditor, or the liquidator/receiver representing them. They can move to set the transaction aside (and take other steps as well to recover what is due to them). But, unless and until they do that, its a valid transaction. If they choose not to do it, nobody else is entitled to do it. Nobody else has been prejudiced by the transaction.

So, I own a property. Aware that it's about to be seized by my creditors, I grant my cousin a fifty-year lease at a rent of €1 per year. The liquidator, when he seizes the property, can move to set the lease aside. But if he doesn't, if he simply sells the property at auction subject to the lease, the purchaser of the property can't set the lease aside on the grounds that it's fraudulent. He hasn't been defrauded; he knew the property was subject to the lease before he bought it and this (presumably) will have affected the price he paid for the property. He may or may not be able to terminate it on other grounds, the same grounds that could be relied upon to terminate any lease, but not on this ground.

In that particular example, obviously, my creditors would almost certainly set the lease aside before auctioning the property - it will cause delay, but it will vastly increase the amount they can hope to get at auction. But if the fraud is less gross - if the debtor, say, granted a lease not for 50 years at €1 per year but for 5 years at a figure that is about 90% of the market rate - the creditors might weigh up the cost and trouble and delay of terminating the lease versus the more modest enhancement in the price they might get at auction, and decide that it's not worth the bother.

This isn't a special rule for leases - basically any transaction the debtor entered into in the period coming up to the liquidation/receivership can potentially be challenged as a fraudulent preference if it's not conducted on open market terms and for full value, and serves to reduce the amount that the creditor can recover. But it's only the creditors who is defrauded who can do this. And, until they move to set the transaction aside, it's treated as valid.

(Kayroo correctly points out that, if the property is mortgaged, it's likely to be a condition of the mortgage that the debtor can't grant a lease without the creditor's approval, so this particular version of fraudulent preference might be impossible even to attempt.)