Landlords of commercially let premises are often faced with a tenant who cannot or will not pay its rent. In this short article we consider various remedies available.
Before taking any action, in addition to taking legal advice, it is important for a landlord to consider what outcome it wishes to achieve.
Points to consider:-
• Does the landlord want the property back or does it want try to retain the tenant?
• Are there any other breaches of the lease that also require remedy?
• Is this a one-off occurrence or are there persistent delays in paying the rent?
• Is the tenant in financial difficulties and could the remedy pursued give rise to an insolvency situation (which might restrict the landlord’s recovery of money)?
• How cost efficient is each remedy against how long it will take to get payment of the arrears?
Remedies available include:
Forfeiture (also known as re-entry) is a landlord’s right to bring a lease to an end where a tenant is in breach of any of its obligations under the lease, or on the occurrence of certain events specified in the lease, such as non-payment of rent.
Careful consideration is needed before forfeiting a lease as this will not always be a suitable route for a landlord to take and much depends on whether it is in their commercial interests to take the property back.
Care must also be taken by a landlord that nothing is done to waive the right to forfeit (this is a complex area and legal advice should be sought as soon as forfeiture is being considered).
Rent Deposit Drawdown:
A landlord may be able to draw down from a rent deposit paid by the tenant at the outset of the lease to recover the rent arrears.
If non-payment of rent is a one-off incident and the tenant is able to top up the rent deposit, this can be a quick and simple method of recovering rent arrears whilst allowing the landlord and tenant relationship to continue however, it must be noted that a draw down on the rent deposit will waive the right to forfeit.
Pursue Guarantor or former Tenant/ Guarantor .
If the tenant has a guarantor under the lease, this may be a good starting point. A common problem with this course of action is that where a tenant is in financial difficulty, there is a reasonable chance that the same may apply to any guarantor (as guarantors are often parent companies).
Another option which may be available is to pursue any former guarantors or tenants under the lease.
Court proceedings to recover debt/ Statutory Demands:
This process can be expensive and time consuming but may be an appropriate method where a landlord is willing to give a tenant time to pay the arrears and wishes to preserve the landlord and tenant relationship.
If the immediate payment of arrears is desired, serving a statutory demand (which requires payment within 21 days) may be more appropriate.
Commercial Rent Arrears Recovery (CRAR).
CRAR is a method of enforcement for recovering rent arrears relating to commercial property but is only exercisable against arrears of principal rent and cannot be used for arrears relating to service charges, insurance rent etc.
It is not likely to be economically viable for a landlord to exercise CRAR in relation to part of the arrears, and then use another method of recovery for the remainder.
Where a tenant is generally solvent and the arrears are a one-off incident, a landlord may want to consider preserving the relationship by entering into a payment agreement whereby arrears will be paid in specified instalments.
The payment agreement must be carefully drafted and advice should be sought on this as various aspects will need to be considered and adequately covered.
However, this method may delay the inevitable of pursuing other methods of recovering the money and, if not correctly drafted, compromise the right to pursue these arrears.
Before exercising any of the above options, a landlord should seek legal advice as each one has limitations and can affect a landlord’s ability to take further action in the future.
For help and advice in relation to the above or any other commercial property advice please contact a member of our commercial property team on firstname.lastname@example.org or 01228 552600/ 01524 548494.