|
Commercial property rent arrears
As a landlord, you have a variety of remedies available for commercial property rent arrears. However, the most appropriate will depend upon the circumstances of the individual case. Before proceeding, you should consider what exactly you wish to achieve. That includes whether you want the landlord/tenant relationship to continue and the consequences and cost implications of each option.
Below is a summary of each remedy. Before taking action, contact us to discuss your options and discover how we can help.
Visit our main Breach of Lease page. |
Forfeiture
Most commercial leases give the landlord the right to re-enter the premises, change the locks, and terminate the lease if rent is unpaid. This is referred to as ‘forfeiture’ and can be an attractive course of action if:
- your tenant has a history of rental default; or
- you believe they are unlikely to fulfil their future obligations.
In a strong rental market, you may be confident of quickly finding a new tenant, possibly at a higher rent. In this case, forfeiture may prove economically attractive. But if the market is poor, with a risk of the property remaining vacant for some time, it may be preferable to retain the tenant and consider other options to recover the rent.
Another consideration is that if you exercise your right of forfeiture, the tenant can apply to the court for relief from forfeiture. The court may well grant relief if the tenant settles the rent arrears, entitling them to take back possession. If, in the intervening period, you have re-let the property, you can find yourself on the wrong end of a claim for damages!
You should also remember that exercising your right to forfeiture may waive your right to other remedies available in the lease.
“Oliver’s breadth and depth of knowledge is exceptional, and I could not have wished for better service. I always felt assured that my matter was in the most capable of hands.”
Rent Deposit Drawdown
Did the tenant pay a rent deposit when you granted them the lease? If so, you may be able to use the deposit towards the rent arrears. But your ability to do this may depend upon the terms of the Rent Deposit Deed (if any).
This option may be appropriate if you are confident that:
- the tenant’s default is an isolated incident; and
- they must replenish the deposit under the terms of the Rent Deposit Deed.
Commercial Rent Arrears Recovery (CRAR)
In 2014, Commercial Rent Arrears Recovery (CRAR) replaced the historic remedy of distress. As a commercial landlord, CRAR allows you to engage an enforcement agent to seize the tenant’s goods. The goods are then sold to recover the debt.
Crucially, CRAR may only be used for purely commercial tenancies – not mixed use tenancies – and only for the principal rent. So, you cannot use it to recover service charges, insurance rent, or any other sum due under the lease. Also, the CRAR process is complex, with a requirement to serve various notices on the tenant (and any sub-tenants) as you proceed.
Court proceedings
Should you decide against forfeiture, you may opt to issue court proceedings to recover the unpaid rent and any other sums due. However, litigation takes time and, frankly, is of little use if the tenant does not have the means to satisfy a judgment. You may also fail to recover your legal costs, leaving you even more out of pocket.
Sometimes, a letter of claim from a solicitor threatening court proceedings can prompt a tenant to make a full or partial payment of the arrears or at least seek to negotiate a payment schedule. But, serving a Statutory Demand (see below) may be more effective.
Statutory Demand
Serving a statutory demand may be appropriate where the debt is undisputed. You serve the demand on the tenant, and if the debt remains unpaid after 21 days, you may then be entitled to present a winding up or bankruptcy petition.
Whilst this course of action has limitations and no guarantee of success, the threat of insolvency can often prove effective in obtaining payment.
Pursuing a guarantor or a former tenant
Sometimes, the tenant has a guarantor under the lease. If so, there’s likely a provision obliging the guarantor to pay any sums due should the tenant default. Equally, sometimes, a former tenant guarantees the lease obligations of the current tenant. In that case, you can pursue the former tenant for the sums due.
Payment Agreement
If you are confident that the default is a temporary problem and are otherwise keen to maintain the landlord/tenant relationship, negotiating a payment agreement may be the most appropriate way forward. The agreement should provide for its termination if the tenant defaults.
Remember that a payment agreement will likely compromise your ability to pursue other remedies as long as the tenant complies with its terms.
Commercial property rent arrears: call us
Recovering commercial property rent arrears can be far from straightforward, and choosing the wrong remedy can prove hugely problematic. Contact us on 01225 462871 to discuss your options.