It is frustrating having to deal with commercial rent arrears and these debts can be a drain on your valuable time and resources.
Whilst it is open to you to choose standard debt recovery methods to recover these arrears, there are usually other options available to commercial landlords to help recover their unpaid rent. Some methods are useful to recover the money quickly and others are helpful to resolve the issue for good and terminate the commercial lease.
The legal position on rent arrears is usually straightforward – the lease will contain covenants for the tenant to pay rent as specified in the lease and these will be breached if the payment dates are missed. Standard commercial leases usually limit any possible avenue for the tenant to withhold or deduct sums from the rent, even if they have a valid claim against the landlord. It is always prudent to provide your tenants with periodic statements of accounts so that they understand their liability and the amount of the arrears due.
Commercial Rent Arrears Recovery (“CRAR”) is a statutory method of enforcement which allows landlords of commercial premises to recover rent arrears by taking control of the tenant’s goods and selling them to discharge the debt.
This procedure only applies to annual rent. The landlord instructs an enforcement officer to serve notices on the tenant and then the agent attends the property to take control over the tenant’s fixtures, fittings, trade goods, stock and equipment. There are some restrictions on what the agent can take. The enforcement officer then asks the tenant to pay the arrears to release the goods. If they refuse, the agent then takes the goods away to sell at auction and offset the sale price against the rent arrears and their costs.
An advantage of the CRAR method is that you get a feel for whether the tenant has cash to spare and is willing to pay to keep any equipment. The process is fairly low cost.
The downside is that it is unlikely that the tenant will have goods of a sufficient value to cover the total arrears and you may have to take other action regardless. The process cannot be used in conjunction with forfeiture for rent.
A rent deposit is a deed that is entered into at the outset of a matter. This allows you to hold an agreed sum as security for any breach of the lease.
You will be entitled to withdraw such proportion of the deposit as required to make good any breach by the tenant. This can be a quick and easy way of settling any rent arrears and the provisions usually require the tenant to top up the deposit if a deduction is made.
If the deposit has been utilised and hasn’t been topped up, then other avenues will need to be considered in regard future breaches.
If it was agreed that there should be a guarantor to the lease at the outset of a matter, the provisions of the lease should allow you to pursue the guarantor separately from the tenant if there is a breach of the lease. The terms will dictate exactly the guarantor’s liability and set out the procedure that needs to be followed.
If the original tenant assigned the lease to a new tenant, it can sometimes be possible to pursue the former tenant in the event of a breach under an authorised guarantee agreement.
This method can be particularly useful if the tenant company is struggling and the guarantors have personal assets worth pursuing.
Forfeiture entitles a landlord to terminate a lease in the event of non-payment of rent. This is a contractual remedy and the provisions of the lease will explain when you will be able to take back the property in the event of a breach.
A landlord’s right to forfeit can be waived if the landlord continues to treat the lease as ongoing. Demanding rent, chasing rent, accepting rent or writing to the tenant referring to a continuing lease are the most common waiver events. If you decide to proceed with forfeiture, it is important that you consider whether or not to make further contact with the tenant.
Non-payment of rent is a ‘once and for all breach’ and as soon as a waiver event occurs the right to forfeit for that specific breach is lost forever. You may need to wait many months before getting another opportunity, so it is important that you take urgent legal advice if you wish to utilise this right.
A notice pursuant to section 146 of the Law of Property Act 1925 (a notice giving prior warning of forfeiture) is not required where the breach relates to non-payment of rent.
Forfeiture can take place by peaceable re-entry or by Court Proceedings.
Peaceable re-entry – this usually involves the landlord entering in the property when no one is in occupation and changing the locks. Usually, you would instruct bailiffs to help you with the process of taking back possession. Whilst peaceable re-entry can seem the obvious quick remedy there can be hidden fees involved and can bring about a lot of complex side issues. There is also the risk that the court could deem the forfeiture event to be unlawful and order you to pay damages. Peaceable re-entry should not be used in cases of occupied residential premises, as a criminal offence may be committed by wrongful re-entry. Anyone thinking of forfeiting a lease by taking back possession should always take legal advice.
Court – If you require more certainty and less risk, landlords can apply to the Court for an order for possession by way of forfeiture. This would involve court proceedings being issued and served on the tenant seeking possession. Unless the tenant has a valid defence or make a successful application for relief, the Court will award possession. You can also seek an order (like a County Court Judgment CCJ) that the tenant pays all historic arrears and your costs. This would be a more expensive option compared to re-entry, but can sometimes be the more appropriate route.
Whatever method of forfeiture is used, the tenant or any undertenants will have a reasonable time (usually around 6 to 12 months from the date of forfeiture) to apply to the Court to request relief from forfeiture. This means that the tenant or undertenant applies to the Court asking to be let back into occupation under the terms of the forfeited lease.
However, the Court has a discretion in this regard and will only usually grant relief if the tenant agrees to pay all arrears and all costs associated with the forfeiture and agree to remedy all the breaches.
If you take back possession with peaceable re-entry, usually the tenant is forced to quickly decide either to make an immediate application to save its lease at the property or accept the forfeiture and move on.
If your tenant is in breach of its lease or if you need any advice on commercial rent arrears, please contact a number of our property disputes team or call 02920 829 100 for a free initial chat to see how we can help you.
To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.
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