Our team has considerable expertise in advising and representing clients on all aspects of commercial rent arrears, including re-entry, CRAR, rent deposits, guarantors, and sub-tenants.
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Most commercial landlords will at some time have to deal with commercial rent arrears. How you approach this situation will depend on several factors.
Forfeiture of a lease
Forfeiture – often referred to as “re-entry” – is the right of a landlord to bring a lease to an end if a tenant has breached any lease covenants. That includes non-payment of rent.
Commercial leases often provide a right of re-entry on the satisfaction of certain provisions. If nobody is occupying the premises, peaceable re-entry for rent arrears is possible. In this situation, the landlord will re-enter and change the locks. In practice, most will employ the services of a certified bailiff who will attend with a locksmith. The bailiff will attach notices to the premises to inform the tenant that the lease has ended.
It is important to remember that forfeiture ends the lease, so the tenant will no longer be liable for future payments of rent. A landlord will therefore need to consider whether, commercially, forfeiture is the best remedy for them.
“I am thrilled to inform you that I received the money by the deadline. May I convey my very many thanks for everything you have all done to bring this unfortunate situation to a close.” AS
Commercial Rent Arrears Recovery (CRAR)
A change in the law in 2014 introduced Commercial Rent Arrears Recovery (CRAR). CRAR allows a landlord to recover overdue rent without needing a court order if certain conditions are satisfied. Instead, the landlord instructs an enforcement agent to take control of a tenant’s goods and sell them at a public auction. The proceeds are set off against the outstanding rent.
The threat of removal of items essential to a tenant’s business may be a significant incentive for the tenant to pay the rent arrears. However, there is a risk that the required period of advance notice provides a tenant with an opportunity to remove valuable goods from the premises.
Another consideration for landlords is that by using the CRAR procedure, the landlord waives the right to forfeit the lease.
Drawing down on a rent deposit
Landlords may be able to draw down from a tenant’s rent deposit to recover rent arrears or other sums due under the lease. The landlord must provide notice of their intention to do this, and the tenant must replenish the funds in the rent deposit account.
In practice, this option may only provide a short-term solution. If the tenant is in financial difficulties, it is unlikely they will replenish the funds in the rent deposit account.
Landlord pursuing a sub-tenant directly
If a tenant has sub-let the premises, a landlord can serve a notice on the sub-tenant requiring them to pay the rent it owes directly to the landlord rather than the tenant. The notice to the sub-tenant must set out:
- the amount of rent the landlord is entitled to recover from the tenant; and
- confirm that the sub-tenant must pay its rent directly to the landlord until the tenant’s rent arrears are paid.
“Thank you again…your guidance and advice has been superb and I think we fought a good fight! I will have no hesitation whatsoever, in recommending you to anyone I know who would need your services.” DL
Pursuing a tenant’s guarantor or previous tenant
Sometimes a third party will have agreed to act as a guarantor for the tenant, either at the start of the lease or on an assignment. If the tenant breaches its covenants under the lease, including arrears of rent, the landlord has the right to pursue the guarantor. This would involve the landlord issuing court proceedings to enforce those obligations.
Serving a statutory demand
A landlord can always serve a statutory demand on a tenant. If the tenant is a company, the amount owed must be more than £750, or more than £5,000 if the tenant is an individual. The tenant then has three weeks to make payment, failing which the landlord can issue a winding-up petition for the tenant’s business or for personal bankruptcy.
Issuing court proceedings on a tenant
This option would be suitable if there is a dispute over the sums owed, which is rare in the case of rent arrears.
In deciding the most appropriate method of recovering commercial rent arrears, there will inevitably be a host of legal, practical and commercial considerations. The risk of using an inappropriate method of recovery and/or failure to comply fully with the necessary procedure means that it is always advisable for a landlord to seek legal advice before taking any action.