When a tenant is in arrears, you may wish to speak to the tenant to understand the reason why the rent has not been paid, and try and agree a plan in writing.
If the above is not an option you need to consider:
- Can you re- let the property?
- Your liability for business rates, insurance and security?
- The cost and do you have commercial legal expense insurance?
If you have reached a brick wall and the next payment date is looming you need to consider the next step. The options available will depend on your circumstances and each case is different.
Draw down on rent deposit to cover arrears
Rent Deposit Deeds often have restrictions that need checking. The tenant will be required to top up the deposit. If the tenant is unable to pay the rent and may be leaving the property there may be a dilapidations claim and therefore one option would be to save the rent deposit towards any dilapidations claim.
Recovery from guarantors, former tenants and subtenants
Check the lease and assignment documents. There are limitations on claiming rent and notices will need to be served.
Commercial Rent Arrears Recovery (CRAR), the old distress route.
You can instruct a certified bailiff to visit the tenant after the rent has been due for seven days. The bailiff takes control of the tenant’s goods and sells them to recover unpaid rent, which in this case is rent only. Even if the lease describes rent as including service charges and insurance only “rent “can be recovered.
Issuing proceedings to recover the arrears of rent in the court and obtaining a County Court Judgment (CCJ)
Court proceedings can be issued to recover rent arrears. Once a judgment is obtained it can be enforced. The tenant may have valuable property and a charge can be applied for, leading to sale of that property. The court system can be slow and if the tenant doesn’t have the money the arrears will increase and the tenant will still be in the property. You will still need to obtain possession.
Statutory Demand leading to a Bankruptcy Petition or Winding-Up Petitions
A Statutory Demand is a request for payment of an undisputed debt. If payment is not received within 21 days a Bankruptcy Petition (individual/s) or a Winding-Up Petition (company) can be issued. In the case of a Winding-Up Petition a Statutory Demand is not always necessary but is useful to use to show the landlord is serious.
If a tenant is declared bankrupt or wound up secured creditors take priority. Often a landlord is left with a very small payment.
Regaining possession of your (commercial only) property (Forfeiture)
There are two methods for you to regain possession of your property.
The first stage is always to check the Lease and see if it gives you the right to forfeit (end) the lease.
Court proceedings can be issued to recover rent arrears and/or seek possession. Once proceedings have been issued the court will set a date for the hearing and the tenant will have an opportunity to contest. The court decides if possession is granted but if the tenant pays the arrears the court may suspend making an order. Again this is not a quick option.
There must be a clause in the lease allowing you to take this action, if not you can be criminally liable and liable to the tenant for damages. A certified bailiff should be instructed to enter the property and change the locks. The tenant can apply to the court for relief from forfeiture (to have the lease that has ended by the bailiffs action reinstated) within six months from the date peaceable re-entry was obtained, but will need to pay the arrears and the landlords costs.
You should not alert the tenant to this action and you need to ensure you have not waived the right to forfeit, such as requesting rent after it is due, accepting a part payment, speaking to the tenant or negotiating.
If this route is available, it is quick and an effective method of obtaining back the property. If the tenant does not return you can take action for the arrears and dilapidations claim.
The court options and recovering arrears from others takes time. Any rent deposit will need replenishing. CRAR only covers pure rent. Often the most effective option is peaceably re-entering the property but advice should be sought before taking any action.
Each case depends on the circumstances. We are here to advise on the best solution. It is important you take advice promptly to ensure you protect your asset as quickly as possible.
Our experienced Property Litigation team regularly provide advice to landlords on a variety of property law related queries. If you would like to contact a member of the team, you can email us or call us on 01582 731161.