What can you do if your commercial tenant stops paying their rent?

A landlord has a number of remedies available to it if a tenant stops paying their rent. It is important that as a landlord you choose your remedy wisely because it may not be possible to back track and select a different route once you have embarked on a course of action.

Option 1: Forfeiture

A well drafted commercial lease will include a right of re-entry, or a right to end the lease, if rent is unpaid for a certain number of days. The right can be exercised by court proceedings or by simply re-entering the property by ‘peaceable re-entry’.

Peaceable re-entry is quick and effective and provided that there is no possibility of it being challenged, for example by the landlord having waived its rights, then it is invariably the preferred method of re-entry. Waiver of the right to forfeit occurs when the landlord, with knowledge of the tenant’s breach, performs an unequivocal act that recognises the lease as continuing such as by sending out a rent demand.

The landlord will need to be confident that they can re let quickly as they do not want to end up with an empty property and the prospect of business rates further down the road. If the property is likely to remain empty for some time or it is unlikely that they will be able to re let on similar letting terms, the landlord may prefer to keep the existing tenancy in place and pursue alternative remedies.

Option 2: Rent Deposits

If the landlord has a Rent deposit Deed then he may wish to consider a draw down from a rent deposit to recover rent arrears or other sums due under the lease. However, bear in mind that this may waive the right to forfeit for that month or quarter and so the Deed will need to be considered carefully first.

Option 3: Commercial Rent Arrears Recovery or CRAR

CRAR is a statutory procedure which allows landlords of commercial premises to recover rent arrears by taking control of the tenant’s goods and selling them.

A landlord must provide 7 clear days’ notice of enforcement. Once this period has expired a certificated enforcement agents can enter the property in order to seize goods. Often the threat of this procedure will elicit payment but if it does not and goods are taken and sold it may mean that no viable business is left behind which may make future trading impossible.

Option 4: Bringing a Court claim against the Tenant or Guarantor

The landlord may wish to issue proceedings to recover the debt from the Tenant and/or a Guarantor. A judgment may be obtained reasonably quickly if there is no defence to the claim and that judgment can be enforced against other assets belonging to the debtor. Again this route will waive a right to forfeit.

Option 5: Serving a Statutory Demand or threatening a winding up Petition.

Often the threat of insolvency proceedings may be enough to encourage the tenant to prioritise the rent arrears and pay quickly and so it can be very effective!

If you want to discuss any of these options please contact Johanne Spittle, Director – Litigation & Dispute Resolution or Akeel Hussain Litigation Solicitor at Ware & Kay on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247  email johanne.spittle@warekay.co.uk or akeel.hussain@warekay.co.uk.