A tenant is in default where they fail to make rent payments or fall behind with their payments. This can have a serious impact on the landlord who in turn may not be able to meet their mortgage payments. There are several remedies available to the landlord to rectify this situation, but the best course of action will depend on the individual circumstances. Here we discuss some of the options available.
Forfeiture
Where there is a valid forfeiture clause in the lease agreement, the landlord is given the right of forfeiture where a tenant fails to pay their rent. The landlord does not have to provide the tenant with a Section 146 Notice (which would usually give the tenant some time to fulfil their contract obligations) before commencing with the forfeiture remedies in cases where the tenant is in default of rent payments. The procedure is different depending on whether the property is of a commercial or residential nature.
For commercial properties, the landlord has two options:
- The landlord can peaceably re-enter the property, meaning that they enter the property (force is permissible) and change the locks. The landlord has to leave a physical notice at the property to say that the lease has been terminated from that date. This is a very cost-effective solution. However, the landlord must ensure that no person or property is remaining on the premises, since it is illegal for the landlord to enter and change the locks if there is someone present that objects to this. If the tenant has left items that are not fixed to the property then it may be the responsibility of the landlord to keep them safe until the tenant can reclaim them.
- The landlord can seek court proceedings for eviction.
For a residential lease, peaceable re-entry is not permissible unless it is evident that the tenant has left the premises and does not intend to return. This method is generally not recommended for residential properties since it can give rise to a claim for trespass from the tenant. In these cases, it is recommended that landlords use the courts.
This option can be a good route to take where there is a strong market, and the tenant is defaulting on payments or where the landlord wishes to regain possession of the property. However, in a weaker market where the property may remain vacant, the landlord may not find this option as appealing. A landlord also has to bear in mind that the courts can grant a tenant relief from forfeiture within 6 months of the forfeiture if the rent arrears have been settled. The Court can award relief, which reinstates the lease and allows the tenant to retake possession. The tenant can also be awarded damages. Where the tenant does not apply for relief, the landlord also has to consider how they will recover the outstanding debts since not all remedies will be available to them since the lease has been terminated. A landlord must also be careful not to waive their right to bring forfeiture proceedings for non-payment of rent by accepting a rent payment after a date that was agreed in the lease agreement.
Options for recovering the outstanding debt include:
- Using any rent deposit if this is allowed under the Rent Deposit Deed.
- Pursuing a claim against a guarantor (or former tenant where the lease has been assigned).
- Entering a payment agreement with the tenant.
- Serving a statutory demand on the tenant.
- For commercial leases, using Commercial Rent Arrears Recovery (CRAR) to recover the arrears of the principal rent.
Accelerated and Standard Possession Procedures
With an Assured Shorthold Tenancy, a landlord can use an accelerated procedure that allows them to evict tenants if they give them sufficient notice.
Landlords can also serve a Section 21 Notice under an Assured Shorthold Tenancy, which is an accelerated procedure and means that they can evict their tenants without giving reason so long as they have two months’ notice. The notice cannot be served until at least six months has passed since the start of the tenancy. The landlord must provide evidence that the notice has been served (generally it is better to get a solicitor to do this) and ensure that the notice does not include a claim for rent arrears, otherwise the notice is invalidated. Reclaiming outstanding monies must be done in a separate application. Tenants can only contest a Section 21 application where the landlord was not eligible to apply, or they were not served with the correct notice. Once the application is granted, the Court will give the tenant between two weeks and two months to leave the premises.
Where an accelerated procedure is not possible, then the landlord can follow the standard procedure. One possible route is serving a Section 8 Notice, which informs a tenant that the landlord intends to take them to court if payment is not made within 14 days. For this type of notice, the landlord is required to state a reason for them wishing to take possession of the property. Non-payment of rent is a valid reason, but landlords must ensure that their circumstances satisfy the criteria stated in the Housing Act 1988. If there are serious rent arrears (for example, at least 2 months' arrears where rent is due monthly) then the granting of a possession order by the Court is mandatory where the tenant does not vacate within the period specified in the notice. If there are persistent delays in rent payments and a Section 8 Notice is served, and the tenant does not vacate within that period then the granting of a possession order by the court is discretionary depending on the strength of the landlord’s case.
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Where a tenant is in default, and a landlord wishes to move quickly to minimise financial loss, it is paramount they have an understanding of the proper procedure to minimise the risk of them becoming vulnerable to claims from the tenant. A landlord is entitled to enforcement action where a tenant is in default of rent that is due, but they must ensure they follow the correct procedure. Where this is not done, the tenant could be reinstated and may even be able to bring damages against the landlord. This is a stressful situation for landlords, and the right approach is needed to avoid mounting costs in terms of lost rent and damages.
At Lewis Nedas, we provide a service that reflects the range and complexity of property law disputes. Our team of expert lawyers will be able to handle all aspects of property litigation, whether commercial or residential. We have successfully advised clients with highly complex and multi-faceted cases. If you have questions regarding property law, or are perhaps facing a dispute which you need help to deal with, please contact us on 020 7387 2032 orcomplete our online enquiry form.
