It can be very stressful for landlords when tenants default on payment and can cause financial difficulties. There are various remedies however that are available to the landlord in this situation, and here we discuss the routes that can be taken. This can be a complicated area of law and it is advisable to make sure you seek specialist legal advice on the best options in your circumstances.
Commercial Rent Arrears Recovery (CRAR)
CRAR is a relatively new remedy that came into force in April 2014. It replaced the historical common law remedy of distress/distraint. The previous remedy allowed the landlord to seize the tenant's goods that are in the premises in order to sell them to cover the outstanding rent and usually this was done without the need for the consent of the court. Distress did not end the lease and was a speedy remedy since a bailiff could be instructed within 24 hours of rent becoming overdue without the need for notice. The goods were held for five days and then sold if the arrears were not settled. Under the new regime, landlords can only recover arrears in relation to the principal rent and not in relation to service charges or insurance non-payment. There have to be at least seven days of non-payment at least and then seven days’ notice before seizure can take place. The landlord also has to give notice of at least seven days before selling any goods seized to allow them to make payment. This remedy only applies to premises that are wholly commercial.
Forfeiture
With commercial leases, the landlord usually has a right of re-entry known as forfeiture where a tenant defaults on the rent. This remedy allows the landlord to regain possession of their property and will be appealing to landlords who are concerned that their tenant is not going to pay their rental obligations or has already got a history of defaulting. However, this is generally more appealing in a boom market where the landlord is likely to find a new tenant quickly. In times of recession where the landlord is less likely to find new tenants for some time this route may not be the best option, particularly since the landlord will also have to cover the utility bills. Where a landlord chooses to follow this route, then the tenant can apply to the court for relief from the forfeiture. This may be successful if the tenant pays the outstanding arrears and means the tenant can go back into the property. This can be an issue in situations where the landlord has new tenants, and the tenant can bring a claim in damages. Following this route can also result in the landlord being prevented from using other options that may have been available.
Court proceedings
Where the landlord does not want to pursue forfeiture, another option is to instigate court proceedings. Court proceedings can be used to recover outstanding rent arrears as well as any other amounts that are outstanding. This is a lengthy procedure and does not necessarily result in a successful outcome since if the tenant cannot afford to pay. However, the threat of court action can prompt a tenant to discuss payment options.
Serving statutory demand
If there is no dispute as to the outstanding amounts, then the landlord can serve a statutory demand on the tenant. If payment is not forthcoming within 21 days, then the landlord can initiate insolvency proceedings against the tenant where the debt remains unpaid. There are various restrictions concerning this option that need to be considered, but in the same way as the court proceedings option, the threat of insolvency can be very effective at making a tenant settle their debts.
Guarantors
Any lease that has a guarantor generally has a clause allowing the landlord to recover any outstanding debts of the tenant from the guarantor. Or if the current tenant had their obligations guaranteed by a former tenant, then the landlord can pursue a claim against the former tenant. It is necessary to make sure that any lease correctly covers these scenarios to protect the rights of the landlord if any issues arise.
Rent deposits
Where the tenant has paid a rent deposit at the commencement of the lease, the landlord may be able to use this to claim back outstanding rent payments where the tenant defaults. There may be certain restrictions that apply to this option, and these will be covered in the Rent Deposit Deed. This option is generally more appropriate for isolated incidents of defaulting on the rent rather than where there are repeat offences.
Payment agreements
Even if there is an issue with rent payments, this does not always mean that the parties will wish for the lease to be terminated. Especially where the non-payment is a one-off issue that has arisen from a temporary issue, the landlord may not feel the need to follow the above scenarios. Here, a payment agreement can be put in place that will determine a schedule as to how the debt will be paid off in instalments. Usually, a clause will be included in this agreement that if the tenant defaults again on payment, the agreement will be terminated. Again, landlords do need to take advice on whether this is the best option in their circumstances since once they have such an agreement in place, it may prevent them from using other options providing that the tenant complies with the agreement.
Contact our Property Litigation Lawyers, London
Where a tenant falls into arrears, and a landlord wishes to move quickly to minimise financial loss, it is paramount they have an understanding of the proper procedure, to avoid leaving themselves vulnerable to claims from a tenant. Likewise, to prevent a rent review dispute, it is advisable for a landlord and tenant to adhere to procedures in accordance with their lease agreement.
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 today on 020 7378 2032 or complete our online enquiry form.
Commercial Rent Arrears Recovery (CRAR)
CRAR is a relatively new remedy that came into force in April 2014. It replaced the historical common law remedy of distress/distraint. The previous remedy allowed the landlord to seize the tenant's goods that are in the premises in order to sell them to cover the outstanding rent and usually this was done without the need for the consent of the court. Distress did not end the lease and was a speedy remedy since a bailiff could be instructed within 24 hours of rent becoming overdue without the need for notice. The goods were held for five days and then sold if the arrears were not settled. Under the new regime, landlords can only recover arrears in relation to the principal rent and not in relation to service charges or insurance non-payment. There have to be at least seven days of non-payment at least and then seven days’ notice before seizure can take place. The landlord also has to give notice of at least seven days before selling any goods seized to allow them to make payment. This remedy only applies to premises that are wholly commercial.
Forfeiture
With commercial leases, the landlord usually has a right of re-entry known as forfeiture where a tenant defaults on the rent. This remedy allows the landlord to regain possession of their property and will be appealing to landlords who are concerned that their tenant is not going to pay their rental obligations or has already got a history of defaulting. However, this is generally more appealing in a boom market where the landlord is likely to find a new tenant quickly. In times of recession where the landlord is less likely to find new tenants for some time this route may not be the best option, particularly since the landlord will also have to cover the utility bills. Where a landlord chooses to follow this route, then the tenant can apply to the court for relief from the forfeiture. This may be successful if the tenant pays the outstanding arrears and means the tenant can go back into the property. This can be an issue in situations where the landlord has new tenants, and the tenant can bring a claim in damages. Following this route can also result in the landlord being prevented from using other options that may have been available.
Court proceedings
Where the landlord does not want to pursue forfeiture, another option is to instigate court proceedings. Court proceedings can be used to recover outstanding rent arrears as well as any other amounts that are outstanding. This is a lengthy procedure and does not necessarily result in a successful outcome since if the tenant cannot afford to pay. However, the threat of court action can prompt a tenant to discuss payment options.
Serving statutory demand
If there is no dispute as to the outstanding amounts, then the landlord can serve a statutory demand on the tenant. If payment is not forthcoming within 21 days, then the landlord can initiate insolvency proceedings against the tenant where the debt remains unpaid. There are various restrictions concerning this option that need to be considered, but in the same way as the court proceedings option, the threat of insolvency can be very effective at making a tenant settle their debts.
Guarantors
Any lease that has a guarantor generally has a clause allowing the landlord to recover any outstanding debts of the tenant from the guarantor. Or if the current tenant had their obligations guaranteed by a former tenant, then the landlord can pursue a claim against the former tenant. It is necessary to make sure that any lease correctly covers these scenarios to protect the rights of the landlord if any issues arise.
Rent deposits
Where the tenant has paid a rent deposit at the commencement of the lease, the landlord may be able to use this to claim back outstanding rent payments where the tenant defaults. There may be certain restrictions that apply to this option, and these will be covered in the Rent Deposit Deed. This option is generally more appropriate for isolated incidents of defaulting on the rent rather than where there are repeat offences.
Payment agreements
Even if there is an issue with rent payments, this does not always mean that the parties will wish for the lease to be terminated. Especially where the non-payment is a one-off issue that has arisen from a temporary issue, the landlord may not feel the need to follow the above scenarios. Here, a payment agreement can be put in place that will determine a schedule as to how the debt will be paid off in instalments. Usually, a clause will be included in this agreement that if the tenant defaults again on payment, the agreement will be terminated. Again, landlords do need to take advice on whether this is the best option in their circumstances since once they have such an agreement in place, it may prevent them from using other options providing that the tenant complies with the agreement.
Contact our Property Litigation Lawyers, London
Where a tenant falls into arrears, and a landlord wishes to move quickly to minimise financial loss, it is paramount they have an understanding of the proper procedure, to avoid leaving themselves vulnerable to claims from a tenant. Likewise, to prevent a rent review dispute, it is advisable for a landlord and tenant to adhere to procedures in accordance with their lease agreement.
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 today on 020 7378 2032 or complete our online enquiry form.
