This article considers recovery of rent in a commercial context. This is very different to a residential context and separate advice should be sought in relation to residential scenarios.
The choice of remedy is something that you should be very careful to take legal advice in relation to, as choosing one option over another may limit your options in the future. It is important for the landlord to think through all of the options available and what it wants to ultimately achieve.
The following points should be considered:
- Are there any other breaches of the lease that also require remedy?
- Is this an isolated incident or are there persistent delays in paying the rent?
- Does the landlord want the property back or does it want to maintain the landlord and tenant relationship?
- How solvent is the tenant generally and will the remedy pursued push the tenant into an insolvency situation, which might inhibit the landlord’s recovery of money?
- How cost efficient is each remedy balanced against how long it will take to get payment of the arrears?
- Is there a third party who could be required to pay the arrears?
Forfeiture (also known as re-entry) is the landlord’s right to determine the lease where the tenant is in breach of any of its obligations under the lease, or on the occurrence of certain events specified in the lease, such as non-payment of rent.
If the landlord forfeits the lease, it should also have a clear plan as to how it will recover the debt if the tenant does not apply for relief from forfeiture. One of the other methods of recovery will have to be followed, and some may no longer be available once the lease has come to an end.
Pursue guarantor or former tenant
The landlord may be able to recover rent arrears and other sums due under the lease from any guarantors or former tenants under the lease by way of a contractual guarantee.
Court proceedings to recover debt
A landlord can issue court proceedings against the tenant to recover rent or other sums due under the lease. The process can be expensive and protracted. A court hearing may not be set for several months and the tenant may not feel any impetus to pay the arrears in this period.
Commercial Rent Arrears Recovery (CRAR)
Commercial rent arrears recovery (CRAR) is a method of enforcement for recovering rent arrears relating to commercial property. It came into force on 6 April 2014 and abolished the common law right to distress.
Where a landlord has the right to recover rent from its tenant under CRAR, the landlord also has a right to recover rent from an undertenant. This may be a useful option if the undertenant is better placed to pay than the head tenant.
Statutory demand and insolvency proceedings
Where the tenant has failed to pay rent or other sums due under the lease, the landlord may wish to consider commencing insolvency proceedings. Where there is no dispute as to the amount of the debt and it exceeds £750, the landlord can serve a statutory demand on the tenant.
A statutory demand must be satisfied within 21 days or the tenant can be faced with a bankruptcy or winding up petition. This can encourage the tenant to prioritise the rent arrears and pay quickly, as opposed to the threat of court proceedings. However, if there is any dispute as to the debt, the landlord could end up being liable for significant costs if the demand is successfully set aside.
Also, the costs of following up a Statutory Demand by actually issuing a winding up or bankruptcy petition are likely to be higher than the cost of court proceedings and may result in a lower level of rent recovery..
If the tenant needs time to pay the arrears, the landlord may want to consider entering into a payment agreement with the tenant, requiring the tenant to pay the arrears in specified installments. The payment agreement must be carefully drafted.
If the tenant is generally solvent and the arrears were an isolated incident, this may be a sensible way to proceed. However, it could also delay the inevitable of pursuing other methods of recovering the money and if not correctly drafted, compromise the right to pursue these arrears.
There are therefore several options open to Landlords in relation to recovering rent, however care should be taken to consider each one as none are without pitfalls. If you are in any doubt as to which would be most suitable, we would strongly suggest you contact us to discuss the matter further.
This article is for general information only and does not constitute specific advice. You should not rely on the information in this article. Fiona Bruce Solicitors recommends that you seek our specific advice if you wish to rely on the any part of this article. Whilst Fiona Bruce Solicitors makes every effort to ensure that the article is accurate, Fiona Bruce Solicitors excludes all liability for claim, loss, demands or damages of any kind whatsoever (whether such claims, loss, demands or damages were foreseeable, known or otherwise) arising out of or in connection with the use of this article or any other information contained on this website. Any information provided only applies to England and Wales.