The recent spate of headline grabbing articles would have us all believe that if a commercial tenant is in arrears of rent there is nothing you can do until 22 March 2022.
This is wrong.
So, let’s look behind the headlines and figure out what steps you can take. There are a number of solutions if your aim is limited to recovery of rent arrears. If your aim is to obtain possession, I shall also set out a strategy which may be available to you which does not fall foul of the current restrictions.
Solutions to commercial rent arrears
- If you have a Rent Deposit, you can draw down on that deposit. You do not need permission from the tenant but there is likely to be a procedure to follow set out in your Rent Deposit Deed.
- Consider if there is a third party on the hook. Is there a former guarantor or a former tenant who has assigned the lease but remains liable? On this point, act quickly. If you want to pursue a former tenant or former guarantor you must serve a section 17 Notice under The Landlord and Tenant (Covenants) Act 1995. However, any arrears that are older than 6 months cannot be pursued by way of a section 17 Notice although you can serve successive Notices to overcome this.
- You can issue court proceedings and obtain a judgement for the arrears. Whilst there remain restrictions on the recovery of a Judgment debt, the tenant may not want a judgment against it which may subsequently affect its ability to obtain credit thus encouraging the tenant to prioritise the rent to you.
- As at the date of writing, where the arrears exceed an amount equivalent to 554 days’ rent you can use Commercial Rent Arrears Recovery (CRAR). CRAR is a method of enforcement whereby the landlord recovers arrears from tenants by seizing and selling their assets without going to court. Advance warning must be given and it is best left to the experts. There are many bailiffs out there willing to help and advise if CRAR can be used.
- Another enforcement method still open to landlords is to serve a Statutory Demand requiring payment within 21 days failing which you may be able to take steps to make them bankrupt or to up the wind the company. Given the present restrictions in place on the right to present debt-related winding-up petitions where a company cannot pay their rent because of the impact of Covid19, this is not likely to be a very favourable option.
- Finally, and this is perhaps the most costs effective option, if you have a tenant who is genuinely in trouble in consequence of the restrictions on its ability to trade arising from the various lockdowns, but otherwise you think has a viable business, talk. Talk and try to agree a payment plan. Currently, you cannot evict the tenant based on arrears of rent due to Covid19 so trying to agree something is better than nothing.
An alternative strategy if your aim is to obtain possession.
Current legislation prohibits the landlord from forfeiting a lease because of unpaid rent (and there is a wide definition of rent under the legislation so for ‘rent’ read ‘any money due under the lease’). However, where you have a tenant who has difficulty meeting their financial obligations under the lease there is reasonable possibility that they are also failing to meet their repairing or decorating obligations.
If you think your tenant falls into this category, check your lease. If you have a right to enter to inspect the condition, then do so. If the property is in disrepair, you can serve the requisite Notice Before Forfeiture (section 146 Notice under The Landlord and Tenant Act 1925) giving the tenant a reasonable period to do the repairs required under the lease.
If your Notice is valid and the tenant fails to do the repairs within the timescale then you can forfeit the lease and, in most cases, you may be able to do that by peaceable re-entry rather than having to obtain a court order. There are a few pitfalls to be aware of if you adopt this method so take advice and get your ducks in order. This procedure could well save you thousands if you are confident that you can relet your property to someone who can pay their rent.
If you need help with any of the above issues, then get in touch.
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