My commercial tenant isn’t paying their rent, what can I do?
With the economy stagnating, businesses struggling and constant uncertainty over interest rates and tax rises, it is not too surprising that commercial tenants are finding it tough. For a commercial landlord, however, whose business asset is their property, this creates more uncertainty. Too often recently I'm receiving the same sort of email or phone call - my tenant is in arrears, what can I do?
First and foremost, landlords don't tend to want to bring costly or unnecessary debt claims against their tenants if it can be avoided. They want to ensure that their tenants can support themselves, continue paying their rent and remain in the property. It is always best, therefore, to try and understand the issues and see if there is a way to reach a solution between the parties whereby a rent payment plan or even a rent concession can be put in place to avoid any legal action.
But what if this fails and the tenant can't pay or refuses to pay the rent?
There are various options available for landlords each with their own benefits.
- Can you pursue another party other than the tenant? Is there a guarantor, sub-tenant or a former tenant who has responsibility under an Authorised Guarantee Agreement?
- Statutory Demand. This is a quick and inexpensive way to recover unpaid rent. If a tenant fails to pay the arrears within 21 days, then a landlord can petition the court for a winding up order.
- Commercial Rent Arrears Recovery. This statutory route allows landlords to take control over tenant's possessions or goods to recover any arrears.
- Debt claim. Before commencing court proceedings, a Letter Before Action must be served on the tenant. This will set out the debt and any interest due. Sometimes the letter is a sufficient threat to prompt the tenant into paying or engaging with the landlord. If not, a claim can be submitted to the courts. If the claim is under £100,000 then a claim can be made online and the court fee (though payable upfront) is rolled into the wider debt.
- Rent deposit. If the landlord holds a deposit, this can be drawn upon to reduce the arrears, but this may not be sufficient to cover all the arrears if left too late.
- Forfeiture. Some might consider this the ‘nuclear option’, but if a tenant isn't paying their rent it might be better to get rid of them and find a new tenant who can pay. Forfeiture can be carried out either by peaceable re-entry or by court order. If carrying out peaceable re-entry, specific steps must be taken and relief from forfeiture might be available.
What is also important to remember is not to delay. Though it is still possible to raise a claim for unpaid rent for up to 6 years, if the tenant can't pay one quarter's rent the chances of them paying two or more becomes more and more unlikely. Furthermore, if a tenant falls into administration or a Company Voluntary Arrangement, certain options become unavailable.
Whatever arises, it is always best to act quickly and decisively and to take advice early.
