Commercial Landlords remedies for non-payment of rent

In the current economic climate with the credit crunch there is an expectation that there will be an increasing number of Tenants becoming insolvent in the near future. Many Tenants will fall behind with their rent. What can a commercial Landlord do in that event?

Distress

At the present time, the Landlord can still seize goods which belong to the Tenant to pay the debt and can do so without the need to go to Court.  However, this ancient right is being radically altered by the Tribunals, Courts and Enforcement Act 2007 which will come into force later this year, when a new remedy known as commercial rent arrears recovery will become available.  Furthermore it is often the case that the contents of the rented unit do not belong to the Tenant as they may be leased or subject to retention of title clauses in favour of the suppliers.  Even if the assets do belong to the Tenant they may not be sufficiently valuable to cover the debt.

Forfeiture

Forfeiture involves bringing the lease to an end.  If the current Tenant has paid a premium for the Lease then the Tenant would be very reluctant to lose that money.  The Tenant is therefore likely to apply to the Court for relief against forfeiture but in deciding whether to grant that relief the Court would also require any arrears to be paid and the Landlords cost of the action to also be paid by the Tenant.  If the only breach of the Lease is the arrears of rent then it is not necessary to apply to the Court for forfeiture and forfeiture can simply be effected by peaceable re-entry i.e. changing the locks at a time when there is no-one on the premises and re-entering the premises (although this too will be changed when the Act referred to above comes in to force).  It is, however, a criminal offence to re-enter a residential property.  For any breach of the Lease other than rent, Court proceedings would be necessary and such proceedings can be expensive and drawn out.

Rent deposit

It is very common for a Landlord, in granting a Lease or agreeing to its transfer to require the (incoming) Tenant to deposit a sum of money as a rent deposit.  If that is the case then the Landlord can take the arrears from that money and furthermore there is typically an obligation on the current Tenant to top up the rent deposit once payments have been taken from it.

Guarantors

It is also common when a Landlord grants or agrees to the assignment of a commercial Lease to require a third party to guarentee the obligations of the Tenant or Assignee.  The guarator may be a former Tenant e.g. the Tenant selling the Lease who would be liable under an Authorised Guarantee Agreement, or a Director of a Company Tenant.  Where the former Tenants are liable it is essential to serve a default notice on them within a specific time period.  Anyone who is liable under an Authorised Guarantee Agreement and is required to pay the arrears is entitled to call for a Lease himself.

Sue the Tenant for the rent

If the reason the Tenant has not paid the rent is because they are in financial difficulties then it may not be worth suing them.  However, if the Tenant has substantial assets e.g. a house with equity then it could be worth suing the Tenant as you would be able to enforce the Judgement against such security.

We are very experienced in dealing with arrears of rent and please contact Ben Kerley or the solicitor you normally deal with here should you require our services.